Tax figures show growing gap between rich and poor

If you think the gap between wealthy Ascot and poor Glen Aplin is bad now, it's soon going to get much worse.

While two million Australians live in poverty, those on incomes above $60,000 a year will have an extra $62 a week in their pockets when the tax cuts kick in from July this year. Tax Office figures confirm the sorry trend towards a divided nation. They show major income gaps between states and suburbs.

New South Wales has the highest average taxable income of $30,171, while Tasmania has a lowly $24,772. Unfortunately, Queensland is the second lowest of all the states with $25,772 recorded as the average taxable income. This is despite the statistical blip caused by a few central-western mining towns that pop up among some of the richest postcodes in Australia.

Of course, the Tax Office figures are only confirming what many people already know. Australia is no longer the egalitarian nation that protects the underdog.

According to the United Nations, our country has slipped from 7th to 15th place on their index of human development. That makes us one of the most unequal of all developed countries. What will be the result of this rising inequality? Besides denting our image as a fair and equal country, the growing gap between rich and poor will worsen some of our most difficult and sad social problems.

The gap between the homeless and those living in mansions will widen. Unequal access to jobs, education and community services will worsen. And those who are less well-off will find it even more difficult to get justice through an expensive legal system. All of this leads to more disharmony, more tension between the haves and have-nots, and a potential increase in social conflict and crime.

So what can we do about this depressing picture?

The Prime Minister is pushing the idea of a "social coalition" of government, business, welfare organisations and the wider community to tackle just these sorts of difficult problems. Yes, there is great scope for existing partnerships of this kind to be encouraged and supported. But at the same time, there are some things only government can fix. Only the Government can ensure all Australians pay their fair share of tax. And only the Government can fix the fact that social security payments for single unemployed Australians are well below the official poverty line.

ACOSS looks to the Prime Minister to do his bit to make a social coalition work. The Government needs to assume the roles only it can play in narrowing the gap between rich and poor.

First, it must reverse the dangerous agreement reached with the ALP to halve tax rates on capital gains. Most Australians, even those with share portfolios will gain little or nothing from the capital gains tax changes. But it will make high income investors even richer. If the agreement goes ahead, the capital gains tax changes will deliver a crushing blow to our progressive income tax system. It opens up a massive incentive for rich people to convert ordinary income into capital gains. Why would they pay tax at 48% if, with relative ease, they can pay 24%?

Once rates of tax on capital gains are halved, the future use of anti-avoidance measures is like shutting the gate after a thousand bolting horses. There will be a proliferation of tax-minimisation schemes — most of them perfectly legal, but highly unfair for ordinary PAYE taxpayers.

Second, the Government should use its Review of the Welfare System to immediately fix some of the glaring problems in our tax and social security systems. Most Australians would not be impressed with knowing many of our poorest citizens are effectively taxed at a higher rate than millionaires. For every dollar over $70 a week that single jobseekers get from a casual job, they lose 70 cents on their social security benefits. Because they also pay tax on their extra income, this means that up to a million of the poorest Australians are subject to effective tax rates of 80% if they take on casual work.

We also need to lift inadequate social security payments to above the poverty line. Many people have so little money to live on that they must make difficult and unacceptable choices each day. For some it can be as stark as whether to eat, or wash their clothing. The basic unemployment benefit for single adults is 20% below the poverty line. It needs to be increased by $20 a week to make it the same as the modest Age Pension.

These outrages need to be set right if we are to reduce the growing social and economic divide in our country.