Geoff Gilfillan, Statistics and Mapping

Key issue

Although data sources show income inequality in Australia has fallen slightly in recent years, wealth is distributed much less equally than income among Australian households.

Australia’s highly targeted and progressive tax and transfer system acts to re-distribute income from higher income households to income poor households. This has reduced the extent of income inequality.

Temporary measures introduced to assist people on income support through the COVID-19 pandemic in 2020 contributed to a temporary lowering of income poverty rates. Prior to this, the relative poverty line in Australia fell from 13.2% in 2007 to 9.8% in 2016 but then increased to 11.3% in 2019. 

Australia has experienced almost a decade of slowing wage growth and relatively weak annual growth in household incomes in real terms. This has contributed to relatively modest growth in living standards in historical terms. On top of this, Australia is now facing an environment of increasing interest rates and inflation. Households now face a period of rising mortgage debt repayments and the prospect of declining real wage growth. While income inequality has fallen slightly nationally in recent years, some regions have experienced weaker growth in household incomes than others. And while Australia’s tax and transfer systems has succeeded in redistributing income from wealthier to poorer households, Australia recorded the 12th highest relative income poverty rate out of 33 OECD (Organisation for Economic Co-operation and Development) countries that provided information in 2018.

Income inequality and how it is measured

Income inequality is the extent to which total household income is unevenly distributed among its population. The Gini coefficient is the most frequently used summary measure of inequality. The Gini coefficient is a mathematical summary measure that incorporates detailed shares of income data into a single statistic. The measure summarises the extent of dispersion or spread of income across the entire household income distribution.

Estimates for the Gini coefficient for equivalised disposable household income range between zero and one. Values closer to zero represent lower income inequality and values closer to one represent higher income inequality. The measure also allows comparisons on relative income inequality with other OECD countries.

Equivalised disposable household income is gross household income (less tax) that has been adjusted using a weighting process to account for differences in household size and composition (that is, the number of adults and children who live together in the same household). Younger children tend to consume fewer resources than older children and adults.

Australian Bureau of Statistics’ (ABS) Survey of income and housing, 2019–20 data shows the Gini coefficient for equivalised disposable household income in Australia fell slightly from 0.336 in 2007–08 to 0.324 in 2019–20, which indicates a slight reduction in income inequality (Figure 1).

Figure 1          Gini coefficient for equivalised disposable household income, Australia, 2007-08 to 2019–20

Source: Australian Bureau of Statistics (ABS), Household Income and Wealth, Australia, 2019–20 (Canberra: ABS, 2022).

OECD data collected from member countries shows Australia, with a Gini coefficient of 0.325 in 2018, was ranked 22nd lowest out of 34 OECD countries that provided data in 2018. The Slovak Republic was ranked first as the most equal OECD country in terms of income distribution at 0.236, while Mexico was ranked last as the most unequal at 0.418.

Nordic countries, including Norway, Denmark, Finland and Sweden, along with Germany and France, had lower coefficients (more equal income distribution) than Australia, while the UK and the US had much higher coefficients (more unequal) (see Figure 2).

Figure 2          Gini coefficients of OECD countries, 2018

Source: OECD.Stat

The Household, income and labour dynamics (HILDA) survey is an additional Australian data source which can track change in income inequality over time. The HILDA estimates for the Gini coefficient for equivalised household income were relatively stable between 2001 and 2019, ranging between 0.290 and 0.310. HILDA data also indicates that relative income inequality fell marginally between 2011 and 2019 (see Figure 3).

Figure 3          Gini coefficient for equivalised disposable household income, 2001 to 2019

Source: Roger Wilkins et al., The Household, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 19, Melbourne Institute: Applied Economic & Social Research, the University of Melbourne.

Change in household incomes

It is also possible to track the extent of growth in incomes of households at the bottom, middle and top of the income distribution to establish whether relatively poorer or wealthier households are experiencing stronger or weaker growth in household incomes than others.

In this analysis the household income distribution has been divided into 10 equally sized groups or deciles. Figure 4 shows growth in weekly equivalised disposable household income for Australian households at the top of each decile in the decade to 2019–20, as well as the 2 years to 2019–20.

