'Rising poverty is a fearsome thing and one that chills the blood of ordinary Australians. It signposts breakdown of community structures and raises fears that entrenched and widespread poverty will ultimately result in a greatly weakened society.' This compelling quote is from a Brotherhood of St Laurence study by Jeanette Johnson and Janet Taylor, 'Growing Apart. A new look at poverty in Australia.'

Yet while there is widespread agreement that poverty is a problem, there is no general agreement about solutions. The nineteenth century reformers concluded that 'the poor are always with us', and at least in relative terms that will always be true. One of the great unresolved issues is the extent to which people are trapped in poverty for most or all of their lives, or indeed the extent to which whole families or groups suffer this fate. Obviously if poverty is a temporary state for most people, it will be both less tragic and easier to deal with. But if the opposite is true, and poverty is both chronic and rising, Australia has a major problem on its hands. We badly need proper analysis of this issue.

Then there is the question of what to do about poverty. For most of Australia's history, robust self-reliance was the prevailing ethos and most people had a horror of welfare dependency. Then in the 1960s the onset of the permissive, freewheeling Age of Aquarius replaced robust self-reliance with a doctrine of rights, which reached some sort of high tide when a member of the Whitlam cabinet said that he wanted to raise all incomes above the average. Only now is the tide beginning to run the other way.

The early twenty-first century is likely to see the rise of the principle of mutual obligation, in which everyone has to contribute in return for support from the common purse. Is this a return to the sturdy self-reliance of early capitalism? Or is it modern Marxism - from each according to his abilities, to each according to his needs? It is both, another illustration of the death of ideology.

The Facts.

The main facts do not seem to be in dispute, but embody a deep paradox. Average living standards, indeed the standard of living for all significant groups in Australia, have never been higher. Fifty years of growth and development has benefited all groups. In the past twenty years, after the difficult times in the 1970s, deregulation and globalisation have again boosted growth toward rates seen before only in the so-called 'golden-age' of the 1950s and 1960s. This is not to deny that some individuals are worse off than they were at particular times in the past.

Most of the discussion about standards of living and the distribution of income must of necessity focus on broad groups, and averages often hide wide individual differences. People can be poor whilst training for a profession, and others may become poor through accident or simply by living longer that they implicitly planned. Of particular relevance to this debate, the processes of deregulation and globalisation that raises the overall growth rate produces losers as well as winners. And even if people end up better off in some statistical sense, they can feel disgruntled that they were forced out of their comfort zone by processes over which they had little or no control.

A marked feature of the past twenty years, however, is the widening disparities of income and (especially) wealth among main groups. But even this generalisation is overly simplified. In fact it is claimed in a recent study, widely promulgated by the Australian newspaper in mid-June of this year, that incomes of both the poorest members of society and the richest (technically, members of the first and tenth income deciles) have grown fastest, whilst the incomes of the middle groups have grown more slowly.

This panders to the politics of envy in a number of ways. The middle groups pay an overwhelming proportion of taxes and thereby provide most of the money to support w elfare recipients. And the average rate of tax paid by the middle-income groups is higher than that of the rich, an outcome impossible to rationalise according to any political theory except, perhaps, that of extreme national Darwinism.

A further feature of the past 20 years is the sharp rise in welfare payments, both in absolute terms and as a share of GDP. This helps to explain why the incomes of the poorest members of society have risen faster than those of the middling groups. Another reason is that the taxes paid by the middling groups have risen far faster than GDP, which has acted to slow the growth in post-tax incomes of this group. Despite massive transfers of income, to an extent that leaves many middle-income earners seriously unhappy, poverty persists. This is the essence of the deep paradox facing us as we grapple with the question 'How to help the poor?'

Causes and Cures.

The Brotherhood of St Laurence and the Centre for Independent Studies (CIS) have each recently thrown valuable light on the questions of causes and cures. The Brotherhood conducted a telephone survey of 400 randomly selected adults in metropolitan and rural NSW, Victoria and Tasmania. Careful statistical procedures were applied and results are reported according to the views of two groups - high and low income earners. Two major findings are:

- that there is a 'limited understanding' of poverty in Australia; and - people are 'very concerned about a perceived widening divide between rich and poor.'

To be sure, the 'perceived widening divide' is only the third most worrying issue, with drugs and unemployment ahead in the survey results. However, drugs and unemployment would seem obvious causes of poverty so there is an interconnected set of issues to consider.

The CIS study, by Lucy Sullivan, is called 'Behavioural Poverty' Its methodology is factual and historical, with extensive quotes from the literature on poverty over the past century. The heart of Lucy Sullivan's view is that welfare leads to 'permanent entanglement in dependency.' She repeatedly illustrates that: '...the more money that is poured into poverty, the more the statistics on poverty increase.' She notes that: 'In 1965, when (a much smaller proportion) of the population aged 15 and over received social security payments...there was no homelessness, no begging, low youth suicide, and little crime by present day standards.' She concludes: '...welfare as practiced today is flawed in its very conception...'

A third stream of analysis comes from economists interested in the reduction of unemployment, an obvious major cause of poverty. Readers of this column will be well aware of the issues here, as expounded, for example, in October 1998, 'Why are Australians Unemployed?'  Then there was the letter to the Prime Minister on the subject from five prominent economists. One of the five, Professor Ross Garnaut, recently updated his analysis of the problem at a seminar at the Melbourne Institute. I draw on this presentation with his permission.

