Today's subject revolves around income, taxation, and inequality, shedding light on the relationship between wealth and tax burdens. Recent tax statistics in Australia have unveiled a rather intricate taxation system, exposing how individuals with substantial incomes often employ the nuances of this system to effectively reduce their tax obligations.

This emphasises the significance of instituting a minimum tax rate that correlates with gross income. This particular rule would serve as a safeguard against high-earning individuals exploiting various deductions to evade their tax responsibilities.

This reassessment becomes even more pertinent in light of the revelation that a group of 60 individuals, despite earning over $1 million, managed to avoid paying any taxes altogether. It's imperative to shift the focus away from granting further tax cuts to those with high incomes and instead prioritise the establishment of a fair and equitable system that ensures all individuals make their due contributions to taxes.

Understanding Averages and Medians

When delving into discussions about income distribution, it's common to encounter terms like "average" and "median." These terms serve as crucial indicators of how income is spread across a population. The concept of an average, often referred to as the mean, involves adding up all the individual incomes and then dividing the sum by the total number of individuals. On the other hand, the median represents the midpoint within the distribution, where exactly half of the individuals earn more, and the other half earn less. This differentiation is particularly relevant because averages can be misleading when extreme high-income values disproportionately sway the overall result.

The Australian Taxation Office (ATO) data for the fiscal year 2019-20 further provides a clear illustration of the contrast between average and median incomes. According to the data, the average taxable income was reported at $63,882, whereas the median income stood at $48,381. This disparity serves as a striking example of how outliers, individuals with extremely high incomes, can exert a profound influence on the average. This phenomenon can lead to a misleading representation of the income distribution, as the presence of a few high-income earners can significantly elevate the average.

Let's examine this phenomenon with ten easy numbers: $25,000, $30,000, $35,000, $40,000, $40,000, $45,000, $50,000, $100,000, $200,000, and $500,000.

The average, or mean, is found by adding all the numbers together and then dividing the sum by the total count of numbers.

• $25,000 + $30,000 + $35,000 + $40,000 + $40,000 + $45,000 + $50,000 + $100,000 + $200,000 + $500,000 = $1,065,000
• After dividing this sum by the count of numbers (which is 10): $1,065,000 / 10 = $106,500

Consequently, the average of these numbers stands at $106,500.

The median corresponds to the middle value in an ordered set of numbers. With ten numbers, the median falls between the 5th and 6th values when arranged in ascending order.

• $25,000, $30,000, $35,000, $40,000, $40,000, $45,000, $50,000, $100,000, $200,000, and $500,000
• The middle values are $40,000 (the 5th number) and $45,000 (the 6th number). As there are two middle values, their average is computed: ($40,000 + $45,000) / 2 = $42,500

In conclusion, the median of these numbers is $42,500.

Additionally, the mode signifies the value that appears most frequently within a set. In this case, the value of $40,000 appears most frequently.

The average calculates to $106,500, while the median is $42,500, and the mode is $40,000. It's worth noting how the presence of higher numbers can influence the perception of income when considering the average. This phenomenon highlights the significance of the median in providing a more balanced view.

A problem of inequality

Inequality refers to unevenly distributed income, wealth, and goods within a society, encompassing both income and wealth inequality.

Income inequality involves the unequal spread of earnings across society. Organisations like ACOSS and UNSW analyse income groups, such as the top 10%, 5%, and 1%, compared to the lowest 20% earners, highlighting disparities within different segments. Understanding income inequality involves breaking down income sources like earnings, investments, government support, and taxes. This analysis considers diverse groups like sole parents, JobSeeker Allowance recipients, and those with superannuation income.

Wealth inequality focuses on unevenly distributed assets like homes, investments, and real estate. People are categorised into wealth groups — lowest 20% to highest 20% — with comparisons between top and bottom groups.

