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Equitable Distribution of Income

Economics (Year 12) - Economic Policy Objectives

Christian Bien

What is it?

Equitable distribution of income ensures distributing welfare to ensure fairness and allowing members of the economy to have the same opportunity to accumulate wealth. The Government redistributes tax revenue to ensure equitable distribution of wealth. Low-income earners should receive an adequate amount of support that assists in cost of living pressures but does not compromise on reducing the incentive to work and accumulate wealth.

What is the Target?

The Gini Coefficient measures the percentage of wealth that is owned by a percentage of the population. Australia generally has a Gini coefficient target of 0.3-0.35. A Gini Coefficient of 0 results in perfect income equality which discourages the incentive to work. Why work more when you'll be taxed into the same income as someone who works less. A Gini Coefficient of 1 results in perfect income inequality, where 1 person owns all resources and income. Typically seen in communist governments where all resources are state-owned and distributed by the government. A Gini Coefficient of 1 goes against capitalist ideology and does not let resources to be allocated according to the free market.

Why is it Important?

Equitable distribution of income allows for social harmony and cohesion. If wealth is too unevenly distributed, then the majority of members of an economy will be disadvantaged at the expense of very few who are well off. Equitable distribution of income also allows low-income earners the ability to access opportunities to grow wealth. For example, the Australian Government has a New Enterprise Incentive Scheme allowing the unemployed to access capital to start their own businesses.

How can the Government achieve a more Equitable Distribution of Income?

  • Progressive tax system - those who earn more income pay a larger amount of tax

  • Educational grants, subsidies and low-interest loans

  • Welfare and income support for low-income earners

  • Compensation for low-income earners from GST revenue

  • Wealth taxes

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