In Australia we tax work relentlessly and transparently, while we let wealth quietly compound

Australia’s household wealth rose by $1,238 billion last year, reaching $17,765 billion. It’s a big number to wrap your head around, but if we shared it equally, every Australian would have about $660,000 — enough to buy a decent apartment in most cities. But that’s not how wealth works, and it’s certainly not how it’s distributed.

Politicians often speak as if wealth comes from saving, spending less than we earn each week and putting the remainder in our bank account. But of that $1,238 billion increase in the wealth held by Australians last year, just $65 billion came from actual savings. The rest, a staggering $1,173 billion, came from ‘capital gains’. To be clear, capital gain means ‘increase in the price of assets like houses and shares.’

Put simply, last year those who already owned houses, shares and gold bars watched as their assets rise in value while they didn’t lift a finger. Meanwhile, all of the wages and salaries earned by the millions of Australians who actually worked last year totaled just $1,190 billion. Think about that: the windfall gains of those with the most were nearly identical to all of the incomes of all of the people who get up and go to work each week.

It didn’t used to be this bad.

Two decades ago, the total household wealth of all Australian was equal to 5.7 times household income. Today it’s 8.8. That jump isn’t because workers got lazy. It’s because capital gains are the engine of inequality. Wealth produces capital gains, capital gains produce more wealth, and those with the least slip further and further behind.

The top 1% own 24% of all of Australia’s household wealth, while the top 10% hold 58%. We’re not quite at American levels, where the top 1% own 35% and the top 10% 70%, but we’re on the same road and picking up speed.

Sadly our tax system which could be helping make things better is  actually making things worse. If you earn a wage, your tax is paid even before your money hits your bank account. But if your income comes from capital gains, not only do you pay far less tax thank to the ‘50% capital gains tax discount’, but you pay your tax a lost more slowly. And the longer the wealthy delay paying their tax, the more assets they have compounding away for them.

In Australia we tax work relentlessly and transparently, while we let wealth quietly compound. Millions of Australians get up every day to earn their living. A much smaller number wake up richer without lifting a finger, and without paying the same rate of tax.

Inequality isn’t an accident. It’s the predictable result of a tax system that rewards wealth. The good news is that because our system has been designed by previous governments,  it can be redesigned by this one. If they want to.