A Growing Gap? Trends in Economic Wellbeing at the Top of the Spectrum in Australia

This study shows that there has been rapid change in many of the characteristics of households in the top decile group of the Australian income distribution over the decade to 2005-06. Compared to ten years earlier, the heads of households at the top of the income spectrum are now very much more likely to hold tertiary degrees, be in white collar jobs, be employees, and be home purchasers with a mortgage (rather than outright home owners). They are also likely to be childless and to draw an increasing proportion of their total income from investments. The impact of structural population ageing is now showing up clearly in the composition of the top decile, with a 50 per cent increase in the proportion of top decile household heads that are aged 60 years and over compared with ten years earlier. While the tightly targeted Australian cash transfer system became even more tightly targeted over the 10 years, with a commensurate decline in the proportion of cash transfers accruing to the top decile, changes in the income tax system favoured high income earners. The average tax rate (showing income tax paid as a percentage of gross income) declined from 29.4 per cent for top decile households in 1995-96 to 25.8 per cent by 2005-06. This was a sharper fall than that notched up by the average Australian household, whose average tax rate fell from 19.6 per cent to 18.3 per cent over the same 10 year period. This shift in the income tax burden away from taxpayers at the top of the income spectrum and towards the remainder of Australia was also confirmed by examining trends in the disposable incomes of a range of ‘typical’ Australian families. Overall, the slightly faster growth in the ‘market’ or ‘private’ incomes of the top decile, allied with the decline in their share of the tax take, resulted in the share of national income accruing to the top decile group increasing over the ten years to 2005-06.