Inequality in Australia

Writers: Sugiharto Tunggal, Stefanny Sugianto, Mayumi Edirishinghe, Lim Cheong Toh
Editor: Naren Rajan

Since mid-1990s, income inequality in Australia has risen and is currently standing above the
OECD average. Over the last 20 years, the gap between the income levels of different groups
in the society has been widening although sustained economic and employment growth has
helped to reduce the effect. This implies that Australias economic growth has
disproportionately affected different income groups; it has benefitted higher income groups
rather than those at the lower end of the income distribution. The underlying drivers for this
increasing trend are found to be increasing disparities in distribution of wage rates and
working hours, and investment across the society. Income inequality is not healthy for the
economy as it imposes risks on future economic growth and stability. Income inequality
translates to the inability of people at lower income levels to equally experience and
participate in social and economic opportunities such as access to health, education, housing
and community safety which contribute to the quality of life. This unequal distribution of
resources restrain people at the lower income levels from realizing their productive potential,
hindering economic activity. As a result, low income households become dependent on
government intervention such as the tax system and transfer payments. Hence, the policy
decisions regarding this issue are important. This article will discuss whether Australian
government policy responses has been successful and what further measures could be taken
to minimize income inequality.

It has been well observed that the paramount contribution to ones income is ones wage and
salary. Thus, the very wages and salaries play a crucial role in deteriorating the income
inequality in Australia. The amount of wages and salaries are dependent on, but not limited
to, the complexity of jobs, working hours and hourly wage rates. It is encouraging to note that
the Full-Time Adult Average Weekly Total Earnings in May 2015 was $1,545.60, a positive
rise of 1.8% from the same time last year (Average Weekly Earnings, Australia, May 2015,
2015). However, adults from the higher income brackets usually work longer hours. A
standard working day (without overtime) for a blue-collar employee is from 7am to or
4.30pm, while working hours in most offices and shops are from 9.30am until 5.30pm, with
an hours break for lunch (Working in Australia, 2015). With an overtime, which is the most
common work condition for professional employees, they are undoubtedly work for longer
hours and enjoy higher total salaries. Figure 1 further purports the fact that professional
workers (i.e. managers and professionals), who have already enjoyed being in middle to top
income earners, are considerably working longer hours than workers who rely more on their
physical prowess (i.e. labourers) to earn income. To worsen the situation, much-requiredqualification workers in finance and insurance are indeed earning more than low-qualification
requirement jobs such as manufacturing and trade workers, Figure 2. This surely exacerbates
Australias income equality as people who are able to finish their tertiary qualifications are
mostly middle to high income earners. The poorer Australians are less able to bring up their
children to be free from the bottom 20% title. This phenomenon is real. A person in the top
20% receives as much as around 2.5 times the wages and salary income of the middle 20%,

and the middle 20% receives incredibly 8 times the wage and salary income of the bottom
20% Figure 3.

Figure 1 (Australian Labour Market Statistics, Oct 2010 , 2010)

Investment income is also one of the significant contributing factors on growth in inequality.
Its common to undermine its significance because investment income usually makes up only
a small proportion of household income and hence, one would conclude that it only plays
small part in the level of inequality. This type of income has been strong in growth recently,
increasing on average every year by 7.5% over the 2000s. Hence, it is increasingly becoming
more important over time (ACOSS, 2015). From figure 4, we can see that capital
(investment) income has been highly concentrated at the upper end of the income
distribution. Furthermore, figure 4 also shows that middle household income earner only
earns $137 compared to higher top 20% which earns $439 per week from investments
(ACOSS, 2015). This is quite a significant difference. The reason for this increasing trend is
because educated households which have higher household income also have superior
knowledge on how and what to invest compared to lower income earning households. The
government has tried to reduce this inequality by introducing progressive income taxes and
government income support payments for lower income households. However, the impact is
shrunk by indirect taxes such as GST. GST lessens the impact because lower income
households will spend most of their disposable income on goods and services which become
more expensive because of GST while for the high income households, spending on goods
and services will makes up to a smaller percentage of their disposable income. The most
obvious way to reduce this inequality is by taxing high-income households more than lowincome households. This process has to be done very meticulously, particularly on which
households are going to receive transfer payments.

The two factors evidenced the further implications on the wealth distribution in the future.
The projection is going to be even wider if no re-evaluation and better implementation of
government policies are made to counter the problem. As the main concern of Thomas
Piketty, which he emphasized in his book, Capital in the 21st Century, the only way to
reduce the inequality and minimize the widening gap between the top income earners and the
rest, is the implementation of progressive wealth taxes. Nonetheless, this has always been the
objective of the unique progressive taxation system in Australia. Based on the distribution
from year 2011 to 2012, (figure 3) the income of the wealthy has only been reduced slightly.
It somehow portrays a short-term conclusion of the fact that inequality is unavoidable.
However, the long-term distributions of wealth and income inequality should largely be the
concern of policy makers as the nature and extent of inequality is the choice of policy
makers. (Richardson & Denniss, 2014).

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