The above offers a glimpse into household wealth distribution among OECD nations. As of 2014, wealth distribution in Australia revealed a less pronounced inequality compared to the OECD average. In specific terms, the top 10% of households, ranked by wealth, held 46% of the household wealth in Australia. This stands in contrast to the situation in many other OECD nations, where wealth concentration tends to be higher.

Excessive inequality harms economies and well-being. Concentrated resources hinder growth, while those in poverty face barriers to employment and skill development. Inequality's visible impacts include a lack of basic necessities like food and shelter.

As I've been writing recently, from how we need feminism to debunking anti-leftist arguments, tackling inequality is vital. It ensures essential services like healthcare are funded and helps those facing difficulties meet their needs. Reducing inequality fosters community stability and security.

The Gini coefficient

The Gini coefficient is a measure used to quantify the level of income or wealth inequality within a specific population or society. It's named after the Italian statistician Corrado Gini, who developed the concept.

The Gini coefficient is represented by a value between 0 and 1, where:

• 0 represents perfect equality, meaning everyone in the population has the same income or wealth.
• 1 represents perfect inequality, indicating that one person or household has all the income or wealth, while everyone else has none.

The Gini coefficient is widely used to compare income or wealth inequality across different countries, regions, or time periods. It provides a concise numerical value that reflects the distribution of income or wealth.

The above illustrates the Gini coefficient trends in Australia from 1998 to 2018, offering insights into income inequality over this period. Specifically, the Gini coefficient for 2018 stands at 34.3% as a percentage. In contrast, the United States reports a higher Gini coefficient of 41.4%, indicating greater income inequality. Canada, on the other hand, boasts a lower Gini coefficient of 32.5%, while the United Kingdom follows suit with a Gini coefficient of 33.7%

These numbers have far-reaching implications for social and economic policies. Higher-income inequality can impact social cohesion, access to education, healthcare, and overall well-being. Countries with lower Gini coefficients often enjoy greater social stability and a more inclusive society, but these numbers show that we have a long way to go.

Income and wealth

Australia's image as a wealthy and equitable society contrasts sharply with the pronounced inequality gap it harbors. Examining the period's data reveals a disparity in average annual growth rates: the highest 20% experienced 2.2%, while the middle 20% and the lowest 20% encountered 2.2% and 2% respectively, factoring in inflation.

The above shows trends in real average household disposable income. From this data, we see the average after-tax incomes of the highest 20% surged from $2,581 per week in 1999-00 to $3,619 in 2017-18. In comparison, the middle 20% saw an upswing from $1,308 to $1,733, and the lowest 20% experienced an ascent from $519 to $680. The highest 5% encountered an even steeper rise during the boom, leaping from $3,514 weekly to $5,611.

Gender and occupational disparities persist as additional layers of inequality. A persistent gender pay gap, evident in both average and median incomes, underscores the inequality in earnings between men and women. Superannuation balances, influenced by age and gender dynamics, display a pronounced gap between average and median balances, primarily due to a subset with higher balances.

Factors influencing placement in the lowest 20% income group include older age, single status, sole parenthood, and reliance on government support payments. Labour force status emerges as the most pivotal determinant of income, with those in households led by individuals not in the labour force or unemployed being more likely to be in the lowest income group. Geographical disparities are evident, with individuals in Tasmania, South Australia, and areas outside capital cities having a higher likelihood of being in the lowest 20%. Conversely, the highest 20% income group is more likely to include individuals of working age in childless couple households. Factors such as full-time employment, income from investments, and residence in Sydney, Perth, the ACT, or NT contribute to a higher probability of being in the highest 20% income group.

The billionaires' success through COVID-19

Before the pandemic, concerns about the concentration of power among billionaires and large corporations were already pertinent. However, the pandemic seemed to exacerbate this issue, leading to an alarming escalation in preferential treatment. The discrepancy in treatment raises questions about the fairness and ethics of such practices.

