New data reveals that income inequality surges as richest group get more than 90% of the gains

Is income inequality in Australia on steroids?

Well, according to a recent report by the senior economist at the Australia Institute, the level of inequality has escalated significantly.

Describing the situation as "inequality on steroids," he informed The Business program on ABC TV that following the global financial crisis (GFC), the top 10 per cent of the population has benefited from almost all of the gains in real per capita economic growth.

In contrast, the remaining population has received little benefits from economic growth.

Now 93 per cent of gains going to 10 per cent

According to Mr Grudnoff, the benefits of Australia's thriving economy have been enjoyed primarily by the top tier of earners.

He claims that a staggering 93 per cent of the economic growth has been captured by the top 10 per cent of income earners, leaving only a meagre 7 per cent for the remaining 90 per cent.

The graph provided by Matt Grudnoff, using figures from the World Inequality Database, illustrates the proportion of real economic growth received by the top 10 per cent and bottom 90 per cent of earners.

Moreover, he argues that the labour force has experienced a decade of stagnant wages while profits and asset prices have surged, leading to a disproportionate income distribution.

The majority of income earned by the top 10 per cent comes from profit, whereas the bottom 90 per cent relies mainly on wages, indicating that stagnant wages have resulted in a lack of equitable distribution of economic growth.

Progressive tax redistribution

It's essential to note that the research has a significant limitation; it's based on the pre-tax distribution of income.

Although 93 per cent of economic growth gains have gone to the top 10 per cent of earners, Australia's tax system plays a role in redistributing some of those gains to the bottom 90 per cent, resulting in a less unequal society than the headline numbers indicate.

This highlights the importance of the tax system in preventing an extremely inequitable society.

Australia's tax system is considered "progressive," meaning that as individuals' income increases, the tax rate also increases.

However, over time, the tax system has become less progressive, and support payments such as JobSeeker have fallen, making it significantly lower than in other comparable countries.

Due to the laws passed by the previous federal government in 2018 and 2019, Australia's tax system is likely to become even less progressive in the future.

What is this 'Stage 3'?

The Coalition government's income tax package, which included phased tax cuts over several years, had a controversial component known as "stage 3," which will begin on July 1, 2024.

It will eliminate the current 37 per cent tax bracket and decrease the existing 32.5 per cent tax rate to 30 per cent.

In addition, the income threshold for entering the top tax bracket will increase from $180,001 to $200,001, meaning that only taxable earnings above that amount will be taxed at 45 per cent.

In his 2018 budget speech, then-treasurer Scott Morrison claimed that these measures would "ensure more Australians pay less tax by making personal taxes simpler."

However, the already-legislated changes are estimated to cost the federal budget $254 billion over 10 years and would mostly benefit people on high incomes, making the income tax scales less progressive.

Mr Grudnoff argues that his research indicates that it is time to abandon or repurpose the stage 3 tax cuts.

"This is a time when the government should be focused on the majority of Australians, not just the top 10 per cent, and providing them with a massive tax cut," he says.

Wealth inequality is a bigger issue

Associate Professor Ben Phillips from the Australian National University is more concerned about "wealth inequality" rather than "income inequality" in Australia.

He notes that while there has been little change in income inequality in the past 10 to 15 years, wealth inequality has increased significantly due to a large skew in superannuation balances and significant increases in house prices.

Mr Phillips believes that Australia performs better in terms of economic equality than the US, but lags behind Scandinavian countries.

He highlights the importance of how developed countries treat low-income earners, stating that minimum wage workers in Scandinavia have greater opportunities than those in the US due to their proximity to the median income.

Welfare for the wealthy?

Despite headline tax rates appearing progressive, the tax system's redistributive power is limited due to a range of concessions and deductions.

These schemes provide tax discounts to those who take advantage of them, but they are not equally accessible to lower-income earners.

Among these elements are:

• superannuation tax breaks,
• capital gains tax discounts,
• negative gearing provisions, and
• franking credits on share dividends.

The controversy lies in the fact that these benefits are primarily utilized by wealthier individuals.

What happens now?

According to Matt Grudnoff from the Australia Institute, two issues are exacerbating this problem: precarious work and housing.

Precarious work often leads to lower wages, limited job security, and a lack of benefits.

Meanwhile, the concentration of housing stock in the hands of a few wealthy people means that the bottom 90% of people are missing out on homeownership and wealth accumulation.

The concept of this blog is inspired by an article in abc.net.au. You can read the original article here. 

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.