Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 261

In Australia, who’s got the money?

[Editor's introduction. In The Sydney Morning Herald on 29 June 2018, columnist and advertising executive Howard Mitchell described how he first met "the brilliant Phil Ruthven" when their businesses were both starting out. "Forty-two years later, his company, Ibis World, has a staff of 450 providing astute forecasts to business and government. Phil’s forecasts about our rapidly changing world have been a key part of my business planning for decades." 

The recent taxation bills in Federal Parliament generated the usual heated arguments from the benches. The legislation was in no way ‘reform’ as some claimed, since it only dealt with personal and business income tax, and the GST was left untouched. Many other indirect taxes, such as payroll tax and stamp duties, were also unchanged recently at the state level.

Income taxes versus spending taxes

The broad principle of wealth creation by going easier on taxing incomes and going harder on taxing spending has been ignored yet again. The current ratio of income taxes to spending taxes (such as GST, customs, excise and stamp duties) is over 2.5:1 in favour of income taxes on wealth creation. Hardly a recipe for higher savings and investment as a share of GDP.

So-called class warfare has become the order of the day. Is there substance to the claim that the rich are getting richer and the poor, poorer? Not quite, allowing for the changes in household structures and age groups. More on this shortly.

Wealth and income inequality in Australia

The first chart shows the latest ABS data (FY16) on income and wealth distribution as it applies to quintiles (each one fifth of all households).

Click to enlarge

Yes, the richest and well-off 40% of all households enjoyed 71% of gross incomes and had 83% of the wealth (net worth). But they paid 87% of all income taxes, and the remaining 60% of all households paid 13% of all income taxes. This diluted the disposable income shares of the affluent 40% from 71% to 63%, and lifted the struggle and poorest 40% of households from 13.4% of gross incomes to over 20%.

So, are the poor getting poorer?

Interestingly, no. The next chart shows the changing distribution of gross incomes over the past 20 years. The Struggle and Poorest sectors have kept the same share, virtually unchanged. In disposable income terms, their higher share has also remained constant. If anything, there has been a slight dilution of the middle-income sector, but hardly anything to write home about.

Click to enlarge

Then again, we need to be careful with terms such as ‘struggle’ and ‘poor’. Lest we think of strugglers as being big families with one income, or the poor as elderly pensioners, it isn’t that simple. Among the so-called poor in both income and wealth measures, there are many students at universities with minimal incomes who have not yet had the time to accumulate assets.

Holding up the ‘middle’ quintile’s share are growing numbers of retired baby-boomers, who have had much more opportunity in salaries and wealth accumulation than older generations that experienced the Great Depression of the 1930s and World War II. This is giving them a better lifestyle via their investments. The eventual retirement of the Gen Xers (37-52 years-of-age today) will amplify this trend even more so, given their near-entire working lifetime with superannuation savings. They are more financially savvy too.

The recent tax changes have been about addressing bracket-creep and lowering corporate taxes, in line with overseas trends. The bracket creep issue has not been as great as in the past because of very low inflation and slow-growing incomes, the result of an under-performing economy over the past 10 years.

Are our corporates doing well by global standards?

Some argue that the corporate tax case was not strong considering how poorly our top corporations perform compared with our US cousins, as the final chart shows. Our profitability is half theirs.

Click to enlarge

If our big end of town wanted to make better net profits, then becoming more profitable by global standards would be better than just paying slightly less income taxes.

It seems genuine taxation reform is on the too-hard list along with other overdue reforms to the labour market, energy market, parliament (lack of the democratic-election principle with the unrepresentative Senate and its obstructionist power), and the Budget (balancing the books).

But compared with other western nations, we are still doing better, and we can preserve the moniker of the lucky country. Phew.

 

Phil Ruthven is Founder of IBISWorld and is recognised as one of Australia’s foremost business strategists and futurists.

 

  •   5 July 2018
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

If rising inequality leads to social unrest, we all suffer

Taxing the ‘rich’: the potential tax consequences of inequality

Income inequality and a crumbling model for capitalism

banner

Most viewed in recent weeks

Little‑known government scheme can help retirees tap into $3 trillion of housing wealth

The Home Equity Access Scheme in Australia allows older homeowners to tap into their home equity for retirement income, yet remains underused due to lack of awareness and its perceived complexity.

Origins of the mislabeled capital gains tax ‘discount’

Debate over the CGT discount is intensifying amid concerns about intergenerational equity and housing affordability. This analysis shows that the 'discount' does not necessarily favor property investors.

2 billion reasons to fix retirement income

A proposal to address Australia's 'stranded balances' in retirement by requiring super funds to transition members to pension phase at 65, boosting retirement income and reframing super as a source of income.

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Div 296 may mean your estate pays tax on assets your beneficiaries never receive

The new super tax, applying from 1 July, introduces more than just a higher rate on large balances. It brings into focus a misalignment between where wealth sits and where the tax on that wealth ultimately falls.

Do super funds need a massive wake up call?

UK retirement expert, Guy Opperman, believes super funds are failing at supporting members in deaccumulation. Here is what Australia should do about it. 

Latest Updates

Retirement

How inflation is quietly moving the goalposts on retirement

Inflation doesn’t just raise today’s bills - it quietly increases the amount needed to retire, while simultaneously making it harder to save. Three steps to take before June 30th to improve retirement outcomes.

Investment strategies

Three strategies for investing amid AI whiplash

AI fears have shifted from bubble talk to disruption anxiety, driving investors toward asset-heavy, 'AI-resistant' businesses while punishing many software and service firms. This environment may be ripe for stock pickers.

Investment strategies

Are private market assets the answer in an unstable world?

Private markets can offer diversification and return potential, but their opacity, scale and wide dispersion of outcomes make manager selection and due diligence critical for non‑institutional investors.

Property

Mispriced in plain sight: The case for Global REITs

Global REITs have fallen out of favour, trading at deep discounts after years of underperformance, despite resilient earnings and improving fundamentals.

Investment strategies

Survival is the only success

True financial success isn’t about how much you make, but whether you can sustain it — survival is the only win that matters.

Investment strategies

$42 billion too late

Why Australia's biggest energy bet may already be redundant while a less celebrated government program is exceeding expectations. 

Investment strategies

Do investors accept lower returns from assets that make them feel good?

Assets that deliver emotional satisfaction tend to offer lower financial returns, as investors accept an “emotional yield” in place of performance which shapes how investors approach ESG and unpopular assets.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.