The Occupy Sydney protesters are ridiculed for being incoherent and ungrateful. Given the chaos overseas, what do they have to complain about? Our banks stayed solvent, were not reckless lenders and did not require a taxpayer bailout; unemployment is low, government debt is miniscule, and mortgage foreclosures are relatively rare.

Yet the protesters have grasped, however obscurely, a sense that something has gone awry. Australia has become a significantly more unequal society in recent years. We are not the egalitarian country of our imagining.

A new analysis by Denise Doiron, of the Australian School of Business at the University of NSW, reveals how far we have travelled from the notions we once held dear.

In a series of lectures at universities around Australia for the Academy of the Social Sciences, the associate professor in economics spells out how sharply the income gap has grown between the top and bottom 20 per cent of households.

Our famed equality of manners and abhorrence of class - businessmen sit in the front seat of taxis, everyone is a mate - have helped disguise the serious implications of a society that has become more unequal. The taxi driver and the businessman may enjoy an amiable chat, a sense of shared outrage at the Test team or the Prime Minister. But the financial circumstances of their families have been pulling in opposite directions since 2003.

Does it matter that the businessman's family has got richer and the taxi driver's poorer as long as the driver's family is not destitute?

Inequality does matter. The British epidemiologist Richard Wilkinson started looking at why some societies are healthier than others. He found that what the healthiest societies have in common is not that they have more - more income, wealth and education - but that what they have is more equally shared.

He went on to discover that not just health, but a host of social problems are worse in unequal societies from teen birth rates and drug use to homicide rates and mental illness. In his book, The Spirit Level: Why More Equal Societies Almost Always Do Better, co-authored with Kate Pickett, Wilson details how inequality erodes trust in society, increases anxiety and encourages excessive consumption.

There is a trade-off between equity and efficiency but where the tipping point is located is a matter of heated debate. Some inequality is needed to maintain growth but too much creates social problems and hardships.

In the US many feel the tipping point has been reached. Anger about gross inequality and corporate greed is fuelling the protests that started with the Occupy Wall Street movement. It has finally dawned on many that the upward redistribution of income, especially under the George Bush presidency, has made a mockery of America's view of itself as a middle-class country.

Ordinary Australians have cause for concern, too.

It is not just that the rich have got much richer. We all knew that. But some of us believed that the poor had got richer, too, thanks to employment growth and generous government family payments. That happy story, one I have told many times, was true enough for almost a decade from 1993. But after 2002 the poor started to get poorer.

As Dr Doiron shows, between 2003 and 2007 the top 20 per cent of households ranked by income enjoyed tear-away growth of over 6 per cent a year in their average post-tax income; at the same time the bottom 20 per cent of households suffered a reversal of fortune: their post-tax income actually fell by over 1 per cent a year.

A huge divide opened. Part of the explanation is familiar: salaries at the top rose dramatically. But why household incomes fell at the bottom has much to do with women. In the previous decade women's entry into paid work, earning low to middling wages, had helped mitigate the effects of the growing gap between men's income. But between 2003-7 there was a slowdown in women's entry into work which exposed the harsh reality of increasing inequality.

As well, tax policies got easier on the well-off and family payments and other welfare transfers did not seem to compensate as much as was once thought.

Whatever standard measure of inequality Dr Doiron used - and whether it was pre-tax, post-tax or household disposable income - the story was the same. Australia retained a decent level of equality at a time when inequality was creeping or bounding upwards in many comparable countries over the '90s. For a decade we managed to hold the line.

But after 2002, it was as if we let go of the brake. By 2007 Australia's ranking among 30 OECD countries had fallen from 15 to 24 in terms of equality.

New data for 2009 after the global financial crisis shows the steep rise in income equality appears to have eased. But we are far from the egalitarian society we were in 1980s, or even the 1990s. And I have not mentioned wealth yet- housing, shares, art works - that really distinguishes the haves from the have-nots.

Compared to the US and Britain, we are egalitarian. But compared with how we once were, and how we think we are, we have fallen from grace. If the taxi driver knew the extent of his amiable companion's income and wealth, he just might join the protesters.

Advance Australia is not so fair