Income inequality among working-age people in Australia has been rising since 2000 and is today above the OECD average. In 2008, the average income of the top 10% of Australians was $131 300, nearly 10 times higher than that of the bottom 10%, who had an average income of $13 700 . This is up from a ratio of 8 to 1 in the mid 1990s.

That’s the finding in a new report on income inequality published overnight in Paris by the OECD.

If you look at the top 1% the growing inequality is even more noticeable. The richest 1% of Australians saw their share of total national income almost double, from 4.8% in 1980 to 8.8% in 2008. Moreover, that of the richest 0.1% rose from 1% to 3%. At the same time, top marginal income tax rates declined markedly, dropping from 60% in 1981 to 45% in 2010.

Notes: The Gini coefficient ranges from 0 (when all people have identical incomes) to 1 (when the richest person has all the income). Market incomes are labour earnings, capital incomes and savings. Disposable income is market income plus social transfers less income taxes. Incomes are adjusted for household size. Data refer to the working-age population.

Other key findings on Australia in the OECD report are:

 Labour market changes have been a key driver of inequality trends in Australia. The earnings gap between the 10% best and least paid full-time workers increased by a fifth between 1980 and in 2008.

 Employment income makes up only a third of household income in the bottom quintile in Australia (compared to an OECD average of two thirds). This suggests jobless households face a much higher risk of falling at the bottom of the income distribution.

 As in most other countries, the divide in hours worked between higher- and lower-wage earners in Australia is growing, confirming a trend seen in most OECD countries. Since the mid-1980s, annual hours of low-wage workers fell from 1300 to 1100 hours, those of higher-wage workers remained stable at around 2300 hours.

 Societal changes, such as more single parent families and people living alone, and people marrying within similar earnings classes, also contributed to rising household earnings inequality. At the same time, higher employment rates for women helped reduce household earnings inequality. Growing disparities and declining employment rates among men are the main drivers, explaining about two-thirds of the increase.

 The tax-benefit system in Australia has offset just over half of the rise that occurred in market income inequality during the past two decades, a percentage that is higher than in many other OECD countries.

 Nonetheless, since the mid-1980s, taxes have become less redistributive. Both progressivity and average tax rates have declined. And since the mid-1990s the overall redistributive effect also weakened. In most cases, out-of-work income as a proportion of in-work income has fallen, in part due to allowance rates failing to keep pace with wage growth. Only lone parents, whose income support is tied to an average earnings measure and who benefitted from more generous family benefits, were excepted.The flattening of the personal income tax system in the mid-2000s (e.g. through increases to the top threshold) also contributed to a reduced capacity of redistribution.

 Spending on public services in Australia is higher than the OECD average but spending on cash transfers is lower [Figure8.1]. Overall, these services such as education, health or care cut inequality by 17%, a little less than the OECD average.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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