Get all your news in one place.
100’s of premium titles.
One app.
Start reading
ABC News
ABC News
Business
business reporter Daniel Ziffer

Income inequality surges as richest group gets more than 90 per cent of the gains, Australia Institute finds

Thomas Harmathy, 23, lives in Melbourne and he's worried about increasing financial inequality in our society.  (ABC News: Simon Tucci)

Thomas Harmathy is doing fine. He's healthy, in his early 20s, living on his own and working a hospitality job in the big city.

However, he and his friends don't feel like they're in a golden patch.

"I think there's an innate pessimism about their outlook," he says.

"I'm just trying to, not necessarily get by, but just trying to figure out my life week-to-week actually. And it's been like that for a while"

The issue is not one single thing.

To Thomas, it's housing, it's precarious work, it's seeing the building blocks of a stable life — many of them financial — becoming harder to clamber on top of.

"It's kind of been this like rolling situation for the last while and there's this overall sense of hopelessness just around."

Inequality surge

Matt Grudnoff says what Thomas and his friends are feeling is the impact of inequality.

Inequality is "on steroids" according to Matt Grudnoff, senior economist at the Australia Institute. (ABC News: Andrew Kennedy)

A new report from the senior economist at the Australia Institute suggests it's getting much worse.

"Inequality is on steroids," he tells ABC TV's The Business.

"Since the global financial crisis (GFC), the overwhelming majority, almost all of the gains from real per capita economic growth, have gone to the top 10 per cent.

"The rest of us have received almost nothing from the growth in the economy."

Now 93 per cent of gains going to 10 per cent

Mr Grudnoff says the benefits of Australia's expanding economy have gone to the top tier.

"Ninety-three per cent of the gains from economic growth have gone to the top 10 per cent of income earners. The rest of us — the bottom 90 per cent — have only got 7 per cent of that economic growth."

This graph shows real economic growth, per adult. The share of growth (%) going to the top 10 per cent of earners and the bottom 90 per cent of earners. It is based on Matt Grudnoff's calculations, using figures from the World Inequality Database. (Supplied: Australia Institute)

He says workers have suffered through a decade of stagnating wages.

However, profits and asset prices have grown, and "the top 10 per cent of income earners get a lot of their income from profit", whereas the bottom 90 per cent mainly get it from wages.

"So these stagnating wages means that people are not sharing in the growth in the economy."

Progressive tax redistribution

There's an important caveat to the research: It's based on a pre-tax distribution of income.

So, while 93 per cent of the gains of growth have gone to the top 10 per cent of earners, Australia's tax system then kicks in to redistribute some of those gains to the bottom 90 per cent.

This means our society isn't as unequal as the headline numbers might suggest, but it also highlights the job the tax system does in preventing a slide into a deeply inequitable society.

People don't like paying tax but, by redistributing the gains in the economy, it contributes to making society more equitable. (AAP: Alan Porritt)

Australia has a "progressive" tax system, meaning the rate people are taxed at increases (progresses) as their income lifts.

However, it's become less progressive over time, just as the nation's support payments, such as JobSeeker, have fallen to be extremely low, compared to similar nations.

Our tax system is going to become even less progressive again, due to laws passed in 2018 and 2019 by the previous federal government.

'Stage 3' what?

The then-Coalition government's income tax package, included tax cuts designed to be phased in over a number of years (that is, in stages).

A controversial part of the laws, known as "stage 3", starts on July 1, 2024.

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

The plan will also lift the income threshold for entering the top tax bracket from $180,001 up to $200,001, so that only any taxable dollars earned above that amount will be taxed at 45 per cent.

In his 2018 budget speech, then-treasurer Scott Morrison argued the benefits.

Then federal treasurer Scott Morrison looking at Budget 2018-19 document. (ABC News: Matthew Roberts)

"[It is] ensuring more Australians pay less tax by making personal taxes simpler," he said.

"Under our personal tax plan, 94 per cent of Australian taxpayers will pay no more than 32.5 cents in the dollar. That compares to 63 per cent if we leave the system unchanged."

The Morrison government later dropped the originally proposed 32.5 per cent tax rate to 30 per cent.

The already-legislated changes are set to cost the federal budget an estimated $254 billion over 10 years and will mostly benefit people on high incomes.

Mr Grudnoff says that his research shows when the scheme should be killed.