Income growth over the decade in real terms (in 2019-20 dollars) was strongest for the 10th decile or bottom 10% of the household distribution (up 13.9%), albeit from a relatively low base, and weakest for those in the 90th decile or top 10% of the household distribution (up 7.7%). Stronger growth in incomes for households in the bottom 30% of the distribution would have contributed to a slight reduction in income inequality.

Figure 4          Percentage change in weekly equivalised disposable household income at the top of each decile

Source: ABS, Household Income and Wealth, Australia, 2019–20  (Canberra: ABS, 2022)

Growth in household income was more even across the household distribution in the 2 years to 2019–20, with households in the top half of the income distribution experiencing slightly higher growth than those in the bottom half.

Data from the annual HILDA statistical report shows how average disposable incomes for all households in Australia change over time.

Average annual disposable income for all households grew strongly in real terms (in December 2019 dollars) across Australia from 2001 to 2009, by an annual average of 3.1%. Average household income growth then plateaued over the next 9 years to 2018 (up by an annual average of just 0.3%). In the 12 months to 2019 average household disposable incomes grew more strongly by 2.8% (in real terms) from $97,047 to $99,764 (see Figure 5).

Figure 5          Average disposable household equivalised incomes in Australia (December 2019 dollars), 2001 to 2019

Source: Roger Wilkins et al., The Household, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 19, Melbourne Institute: Applied Economic & Social Research, the University of Melbourne.

Similar trends can be observed with average individual (or per person) household equivalised income, which indicates little or modest change in household composition between 2001 and 2019. Individual average household equivalised income grew by an annual average of 3.1% in real terms between 2001 and 2009, followed by average annual growth of 0.4% between 2009 and 2018. Growth in individual average household equivalised income was much stronger in 2019 – up 3.1% from $57,727 to $59,538.

Households headed by couples with dependent children experienced the strongest annual average growth in median individual (or per person) household equivalised income between 2001 and 2009 (up 3.5% in real terms), but this growth rate fell to an annual average of just 0.6% per annum in the next 10 years between 2009 and 2019. Real incomes per individual in households headed by sole parents increased at an annual average of 3.2% between 2001 and 2009, but only grew by an annual average of 0.1% in the next 10 years to 2019.

Regional trends in household incomes

There has been some disparity in household income growth rates recorded in mainland capital cities and states and territories in the past 2 decades.

HILDA data shows average annual growth in median individual (or per person) household equivalised disposable incomes between 2001 and 2009 was highest in Perth (up 4.2% in real terms) followed by Brisbane (up 3.6%). The Northern Territory and the ACT recorded increases of 3.8% and 3.2% respectively.

Of the 5 mainland capital cities, Melbourne and Brisbane were the only cities to record average annual growth in median individual household disposable incomes of 1% or more in the decade between 2009 and 2019 (at 1.1% and 1.0% respectively in real terms). Of the states and territories growth in median incomes between 2009 and 2019 was strongest in Victoria (up 1.5% per annum in real terms) and weakest in Queensland (down 0.3%) and the ACT (no change).

Relative income poverty

Relative income poverty is generally measured by calculating the percentage of the population that is below a poverty line, or threshold, usually set at 50% of median household equivalised income. Data included in the 2021 HILDA statistical report shows the proportion of the population below the relative poverty line in Australia fell from 13% in 2007 to 9.8% in 2016 but has since increased to 11.3% in 2019 (latest available data) (see Figure 6).

Figure 6          Trends in rate of relative income poverty in Australia, 2001 to 2019

Source: Roger Wilkins et al., The Household, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 19, Melbourne Institute: Applied Economic & Social Research, the University of Melbourne.

Some household types have higher relative income poverty rates than others. In 2019, single parent households had a relative income poverty rate of 22.2% compared with only 5.1% for households headed by couples with dependent children.

Older couples had a relative income poverty rate of 22.3%, while single elderly males (aged 65 years or over) and females had much higher relative income poverty rates (at 32.5% and 37.0% respectively). The results for older people are influenced by their greater likelihood of having left the workforce and no longer having access to earnings from work. Instead, they rely on the Age Pension or superannuation payments which tend to be lower than the income they received when working.

