Inequality between those with the most and those with the least is rising in Australia. Australia is one of the wealthiest countries in the world, but there are many people in our society who are falling behind. For instance, the minimum wage and unemployment benefits have failed to keep pace with the rise in average earnings, resulting in a divergence between low-income earners and the average employed Australian. A divergence has also occurred between the average Australian and those at the top. Senior executive pay is now 150 times greater than average weekly earnings.
While income distribution is unequal, the distribution of wealth is even more so. The top 20 per cent of people have five times more income than the bottom 20 per cent, and hold 71 times more wealth. Perhaps the gap between those with the most and those with the least is most starkly highlighted by the fact that the richest seven individuals in Australia hold more wealth than 1.73 million households in the bottom 20 per cent.
This paper provides clear evidence that the tax-and-transfer system has the capacity to redistribute income effectively to reduce inequality. The figure below illustrates how existing policies boost the incomes of those with the least, while only slightly reducing the incomes of the wealthy. This redistribution has always been the objective of Australia’s progressive tax system.