"There has never been a better time to repurpose or completely scrap the stage 3 tax cuts," he says.

"This is a time [that] government should be focused on the majority of Australians, not on just the top 10 per cent and giving them a huge tax cut."

Wealth inequality a bigger issue

One of Australia's top social and economic researchers is less concerned by "income inequality" — the gap between what people earn and how it's shared — as "wealth inequality", one group in society holding more of the assets, such as housing and shares.

"In terms of income inequality in Australia, we haven't seen a lot of change over the past, say 10 or 15 or so years," Australian National University associate professor Ben Phillips says.

Ben Phillips says Australia does better on economic equality than other similar countries. (ABC News: Luke Stephenson)

However, wealth inequality has increased fairly sharply over the same period.

"There's a very large skew, or inequality, in superannuation in Australia, in terms of balances. We've also seen some large increases in house prices. These have been the main drivers."

Mr Phillips says Australia does better on economic equality than a country such as the US, but lags Scandinavian nations.

How developed countries treat those at low-income levels is a key concern for him.

Noting the gap between how low-income earners fare in the two regions, he says a minimum wage worker in Scandinavia has "greater opportunities" than someone on the same level in the US, because they're closer to the median income. 

"In America, it leads to greater issues in terms of income inequality, housing affordability issues, housing stress."

Going backwards

Primary school teacher Isabella Mammoliti feels that she's in a worse position than she was five years ago.

Primary school teacher Isabella Mammoliti doesn't feel she's sharing in society's economic gains. (Supplied)

"How I feel about moving forward?" she ponders.

"It's quite straining and taxing to be quite honest.

"We feel that we're doing the right thing by being employed and working, and being respectful colleagues, citizens. However, there is nothing that is coming our way.

"We work, but we can't get ahead."

A single parent, Ms Mammoliti says she can no longer afford things she used to take for granted.

"Even single people without children, there is definitely concern around their lifestyles and moving forward," she says.

"It's inhibiting a life that we had seven years ago, 10 years ago. It's no longer reachable."

Welfare for the wealthy?

While the tax system redistributes money to those who earn less, it is not nearly as progressive as headline tax rates would suggest, due to a raft of concessions and deductions.

Some schemes give tax discounts to anyone who takes them up, but those benefits aren't as readily available to people on lower incomes, such as Isabella and Thomas.

These elements include:

  • Superannuation tax concessions that reduce tax on income
  • Discounts on capital gains tax if selling real estate or shares
  • Negative gearing that allows losses on investment properties to count against your taxable income
  • Franking credits on the dividends of some shares, paid as a tax offset.

What makes them controversial is that many of them are used mainly by people who are relatively wealthy.

Where to now?

Thomas Harmathy — who has volunteered on Labor Party campaigns — works casually, but essentially full-time.

He doesn't see that toil translating into the traditional building blocks of financial stability, such as accruing wealth or entering the housing market.

Housing is becoming harder to attain in Australia, as demand outstrips supply and price rises make it more difficult for workers to accrue the deposit needed to gain a loan. (ABC News: John Gunn)

"My parents might have been buying a house in their early 20s, 30s," he says.

"I might be waiting into my 30s, 40s … potentially never accruing the ability to buy a house."

While his job is irregular but secure, he sees the impact of precarious work on the faces of his friends.

"When a core part of your life is so insecure — it's so hard to come by and you don't know the certainty of it going forward — it drains a lot of energy out of you. And it really makes your perspective on things seem a little bit hopeless."

The Australia Institute's Matt Grudnoff sees two things happening: jobs and housing.

With a proliferation of precarious work, people are unable to climb the jobs ladder, earn more money and have the opportunity at more senior and complex roles.

A food delivery bike rider for failed company Foodora. The types and amount of work in the insecure "gig" or "on-demand" economy has increased, but most of the jobs lack benefits such as sick leave, holiday pay or superannuation. (AAP: Brendan Esposito)

"They are more likely to be casual, they're more likely to be part-time, they're more likely to not have full-time paid leave. And, so, they're unable to get these higher wages," he says.

The other part is housing, where housing stock is increasing in the hands of a "smaller and smaller group" of people.

"So, the wealth is concentrating more and more in a single small group, this top 10 per cent. And the bottom 90 per cent — the vast majority of people — are simply missing out."

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.