What is inequality?

Inequality means the unequal distribution within society of income, wealth and goods. In this website we measure inequality in two ways: income inequality and wealth inequality.

What is income inequality?

Income inequality in the unequal distribution of income in society. ACOSS and UNSW measure income inequality by dividing the population into groups of 20% by income, then into the highest 10%, 5% and 1% income groups, which are compared with the income of the lowest 20% income group. We look at the main drivers of income inequality by breaking income down into earnings, investment income, government income support payments and income tax; and we look at where different population groups, such as sole parents, people receiving JobSeeker Allowance, and people receiving income from superannuation are located on the income scale. Income is measured using the Australian Bureau of Statistics’ Survey of Income and Housing. Find out more on our methodology page.

What is wealth inequality?

Wealth inequality is the unequal distribution of wealth in a society. Wealth is measured through assets held in the main home, superannuation, shares and other financial assets, investment real estate and other non-financial assets, such as cars. We divide the population into five groups based on household wealth, from the lowest 20% wealth group to the highest 20% wealth group. We also examine the highest 10% and 5% groups, and compare wealth holdings with those in the lowest 20% wealth group. Wealth is measured using the Australian Bureau of Statistics’ Survey of Income and Housing. Find out more on our methodology page.

Why is inequality a problem?

Excessive inequality in any society is harmful.

A system that leaves people behind is bad for the economy as well as people. When resources and power are concentrated in fewer hands, economic growth is diminished. People trapped in poverty face harsh barriers to finding paid work or gaining skills to improve their chances in the competitive job market. When people have to go without meals, sleep on the streets or can’t afford healthcare, we are seeing the impacts of inequality.

By reducing inequality, we can enjoy the collective peace of mind that there is enough funding for the services we need, such as health and aged care, and that when people fall on hard times they still have enough to meet their basic needs.

How unequal is Australia?

Everyone should be able to put food on the table and have a safe, secure place to live. Australia is one of the wealthiest countries in the world (judging by median wealth), and we pride ourselves on being ‘the land of the fair go’, but many people would be surprised to find how stark the gap is between the few who have a great deal and the many who are struggling to get by with very little.

Income inequality in Australia

In Australia, someone  in the highest 20% of the income scale lives in a household with almost six times as much income as someone in the lowest 20% of the income scale:

The differences between the average incomes of low, middle and high-income households in Australia are large. Someone in a household that falls in the highest 20% income group has more than twice the average disposable income of the middle 20% income group and six times as much as someone in the lowest 20% income group. The average income of the middle income group is almost three times that of the lowest income group.

At the top end, income is even more heavily concentrated. The average income of the highest 5% income group is nearly four times the income of the middle 20% and nine times that of the lowest 20% income groups; while the average income of the highest 1% income group is almost three times that of highest 20% income group.

People in the highest 20% income group receive 42% of all national income, which is more than the share of the lowest 60% combined. People in the lowest 20% receive only 6% of all household income, while the second lowest 20% receive 12%.

* Note the data is based on the latest available figures, which are from 2017-18.

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Wealth inequality in Australia

People in the highest 20% of the wealth scale hold nearly two thirds of all wealth (64%), while those in the lowest 60% hold less than a fifth of wealth (17%).

The average wealth of a household in the highest 20% wealth group, at $3.25 million, is six times that of the middle 20% wealth group, at $565,000, and over ninety times times that of the lowest 20% wealth group, at $36,000.

The average wealth of the highest 5% wealth group is $6,795,000.

Australia has the fifth highest number in the world of people with ultra-high wealth (more than US $500 million).

Credit Suisse’s Global Wealth Report 2018 found Australia is the wealthiest country in the world, judging by median wealth ($US per adult), and their Global Wealth Report 2019 found Australia to be the second wealthiest country in the world.

What are the components of income and wealth inequality?

Components of income

Households in Australia get their income from three main sources:

(1) Wages and salary;

(2) Investments, including superannuation; and

(3) Social Security payments.

Wages

Wages make up the largest portion of these three sources, representing 77% of household income. This means that wages are a large contributor to income inequality. The highest 20% income group receives almost three times the average wages of the middle 20% income group, averaging $4,363 a week before tax, compared with $1,645. The middle income group receives six times more wages as the lowest 20% income group, at $1,645 a week compared with $256.

Employment status is a key driver of inequality. Within the lowest 20% income group, only 24% of adults have paid employment, and less than half of these jobs are fulltime. In the middle 20% income group, the rate of paid employment is higher, with 68% of adult household members employed, and 42% of these workers in full-time jobs. The highest 20% income group is relatively ‘work rich’, with 87% of adults in these households in paid work, with 67% of them in full-time jobs.