One notable example is billionaire Kerry Stokes, whose wealth surged by a staggering $570 million amidst the global crisis. His companies, while benefiting from corporate welfare like JobKeeper, concurrently reduced workers' wages. This incongruity becomes even more pronounced when considering that Stokes acquired a new jet, all while a multitude of individuals were grappling with job losses.

The data speaks volumes about the changes in wealth distribution. Mining billionaires, for instance, experienced remarkable growth in their fortunes. Gina Rinehart's wealth surged from $16.25 billion to $36.28 billion, Andrew Forrest saw his wealth increase from $13.06 billion to $29.61 billion, while Clive Palmer's wealth dipped from $9.76 billion to $4.5 billion. The cumulative wealth of Australia's billionaires reached a staggering $417 billion, reflecting an overall increase of $90 billion. Currently, there are 122 billionaires in Australia.

When considering tax practices and political contributions, some of these billionaires employ intricate strategies to minimise their tax obligations, while simultaneously making substantial donations to both the Liberal and Labor parties.

In a striking comparison, an alarming 2.7 million individuals confronted the harsh truth of either losing their jobs or experiencing reduced working hours – a predicament that I, too, found myself in. While a multitude of people found themselves unemployed, it's significant to note that women were disproportionately affected by these job losses. They also faced an additional weight of unpaid responsibilities. Simultaneously, the issue of youth unemployment resulted in a distressing statistic: a third of young people remained without employment. It's essential to bear in mind that these figures are based on a specific method of calculating unemployment, which unfortunately excludes those who have abandoned the job search or have spent an extended period seeking employment.

The capital gains method

The investigation into 66 individuals who evaded taxes during the fiscal year 2020-21 showed these individuals boasting an average annual income of a staggering $14.5 million. Juxtaposing these findings against the preceding year, 2019-20, which saw 60 individuals sidestepping their tax responsibilities with an average yearly income of $3.5 million each, highlights a jarring disparity in count and earnings.

What raises deep-seated concerns is the elaborate method deployed by these affluent individuals to deftly avoid their tax obligations. Their chosen mechanism to curtail their tax liabilities is none other than the capital gains tax loophole. Through the manipulation of this regulatory opening, they have slashed a whopping two-thirds of their combined gross income, resulting in a staggering reduction totalling a monumental $956 million. This jaw-dropping reduction translates into a mind-boggling $656 million — a substantial chunk of which is directly attributed to the exploitative manoeuvrings of the capital gains tax loophole.

Capital gains represent the profits amassed from the sale of assets such as real estate, investments, or stocks. In principle, capital gains tax is imposed on these profits. However, here's where the alarm bells begin to ring: there are provisions and exemptions woven into the fabric of tax codes that essentially provide a haven for individuals to chip away at their tax responsibilities. Enter the capital gains tax loophole, a term that may sound innocuous but is emblematic of a strategic avenue exploited by those with resources aplenty. This strategy involves structuring transactions so that capital gains are realised and subsequently taxed at substantially lower rates, thereby effortlessly diminishing the overall tax burden.

The ramifications extend far beyond mere figures. These findings reveal the existence of a privileged mechanism enabling the wealthy to navigate tax regulations and reduce their financial obligations.

And so…

Australia's taxation system has paved the way for a concerning trend: the exploitation of deductions by high-income individuals. This, in turn, underscores a pressing need for comprehensive tax reform. It's crucial to establish a framework that renders the pursuit of additional deductions fruitless beyond a certain threshold. Otherwise, we run the risk of perpetuating a cycle wherein each alteration merely ushers in new and diverse loopholes for exploitation.

But wait, there's more. The misallocation of tax funds adds another layer of frustration. They often wind up lining the pockets of large corporations and individuals as subsidies. While they should be channelled toward essential needs like healthcare, education, and transportation, they often venture into the realm of extravagance. Do we truly need a billion-dollar stadium in Sydney while fundamental sectors yearn for adequate resources? No, we don't.