Rate of income growth top heavy: Productivity Commission

RICH Australians are getting richer, while most people on average or lower incomes are only slightly better off than they were 20 years ago, an analysis of income earnings showed on Wednesday.

The Productivity Commission report found average incomes for individuals and households rose substantially in real terms in the past two decades.

But the rate of income growth was top heavy, with the biggest earner categories 20 years ago achieving higher income growth than those on the lowest pay packets.

The analysis found the majority of income growth was due to Australians largely working more hours each week, for higher hourly wages.

Report authors Jared Greenville, Clinton Pobke and Nikki Rogers found strong rises in employment had offset the increasing dispersion of individual income, causing inequality in household labour incomes to fall.

"Once capital and other income is taken into account, a small rise has occurred in measured household income inequality overall," the authors wrote.

"Government taxes and transfers have maintained a significant equalising effect on the distribution of household income."

When variations in household size and composition were taken into account, final household income was significantly more equal than individual labour earnings.

The report also found that while the growing gap between the richest and poorest Australians was observed in other developed nations; the strong improvement in workforce participation and employment for those with the lowest incomes was not.

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