A nation splintering amid growing inequality: new ACOSS report

Monday June 22, 2015

ACOSS today urged Australian governments to make addressing growing inequality a top policy priority following its new report revealing that income and wealth has become more concentrated in the hands of fewer people over the past two decades across the country.

Releasing its analysis, ‘Inequality in Australia: A nation divided’, ACOSS says that while inequality is not extreme in Australia by international comparison, we are trending 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,” said ACOSS CEO Dr Cassandra Goldie.

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

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

“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% wealth group increased by 28% over the period from 2004 to 2012, while by comparison the wealth of the bottom increased by just 3%.

“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.

“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.

“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% of the wealth distribution owns over 80% of wealth in shares and investment real estate and over 60% of superannuation.

“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.

“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.

“Furthermore, a series of tax changes over the 2000’s, particularly tax cuts that have largely benefited people on higher incomes, have reduced the progressivity of the tax system and its effectiveness in reducing inequality.

“While we can be proud of our history in building our tax system and social safety net, we need to refocus our efforts on realigning and strengthening them at this time to prevent widening inequality from becoming the new normal.

“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.

“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.

“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,” Dr Goldie said.

Media Contact: Fernando de Freitas – 0419 626 155

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Summary of key findings

Income Inequality

  • Inequality in Australia is higher than the OECD average – a person in the top 20% income group has around five times as much income as someone in the bottom 20%;
  • Over the 25 years to 2010, real wages increased by 50% on average, but by 14% for those at the 10th percentile, compared to 72% for those at the 90th percentile;
  • Investment income for the top 10% doubled between 2004 and 2010;
  • Groups more likely to be found in the bottom of the income distribution are: over 65 year olds; sole parents; people from non-English speaking countries; and those reliant on government benefits as their main source of income;
  • Income is unevenly distributed across states and territories – Tasmanians more likely to be in bottom 20%, whereas people in Western Australia are more likely to be in top 20%;
  • There is also an urban and regional divide. People in capital cities more likely to be in the top 20%, while those outside capital cities are more likely to be in the bottom 20%.

Wealth Inequality

  • A person in the top 20% has around 70 times more wealth than a person in the bottom 20%;
  • The top 10% of households own 45% of all wealth, most of the remainder of wealth is owned by the next 50% of households, while the bottom 40% of households own just 5% of all wealth;
  • The top 20% of the wealth distribution owns 80% of all wealth in investment properties and shares and 60% of all superannuation wealth;
  • The average wealth of a person in the top 20% increased by 28% over the past 8 years, while for the bottom 20% it increased by only 3%;
  • Wealth inequality has declined since the Global Financial Crisis, but has increased over the longer term.