New analysis of inequality in Australia pre-COVID-19 provides a baseline against which to measure the impacts of the pandemic on income and wealth inequality. It highlights the ameliorating effects of timely Government policy responses – including increased Jobseeker and Jobkeeper payments – but warns that the long-term effect of the pandemic on income and wealth inequality will depend on how these policies evolve.
Using the latest available ABS data (2017-18), the ACOSS/UNSW Sydney Poverty and Inequality Partnership Report finds that, pre-COVID, the incomes of those in the highest 20% were 6 times higher than those in the lowest 20%, with that gap widening since 2015-16 (when the ratio was 1:5).
An examination of wealth data shows that, for the first time, average household wealth exceeded $1 million in 2017-18. However, the distribution of wealth in Australia was deeply unequal, with the average wealth of the top 20% ($3,255,000) some 90 times that of the lowest 20% ($36,000). Those in the lowest 10% held $8000 in average net wealth, and the bottom 5% held net debts of $5000.
The report also examines available data on the impacts of COVID 19 on employment and incomes to explore the likely impacts of the pandemic and associated lockdowns on inequality in Australia. It confirms that the pandemic has had a stark impact on those in lower paid jobs, with the average wage of people in the most affected industries half that of people in least affected industries even before the pandemic. The majority of those affected by deep income losses are women and young people.
The data shows that:
• Given the very low wealth holdings of those in the lowest 20%, it would be dangerous to require people spending down on these meagre savings to get them through this crisis. This would place millions of people in extreme financial vulnerability, with little or nothing behind them to weather future shocks.
• COVID-19 will likely further exacerbate income inequality due to the spike in unemployment, with the biggest job losses occurring in lower paid industries. Unless economic recovery strategies focus on job replacements in these areas, including women and young people, and provide an adequate income floor through social security, income inequality is likely to become more severe.
• Wealth inequality has grown strongly over the last 15 years, with people in the highest 20% experiencing extraordinary average growth in wealth of 68%. This is in stark contrast to those in the lowest 20% whose net wealth grew by just 6%, while those in the middle experienced wealth growth of 36%.
The findings lead the Inequality in Australia 2020: Part 1 – Overview report, released today by the Australian Council of Social Service and UNSW Sydney.
Australian Council of Social Service CEO, Cassandra Goldie, said:
“Timely action by the Government to double the unemployment payment with the Coronavirus Supplement and create JobKeeper has temporarily raised the household incomes of people without paid work or at risk of losing their jobs.
“This report shows however that millions of people, pre-COVID, had very little by way of a financial buffer behind them. There is a real danger in now expecting people to spend down on their already meagre savings, in order to survive. We need to support people’s incomes to prevent against dramatically widening both income and wealth inequality and the serious health, economic and social disadvantage that occurs.
We have a choice about whether we prevent rising inequality from the COVID-19 crisis. For example, both the Coronavirus Supplement and JobKeeper Payment for fulltime workers are scheduled to be cut by $150pw from 28 September, and to end after Christmas (for the Supplement) and the end of March (for JobKeeper). The government is also planning to reintroduce assets tests and waiting periods to delay access to income support. Both these policies will drive people into further financial deprivation.
“A substantial, permanent increase in the Jobseeker Payment would ensure that those who cannot get paid work can meet household costs. Well-targeted and jobs-rich economic stimulus could prevent a further increase in unemployment. Permanently removing liquid assets tests and waiting periods to receiving income support are also vital. Applied together these measures will inoculate us against an increase in both income and wealth inequality and support our economic recovery from the pandemic,” said Dr Goldie.
The report’s lead researcher, UNSW Sydney Associate Professor Dr Bruce Bradbury, said:
“Most Australians seem to think that they are ‘middle income’. But middle incomes are lower than generally thought. In part, this stems from a confusion between average wages and average household incomes. A couple with two fulltime average wages ($82,000 each or $164,000 altogether) and with two children is likely to think of themselves in the middle of the household income distribution, when in fact they are more likely to be in the second-highest fifth of living standards. If they don’t have children, they will be in the highest living standard fifth.
“This discrepancy between perceptions and reality arises because many people don’t work full-time, average wages are greater than median wages, and many households, particularly the retired, don’t have any people with earnings.”
Professor Carla Treloar, Director of the Social Policy Research Centre at UNSW Sydney, said:
“This report sets a base-line of data against which to assess the impact that COVID19, high unemployment, and government policies to protect incomes and jobs have on the living standards of different groups in the community.
“This analysis is timely and important in setting a baseline against which we can measure the impact of the pandemic on income and wealth inequality in Australia. Increasing inequality need not be an inevitable result of the current crisis. Whether we are ‘all in this together’ or driven further apart will depend on the severity and duration of the crisis and on the effectiveness of the national policy response.”
• The highest 20% of households have nearly 6 times the income of the lowest 20%. This gap has grown since 2015-16 when the highest 20% earned 5 times as much as the lowest 20%.
• The average household disposable income for people in the highest 20% of households is $4,166 per week, more than twice the income of the middle 20% ($1,884 per week) and nearly six times that of the lowest 20% ($753 per week).
• The main household income source across all households is wages and salaries (with 78% of all income before tax), followed by 12% from investments, 5% from self-employment and 5% from social security.
• Households in the highest 20% receive almost two-thirds investment income (65%), while those in the lowest 20% receive almost half (47%) of social security income.
• The unemployment rate stood at 7.4% in June 2020 and is expected to rise to 10% in December, assuming lockdowns are progressively eased. The outlook for employment and earnings is very uncertain.
• The industries most affected by the pandemic were twice as likely to employ workers with less than high school qualifications than the least affected industries, according to Melbourne Institute research. Average weekly wages in the most affected industries were less than half (46%) of those in least affected industries, in part due to the high incidence of part-time employment in the former.
• To date, households in the lower half of the income distribution have benefited substantially from the Jobkeeper and COVID Supplement payments, offsetting all or some of the increase in earnings inequality from COVID19 and the lockdowns.
• However, from 28 September this income support is scheduled to be scaled back, with income support for people who are unemployed and the maximum rate of JobKeeper Payment both cut by $150pw. No commitments have yet been made to permanently increase the Jobseeker Payment when the Coronavirus Supplement is scheduled to end after 31 December – reducing payments for unemployed people, students and sole parents on the lowest incomes by another $125pw.
• Average wealth is relatively high and now exceeds $1 million for the first time ($1,026,000). Of this, 39% is the main home, 21% is superannuation, 20% is shares and other financial assets, 12% is investment real estate, and 9% is other non-financial assets such as cars.
• However, wealth is distributed extremely unequally. The average wealth of the highest 20% of wealth-holders is $3,255,000 – over 90 times the wealth of the lowest 20% (with just $36,000).
• The wealthiest 20% hold almost two-thirds of all household wealth (64%), more than all other households combined.
• From 2003 to 2017, the average wealth of the highest 20% grew by 68% compared with 6% for the lowest 20%. This divergence has been driven by the asset types held by the top 20%: investment property, superannuation and shares. Eighty per cent of financial assets like shares and property investment are held by the highest 20% of wealth-holders.
• At the bottom of the wealth ladder, the most valuable asset holdings of the lowest 20% are ‘other non-financial assets’ such as cars (48% of their wealth holdings) and superannuation (38%). At the top of the ladder, the wealthiest 20% hold relatively less of their wealth in the main home (34%) than those in the middle, and more of it in shares and other financial investments (26%) and investment property (15%).
• The average superannuation wealth of the highest 20% is $496,000 – nine times that of the lowest 20% ($58,000). The top 20% hold 60% of the value of superannuation holdings.