Analyse the policies available to the government that impact on the inequality in the

distribution of income and wealth in Australia.

Income inequality refers to the degree to which income is unevenly distributed among people.
Similarly, wealth inequality refers to the degree to which wealth is unevenly distributed
among people. It is a feature of all economies with evidence suggesting that Australia is one
of the less equal societies in the industrialised world. Many of the factors which contribute to
income and wealth inequality are side effects of the drive to create a more efficient,
internationally competitive economy.
Government policy designed to reduce inequality in the distribution of income and wealth is
known as social policy and based upon changes to the tax-transfer system. Patterns in
government spending and revenue collection have the most direct impact on inequality in
Australia. Government intervention reduces income inequality through the progressive tax
system which reduces the pre-tax Gini coefficient, redistributing income to lower-income
earners through welfare and transfer payments. This includes income support to low income
earners, families with children on a single income, the unemployed and other disadvantaged
groups. Taxation can also be used to lower marginal tax rates for low income earners and
increasing the tax-free threshold. This was done in the 2000, 2003 and 2008/09 budgets.
Government initiatives also help ease the pressure by providing basic services to families at a
reduced cost to help them maintain an adequate standard of living. The Medicare Safety Net
provides families and individuals with financial assistance for high out-of-pocket costs for
out-of-hospital Medicare Benefits Schedule (MBS) services.
The impact of government policies aimed at creating a more equitable distribution of income
can be outweighed by the consequences of other macroeconomic policies. For example, the
use of monetary policy to slow the rate of economic growth can influence the distribution of
wealth. Most low income earners are borrowers and would be faced with high interest rates.
However, high income earners often have a net savings so high interest rates only further
increases their wealth.
Microeconomic reform initiatives require economic restructuring that can create
unemployment in the short term. Privatisation is often followed by price increases and
downsizing of the workforce to improve profitability for shareholders. This often targets
blue-collar workers of the industry while those higher up the corporate ladder are relatively
unaffected. Microeconomic reform is intended to improve efficiency, but in the short term,
the pursuit of efficiency is often in conflict with the pursuit of greater income equality.
However, the recent increase in the minimum wage to $15/hour has lessened the gap between
the lowest income earners and the rest of the workforce.
Like income, wealth is also unevenly distributed in the economy. The degree of inequality is
most acute at the top end of the scale, with individuals in the top quintile possessing average
levels of wealth nearly 3 times that of those in the next quintile. Fringe benefits tax on items
such as company cars and capital gains tax on the real gains from the sale of shares and real
estate are taxes on wealth and assist the redistribution as they are progressive taxes.
Compulsory superannuation is the most important recent government policy to improve the
distribution of wealth in Australia. Employers must contribute a minimum of 9% of an
employees wages to a superannuation fund. Between 1986 and 2004, the proportion of
employees covered by superannuation rose from 42% to 90% and this helped low income

earners maintain wealth until retirement age. The recent proposal in the 2010-11 budget to
raise the superannuation rate to 12% will help further bridge the gap. Under the
superannuation co-contribution scheme the Federal government will match contribution that
individuals make to their super fund up to $1000 for individuals earning less than $31,920.
Redistribution of income can also be seen through the use of the Resource Super Profits Tax
to raise the revenue for this increase in superannuation.
Since the early 2000s, Australia has experienced a reversal of the trend towards greater
inequality. Government policies have had a mixed impact on the distribution of income and
wealth. Progressive income taxation, social welfare payments, government services have
reduced inequality while microeconomic and labour market reforms have contributed to
rising inequality. A balance needs to be maintained between inequality and the economic
growth and development as the government will need to prevent an increasingly segregated
society or an economy shackled by socialist policies.
Compulsory superannuation of 9% during the 1990s to increase the level of saving and reduce the
inequality and improves the division of wealth.
Equal Employment Opportunities Act help reduce the gap between men and women as well as
racial groups
In recent years, successive government have sought to progressively increase the effective tax-free
threshold, in particular through the low-income earners Tax Offset that was increased in the 200910 Budget and in the 2012-2013 Budget the tax-free threshold was increase from $6000 to $18200.
Social Welfare Act introduced a progressive welfare system that charges high-income earners
relatively more than low-income earner then transfers the taxation to increase inequality.
Fiscal can provide expenditure to low income earner
Educational tax refund in 2012.
Kevin Rudds $1000 surplus grant.