What's Middle Australia?

As we draw near to budget time, there has been plenty of talk about what “middle Australia” will get. But where exactly is the middle? To provide a more precise sense, I’ve tabulated the pre-tax annual income distributions for individuals and households, in the 2008-09 tax year. My raw data is the 2006 HILDA survey, which was roughly coincident with the 2006-07 tax year. Those numbers are then inflated by 8%, which is roughly what the budget papers suggest nominal wage growth has been over the past two years.

 1%        $10,389              
 5%        $18,036             
10%        $25,920             
25%        $46,252             
50%        $80,826                
75%       $122,040        
90%       $172,152        
95%       $217,555        
99%       $388,368        
Mean: $95,542

1% $0
5% $0
10% $0
25% $1,620
50% $19,440
75% $48,600
90% $75,686
95% $97,416
99% $175,532
Mean: $32,337

In other words, half the households in Australia have a pre-tax income of less than $80,826, while 35% of households and 5% of individuals have pre-tax incomes over $100,000.

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29 Responses to What's Middle Australia?

  1. ChrisPer says:

    Wouldn’t it be more helpful to select a percentile range to call ‘middle’ – eg >30th percentiile, less than 85th percentile, or somesuch?

    And I would think household income adjusted per member might help make it comparable too…

  2. Not sure if the HILDA data has it, but a separate distribution for couple families with children might also be illuminating.

  3. conrad says:

    And evidentally individuals are getting cheated if I just double the numbers, showing what a big scam all these help-the-family taxes are. It should be done in reverse to help the equality gap individuals are obviously suffering.

  4. Anthony says:

    And adjusting the lower deciles’ income by 8 per cent nominal wage growth might be too generous, given such households aren’t particularly reliant on wage income. I’d like to see a distribution showing what the median wage earner earns, as well as what the median household income is when you factor in all households

    So: four comments, all pointing out deficiencies. Aren’t we a picky lot? But good on you Andrew for doing what you’ve done. Information along these lines needs to get out there if we want to stem the middle class’s seemingly endless capacity for self-pity

  5. MikeM says:

    St James Ethics Centre Forum discussion thread here.

  6. AndrewN says:

    They definitely need a clearer definition.
    The phrase ‘working families’ has been used a heck of a lot. This is pretty rubbery (and, taken literally, grossly insufficient for most policy interventions). When Swann was on 7.30 Report last week he extended that to include ‘childless couples’, ‘pensioners’, ‘retirees’ and ‘singles’. He left off ‘the unemployed’ but I think that was by accident (i.e. their target market is ‘people’).

    I have a question (I think I’m mis-reading the table): what is our ‘jobless’ rate? Is it 4-5 times the unemployment (10% seem to not have an income)? Given 10% of individuals have no income (presume that doesn’t include children) is the data pre-dole/pension etc?

  7. spog says:

    Some of you are obviously reading this differently to me. I had assumed that the figures for individuals and households were not exclusive. That is, the individuals are in households as well. On that basis, I assumed lots of the $0 income individuals were in households that had money (eg, a stay at home partner).

    Is that the wrong way to look at it?

  8. NPOV says:

    I assumed that too spog – but I’d also point out that there are unemployed people among those earning an income, though I’m not sure how many.

  9. backroom girl says:

    NPOV – you mean there are people on unemployment benefits among those earning an income. You see, I can be picky too 🙂

    Presumably some of the individuals with no income are married non-working partners (some unemployed) without children, since all of those with children will be getting at least the dreaded FTBB. But this group is surely pretty small these days, except among the very highest income retiree households.

    Most are presumably non-working older children still living at home, whose parents may receive a small amount of FTB on their behalf but really have no income of their own.

    And I guess the last group may be the ‘self-employed’ for whom we seldom have good income data, other than whatever they have declared as taxable income.

  10. backroom girl says:

    Before anyone picks my nits, obviously the word “married” is superfluous in the first sentence of my second para.

  11. Fleeced says:

    I’d be interested tp see some similar stats on tax paid… ie, top 1% pays x% income tax, etc… Do we have any figures on this?

  12. Fleeced says:

    To clarify… I didn’t mean the percentage of their income they pay, but the percentage of the total tax take that they paid. Eg, If the budget pulls in 100 bill in income taxes, then how much of that is paid by top 1%, 5%, 10%, etc…

  13. Thinking in old ways says:


    the figures you want are up on the Tax Office site – the spreadsheet by percentile of income is http://www.ato.gov.au/docs/00117625_2006PER9.xls

    My quick summary is:

    Personal Income Share of Income Share of tax
    Top 10% Above $78.948 30.3% 43.6%
    Top 5% Above $102,200 20.8% 32.3%
    Top 1% Above $210,530 9.4% 16.5%

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  15. Vee says:

    Excuse my ignorance but how do you define a household?

  16. backroom girl says:

    Vee – a household in HILDA is just all the people who live together in one dwelling. In most cases, but obviously not always, a nuclear family. The problem with the data in the household distribution that Andrew has put up is that (I assume) they are unequivalised – they are simply the sum for each household of the income of all members. So the mean of $95,500 odd doesn’t tell you all that much because you don’t know what size the average household is (or probably more interesting, how many workers it contains).

