Australia's Future Tax System

Architecture of Australia's tax and transfer system

3.3 The distribution of wealth, income and taxes

The composition of wealth

In 2005‑06, the average value of household assets held by Australian households was estimated at $655,300. Owner‑occupied dwellings accounted for 44 per cent of household assets (Chart 3.5). Personal use assets, including contents of dwellings and motor vehicles contributed around 11 per cent. Superannuation balances constituted 13 per cent of total assets, with other investment assets (non‑owner occupied property, and financial assets) accounting for a further third of household assets.

Chart 3.5: Composition of assets of households,
average all households, 2005‑06

Chart 3.5: Composition of assets of households,average all households, 2005‑06

  1. Includes value of shares (including own incorporated businesses) and value of trusts.
  2. Includes value of debentures and bonds.
  3. Includes value of own unincorporated entities.

Source: ABS (2007a).

Average household liabilities in 2005‑06 were $92,500, consisting mainly of property loans (Chart 3.6). Loans relating to owner‑occupied dwellings accounted for about half of the value of household liabilities, with other property loans accounting for a further third. Investment loans were the single most significant other liability, contributing around 6 per cent to household liabilities. All personal loans, including study loans, credit cards and car loans, accounted for 9 per cent of household liabilities.

Chart 3.6: Composition of liabilities of households,
average all households, 2005‑06

Chart 3.6: Composition of liabilities of households, average all households, 2005‑06

  1. Includes study loans, credit cards, vehicle loans and other loans, nec.

Source: ABS (2007a).

The distribution of wealth

Chart 3.7 shows the distribution of the net worth of Australian households by income and net worth quintiles (a quintile is 20 per cent of the population). The distribution of net worth by income quintile is more even than the distribution by net worth quintile. In part, this reflects differences in relativities between wealth and income across a person's lifecycle. For example, retirees and pensioners tend to have low incomes but substantial assets in the form of equity in owner‑occupied dwellings or superannuation.

Chart 3.7: Net worth of Australian households by income and net worth quintiles, 2005‑06

Chart 3.7: Net worth of Australian households by income and net worthquintiles, 2005‑06

Source: ABS (2007a).

The importance of lifecycle influences is illustrated in Chart 3.8. Households towards the right hand side of the chart (older households) have higher average net worth but lower average incomes than those towards the left hand side of the chart (younger households). This profile is to be expected, with households saving part of their incomes and accumulating wealth through the early to middle parts of their lifecycle, and drawing on that wealth towards the end of their lifecycle. The higher incomes through to retirement age reflect the accumulation of human capital across the lifecycle.

Chart 3.8: Net worth and mean weekly equivalised disposable income
of Australian households by age of reference person, 2005‑06 (per cent of household average)

Chart 3.8: Net worth and mean weekly equivalised disposable income of Australian households by age of reference person, 2005‑06 (per cent of household average)

Source: ABS, Survey of Income and Housing, FaHCSIA estimates.

The distribution of income

The distribution of wage and salary income and of capital income is important when considering the overall structure of our tax‑transfer arrangements.

For most households the principal source of income1 in 2005‑06 was wages and salaries (59 per cent of households), followed by government pensions and allowances (26 per cent of households), incorporated business income (6 per cent of households), with other forms of income being most significant for 8 per cent of households. Less than one per cent of households reported no income or an overall net loss, due to business or property losses. Approximately 17 per cent of households relied on government pensions and allowances for at least 90 per cent of their income. These households were more likely to be composed of lone people or people aged 65 years and over than households with higher private income.

Chart 3.9 plots the percentage of wage and salary income, and capital income, against the percentage of taxpayers, ranked according to their taxable income. Points along the 45‑degree line represent a proportional distribution of income, with a given percentage of income being earned by an equivalent percentage of taxpayers. The chart illustrates that both wage and salary income and capital income are skewed toward higher income earners but that capital income is more highly skewed (indicated by the greater curvature of the line at higher incomes).

For example, the bottom 20 per cent of taxpayers accounted for very little salary and wages or capital income in 2005‑06 (point A). This reflects the cluster of pension and beneficiary recipients at the lower end of taxable incomes and individuals with significant net losses, such as net business losses. In contrast, the top 20 per cent of taxpayers are estimated to receive around 46 per cent of salary and wage income (point B) and around 65 per cent of capital income (point C). The top 10 per cent of taxpayers receive 28 per cent of salary and wage income (point D) and 53 per cent of capital income (point E). Table 3.1 provides further comparisons of the distribution of wage and salary and capital income.

Chart 3.9: Distribution of salary and wage income
and capital income, 2005‑06(a)

Chart 3.9: Distribution of salary and wage income and capital income, 2005‑06(a)

  1. Includes tax filers without a tax liability.

Source: Australian Government administrative data.

Table 3.1: Estimated distribution of wage and salary income and capital income in 2005‑06

  Bottom   Top
  20 per cent 50 per cent   20 per cent 10 per cent 1 per cent
Salary or wages 2.4 17.6   45.9 28.0 5.3
Net rent 18.8 31.3   38.8 24.0 4.0
Gross interest 8.4 34.7   39.4 28.2 9.4
Dividend income 3.2 11.7   75.2 64.4 35.7
Net capital gain 4.2 13.3   73.7 64.2 38.6
Net business income ‑3.2 18.7   54.6 44.0 22.2
Net partnership & trust income ‑1.3 15.0   62.9 46.8 23.1
Capital income 0.4 15.8   65.2 53.0 28.5

Source: Australian Government administrative data.

There are also considerable differences in the distribution of the individual components of capital income — interest income, dividends, net rent, net capital gains, net business income and net distributions from partnerships and trusts (Chart 3.10). The bottom 20 per cent of taxpayers earned around 8 per cent of gross interest income but only around 3 per cent of dividend income and around 4 per cent of net capital gains. In contrast the top 10 per cent of taxpayers receive around 28 per cent of gross interest income but over 64 per cent of net capital gains and dividends.

Chart 3.10: Distribution of selected capital income items, 2005‑06(a)

Chart 3.10: Distribution of selected capital income items, 2005‑06(a)

  1. Includes tax filers without a tax liability.

Source: Australian Government administrative data.

The distribution of tax paid

The distribution of taxable income and the tax burden across individuals is shown in Chart 3.11 for 2005‑06. While the distribution of taxable income is skewed toward those on higher incomes, the tax burden is even more skewed, indicating a progressive personal income tax system. The bottom 20 per cent of taxpayers accounted for 6.5 per cent of taxable income but only 2.0 per cent of tax paid. In contrast, the top 20 per cent of taxpayers accounted for 45 per cent of taxable income and 59 per cent of tax paid.

Chart 3.11: Distribution of taxable income and tax paid, 2005‑06(a)

Chart 3.11: Distribution of taxable income and tax paid, 2005‑06(a)

  1. Taxpayers are those people with a positive tax liability.

Source: Australian Government administrative data.


1 The principal source of income is that source from which the most positive income is received. If total income is nil or negative the principal source is undefined. As there are several possible sources, the principal source may account for less than 50 per cent of gross income.