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Sunday  Sanity Break, 30 July 2017 - The inequality debate

What if absolute poverty is reduced by rapid growth but relative poverty is increased? What would you choose, gentle reader? Bill Shorten, what would you do if reforms to increase Australia's growth increased relative poverty but reduced absolute poverty?

First to the facts, courtesy Paul Kelly and the Melbourne Institute's Roger Wilkins. From Kelly's weekend article in the Oz, linked here.

* 'The poorest 20 per cent of householders, on average, get cash transfers and benefits worth eight times more than they pay in tax; more than 40 per cent of families pay no net tax according to the Productivity Commission (other studies put this figure far higher); the top 10 per cent of income taxpayers pay almost 50 per cent of total income tax; and the top 1 per cent pay “a staggering 17 per cent of all tax received”.' (Treasurer Morrison)

* There is agreement over the data showing a generation-long increase in income inequality from the late 1980s-early 90s. This is seen in several measures: incomes before tax of the richest 1 per cent and richest 10 per cent, and in the two main measures: Australian Bureau of Statistics figures and analysis from the HILDA survey. Both show overall inequality rose, but at very different levels over the full period'. (Paul Kelly)

* 'Inequality has increased'. (RBA governor, Phil Lowe)

* 'ABS and HILDA results show diverging trends since the 2008 global crisis. The ABS data as assessed by Australian National University expert Peter Whitehead shows ongoing inequality but the Melbourne Institute survey under Wilkins shows, as he says, “a slight moderation in inequality”. The Gini coefficient (regarded as the best measure where zero is perfect equality and one is complete inequality) shows a fall from 0.319 to 0.313 from 2007-08 to 2014-15.

Wilkins says this trend, a slow decline in inequality, will be repeated in the most recent HILDA data, to be released next week. In short, he contradicts any recent upsurge in income inequality to buttress Labor’s repositioning. (Paul Kelly)

* 'As Labor knows, the Australian tax/transfer system is famous as a progressive instrument to combat inequality. Any notion that Australian governments have ignored inequality is nonsense. In his 2010 study, Whitehead found our social security system, with its heavy emphasis on means-testing of benefits, “is the most progressive in the OECD”. While Whitehead says the effectiveness of the ­Australian tax/transfer system “reach­ed its peak in the mid-1990s” he tells Inquirer that putting together both the tax and transfer side means “we still have the most progressive system.” (Paul Kelly)

* 'The story of inequality is always related to bigger macro trends — it is either concealed or accentuated by these trends. And this is happening again. A 2013 Treasury analysis of income inequality (Fletcher and Guttmann) found that between the mid-90s and late 2000s Australia had the second highest average income growth in the developed world, with hefty gains for the bottom 10 per cent as well.' (Paul Kelly)

* People are "underpaid, underrepresented and too frightened to complain'. (Bill Shorten, quoted by Paul Kelly)

* 'Wilkins says the inequality debate is driven by intergenerational differences: “Housing is the largest asset class in wealth portfolios. Differences in wealth according to age are growing. The baby boomers are a wealthy generation compared with the generations coming after them. There’s a generation now that feels cut out of the housing market and that means being cut out of economic and social participation in Australian society.” (Paul Kelly)

* “Access to jobs trumps most other factors in the inequality debate. Jobs and employment are the keys. We have enormous evidence on this. Access to jobs improves living standards, life satisfaction and one’s self-­esteem. I think it is a feature of the human condition.” (Roger Wilkins, quoted by Paul Kelly)

So, here we have it. The Hawke-Keating government raised productivity and real growth, and relative inequality rose, except for the bottom 10 %, whose relative poverty fell. The resource boom also boosted Australia's growth rate to similar effect. The GFC slowed global growth and in Australia relative poverty fell dramatically, and absolute poverty held its own. The situation since 2001 is shown by a stunningly important graph from Paul Kelly's article. in it, Percentage of population in income poverty - In absolute terms has fallen from 13 % in 2001 to 10 % in 2013; and - In relative terms has fallen from 13 % in 2001 to 4 % in 2013.

As a nation we have a real choice to make at the next election. Labor is determined to 'make the rich bastards pay more'. Sadly, the Turnbull government has already started down that track - think taxation of 'large' superannuation balances and the bank supertax, so it has little credibility on the tax area. Short of a Pauline reversal by the Coalition, Bill Shorten will surf to a big win that will take at least two terms to reverse. By 2020, growth will still be low and the leading taxpayers will be paying an even more stunning share of overall tax. Companies will have relocated to places with a more sensible tax regime and the tendency of rich families to follow will be great.


Fiona Prior visits the 2017 Archibald Prize exhibition. More here

image: courtesy of the artist and AGNSW

The Packers Prize, an institution of the Archibald almost as anticipated as the winning portrait, was taken out by Peter Smeeth’s portrait of Lisa Wilkinson AM. Wouldn’t it have have been grand if the recently retired (after 34 years) AGNSW’s Head Packer Steve Peter’s portrait Finished packing had received the Packers Prize? More here

We cannot miss the chance to comment, however briefly, on the culture of 'kill or be killed' in the American White House. How long can this go on for? Surely not for 8 years or even for four.

Also the mad antics of North Korea. The Donald has sent two bombers to overfly the hermit kingdom. What he expects to achieve with that futile gesture defies the team here at Henry

The sporting life

What a great round of AFL, except for Caaaarlton!'s flogging by Geelong. Still, we'll forgive the lads at the end of a long season and hope for better results next year.

Highlights were Hawthorn's narrow win over Sydney, keeping their finals hopes alive. Adelaide coming from 50 points behind Collingwood to draw with a goal as a result from a wonderful pack mark seconds before the final siren. Thus Footscray scraping into the eight and replacing Essendon in a win that made it look like the doggies are preparing for another win from low in the finals eight.

The cricket IR fandango drags on with more failure after how many 'almost solved' stories. Soon we'll all be sick of it and decide we won't waste any more time following five day draws or worse when bad weather intervenes.

Image of the week

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