Grattan Institute research reveals how much typical Aussie earns ahead of federal budget

New analysis on the eve of the budget reveals one in three Australian adults don’t work and the typical Aussie earns much less than you’d expect.

One in three Australian adults are not working and pay no income tax because they are retired, disabled or unemployed, according to new research that blows apart commonly-held beliefs about average Australian incomes.

The pre-election “cheat sheet” put together ahead of the federal budget also revealed how much the typical Australian really earns.

And it’s likely a lot less than many people imagine, with the Grattan Institute revealing more than three-quarters of Australian workers earn less than the average full-time wage of $104,765 a year.

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How much does the average Australian earn?

The typical full-time Australian worker actually earns $90,416, and the typical Australian worker (including part-time workers) earns just $67,786, the Grattan Institute found.

“When people look around for an earnings figure representing a typical person, they often quote average full-time earnings,’’ Grattan Institute’s Brendan Coates said.

“But, as our cheat sheet shows, this figure is not a good guide to the typical Australians’ income.”

As well as revealing the majority of Aussies make less than the average full-time wage, Mr Coates also said that “Most earn less than the average hourly wage, and many work only part-time”.

“And about one-third of Australian adults are not in paid work because they are retired, have a disability, care for others, or are unemployed,” he added.

“So, the typical adult’s income (from all sources) is less again, at $42,027 in 2019-20, the latest year for which data are available.”

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How much do Australians really earn?

How much does income differ from state to state?

Income also differs depending on where you live. For example, the number of high income earners in Sydney, NSW is just over five per cent.

However, only 3.5 per cent of Queenslanders are in that same income bracket and in South Australia it’s just 2.6 per cent.

Canberra continues to enjoy high median incomes with 5.3 per cent of adults in the top tax bracket.

The proportion of people earning under $18,200 is pretty similar across the country.

It’s 15-17 per cent across Australia in almost all states and territories except for the ACT where it’s 12 per cent.

The proportion of people earning under $45,000 is the highest in Tasmania, where the category captures one in three adults.

How much does it vary by state?

Why tax brackets don’t tell the whole story

The Grattan Institute says that the tax scales are a poor guide to the distribution of income in Australia.

“The top tax bracket kicks in at $190,000 a year and is often cited as shorthand for high income,’’ Mr Coates said.

“But just 4.4 per cent of taxpayers had a taxable income that high in 2021-22. In fact, even in Australia’s richest state – WA – just 5.5 per cent of taxpayers are in the top tax bracket.

“And even in high-wage Sydney, just 7 per cent of taxpayers are in that top tax bracket.

“Taxable income also misses people who do not file a tax return, such as wealthy retirees who are drawing on tax-free superannuation, and, at the other end of the scale, people on income support whose incomes are so low that they don’t submit a personal tax return.”

Mr Coates said most people also pool their income in households which provides a more accurate snapshot of family wealth.

“For example, many people on low incomes have spouses on high incomes,’’ Mr Coates said.

“Measuring household income can cut through this, but it comes with some wrinkles: the number of people in the household needs to be considered, because larger households need more income to guarantee everyone in it are given standard of living.

“Further complicating things is that household members share resources, so a couple household, for example, doesn’t need twice the income of a single-person household to have the same standard of living.”

Tax scales are a poor guide to the distribution of income in Australia. Picture: iStock

How much Australians own

For most Australian households, family wealth is captured in the family home and superannuation.

“Someone’s wealth depends on what they earn, but also their age, since we accumulate savings over time,’’ Mr Coates said.

“For example, the typical total net wealth (i.e. net of any outstanding debts) of a middle-aged household (aged 41 to 64) is $809,000 – well over three times that of a young household (25 to 40) at $238,000.

“But this measure does not tell us how many adults and children the pot of wealth belongs to. As with income, ‘equivalising’ wealth gives us a better picture.

“After adjusting to take account of the number of people in the household, net wealth falls to $429,000 for a middle-aged household – which is probably a larger household – and $156,000 for a young household.”

How much do Australians own?

The typical Australian retiree has no super

Surprisingly, the typical retiree in Australia today has no superannuation, and instead relies largely on the Age Pension according to the Grattan Institute.

“The typical retired household has only about $9,000 in super. Nonetheless, retirees tend to report low levels of financial stress (provided they own their own home).

“The fact that super is highly unequally distributed among current retirees means that reforms to rein in tax breaks on super earnings really only affect wealthier Australians who are already enjoying comfortable retirements.”

Home ownership is skewed towards the old

“While the typical retiree household has little super, they tend to hold substantial wealth in their home, because they bought it long ago, at a time of much lower prices – and they have probably paid off their mortgage,’’ Mr Coates said.

“Unsurprisingly, homeownership rates have fallen fastest for younger and poorer Australians.

“The vast majority of the housing wealth held by older Australians is excluded from the Age Pension assets test. This is unfair on pensioners who rent, and don’t have personal wealth in their home.

“Grattan Institute recommends that all home equity above $750,000 be included in the pension assets test. As our cheat sheet shows, this would affect at most a quarter of retirees, and probably a lot less.”

Originally published as Grattan Institute research reveals how much typical Aussie earns ahead of federal budget