Investment income

Income from investments, such as interest, rent, dividends, royalties and superannuation represents a small part of total income, but is highly concentrated in high-income households. The middle 20% income group have an average $150 a week from investments and other private sources, while the highest 20% income group had five times as much investment income, at $705 a week; and the highest 5% income group had eight times as much investment income, at $1,125 a week. The greater disparity in investment incomes (compared with earnings) is a by-product of the highly unequal distribution of wealth in Australia.

Social Security payments

Social Security payments account for the majority of income at the lower end of the income distribution. Recipients of the maximum rate of JobSeeker Allowance are over-represented (compared with other social security payments) in the lowest 5% income group, while those receiving the maximum rate of pensions are over-represented in the second 5% income group.

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Components of wealth

Wealth in Australia is made up of:

– main home;

– superannuation;

– shares and other financial assets;

– investment real estate; and

– other non-financial assets, such as cars.

The average wealth per household is made up of 39% main home; 20% superannuation; 19% shares and other financial assets; 12% investment real estate; and 10% other non-financial assets.

Ownership of some types of wealth is very concentrated. The highest 20% wealth group owns over 80% of all wealth in investment properties and shares, over 70% of all superannuation assets; and 54% of all wealth in main homes.

However, wealth holdings across income groups is more evenly distributed, due in large part to high levels of home ownership among retired people on relatively low incomes. The highest 20% income group had an average wealth of $1,952,000, almost three times the middle 20%, at $711,000, and almost four times that of the lowest 20% income group.

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Who is affected by inequality?

Income Inequality

Social security payments represent 54% of income for those in the lowest 20% income group. People receiving JobSeeker Payment (formerly Newstart Allowance) and Parenting Payment are more likely to be in the lowest 10% income group, while those reliant on Age and Disability Pensions are more likely to be in the second lowest 10% income group.

Older people and children are more likely to be in the lowest 40% income group, which contains 66% of people aged 65 and over, and 45% of children under 15.

Almost half (48%) of people of working age (between 16 – 64) were in the highest 40% income group.

Households where the main earner is female, especially those with dependent children, are more likely to be in the lowest 20% income group  than those where the main earner is male (29% compared with 14%).

Various groups of people are over-represented in the lowest 20% income group. These are: 39% of sole parents; 41% of those aged over 65; and 24% of people born in non-English speaking countries.

Other groups of people are over-represented in the highest 20% income group. These are: 25% of people of working age; 28% of couples without children; 29% of people in households with a male main earner, aged under 65, with no children; and over 25% of those living in Sydney, Perth, the ACT or the NT.

Wealth Inequality

During the period 2003-04 to 2015-16, household wealth shifted from younger to older age groups. The average holdings of owner-occupied housing among the under-35 age group declined, while it increased in households with older people, reflecting the growing difficulties for younger people in purchasing their own home.

Wealth inequality increased most strongly between people under 35 years during the same period – that is, the gap between wealthier and less wealthy younger people grew in this period. This was due mainly to growth in the average value of shares, financial and business assets and investment property held by younger households.

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How has inequality changed?

Income Inequality

After steady increases between 1980-81 and 1999-00, between 1999-00 and 2007-08, income inequality reached a peak during the Global Financial Crisis (GFC), and has since plateaued (to 2007-08).

This means that, although inequality is no higher now than in 2007-08, it is still higher than in any year between 1999-00 and 2007-08, and almost certainly than in any year between 1980 and 1999.

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Wealth Inequality

Average household wealth rose strongly during the period 2003-04 to 2008-09, from $644,000 to $836,000; fell during and after the GFC to $802,000 in 2010-11, then rose again to $936,000 in 2015-16.

The fastest growing assets were superannuation and investment property, reflecting changes to the superannuation system and a property boom. Because these two assets were more concentrated in the highest wealth groups, these represent the main contributors to growing wealth inequality over the period.

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How does inequality in Australia compare with other countries?

Income Inequality

Income inequality in Australia was higher than the Organisation for Economic Co-operation and Development (OECD) average in 2015 (the latest year for which data is available). In the OECD rankings, Australia is between other English speaking countries – above Canada, but below the United States and the United Kingdom; and alongside some countries with lower income levels, such as Greece and Portugal. Most European countries had substantially lower inequality than Australia.

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Wealth Inequality

Comparing wealth distributions in different countries is difficult because of different methods of calculating household wealth. A recent OECD report found that in 2010, Australia’s wealth distribution was more equal than the OECD average, but the average in that report was skewed significantly upwards by the United States, which had very high wealth inequality.

More recent OECD estimates find that the share of household wealth held by the highest 10% and lowest 60% of households in 2014 in Australia was more equal than the OECD average. The high share of Australian household wealth held in owner-occupied household is one likely reason for this.

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Inequality in the media