Spending more on social welfare can be a cause of rising welfare dependency (Lucy Sullivan's hypothesis) or a response to social and economic tides that create poverty in the midst of plenty. I have no doubt that both forces have been at work in a self-reinforcing process. Australian unemployment rose in several steps to a post-war peak of 11.4% as a result of adverse international events combined with avoidable local policy mistakes. (And there is a view that the actual rate of unemployment was nearer 20% of those who would like to work if suitable jobs were available.)

Another vital 'exogenous' force was the introduction of no-fault divorce that combined with related social forces to create many of the social and familial ills that Lucy Sullivan so vigorously attacks. Unemployment and family breakdown both create poverty and the social welfare benefits paid to the victims create welfare dependency in some of those victims.

We are where we are, and how best to move forward is the question. A major point is that p overty is persistent, although perhaps not as persistent as social reformers often believe. Australia almost certainly has greater economic and social mobility than most countries, although data on this vital issue is scant and out-of-date.

The belief of some is that families or whole groups become trapped in poverty for generations. As the Encyclopaedia Britannica (15th edition) puts it: 'Indifference, apathy, fatalism, resignation and related traits are terms typically used to describe the outlook of the poor...' Such characteristics are not conducive to individual efforts to break the culture of poverty and dependency, but the fact is that there are plenty of self-made people who do brilliantly from tough beginnings.

All social reformers have emphasised the importance of education as a circuit breaker. Yet no matter how enlightened the system of free, universal public education, the children of the well-to-do will mostly get better education than the children of the poor. And the benefits of formal education will in most cases be severely modified by the home environment. Obvious but difficult questions arise. Is it feasible to provide some degree of positive discrimination for young people from poor backgrounds in government jobs and higher education? Is there a wider role for successful people mentoring children from poor backgrounds? Should there be popular (government funded) advertising of the achievements of appropriate role models?

Another way to break the cycle of poverty is to improve incentives, or at least remove disincentives, for people to re-enter paid employment. Economists in recent years have identified so-called 'poverty traps' in the social welfare system which occur when welfare recipients face high marginal tax rates, which can exceed 100%. Recent reforms have reduced the marginal rates of tax on social welfare recipients who gain paid employment to an average nearer 70%. This is still a large disincentive. And some very hard cases remain.

Lucy Sullivan reports the 1995 case of a couple from West Australia (with four children) who tried to stay together despite severe financial hardship. When push came to shove, however, separation was far better financially than staying together. By separating, the wife received: priority child-care at a subsidised rate; a pension; Austudy; home help and other forms of assistance; and she became eligible for DEET schemes and related support networks. The lady asks: 'What do you get for staying together?'

This is a particularly hard question as in another recent CIS publication, 'Boy Trouble', Jennifer Buckingham has assembled impressive evidence that broken families create severe problems for children, boys in particular, which will have as a side effect the perpetration of poverty. In the face of this evidence, do we really want our welfare system to encourage parents to break up? But reducing the financial incentives to do so would involve removing benefits from people who are under severe financial pressure. Is society prepared to be this tough? It is just not feasible to roll back the clock to a simpler age when divorce was rare, rates of crime and youth suicide were low and people were far more attuned to caring for themselves.

Strong economic growth provides direct benefits for most people as well as providing the means to assist the losers. Globalisation and deregulation promote growth but widen the dispersion of income. As noted, Australia in the past decade has performed exceptionally well in raising its rate of growth both in relation to our past history and relative to the performance of other advanced countries. While income relativities have been stretched, the stretch in Australia has in fact been less than in most other developed countries.

One reason for this is Australia's still partially regulated labor market; another is our relatively generous social welfare policies. Ironically, Ross Garnaut - who I judge to be a ch ampion of greater economic equality - concludes that; 'The largest remaining opportunities for productivity-raising reform relate to increasing the flexibility of the labor market.' Like most economists, Garnaut is also a keen advocate of integrating the tax and social welfare systems to reduce disincentives to work and to save.

There are some knotty technical issues to be solved in this area. One theoretically attractive solution is a full-blown negative income tax system, replacing virtually all the existing welfare system. The 'five economists' recommended a system of tax credits as 'part of a rationalisation of our complicated tax and social security system and a move towards a negative income tax system.' Garnaut now recommends supplementary payments (subject to asset tests) to the working poor and other welfare recipients to ensure a decent level of income for all Australians. This is a modern version of the famous 'Harvester judgement' which sought to achieve the same effect through the wage system.

Like many other economists Garnaut also advocates reducing marginal rates of tax on income generally, and in fact has a bold plan to reduce all rates of tax on income to a uniform 30% over a ten-year period. He also suggests that Australia puts on the political agenda taxes on wealth such as estate or gift duties that 'fall within the limits of international practice' to reduce the stretch in the distribution of wealth and income.

At least in relative terms the poor will always be with us. It is vital that we understand better just how much economic and social mobility actually exists in Australia, and conversely how many individuals, families and groups are trapped in poverty. If most poverty is due to a lot of people who are poor for a few years it is much less serious than if poverty is narrowly focussed on particular families of groups (eg indigenous Australians.) A major study of precisely this question needs to be undertaken as soon as possible.

What public policy can sensibly do to help the poor can be summarised under three headings:
1. Continue to promote economic growth, recognising that it will produce further stretching of the distribution of wealth and income. Growth provides the means to better provide for the losers from economic reform and to help the disadvantaged members of society generally.
2. Continue to reform the tax and welfare systems to improve incentives to work and to save. Assistance should be targeted as closely as possible to the genuinely needy and acceptance of the principal of mutual obligation will make clear that there can be no free riders in the modern world.
3. Continue to promote health and education, with maximum incentives for people to provide for their own well-being and that of their children. Careful thought needs to go into how best to help the children of the poor to make better use of available opportunities, and to raise their sights generally.