The wealth boom is closing the huge gap between rich and poor

You may remember that at first it seemed that COVID-19 was going to cause massive wealth destruction. The stock market fell and some warned of a potential fall in house prices by a third.

Average household wealth did fall 3 percent in the March 2020 quarter when COVID-19 first hit, but this was only a decline, and asset prices quickly rebounded as the central bank cut interest rates to near zero and the government pumped in massive amounts of stimulus. .

In general, the fact remains that wealth is still very unequal in the country, despite a slight decline in wealth inequality during the pandemic years.

The report shows that despite a stagnation in early 2020, median household wealth then jumped 12 percent through December 2020, and 26 percent through December 2021.

There’s no prize for guessing the biggest cause of this spike: housing, which drove 69 percent of the overall increase in wealth over the past three years.

Most came from owner-occupied housing, which accounted for 55 percent of the increase, and investment properties accounted for 14 percent. Superannuation accounted for 16 percent of the increase in wealth.

This asset price explosion is easy enough, but how are these profits distributed? This is where things start to get more complicated.

Wealth inequality has narrowed slightly in the pandemic, but has widened in the long term.Credit:Matt Davidson

ACOSS reports that, surprisingly, the latest spike in house prices led to a slight decline in wealth inequality. It measures inequality by dividing the population into groups: the richest 10 percent; the next 30 percent, known as the “comfortable middle”; and the lower 60 percent of the population.

It said that during the first two years of the pandemic (2019-20 and 2020-21), the least-rich 60 percent actually saw their median wealth rise 16 percent, which is a larger percentage increase than the richest 10 percent. experienced.

Hah? Why do rising house prices cause wealth inequality? reject? Because owner-occupied housing is more evenly distributed across the population than other assets, such as stock or investment property.

Despite these surprising trends, however, the report shows that there are also clear social costs to soaring house prices. This has resulted in many young and low-income people being increasingly locked out of the housing market, and this is reflected in a decline in home ownership rates, as shown in the recent census.

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In general, the fact remains that wealth is still very unequal in the country, despite a slight decline in wealth inequality during the pandemic years.

The long-term trend since the beginning of this century has been towards the richest people having a bigger share. For example, the richest 10 percent of the population owned 42 percent of all wealth in 2003, but this has increased to 46 percent of all wealth by 2021 (slightly less than 47 percent in 2018).

The share of the “comfortable medium” remained essentially flat between 2003 and 2021, at 38 percent of the total. While the share of wealth owned by the lowest 60 percent has declined over that period, from 20 percent to 17 percent.

Alongside this trend, previous reports have also highlighted the widening wealth gap between the older and younger generations.

And it’s not just groups like ACOSS that have concerns about this trend.

Independent economist Saul Eslake argues there is reason for governments to do more to address inequality in wealth. He says that compared to other developed countries, Australia’s income tax system is surprisingly progressive – but that’s not the case with the way we tax wealth.

There is no land tax on owner-occupied property, family homes are exempt from capital gains tax, and he says we are one of only eight OECD countries that do not have an inheritance tax. Our superannuation system also ends up giving the biggest tax breaks to the richest.

“Australia’s tax system is heavily dependent on wealth,” Eslake said.

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As Bill Shorten found in the 2019 election, trying to impose higher taxes on big sources of wealth like housing, or stocks, is fraught with politics. But that doesn’t mean governments should ignore wealth inequality as a problem, especially as they look for ways to improve budgets.

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