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Friday, April 01, 2016

Melbourne Institute: The uber-rich are earning more, and more

The top 1 per cent of Australian earners amassed an extraordinary 9 per cent of Australian income in 2013, the highest proportion since the 1950s.

As recently as the early 1980s the top 1 per cent took in just 4.4 per cent.

An analysis of the latest tax statistics to be published by the Melbourne Institute shows the top 0.1 per cent - a mere 18,750 people - took in 2.7 per cent, also the highest take since the 1950s.

The starting income for the top 1 per cent was $237,300. On average each earned $438,100.

The entry income for a member of the top 0.1 per cent was $608,700. On average each earned $1.3 million.

The figures are the incomes reported to the Tax Office, leaving open the possibility that actual incomes might be higher. They are gross figures, before tax and deductions, and adjusted to take account of the people who do not file tax returns.

The national average for all Australians aged 15 and older was $48,800.

The highest earners are different from the rest of us. They get big chunks of their income from sources other than wages, salaries and benefits.

In 2013 the top 10 per cent earned about one quarter of their income from other sources, including shares. The top 1 per cent earned almost half from other sources and the top 0.1 per cent earned more than two thirds of their income from other sources.

The figures show a rapid growth in the proportion of their income high earners are getting from other sources. Ten years earlier the top 10 per cent obtained only one fifth of its income from non-wage sources, the top 1 per cent only 40 per cent, and the top 0.1 per cent, 60 per cent.

But Melbourne Institute professorial research fellow Roger Wilkins says much of the very recent growth in high earnings has been due to salaries.

"The top 1 per cent are more likely to be in the global labour market," he says. "Technological change is making highly skilled workers increasingly valuable."

"Also, in the years to 2013 they had benefited from repeated tax cuts. Although these are pre-tax incomes, there's evidence to suggest that cuts in tax also boost reported before-tax incomes. One reason is that people find creative ways to hide or lower their income. There's less point in trying when rates are lower, so we might be getting a more accurate reading."

"And it takes effort to secure wage increases. The higher the tax rate, the less worthwhile it becomes because you keep less of what you bargained for. Lower rates make wage increases more worthwhile."

Asked whether it mattered that high income Australians were getting larger and larger shares of national income, Professor Wilkins said that depended on why their incomes were climbing. If if was because they were being entrepreneurial and working harder their higher incomes would be boosting the economy, but if it was because they were seeking favours it would be harming it.

"Look at the people in the BRW Rich 200 list. A fair proportion of them are in property and mining. These are not entrepreneurial areas. These are areas where what matters most is the ability to deal with government and get monopoly rights over mining and property developments."

"To the extent that the growing income of high earners is driven by developments like that, things like the College of Surgeons controlling entry into their profession so it can charge high prices, to the extent it is driven by that, and to some extent it is, it is unambiguously bad. It's not fuelling broader economic growth or income growth."

In The Age and Sydney Morning Herald