Wealth inequality

How is Australia faring?

Australians like to think of themselves as egalitarian, and for much of our history we believed our income and wealth was spread around evenly. For many years, the world also shared that view. As early as the 1880s, visitors remarked on Australia’s relatively equal distribution of wealth, the lack of visible poverty, and the country’s generally comfortable incomes.

In the past, Australia’s wage-fixing system compressed the wage distribution. As late as 1999, Australia had the highest minimum wage relative to the median in the OECD.

If you are a full-time employed male wage earner in Australia, then you have a lower level of income inequality than in Denmark, otherwise one of the lowest inequality countries. The most important source of inequality in Australia is whether you have a job or not.

The pillars of egalitarianism in Australia were high wages, high home ownership and low unemployment. If we want to regain this position, we need to ensure that unemployment remains low and that low-income earners are able to buy affordable housing.

The ABS survey presents two ways of looking at the distribution of wealth: first, by ranking households simply by the amount of wealth they have; second, by ranking households by how much income they have.

When the ABS ranks households by their incomes, the 20% with the lowest incomes have an average net worth of around $437,000, while the 20% with the highest incomes have about $1.3 million in net worth. This means that the poorest one-fifth of households, measured by income, hold 12% of net wealth, while the richest one-fifth hold 36%, a ratio of about 3 to 1.

These figures suggest that wealth is actually more equally distributed than income when the joint distribution of income and wealth is used – which is a more comprehensive measure of total household resources.

This reflects the fact that people accumulate wealth over the course of their life. Young people starting off in their first job generally don’t have much in the way of wealth, but as they grow older they will purchase homes – which have been the great wealth “equaliser” in Australia – and accumulate superannuation and other savings.

As a result, older people have much higher average wealth than younger people, but older people generally have lower incomes than younger people.

Source: Income and wealth inequality: how is Australia faring?