Australia's growing wealth divide

The Australia Institute (TAI) has today released a new report which looks at growing wealth inequality in Australia, which it argues is likely to get worse if the Abbott Government’s Budget measures are implemented:

While income distribution is unequal, the distribution of wealth is even more so. The top 20 per cent of people have five times more income than the bottom 20 per cent, and hold 71 times more wealth. Perhaps the gap between those with the most and those with the least is most starkly highlighted by the fact that the richest seven individuals in Australia hold more wealth than 1.73 million households in the bottom 20 per cent.

…the tax-and-transfer system has the capacity to redistribute income effectively to reduce inequality. The figure below illustrates how existing policies boost the incomes of those with the least, while only slightly reducing the incomes of the wealthy. This redistribution has always been the objective of Australia’s progressive tax system.

Despite consistent public support for reducing inequality, the government is currently seeking to reduce income support. In fact, in recent months the Abbott government has begun to argue that inequality is not just unavoidable, but also beneficial…

Successive governments have done little to reduce inequality and have unwound both welfare provisions and the progressive nature of our tax system. Tackling inequality is a political choice, not an economic problem…

The report shows how the minimum wage and unemployment benefits have failed to keep pace with average weekly earnings, with the latter also falling way below the poverty line:

The TAI also shows how the CEOs of Australia’s biggest monopolies and oligolopies have experienced a monumental rise in earnings:

The Productivity Commission report on executive remuneration reveals that the average pay packet among the top 20 CEOs in Australia is almost $10 million, 150 times more than average weekly earnings at the time. Among CEOs of the next 20 companies, incomes are about half this amount, around 75 times more than the $62,218 the average Australian worker earns in a year.

Furthermore, executive pay has been increasing rapidly. Productivity Commission figures reveal that executive pay increased by 250 per cent between 1993 and 2007…

Yet, while the distribution of income is bad, the inequality of wealth is even worse:

…it is clear that the distribution of wealth is much more unequal than the distribution of income. For example, the top income quintile has just over five times the income of the bottom quintile but, by wealth, the top quintile has 71 times the wealth of the bottom quintile. The distribution of wealth is very important, as Piketty shows, since it is the accumulation of income from inherited wealth that drives much of the increasing inequality in modern economic systems.

It is also interesting to observe that those among the bottom quintile, comprising 1.73 million households, have less wealth than the ten wealthiest families in Australia as reported by the Business Review Weekly’s rich 200 list…

Part of the problem is that “in the last 50 years, the share of national income accruing to the owners of capital, most of whom are among the highest income earners, has increased from less than 24 per cent of GDP to 37 per cent” – a view also supported by Thoma Picketty.

Overall, the TAI does a good job of outlining the problem of growing inequality in Australia.

While not explicit, the report also highlights the desperate need for broad-based tax and welfare reform in Australia aimed at shifting the tax base onto more efficient and equitable sources (e.g. land and resources), reforming inefficient and inequitable tax lurks that benefit higher income earners (e.g. superannuation concessions and negative gearing), as well as better targeting government assistance to those most in need.

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Australia’s growing wealth divide