  17. Vee says:

    Thanks Backroom Girl. I think it needs to be more clearly defined otherwise it is a pointless statistic. I used to assume it was two adults working and maybe a third working person but when you combine the income for individuals as a rough guide, it gets nowhere near the middle/median Household income.

  18. Fleeced says:

    Thanks for the XLS link… much appreciated.

    So, the top 10% of income earners pay 43.6% of income tax… Ouch.

  19. NPOV says:

    Fleeced – even under a flat tax system with a high tax-free threshold like the LDP’s proposal it would be still something around 35%.
    Note also, the top 10% of income earners earn an average of $150K each (so, maybe $100K after tax), whereas everyone else earns an average of 38.5K each (~30K after tax), and the bottom 10% earn an average of less than 12K each.

    (At the level of deciles, having the top 10% take home 10 times the pay of the bottom 10% is not too bad a distribution. It’s once you look at the top 1%, and indeed the top 0.5%, that it really gets really skewed).

  20. NPOV says:

    For anyone interested:

    Excel chart of income distribution

    Each bar represents the total income earned by each percentile.

  21. alister says:

    Fleeced, the top 10% of income earners can afford to pay most of the income tax. And they should too – what’s the alternative, raise taxation on people not in the top 10%?

  22. NPOV says:

    Plus there’s the argument that the top 10% get the most benefit out of government-provided infrastructure (roads etc.), though obviously it’s hard to quantity that exactly.

  23. Patrick says:

    Is that an argument? I thought it was demonstrable crap – the top ten percent get the least benefit because they have the greatest means with which to compensate.

    Consider driving down a crappy road in a 2005 Range Rover v a 1991 Commodore, to stick to roads. But mutatis mutandis parks, etc – poor people are the ones ‘stuck’ with what they have, before them. The top ten per cent can compensate with a trip to Noosa.

    The argument becomes blindingly obvious when you move on to health and education.

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  25. Veltyen says:

    Is that an argument? I thought it was demonstrable crap – the top ten percent get the least benefit because they have the greatest means with which to compensate.

    The top 10% are likely to have employees. How do they get to work? How does your product get distributed (hint: Roads need to be built differently, and much more expensively, if they can carry trucks). How do customers get to your stores? Who educates your future workforce?

    Health is dependent on the population you live in. How do poor people get vaccinated so that you don’t catch a plague?

    Who looses the most when your country is invaded?

    In times of need (outside of war) the top tax rate has been over 90% in the USA. In figures easily accessible via the ATO the top Australian tax bracket was 60% in 1985 – for people earning over the princely sum of $35,000. So historically at least the argument that the wealthy do get more use from government has been carried much more strongly then it is now.

  26. JohnH says:

    Dear Citizens
    It may help if I clarify some economic terms.
    Family with 2.3 children = porking family
    Family with 2.3 children and car = porking, parking family
    Family with no children or car = wanking, walking family, etc..

  27. Patrick says:

    Veltyen, the top 10 per cent are earning above $75k – not that likely to have employees.

    The indirect effects are a reasonable argument, but not very coherent. First, you are confusing the top ten with the top one per cent. Secondly, if a rich person derives a benefit from having educated employees, how much more a benefit does a poor person derive from being educated?

    Thirdly, again, the rich can still compensate – by sending goods by smaller truck, for example. The increased cost reduces profits, usually, but is a greater pain for the poor consumer. Fourthly, rich people can leave an invaded country, often, and are vastly more likely to have offshore investments – so loose a lot less than the poor person stuck there.

    Only the health argument really stands up, and even then, not so much. You can always vaccinate yourself and your family.

  28. NPOV says:

    Patrick, I agree that argument largely stands on the average number of employees that the top 10% possess, vs the a average number that the bottom 90% possess.
    I don’t know if such a figure is available.

    But you can’t deny that major shareholders in large corporations get a huge benefit out of government-provided infrastructure. I’d agree they tend to be in the top 1 or 2%, and on that basis, I would support an income tax bracket designed specifically for that group. FWIW, I’m currently sitting just outside the top 2%, working as an independent contractor, with no employees. I actually make fairly minimal use of infrastructure – I work from home, and we use well below the average in kms driven on roads and water usage, and slightly below average on electricity usage. So in a sense such a hike would potentially affect me unfairly. But I still wouldn’t object to it, largely because of a separate argument: I think the market overvalues my skills relative to plenty of people earning less that contribute more (in a surely widely accepted view) towards society. It’s not ideal, but redistribution via taxation seems justifiable to me if for no other reason than the market tending to exaggerate the value of those with certain skills (typically skills that are good at turning short-term profit).

  29. Daniel Taylor says:

    I think the Middle income Australia is a strange beast. It is crying poor but has the money(in Sydney anyway) to drive around in these luxury cars and also borrow money from the banks to speculate on the share market. They cant have it both ways and then on top also get these bonuses for having children and be sponging middle class welfare. The Howard regime has been kicked out & his ideas need to go as well. Rudd is on the right track. The budget wasnt too bad but it didnt go to the core of Australias problems.

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