Unsurprisingly, owning your own home can reduce housing costs, particularly in retirement. When these costs are accounted for the relative income poverty rate for older couples falls to 14.0% in 2019. But the rates for single older men and women after housing costs are accounted for are still substantial at 26.6% and 24.4% respectively in 2019. And the poverty rate for households headed by single parents increases to 30.9%. These outcomes reflect the increased likelihood of older people owning their own home outright compared with younger people and sole parents.

The OECD provides comparisons of relative income poverty rates using a 50% poverty line threshold after taxes and transfers. At 12.4% in 2018, Australia recorded the 12th highest relative income poverty rate using this measure among 33 OECD countries that provided information. The UK (at 11.7%) and Canada (11.8%) had slightly lower poverty rates than Australia, while Denmark and Finland had much lower rates (at 6.4% and 6.5% respectively). The US had the highest poverty rate at 18.1% (see Figure 7).

Figure 7          Relative income poverty rates (a), 2018

(a) The rate is the proportion of population below 50% of household equivalised income after taxes and transfers.

Source: OECD Data.

Impact of temporary COVID-19 income support measures on poverty rates

Modelling undertaken by the ANU Centre for Social Research and Methods in August 2020 showed the introduction of temporary extra COVID-19 income supports (notably the Coronavirus Supplement and JobKeeper payment) contributed to a dramatic lowering of poverty rates for people receiving income support. The poverty rate for people living in households whose main source of income was Newstart or Youth Allowance (Other) prior to COVID-19 was extremely high at just over two-thirds (67.3%). Modelling of the impact of the Coronavirus Supplement showed that its introduction almost eliminated poverty for these households, reducing the poverty rate to just 6.8%. The authors predicted the less generous payments scheduled from September 2020 would see this group return to a poverty rates of around 23.9%.

A report published by the Australian Council of Social Service (ACOSS) and the University of New South Wales (UNSW), using the modelling undertaken by ANU Centre for Social Research and Methods, stated that just over 2.6 million Australians were living in poverty in June 2020, compared with just over 3 million in 2019. It should be noted that the ACOSS measure takes account of housing costs when measuring poverty. Housing tends to be the largest fixed cost for most household budgets. This means that those families with lower housing costs, especially those who own their homes outright, have a higher standard of living than those on the same income who still have housing costs (such as paying a mortgage or rent).

Based on the ANU modelling, the authors of the report claim there would have been 5.8 million Australians in poverty in June 2020 had the extra COVID-19 income supports not been introduced. It was estimated that 9.9% of people were below the (50% of median household income) poverty line in June 2020, compared with 11.8% in 2019, while 22.7% would have been in poverty in June 2020 without the new income support arrangements. The poverty rate of people living in households that relied on the JobSeeker Payment fell from 76% in 2019 to 15% in June 2020. Poverty rates for people living in households headed by sole parents fell from 34% to 19% for the same period.

The impact of the tax and transfer system on income inequality

Australia has a highly targeted and progressive tax and transfer system that is used to reduce income inequality. This results in the lowest quintile (or bottom 20%) of the household income distribution receiving the highest shares of total social assistance benefits (such as Family Tax Benefits) and transfers (such as Medicare rebates) while paying the lowest shares of taxes. The opposite is true for those in the highest quintile (or top 20%) of the household distribution. For example, ABS data shows in 2015-16 the top 20% of all households paid around 50% of all taxes on income and production while the bottom 20% paid only 5%. In terms of social benefits the bottom 20% received 37% while the top 20% received around 11%.

In its 2018 report Rising inequality? A stocktake of the evidence the Productivity Commission found:

Income tax and government transfers have typically lowered the measure of overall income inequality (the Gini coefficient) by 30 per cent, an equalising effect that far outweighs the overall increase in the measure since the late 1980s. This equalising effect has fluctuated over time, but overall there has been no material change in the past thirty years.

