The International Monetary Fund has warned that the gap between rich and poor in advanced economies is now at its highest level in decades, making widening income inequality the "defining challenge of our time".

In an eye-opening report, the IMF says if the income share increases for the top 20 per cent of households, then economic growth "actually declines" over the medium term.

The report warns that policymakers "need to focus on the poor and the middle class" if they want to boost economic growth globally. Credit:Tanya Lake

It says this suggests that "the benefits do not trickle down".

In contrast, it says an increase in the income share of the bottom 20 per cent of households is associated with higher GDP growth.