Income inequality in Australia is worse than what the Productivity Commission says and the nation should have a more progressive tax system to deal with it, a new report says.
The research by a University of Sydney professor of public economics has challenged the Productivity Commission's methodology for calculating income inequality, based on household income.
It has instead looked at the individual income of the household's primary earner, and revealed a major difference in the growth in income of Australians highest and lowest earners.
The income of the top 10 per cent of earners rose by 124.3 per cent between 2003-04 and 2015-16.
The lowest 10 per cent of earners saw their income rise by a far more modest 53.3 per cent.
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The report by Professor Patricia Apps, which will be launched in Canberra on Wednesday, found federal government policies over the years have exacerbated such income inequality.
Between 2003-04 and 2015-16, the top earners have raked in $12,342 worth of tax cuts, while the lowest earners have claimed $1449.
"This outcome is attributed to successive increments in marginal tax rates at low to middle income levels and on second incomes, together with lower top taxes," Prof Apps said.
The report has suggested a return to a simpler, more progressive tax system, which means tax rates rise as people's income does.
It comes as a survey of 1,450 people by the Australia Institute, the results of which are released on Wednesday, shows support for a progressive tax system.
About 67 per cent of people agreed those on the highest incomes should pay the majority of total income tax.
Seventy-four per cent agreed that if the gap grows between high and low incomes, those with higher incomes should pay more.
