Illustration: Jim Pavlidis For all the talk of middle-class welfare, Australia today boasts one of the most efficient and tightly targeted tax and transfer systems in the world. Bureau of Statistics figures show that the richest 20 per cent of Australian households still receive about 12 per cent of all government handouts, including childcare benefits and the private health insurance rebate. However, the poorest 20 per cent receive 12.4 times the amount of cash benefits of the richest households – the highest ratio in the developed nations in the Organisation for Economic Co-operation and Development, and about 50 per cent higher than the next most-targeted country, New Zealand. Strict means testing of payments and the progressive way in which income taxes are applied means the Australian government plays a very active role in ensuring a more equal distribution of income.

For much of the early 2000s, Howard government increases to family payments helped lower income households keep ahead of the growing dispersion in private wages. Credit:Paul Harris PRH One measure of inequality in an economy is the "Gini coefficient". It is a number between 0 and 1, in which 0 represents a situation of perfect equality – everyone earns the same – and 1 represents total inequality – one person gets all the income. On the latest figures for 2013-14, Australia's Gini coefficient is 0.33. Sure, this is better than America's 0.39. But it is an increase from around 0.29 in the mid 1990s. For much of the early 2000s, Howard government increases to family payments helped lower income households keep ahead of the growing dispersion in private wages. But income tax cuts towards the later days of the Howard government started to favour the top end. Importantly, however, without the impact of government taxes and transfers today, Australia's Gini co-efficient would be 0.52, not 0.33.

Economists are beginning to appreciate both the social and economic costs of rising inequality. Obviously, being poor is associated with myriad disadvantages, including poorer standard of living, social stigma and worse health outcomes. Indeed, a person living in a household on an annual income between $5000 and $10,000 has twice the chance of suffering heart disease and depression as someone on above $70,000, and about three times the chance of suffering diabetes and cancer. But it turns out too much inequality is bad for economies too. Lower-income households have a higher propensity to consume, rather than save, their income, leading to more spending, jobs and activity. While some degree of differentiation in the rewards available from work acts as an important incentive to promote labour market flexibility, investment in new skills and rewards from working, it is possible for inequality to go too far. The economist Branko Milanovic has likened inequality to "good" and "bad" cholesterol: a little bit of the good stuff can be good for your health, but too much of the bad stuff can kill you.

" 'Good' inequality is needed to create incentives for people to study, work hard, or start risky entrepreneurial projects ... But 'bad' inequality starts at a point – one not easy to define – where, rather than providing the motivation to excel, inequality provides the means to preserve acquired positions." In 2015, the OECD released estimates finding that higher levels of inequality, in fact, lead to lower levels of economic growth. Its estimates suggest the rise in income inequality in OECD countries between 1985 and 2005 reduced cumulative growth by 4.7 per cent during the two decades from 1990 to 2010. It is increasingly clear that we should worry about rising inequality. And government budgets remain the most potent way of addressing it. It rang immediate alarm bells that the 2014 budget was the first in more than a decade not to include a table of "cameos", detailing the dollar impact of budget policies on different household budgets. A freedom-of-information request by my colleagues at Fairfax Media later revealed why.

The Treasury analysis – available to the government before it delivered the budget – showed the spending cuts would cost an average of $842 a year for lower-income households, while the average high-income family lost just $71. Middle-income families would be down $477. The proposed freezing of family payments and a less generous indexation of the pensions were largely to blame. And a NATSEM analysis at the time also revealed those inequalities would only grow over time. While the temporary budget repair levy on very -high-income earners disappeared after a few years, the impact of the spending cuts only grew overtime, hitting low-income households harder and harder. This year's budget suggests the lessons of 2014 have been somewhat learnt. NATSEM's latest distributional analysis of the 2017 budget shows all taxpaying households bearing the burden of budget repair, thanks to the Medicare Levy increase.

Lower-income older households also get the benefit of keeping an extra energy assistance payment. Families on about $100,000 bear the burden of the freeze in family tax benefit B. Other specific groups, such as university students and drug users, will also lose out. But overall, the measures in this year's budget appear roughly "proportional" in their impact, meaning they will not significantly alter the distribution of income in the economy. The only unknown is the impact of the bank levy, which will be borne by bank customers or shareholders to some degree that is yet unclear. But overall, the Turnbull government seems to have finally realised what Abbott and his supporters fail to see, that the November 2013 election outcome was never a plea by Australians for a radical downsizing of the role of government in Australia, or a call to balance the budget on the backs of the poorest in society, but a simple denunciation of the political rabble the leadership of the Australian Labor Party had become.

It is crucial that lesson remains learnt. A fantastic way to do that would be to follow the recommendation made last week in a piece for the Mandarin website by a former Treasury official, David Sligar. Sligar recommends we follow the example of the British Treasury, which includes with every budget a statement revealing the impact of budget measures on the distribution of income, including the dollar cost to households in every income bracket. The idea was also canvassed in a recent budget white paper released by Labor's shadow minister for finance, Jim Chalmers. It's a great idea. Let's do it.

At the very least, the government must commit to bringing back those budget "cameos" that are still mysteriously missing in action. Jessica Irvine is a Fairfax Media columnist.