Inheritances reduce inequality: new report

For many, inheritances are symbolic of an ever-increasing wealth gap that sees the rich get richer and the poor get poorer, but new research shows they may actually be reducing inequality.

The amount of wealth transferred through inheritances and gifts in Australia has more than doubled since 2002, with $1.5 trillion changing hands, the federal government’s Productivity Commission has found.

Its report, the first comprehensive look at wealth transfers in Australia, predicts that could increase four-fold between now and 2050, as household wealth grows and the population ages.

But Productivity Commissioner Catherine de Fontenay says inheritances are reducing some measures of relative wealth inequality across the country.

“Wealthier people receive more inheritances and gifts on a dollar-for-dollar basis but less as a percentage of their existing wealth,” she said.

“When measured against the amount of wealth they already own, those with less wealth get a much bigger boost from inheritances on average, about 50 times larger for the poorest 20 per cent than the wealthiest 20 per cent.”

That tends to reduce the share of wealth held by the richest Australians, a trend that is likely to continue.

“This might be a surprise to some, but it’s been found in every other country that’s been studied,” Ms de Fontenay said.

Children tend to enjoy a similar relative wealth position to that of their parents, the report found, but only about a third of intergenerational wealth persistence is due to inherited wealth.

“The rest comes from all the other things parents give to their children - education, networks, values and other opportunities,” Productivity Commissioner Lisa Gropp said.

Asset price growth - particularly for housing - has a far bigger impact on wealth inequality, the report found.