Surge in wealth transfers: Australians giving away billions

Australians have given away more than $1.5 trillion in the past 20 years and could be on track to hand over another $6 trillion in the coming three decades.

In the first in-depth study of wealth transfers and their effect on the economy, the Productivity Commission has found $120 billion was transferred in gifts and inheritances in 2018, significantly more than the $80 billion the Australian government spent on health that year. The money was mostly given to family and friends.

The commission’s research paper, to be published on Tuesday, shows the amount given away in 2018 was double that of 2002, when $60 billion was transferred, with 90 per cent of the money bequeathed.

The commission’s team of economists expects the sums to grow nearly fourfold by 2050 as increasing household wealth continues to swell through by Australia’s runaway housing prices and maturing superannuation balances, increasing the pool of money and assets to be given away.

With the wealth of Australia’s households estimated at up to $10.4 trillion, transfers are emerging as a significant money flow. But until now, there has been little research in the country on the economics of giving money away.

In an unexpected finding, the report shows inheritances don’t make a significant difference to the children of the rich, who tend to be well-off by the time they lose their parents, having benefited from the much more effective drivers of economic superiority provided by wealthy families: education, networks, know-how and opportunities.

By contrast, even a small inheritance makes a big difference to the wealth of a low-income Australian.

The commission reports that bequests in the poor and middle-income families have most power to change lives for the better, with the poorest Australians getting a wealth boost from their inheritance worth 50 times – in relative terms – the improvement of fortunes enjoyed by wealthy inheritors.

This small but significant improvement in relative wealth inequality through gifts and bequests has been recorded by researchers in Britain, France, Germany, Italy, Spain and the United States, the Productivity Commission team said.