Distribution of Income & Wealth

What is income (distribution context)?

Money earned for contributing to production - wages, salaries, interest, dividends, rent, business profits. A FLOW - it changes over time

What is wealth (distribution context)?

Assets owned at one point in time - real assets (property) and financial assets (shares, bonds, super). A STOCK - it builds up and generates future income

What is the Gini coefficient? Australia's current value/rank?

A measure of income/wealth equality, from 0 (perfect equality) to 1 (perfect inequality); Australia's income Gini is 0.307 (2022-23), ranked 17th of 32 OECD countries

What is the Lorenz Curve?

A graph plotting cumulative % of income received against cumulative % of population (ranked by income); the further it bows away from the 'line of equality', the higher the Gini coefficient

What is the Gini coefficient formula from the Lorenz Curve?

Gini = A ÷ (A+B), where A and B are areas relative to the line of equality (usually given in exams)

Income Gini coefficient, 1995-96 to 2021-22?

0.296 → 0.311 → 0.314 → 0.329 → 0.323 → 0.324 → 0.318 → 0.318 (fairly steady, peaked around 2009-10)

Income share by quintile, 1995-96 vs 2021-22 (lowest to highest)?

Lowest: 8.1% → 8.1%. Second: 13.0% → 12.6%. Third: 17.7% → 16.6%. Fourth: 23.9% → 21.8%. Highest: 37.3% → 40.9% - the top quintile's share has grown the most

Wealth Gini coefficient, 2005-06 to 2019-20?

0.581 → 0.602 → 0.593 → 0.605 → 0.605 - wealth inequality is much higher than income inequality

Wealth share by quintile, 1998-99 vs 2019-20 (lowest to highest)?

Lowest: 0% → 0.7%. Second: 3.0% → 4.8%. Third: 10.0% → 11.3%. Fourth: 22.0% → 20.5%. Highest: 65.0% → 62.8% - the top quintile holds well over half of all household wealth

Sources of income: Wages and Salaries, share?

57.9% - the main income source for most households

Sources of income: Business Profits and Property Income, shares?

Business Profits: 17.7%. Property Income: 12.7% (rent, interest, dividends)

Sources of wealth: Owner Occupied Housing?

The single biggest part of household wealth - long-term asset growth

Sources of wealth: Superannuation and Savings in Financial Institutions (2019-20)?

Super: 18.6% (~19%). Savings: 6.6% (~7%)

Sources of wealth: Contents of House and Own Business Assets (2019-20)?

Contents of House: 6.1%. Own Business Assets: 5.2%

Sources of wealth: Shares/Trusts/Bonds and Vehicles (2019-20)?

Shares/Trusts/Bonds: 5.1%. Vehicles: 2.2% (a depreciating asset)

What was wrong with the ORIGINAL 'Stage 3' tax cuts?

They would have cut a high-income earner's tax rate 6x more than someone on median income - making the system much less progressive, worsening distribution

What did the REVISED 'Stage 3' tax cuts actually do?

Cut the two lowest brackets and raised the top two thresholds, giving ALL taxpayers about a 2% cut - almost no effect on inequality

What shaped both versions of the Stage 3 tax cuts?

Political constraint

Australia's Gini coefficient before vs after tax and transfers?

Pre-tax: 0.44 → After: 0.307

What is bracket creep?

Inflation pushes people into higher tax brackets even though their real income hasn't grown; governments adjust thresholds over time to reduce this

2025-26 tax brackets: $0-$18,200 and $18,201-$45,000?

$0-$18,200: no tax. $18,201-$45,000: 16c per $1 over $18,200

2025-26 tax brackets: $45,001-$135,000 and $135,001-$190,000?

$45,001-$135,000: $4,288 + 30c per $1 over $45,000. $135,001-$190,000: $31,288 + 37c per $1 over $135,000

2025-26 tax bracket: $190,001+?

$51,638 + 45c per $1 over $190,000

What is a regressive tax? Why is GST regressive?

