In the midst of a deep recession this government is seeking to lock in an inequitable income tax system under the guise of recovery. Two recent reports, however, highlight that moves to bring forward the legislated tax cuts will fail to provide adequate stimulus to the economy and will only exacerbate inequality that was already increasing prior to the pandemic.
The Australian Council of Social Service (Acoss) last week released an extensive report into inequality and the impact of the pandemic. The report, Inequality in Australia 2020, makes use of various data to paint a pretty clear picture of our economy as one where inequality is significantly higher than it was at the beginning of the century.
It notes that from 2000 to 2017 the richest 20% of households saw their share of national income increase by 1.1%pts while the share of both the middle and bottom 20% declined.
Similarly, the wealthiest 20% saw their wealth grow by 68% over that period compared with a 38% increase for the middle 20% and a mere 6% increase for the poorest 20%.
One aspect the report highlights is that while we often split up incomes into lots of 20%, incomes skew greatly at each end of the spectrum.
For example, the average annual household income for those in the top 20% is $280,290, but the top 5% is significantly higher at $458,727, while the top 1% of households have an average income more than three times that of the middle 20% at $950,844:
This accords with the data from the World Inequality Database that estimates around 30% of the income held by the richest 10% is held by the top 1% – even among the richest there is inequality:
What the Acoss report has also found is that while incomes have risen for everyone, the old line of “a rising tide lifts all boats” is very misleading – the tide is not equal.
At the start of the century, the average income of the richest 5% of Australians was 2.7 times that of the median – now it is 3.07 times:
That may seem like small beer but consider: had the average income of the middle 20% of households risen at the same pace as the richest 5%, then in 2015-16, rather than an average weekly household income of $1,720, they would have had $1,964 – nearly $13,000 a year more:
Where we see the major factor at play on this issue is when we look at the comparison the report makes of social assistance and the minimum wage with the median income.
In the early 1990s unemployment benefits were equal to 25% of the median wage; now they are just 19%. The minimum wage has also fallen well behind the median wage:
Had Newstart remained at 25% of the median wage, it would now be $88 a week higher:
It’s why the Covid bonus payment for Newstart has been so effective at reducing poverty, and why cutting the bonus or failing to permanently lift the base will just entrench increased inequality.
On a similar line, research by the progressive thinktank The Australia Institute, published this week, highlights just how slanted the tax cuts, which are strongly rumoured to be brought forward, are to the wealthy.
The research, which agrees with my own work, finds that the majority of the benefits will go to the top 10% of income earners.
The report’s author, Matt Grudnoff, estimates that 56% of the benefits of the stage 2 and 3 tax cuts will go to the richest 10% while just 3% will go to the bottom half of income earners.
This is quite obvious when you look at the size of the tax cuts by income and the percent of Australians who earn that amount:
Half of Australians earn less than $60,000 and yet they will receive at best a mere 0.6% tax cut. While just 5% of Australians earn over $180,000, people on that income will get a 4.73% tax cut, and the richest 3% – those who earn over $200,000 – can look forward to a 5.76% cut.
The tax cuts will also massively reduce the government’s revenue base at a time it has been smashed. And while some may argue that a government does not need to pay for its expenditure with revenue, anyone thinking the Morrison government is about to adopt that view is deluded.
Lower tax revenue will inevitably see cuts to spending and services, and massive resistance to raising any social security rates of pay.
Right now the government is using the pandemic as cover to entrench inequality – something that was already rising – and doing so for no economic benefit.
