You may remember that at first it looked like COVID-19 would cause massive amounts of wealth destruction. Stock markets tumbled and some warned of the potential for house prices to fall by a third.
Median household wealth fell 3 percent in the March 2020 quarter when COVID-19 first hit, but that was just a blip, and asset prices quickly recovered as central banks cut interest rates to near zero and governments pushed through massive amounts of stimulus. .
More generally, the truth is that wealth is still very unequally distributed in this country, despite the slight decline in wealth inequality during the pandemic years.
The report notes that despite the hiccup in early 2020, average household wealth subsequently rose by 12 percent through December 2020 and a massive 26 percent through December 2021.
No prizes for guessing the biggest cause of that increase: housing, which drove 69 percent of the overall increase in wealth over those three years.
Most of this came from owner-occupied housing, which contributed 55% of the increase, and investment property 14%. Retirement contributed 16% of the increase in wealth.
This boom in asset prices is pretty straightforward, but how were those gains distributed? This is where things start to get more complicated.
Wealth inequality narrowed slightly during the pandemic, but has widened over the long term. Credit: Matt Davidson
ACOSS reports that, surprisingly, the latest rise in house prices led to a modest decline in wealth inequality. It measures inequality by dividing the population into a few groups: the richest 10%; the next 30 percent, known as the “comfortable middle”; and the bottom 60% of the population.
It says that in the first two years of the pandemic (2019-20 and 2020-21), the bottom 60% saw their average wealth rise by 16%, which was a larger percentage increase than the top 10% I laugh. experienced
huh? Why would rising house prices lead to a decrease in wealth inequality? Because home ownership is more evenly distributed across the population than other assets such as stocks or investment properties.
Beyond this surprising trend, however, the report notes that there has also been an obvious social cost of rising house prices. That’s because many younger people and people with lower incomes are increasingly locked out of the housing market, and this is reflected in declining rates of home ownership, as shown by the recent census.
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More generally, the truth is that wealth is still very unequally distributed in this country, despite the slight decline in wealth inequality during the pandemic years.
The long-term trend since the beginning of this century has been for wealthier people to own a larger share. For example, the richest 10% of the population had 42% of all wealth in 2003, but this had increased to 46% of all wealth in 2021 (down from 47% in 2018).
The share of the “comfortable middle” has remained basically flat between 2003 and 2021, at 38 percent of the total. While the share of wealth held by the bottom 60% has declined over this period, from 20% to 17%.
Alongside these trends, previous reports have also highlighted the widening wealth gap between older and younger generations.
And not only groups like ACOSS are concerned about these trends.
Independent economist Saul Eslake argues that there is a case for governments to do more to tackle wealth inequality. He says that compared to other developed countries, Australia’s income tax system is surprisingly progressive, but that is not the case with how we tax wealth.
There is no land tax on owner-occupied properties, the family home is exempt from capital gains tax and it says we are one of eight OECD countries with no inheritance tax. Our pension system also ends up giving the biggest tax breaks to the wealthiest.
“Australia’s tax system puts a very light finger on wealth,” Eslake says.
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As Bill Shorten discovered in the 2019 election, trying to raise taxes on large sources of wealth such as housing or stocks is politically charged. But that doesn’t mean governments should simply ignore wealth inequality as a problem, especially as they look for ways to repair the budget.
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