As the wealth gap continues to make headlines in 2025, Australians are searching for clear ways to understand and visualise economic inequality. Enter the Lorenz Curve—a simple yet powerful tool that transforms dry statistics into a vivid picture of who holds the wealth, and who gets left behind. But what does the Lorenz Curve actually show, and how does it matter for everyday Australians?
What is the Lorenz Curve and How Does it Work?
The Lorenz Curve is a graphical representation of income or wealth distribution within a population. Developed by economist Max Lorenz in 1905, it plots the cumulative percentage of households (from poorest to richest) on the x-axis against the cumulative percentage of income or wealth they hold on the y-axis. If everyone had equal wealth, the Lorenz Curve would be a straight 45-degree line—called the line of equality. The more the curve bows away from this line, the greater the inequality.
- Perfect equality: Everyone has the same income or wealth; the curve is a straight line.
- Perfect inequality: One person holds all the wealth; the curve hugs the bottom and right sides of the graph.
- Real-world data: Australia’s Lorenz Curve sits somewhere in between, reflecting our unique economic landscape.
The Lorenz Curve and Australia’s 2025 Wealth Landscape
In 2025, new ABS and Treasury data show that Australia’s wealth distribution has shifted in the wake of inflationary pressures, housing market volatility, and policy reforms like the Stage 3 tax cuts. The latest Lorenz Curve for Australia reveals:
- The bottom 40% of households now own less than 10% of the nation’s wealth.
- The top 20% own over 60%—a slight increase from 2023, driven largely by property and share market gains.
- Superannuation balances have widened the gap, with older Australians pulling ahead due to compounding returns and tax concessions.
This widening gap is not just a number—it’s a real-world signal that social mobility, home ownership, and retirement security are increasingly out of reach for many.
Why the Lorenz Curve Matters for Policymakers and Households
The Lorenz Curve is more than an academic tool; it’s a critical guide for designing fairer tax policies, welfare systems, and economic interventions. In 2025, as the federal government debates further tax reforms and targeted support for renters and first-home buyers, the Lorenz Curve is front and centre in the conversation.
- For policymakers: The curve highlights where interventions—like tax credits, housing subsidies, or superannuation reforms—can make the biggest difference.
- For households: Understanding where you sit on the curve helps put your financial situation in perspective and informs decisions on saving, investing, or seeking support.
- For investors: The Lorenz Curve can signal long-term risks and opportunities as inequality impacts consumer demand and social stability.
Real-World Example: Tracking the Impact of Policy Changes
Consider the recent Stage 3 tax cuts, implemented in July 2024. Analysis of post-reform income data shows a modest flattening of the Lorenz Curve in the lower-middle income brackets, as more take-home pay trickles down. However, asset price inflation has pulled the curve further away from equality at the top end, especially in Sydney and Melbourne’s property markets.
These shifts underscore why the Lorenz Curve remains vital. It’s not just about numbers—it’s about tracking how policy, economics, and everyday life intersect in modern Australia.
Looking Ahead: The Lorenz Curve in a Changing Australia
As Australia grapples with cost-of-living pressures, housing affordability, and the rise of intergenerational wealth transfers, expect the Lorenz Curve to feature prominently in debates about fairness and reform. Whether you’re an economist, policymaker, or simply curious about where you fit in, the Lorenz Curve offers an accessible, data-driven window into the nation’s financial story.
