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

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

The housing market is heading into choppy waters

With rates on hold and housing demand strong, lenders are pushing boundaries. As risky products return, borrowers should be cautious and not let clever marketing cloud their judgment.

Why it’s time to ditch the retirement journey

Retirement isn’t a clean financial arc. Income shocks, health costs and family pressures hit at random, exposing the limits of age-based planning and the myth of a predictable “retirement journey".

Taking from the young, giving to the old

Despite soaring retiree wealth, public spending on older Australians continues to rise. The result: retirees now out-earn the young, exposing structural flaws in the tax system and challenges for fiscal sustainability.

Welcome to Firstlinks Edition 637 with weekend update

What should you do if you think this market is grossly overvalued? While it’s impossible to predict the future, it is possible to prepare, and here are three tips on how to best construct your portfolio for what’s ahead.

  • 13 November 2025

Latest Updates

Investment strategies

Howard Marks: AI is "terrifying" for jobs, and maybe markets too

The renowned investor says there’s no shortage of speculative investors chasing AI riches and there could be a lot of money lost in the process. His biggest warning goes to workers and the jobs which will be replaced by AI.

Property

The 3 biggest residential property myths

I am a professional real estate investor who hears a lot of opinions rather than facts from so-called experts on the topic of property. Here are the largest myths when it comes to Australia’s biggest asset class.

Retirement

Australia's retirement system works brilliantly for some - but not all

The superannuation system has succeeded brilliantly at what it was designed to do: accumulate wealth during working lives. The next challenge is meeting members’ diverse needs in retirement. 

Retirement

Retirement affordability myths

Inflated retirement targets have driven people away from planning. This explores the gap between industry ideals and real savings, and why honest, achievable benchmarks matter. 

Retirement

Can you manage sequencing risk in retirement?

Sequencing risk can derail retirement, but you’re not powerless. Flexible withdrawals, investment choices and bucketing strategies can help retirees navigate unlucky markets and balance trade-offs.    

Retirement

Don’t rush to sell your home to fund aged care

Aged care rules have shifted. Selling the family home may no longer be the smartest option. This explains the capped means test, pension exemptions and new RAD exit fees reshaping the decision.

Shares

US market boom-bust cycles - where are we now?

This gives comprehensive data on more than 100 years of boom and bust cycles on the US stock market - how the market performed during these cycles, where the current AI uptick sits, and what the future may hold.

Property

A retail property niche offers a lot more upside

Retail real estate is outperforming as a cyclical upswing, robust demand and constrained supply drive renewed investor interest. This looks at the outlook and the continued rise of convenience assets. 

Sponsors

Alliances

© 2025 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.