The deterioration in wealth equality revealed in Tuesday’s HILDA survey should be seen as a crossroads in Australian history – either we continue down the road to inequality, or we fix the problem at its heart.

The highly respected survey showed a property-based class divide emerging due to plummeting home ownership rates in the under-40s.

That means a generation of renters will not accumulate wealth through the family home as their parents did.

That would not be a problem for ‘Generation Rent’ if, after a lifetime of renting, they could still afford a dignified retirement.

But unlike nations such as Germany and France, where renting is the norm, Australia has a welfare and retirement system still predicated on the idea of home ownership.

That’s a huge problem, because on present settings, couples or individuals who have not paid off homes by retirement will be much worse off than those who have.

A financial black hole

At present, a single retiree would struggle in most capital cities to rent a decent dwelling for less than about $250 per week.

That can be partially offset by rent assistance, up to a maximum of $66 a week for single, but clearly the balance of the rent will eat into their food, energy, travel and medical budgets.

And there is no point saying “well they should have worked harder to get onto the property ladder”. What we’re seeing emerge is a structural problem.

As I explain here, access to property ownership is no longer simply determined by hard work and enterprise – increasingly it is determined by the ‘bank of Mum and Dad’ helping the younger generation with a deposit.

A nation that once encouraged its young adults to be economically independent has, through cynical wealth-redistributing policies, forced them back into being dependent on their asset-rich parents – if, that is, they are lucky enough to have them.

Which way to turn?

So the crossroads we find ourselves at presents limited options.

Straight ahead lies growing wealth inequality. Behind us is the pre-housing bubble era, to which we cannot return.

And that leaves only two ways to fix the problem of property-based inequality in retirement.

Access to property ownership is increasingly being determined by the ‘bank of Mum and Dad’. Photo: Getty

The best approach is to remove the two tax incentives that actually pay investors to outbid would-be home owners.

The great myth about Australian house prices is that they they have been pumped up by a shortage of housing supply.

In fact, it is the availability of credit, and the twin tax incentives of negative gearing and the capital gains tax discount, that have diverted hundreds of billions of investment dollars into the housing market since 1999 – the year the capital gains tax discount began to multiply the effects of negative gearing.

Curtailing those unjustified tax breaks would solve the problem, though the best policy offering we have at present is a plan from Labor to scale them back by about half.

Meanwhile the Coalition refuses even to acknowledge that the distortions it put in place in 1999 are the problem.

Tax and spend?

There is another solution, though one that is less than ideal.

If, as seems likely, we are never able to remove these economy-damaging tax breaks altogether for political reasons, then attention must turn to rewarding hard-working members of ‘Generation Rent’ with a dignified retirement.

That would meaning raising tax revenue to fund better rent assistance in old age.

And yes, that would be the absurd result of an even more absurd policy history.

A supposedly pro-free-market government – the Howard government – introduced a tax-payer funded distortion to the housing market in 1999.

The growing inequality that caused was mostly ignored during the GFC-inspired chaos of the Rudd and Gillard governments (not, I hasten to add, by this columnist).

And now that the effects of the policy are clear as day, the only option seems to be yet more government intervention – heavy rental subsidies to allow retirees to live in homes that, in an undistorted market, they’d have been able to buy in the first place.