Figure 8 shows the impact of taxation, social assistance benefits and social transfers on the share of total gross disposable household income going to Australian households in 2019–20. The effect of the tax transfer system contributes to the total household income share going to the top 20% (or highest quintile) of the household income distribution falling from 47.9% to 35.2% while the share accruing to the bottom 20% (or lowest quintile) almost triples from 4.0% to 11.8%.

Figure 8          Quintile shares of gross disposable household income, 2019–20

Source: ABS, Australian National Accounts: Distribution of Household Income, Consumption and Wealth, 2019–20.

Household net worth or wealth

Household net worth or wealth is the stock of financial and non-financial assets held by households minus their liabilities. Household assets include bank accounts, superannuation balances; shares and trusts; and the value of own businesses. Liabilities of households take the form of loans outstanding that include mortgages, borrowing from other households, investment loans, credit card debt, and personal and study loans.

Household wealth or net worth tends to be more unequally distributed than household income (see Figure 9). The bottom 20% of the household distribution accounted for 7.4% of total equivalised household disposable income in 2019–20, but only 0.7% of total household wealth. The lowest quintile’s share of total household wealth has fallen slightly from 0.9% in 2009–10 while their share of total household income has remained the same.

The highest quintile (or top 20%) of the household income distribution accounted for 62.8% of all household wealth in 2019–20- up from 61.8% in 2009–10. During the same 10-year period the highest quintile’s share of total household income fell slightly from 40.2% to 39.8%.

Figure 9          Quintile shares of equivalised disposable household income and household net worth, 2019–20

Source: ABS, Household Income and Wealth, Australia, 2019–20.

Figure 10 shows the percentage change in average household net worth by quintile in the decade to 2019–20 and the 2 years to 2019–20. While the top 2 percentiles experienced substantial increases in average household net worth (of 20.4% and 21.3% respectively) in the decade to 2019–20 they experienced a small contraction in household wealth in the 2 years to 2019–20 (of 2.0% and 0.6% respectively).

Figure 10        Percentage change in average household net worth (or wealth) by quintile

Source: ABS, Household Income and Wealth, Australia, 2019–20, (Parliamentary Library calculations).

Wealth inequality as measured by the Gini co-efficient increased from 0.593 in 2011–12 to 0.621 in 2017–18, before falling to 0.611 in 2019–20 (see Figure 11).

Figure 11        Gini co-efficient for household net worth or wealth, 2009–10 to 2019–20

Source: ABS, Household Income and Wealth, Australia, 2019–20

In its highlight report on the extent of inequality (p. 6) the Productivity Commission concluded

On average, households in all but the bottom decile experienced real increases in wealth, predominantly in housing assets and superannuation balances over the past fifteen years. However, with the growth in wealth strongest in the upper deciles, some measures of wealth inequality have risen.

While wealth distribution in Australia somewhat predictably is more unequal than income or consumption, Australia’s wealth distribution remains less skewed than in other countries.

Conclusion

Various data sources show income inequality has fallen marginally in Australia over the past 7 to 8 years whereas relative income poverty has increased slightly.

In the 2 years to 2019–20 growth in incomes was modest, but fairly evenly spread across the household distribution. In the same 2-year period, the top 40% and bottom 20% of the household distribution experienced small declines in average household wealth in real terms.

Further reading

Roger Wilkins et al., The Household, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 19 (Melbourne: University of Melbourne, 2021)

P. Davidson, A Tale of Two Pandemics: COVID, Inequality and Poverty in 2020 and 2021, ACOSS/UNSW Sydney Poverty and Inequality Partnership, Build Back Fairer Series,
Report no. 3, (Sydney: ACOSS and UNSW, 2022).

Ben Phillips,  Matthew Gray, and Nicholas Biddle, COVID-19 JobKeeper and JobSeeker Impacts on Poverty and Housing Stress under Current and Alternative Economic and Policy Scenarios (Canberra: ANU Centre for Social Research and Methods, 29 August 2020).

Productivity Commission, Rising Inequality? A Stocktake of the Evidence, (Canberra: Productivity Commission, 2018).

Rosalie McLachlan, Geoff Gilfillan and Jenny Gordon, Deep and Persistent Disadvantage in Australia, Staff Working Paper, (Canberra: Productivity Commission, July 2013).

 

 

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