Briefing paper

Estimating wage trends from personal income tax data

15 May 2019

This briefing note reports on new estimates of wage growth in Australia’s economy using a novel source of data: personal income tax returns collected by the Australian Tax Office (ATO). These statistics are collected, with summaries released publicly, on a financial-year basis. Calculating the average wage and salary income declared by employed tax-filers (that is, by those tax-filers who report wage or salary income) provides an alternative measure of overall wage trends in the economy – supplementing traditional wage statistics gathered by the Australian Bureau of Statistics.

We compared income tax returns for 2012-13, when wages first began decelerating dramatically in Australia, to the most recent year available (2016-17). The analysis confirms that wage growth has indeed slowed to historically low rates: wage and salary income per employed tax-filer increased over that four-year period at an average rate of just 1.71% per year. That was slower than the average annual growth in consumer prices (1.88% nationally over the same period), producing a cumulative decline (of about 0.6%) in average real wages over the 4-year period.

The main advantage of using ATO data to estimate average wages is the ability to disaggregate data according to state, region, and even smaller jurisdictions (such as municipalities, postcodes, and electorates). The paper reports average trends in wages and real wages, based on personal tax returns, for each state and territory. It finds that wage growth has been slowest (and real wage losses largest) in two particularly hardhit states: Western Australia and Queensland. Average real wage and salary income declared per tax-filer in Western Australia fell by over 5% over the four-year period considered, and by over 3% in Queensland.

Even within those two hard-hit states, the effects of the wages crisis have been experienced unevenly. Some communities – especially outside of the major cities – have experienced particularly large declines in real wages. Since debates over wage policies are playing an important role in the current federal election campaign, we analysed detailed wage trends in key electorates in those two hardest-hit states. We report disaggregated estimates of average wage growth in 17 marginal electorates: all electorates in the two states with an electoral margin of victory smaller than 5% in the 2016 election. Eleven of those electorates are currently represented by Liberal or Liberal-National MPs; six are held by the Labor Party. The analysis confirms that the erosion of real wages has been particularly acute in these marginal electorates: every one of them experienced average declines in real wages over the four-year period – and in 7 cases (6 of which are Liberal or LNP seats) the cumulative decline in real wages was greater than 5%.

The analysis confirms that wages across Australia have been growing unusually slowly since 2012, and that average real incomes (and hence living standards) have declined. The pain has been particularly acute in several key regions of the country, however – and those regions will be especially important in determining the outcome of the federal election. Frustration regarding falling real incomes could thus prove a politically potent factor on May 18.

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