Reserve Bank governor Phillip Lowe says inequality is increasing in Australia and could present challenges for the government.
Reserve Bank governor Phillip Lowe has waded into the political fray over inequality in Australia, contradicting the treasurer's claim that the issue is getting better rather than worse.
Labor leader Bill Shorten has over the past week vowed to tackle inequality, insisting it's time to consider tax reforms in the "too-hard basket".
Treasurer Scott Morrison swiftly accused Mr Shorten of giving up on trying to grow the Australian economy and pursuing the politics of envy.
Mr Lowe was asked about his views on inequality at a charity lunch in Sydney on Wednesday, saying it had grown "quite a lot" in the 80s and 90s and had risen "a little bit" recently.
"Wealth inequality has become more pronounced particularly in the last five of six years because there's been big gains in asset prices," the RBA governor said.
"So the people who own assets, which are usually wealthy people, have seen their wealth go up."
Mr Lowe said income inequality had increased slightly, but wealth inequality was more pronounced because of rising asset prices.
This could pose a challenge for the federal government.
"If wealth and income equality is more dispersed, then it might be harder to get policies that appeal to the middle ground, so that's the political aspect," Mr Lowe said.
There were also direct economic implications.
"The main one is through wages, and if people feel like their wages aren't growing anymore, they don't want to spend when they get paid," he said.
Former Labor treasurer Wayne Swan believes inequality has redefined economic rules and argues capitalism needs to change.
"Rising income and wealth inequality is hollowing out the middle class around the developed world, creating vast armies of working poor, and leading to stagnant economies and political polarisation," he told the ABC's 7.30 program.
"The economic model that has delivered the inequality is trickle-down economics, which is basically tax cuts for the rich, de-regulation for the powerful, and wage suppression for the rest."
Mr Swan insists capitalism needs to be "saved from itself".
"Capitalism is thoroughly discredited at the moment because it's produced rampant income and wealth inequality," he said.
"The Labor Party is going to lead this battle because it needs a whole set of policies for inclusive growth."
Shadow assistant treasurer Andrew Leigh said the RBA governor confirmed what many Australians already knew, that inequality was increasing.
"Labor is looking to tackle the problem by addressing the unfair elements of our tax system and ensure that schools are correctly funded," he told AAP.
"I'm optimistic we can make a difference. Let's just hope Scott Morrison actually listens now and finally acknowledges there is a problem."