Australia might have a better record than America when it comes to inequality, but that won't continue if it borrows the latter's policies on welfare, health, higher education and the minimum wage, writes Greg Jericho.

The undisputed number one topic of economics over the past year has been inequality. Focus on the issue was given an almighty boost with the publication of French economist Thomas Piketty's study "Capital in the Twenty-First Century", and earlier this year the IMF also released a study on the topic titled "Redistribution, Inequality and Growth". About the only people dealing with economics who seem oblivious to concerns of inequality are those in our own government.

The topic has always been near the top of the economic tree, but with the beginnings of the GFC (or the Great Recession, as those in the northern hemisphere would call it) now 5-6 years ago, economists are able to now examine its consequences across income levels.

While the success of Piketty's work perhaps rests in part on his accessibility to non-economists - given his preference for graphs and references to Jane Austen over mathematical equations - he does not eschew data; far from it. His research on the history of incomes is amazingly thorough and has withstood, with fair ease, some of the strongest attacks. And best of all, all the data he uses in his book is available online, and he has gathered other data on incomes from a number of nations on The World Top Incomes Database.

The data shows that compared to the USA, Australia's income equality picture is not too bad - but that's a bit like saying that compared to Usain Bolt we're a bit slow.

In 2010, the richest 10 per cent in Australia held about 31 per cent of all income, well below the 48 per cent held by the richest 10 per cent in America.

And while the share of income held by Australia's richest 10 per cent has stayed relatively steady over the past decade, it has risen dramatically since the end of the 1970s.

Also, focussing on the top 10 per cent hides the fact that the real increase in wealth has actually been among the super rich.

The top 1 per cent of income earners in Australia in 2010 owned around 9.17 per cent of all income. This was down slightly from the pre-GFC high of 9.84 per cent. It remains, however, the highest share of income held by the richest 1 per cent since the Korean War wool boom of 1950.

When we break that down to just the richest 0.1 per cent, the picture becomes even more clear. While the GFC and the fall in the stock exchange hit their incomes, prior to that occurrence the richest 0.1 per cent in Australia held 3.65 per cent of Australian income. Aside from the abnormality of the Korean War boom, the last time they held such a high share was just prior to the Great Depression and the stock market crash of 1929 - a period well before Australia had any welfare system to speak of:

The reason becomes clear when we look at real income growth over the past 30 years. The income of the top 0.1 per cent has risen at a rate far outpacing the top 10 per cent as a whole, let alone the bottom 90 per cent:

Again, however, when we compare ourselves with the USA, we look a lot better.

The bottom 90 per cent in the USA have seen their real income decline to below 1990 levels, whereas Australia's bottom 90 per cent at least have seen good growth during the mining boom periods of the early-mid 2000s

Certainly the data suggests that a rising tide may lift all boats - but certainly not always. In America, the real income of the richest 10 per cent is 37 per cent above the 1990 level, while the richest 1 per cent have real incomes that are 65 per cent better. And whether it is in the USA or Australia, it's very clear that the richest boats rise a heck of a lot faster.

And again, while things are better in Australia than the USA, we are not free from rising inequality. When measuring inequality using the inverted pareto-lorenz coefficient, Australia in 2007 recorded its highest ever level of inequality:

And while inequality fell during the GFC, if, as is likely to be the case, Australia follows the American pattern, then the improvement in the economy in the past four years will have seen Australia's richest speed ahead of the rest again.

Our relatively better inequality picture is not all about the boom.

In its 2008 report on inequality, "Growing Unequal?", the OECD noted that our welfare system is more targeted than other nations, as "in a typical country, 22 per cent of total income is from the government in the form of such benefits, compared to 14 per cent in Australia". It also noted that "Australia targets these benefits much more tightly on low-income households than in any other country in the OECD. 40 per cent of total spending on cash benefits goes to the poorest 20 per cent of the population."

While this completely contradicts the Treasurer Joe Hockey's assertions in a speech to the Sydney Institute that Australia's welfare system is too broad, it also means that the cuts made in the budget on welfare have great implications for our inequality.

As the OECD noted in its recent Society at a Glance report, "fiscal consolidation hampers progress in reducing inequality and poverty". While fiscal consolidation may at times take precedence over improving inequality, in Australia's case it becomes much more problematic because as the OECD noted, in countries where most welfare transfers "are already mainly received by low-income groups", cuts in such welfare spending "are much more likely to widen income inequalities".

One of the key findings of Piketty's work is that equality does not happen by accident. You need a government that cares about the issue, otherwise inequality will inexorably rise.

As is clearly seen in the USA, when governments have in place measures which actively encourage inequality, that rise is turbocharged. In the USA over the past 30 years, falling real minimum wages, the cutting off of people on federal unemployment benefits for austerity purposes, a largely privatised healthcare system that favours the rich, and a higher education system which saddles students with massive levels of debt, as well as a tax system that massively works in favour of the wealthiest, have all seen inequality zoom.

And in Australia, we have a government that appears to envy the USA in all these areas.

Greg Jericho writes weekly for The Drum. His blog can be found here and he tweets at @grogsgamut. View his full profile here.