Aus Wealth Gap on the Rise

Income inequality in Australia is higher than the OECD average with a person in the top 20 per cent income group earning around five times as much income as someone in the bottom 20 per cent, a new report has found.

The Australian Council of Social Service (ACOSS) released its new analysis on the wage gap,  ‘Inequality in Australia: A nation divided’, claiming that inequality was heading in the wrong direction.

“It should be a concern to us all that despite more than 20 years of unparalleled economic growth, we have allowed complacency to blind us to the need to ensure the benefits of growth and prosperity are shared by everyone,” ACOSS CEO Cassandra Goldie said.

“Our findings show that income and wealth are increasingly unequally distributed. For instance, a person in the top 20 per cent income group receives around five times as much income as a person in the bottom 20 per cent.

“Wealth is much more unequally distributed with a person in the top 20 per cent having a staggering 70 times as much wealth as a person in the bottom 20 per cent.”

The report found that over the last 20 years the share of income going to those at the top has risen, while the share flowing to those in the middle and at the bottom has declined.

“The same is true for wealth, with the bottom and middle losing ground to those at the top. The wealth of the top 20 per cent wealth group increased by 28 per cent over the period from 2004 to 2012, while by comparison the wealth of the bottom increased by just three per cent,” Goldie said.

“Strong employment growth over the past 17 years helped to reduce inequality, however wages growth was very unequal over the period and acted to increase inequality.”

Goldie said tax concessions for wealthy Australians was also contributing to the growing wealth gap.

“Another factor tilting the scale towards greater inequality is the increased concentration of wealth in areas where generous tax concessions afford the highest benefits to people on the highest incomes – such as real estate, shares and superannuation,” she said.

“The inconsistent tax treatment of these kinds of savings are distorting the fairness of our tax system, with flow on implications for economic growth as well as the distribution of wealth. We found that top 20 per cent of the wealth distribution owns over 80 per cent of wealth in shares and investment real estate and over 60 per cent of superannuation.”

“The inconsistent tax treatment of these kinds of savings are distorting the fairness of our tax system, with flow on implications for economic growth as well as the distribution of wealth. We found that top 20 per cent of the wealth distribution owns over 80 per cent of wealth in shares and investment real estate and over 60 per cent of superannuation.”

But the report found that Australia was faring better than countries like the United States or United Kingdom.

“The good news is that inequality is not as extreme in Australia as in the US or UK. This is in large part because of the effectiveness of our institutions – particularly our progressive and highly targeted tax and transfer systems, and our system of minimum wages that prevents the wages of low income working households falling to the same extent as in the US,” Goldie said.

“Yet we’ve allowed cracks to appear. For instance, while Australia’s personal income tax system is relatively progressive, when combined with indirect taxes such as the GST and other consumption taxes, the amount of tax paid per dollar becomes less progressive than the income tax brackets would imply.

“International institutions such as the International Monetary Fund, the World Bank and the OECD, have all warned nations of the dangers of rising inequality. If left unchecked it risks splintering our social fabric and entrenching social, economic and spatial divisions in our community. We know from overseas that excessive inequality reduces equality of opportunity, stifles upward mobility between generations, increases social tensions, harms our economy, and reduces economic growth.”

Goldie used the findings of the report to urge the Government to make addressing growing inequality a top policy priority.

“Inequality should not be seen as inevitable. It is a question of choice by governments. Fortunately the policy solutions are within our grasp. This includes ensuring every individual and organisation pays their fair share of tax, including by reforming tax breaks that are currently skewed in favour of people on higher incomes, and strengthening our social safety net. Our minimum wage system should be protected,” she said.

“Crucially, reducing inequality will require us to redouble efforts to stem the tide of rising unemployment and improve the adequacy of payments for people who are unemployed. By removing the current barriers preventing some people from participating and sharing in our nation's wealth, we can change the current trajectory.

“In a country as wealthy as ours, all citizens should be included and able to realise their potential. In this way we could proudly pursue a fairer, more inclusive society, to advance the common good.”