# Study Notes: Inequality in Australia 2020 - Part 1 Overview ## Key Concepts and Definitions ### Income - **Before-tax income**: Total income from all sources before deductions like income tax and Medicare levies. Also called *gross income*. - **After-tax income**: Income remaining after taxes and levies are deducted. Also known as *net income* or *disposable income*. - **Sources of income**: - Wages and salaries - Business profits/losses - Investment income (e.g., interest, rent, dividends) - Government pensions and allowances - Private transfers (e.g., superannuation, child support) ### Wealth - **Net wealth**: Total value of a household's assets minus liabilities. Also referred to as *net worth*. - **Components of wealth**: - Real estate (e.g., own home, investment properties) - Financial assets (e.g., bank accounts, shares, superannuation) - Business assets - Liabilities (e.g., mortgages, credit card debt, student loans) ### Gini Coefficient - A measure of inequality: - **0**: Perfect equality (everyone has the same income/wealth) - **1**: Perfect inequality (one person has all the income/wealth) - The closer to **0**, the more equal the distribution. ### Equivalisation - A method to adjust household income to account for differences in household size and composition, ensuring fair comparisons. ### Quintiles - Population divided into five equal groups based on income or wealth levels: - **Lowest quintile**: Bottom 20% - **Highest quintile**: Top 20% --- ## Measuring Inequality ### Income Inequality - **Key Findings (2017)**: - The highest 20% of households earned nearly **6 times** the income of the lowest 20%. - Income growth between 1999-2007 was unequal: - Top 20%: **40% growth** - Middle and bottom 20%: **32-33% growth** - Income stagnation from 2007-2017 was more evenly distributed. For instance, if the average after-tax income of the lowest quintile was $20,000 in 1999, it grew to $26,400 by 2007 (32% growth). Meanwhile, the top quintile's income grew from $100,000 to $140,000 (40% growth). ### Wealth Inequality - **Key Findings (2017)**: - Average household wealth in Australia exceeded **$1 million**. - The top 20% held **90 times** the wealth of the bottom 20%. - Distribution of wealth types: - Top 20% owned: - **55%** of owner-occupied housing wealth - **80%** of financial investments and investment properties - **61%** of superannuation wealth - Superannuation wealth: - Top 20%: **$496,000** - Middle 20%: **$179,000** - Bottom 20%: **$58,000** Wealth inequality is driven by asset types like investment properties and shares, which are disproportionately owned by the wealthiest households. --- ## Trends in Inequality (2000-2017) ### Income Trends - **1999-2007 (Boom Period)**: - Income growth was faster for higher-income groups. - **2007-2017 (Post-GFC)**: - Income stagnation affected all groups, stabilizing inequality. ### Wealth Trends - **2003-2017**: - Wealth inequality increased significantly. - The average wealth of the top 20% grew **10 times faster** than the bottom 20%. - Key drivers: - Rising values of investment properties, superannuation, and shares. A common misconception is that income inequality directly mirrors wealth inequality. However, wealth inequality is often much more pronounced due to the accumulation of assets over time. --- ## International Comparisons - **Income Inequality**: - Australia's Gini coefficient for income inequality is moderate compared to other developed nations. - **Wealth Inequality**: - Australia has high average wealth but also significant wealth inequality, with the top 10% holding a disproportionately large share. Wealth inequality in Australia is among the highest in wealthy nations, largely due to the concentration of financial assets and investment properties in the hands of the top 20%. --- ## Impact of COVID-19 on Inequality ### Preliminary Observations - **Employment and Earnings**: - Paid working hours fell by **10%**. - Employment dropped by **6%** between March and May 2020. - Women and young people were disproportionately affected. - **Government Response**: - Introduction of the **JobKeeper wage subsidy**. - Doubling of working-age income support payments. For example, a single parent receiving Parenting Payment Single (PPS) saw their income support nearly double during the pandemic, helping to offset income losses from reduced working hours. Future reports will analyze the long-term effects of COVID-19 on income and wealth inequality as more data becomes available. --- ## Key Takeaways 1. **Income Inequality**: - The highest 20% earn nearly six times more than the lowest 20%. - Income growth has historically favored higher-income groups. 2. **Wealth Inequality**: - Wealth is highly concentrated, with the top 20% holding 90 times the wealth of the bottom 20%. - Asset types like investment properties and shares drive wealth inequality. 3. **Trends**: - Income inequality stabilized post-GFC, but wealth inequality has grown significantly over the last two decades. 4. **COVID-19**: - The pandemic has exacerbated income losses, particularly for vulnerable groups, but government interventions have provided temporary relief. Understanding the drivers of inequality (e.g., asset ownership, income growth patterns) is crucial for designing effective policies to reduce disparities. --- ## Practice Questions 1. **Conceptual**: - What is the Gini coefficient, and how does it measure inequality? - Explain the difference between income inequality and wealth inequality. 2. **Data Interpretation**: - Based on the report, how did income growth differ between 1999-2007 and 2007-2017? - Why is wealth inequality more pronounced than income inequality in Australia? 3. **Application**: - How might government policies like JobKeeper impact income inequality in the short term? What about the long term? Use real-world examples (e.g., changes in superannuation wealth) to support your answers.