Lower earners pay a bigger share of their income in tax. GST (flat 10%) is regressive because poorer households spend more of their income on consumption, while richer households save more

How does the government soften GST's regressive impact?

No GST on fresh food, health, and education

What are excise taxes? Why are they regressive? Give 4 examples.

Taxes on specific goods, fixed per unit (not tied to income) - regressive since lower earners spend more of their income on them. Examples: fuel, tobacco, alcohol, gambling excise

What are transfer payments? What's their purpose? Give 4 examples.

Government payments with nothing given in return, mostly means-tested for low earners; aim to guarantee a minimum living standard and cut poverty. Examples: Age Pension, JobSeeker, Family Tax Benefit, Rent Assistance

What share of government spending goes to social security/welfare?

About 37%

2024-25/2025-26 electricity rebates - amounts and total?

$300 per household, $325 per small business (2024-25), plus a further $150 credit (2025-26); $1.8bn extra on top of nearly $5bn in bill relief overall

What's the limit of the electricity rebates' redistributive effect?

They went to ALL households (not means-tested), weakening their effect on distribution

Rent Assistance increase, 2024 - amount and purpose?

Up $70/week - a non-taxable fortnightly payment for people already on other government support, to raise disposable income for low-income earners

Gender: income and super gaps?

Full-time women earn ~88% of full-time men's earnings (2023); the super gap sits around 25% (from career breaks and lower-paid industries)

Gender: the 'glass ceiling'?

Women are underrepresented in senior roles despite similar education; female-heavy jobs (health, education) tend to have slower wage growth and fewer promotions

Age: income and wealth over a lifetime?

Income is low in youth, peaks at 35-54, falls after retirement; young people face higher unemployment/underemployment (~10-12%); wealth peaks after 55 (property, super), creating a generation gap

Occupation: the skill-income link, with figures?

Managers earn ~$2,000/week vs Labourers ~$900/week; global/tech industries (finance, engineering, IT) pay a premium; gig economy growth has made lower-skill jobs less secure

Ethnicity: migrant income over time?

First-generation migrants from non-English-speaking backgrounds earn less at first (language, unrecognised qualifications, discrimination); the gap narrows after 10+ years as they settle in

Ethnicity: Indigenous vs non-Indigenous income gap (2021)?

Indigenous median weekly household income: $825 vs non-Indigenous: $1,141 - a $316 gap

Family structure: income and wealth patterns?

Dual-income households earn much more than single-parent/single households (but spend more too); single parents are overrepresented in lower quintiles; wealth is heavily skewed to childless couples nearing retirement (property, super)

Benefits of inequality: Incentive Effect and Allocative Efficiency?

Incentive: bigger rewards motivate work, study, and entrepreneurship. Allocative: higher pay pulls workers into industries short of staff, using resources better

Benefits of inequality: National Savings and Entrepreneurial Development?

Savings: high earners save a bigger share of income, funding investment. Entrepreneurship: high rewards drive innovation and new business, creating growth and jobs

Costs of inequality: Reduced AD and Worsened Human Capital?

Reduced AD: money piling up with big savers means less spending, slowing growth. Human Capital: poorer families invest less in education/health, hurting future workforce quality

Costs of inequality: Poverty Traps and Bigger Welfare Burden?

Poverty Traps: disadvantage passes down generations, locking in low income long-term. Welfare Burden: more public spending needed for support programs

Social benefit of inequality: Potential Social Mobility?

Inequality can push people to improve their skills/education, if the opportunity is there

Social cost of inequality: Reduced Overall Utility?

Extra income means less to a rich person than the same money would to a poor person (diminishing marginal utility) - so redistributing raises total wellbeing

Social costs of inequality: Exclusion and Instability?

Poverty excludes people from full participation in society; deep inequality weakens social cohesion, raises crime, fuels unrest

Social costs of inequality: Health and Trust?

Health: lower-income groups see more mental illness, chronic disease, shorter lives. Trust: high inequality erodes faith in government, banks, and democracy