All things being equal: report finds inequality is decreasing

What’s really happening with the gap between the rich and poor? Fresh data reveals it is not what you think.

‘When incomes stopped growing, people started thinking — “Hang on! Mine’s not growing!” — and started looking at what the very rich were getting’, says Roger Wilkins, Melbourne Institute deputy director and HILDA report co-author..

There’s a place we’ve all heard about, where the rich are getting richer, the poor are getting poorer and the angry masses are baying for change.

Sound close to home?

While some politicians, policymakers, media commentators and activists would have us think so, fresh data on the economic wellbeing of Australian households is suggesting otherwise.

The latest findings from the reputable Household, Income and Labour Dynamics in Australia Survey, released today, provides a counterargument to the rising inequality narrative that has featured prominently since federal Labor leader Bill Shorten labelled it the “central issue of our times” in a landmark speech to The ­Australian/Melbourne Institute conference last year.

Yet inequality, according to the HILDA report, is decreasing — ­albeit slightly.

“If we were thinking that inequality was rising … it’s not, so that’s good news relative to that perception,” says Melbourne Institute deputy director Roger Wilkins, the report’s co-author. “Inequality is certainly not rising.”

Looking at the distribution of individuals’ equivalised household disposable income across the 15-year life of the survey, the report reveals that a top 10 per cent income earner in 2016 raked in 1.9 times the median annual income, down from 1.93 times in 2001, and significantly less than 1.97 times when it peaked in 2011 after the global financial crisis.

The same has occurred at the other end of the spectrum. The ratio of median income compared with a bottom 10 per cent income earner has fallen to 1.97 times, down from 2.2 times at its 2009 peak.

According to the report, the Gini coefficient — which is “an overall measure of inequality that ­ranges from 0, where everyone has the same income, to 1, where one individual has all the income” — has remained between .29 and .31 since the survey began.

In a nutshell, the gap between a top 10 per cent earner and a ­bottom 10 per cent earner has ­narrowed.

Other measures of household economic wellbeing canvassed in the survey also indicate there is room for a more optimistic ­outlook. The proportion of the population experiencing income poverty has dropped. So, too, have reliance on welfare support payments and indicators of financial stress, such as being unable to pay utility bills on time, having to pawn a personal item or relying on family and friends for money.

The report finds that relative income poverty — defined as having a household income below 50 per cent of the median — has fluctuated but, since peaking at 12.9 per cent in 2007, it fell to 9.4 per cent in 2016.

“It therefore appears that there has been some progress in reducing income poverty over the 2001 to 2016 period as a whole,” the report says.

“Moreover, the poverty rate obtained when the real value of the poverty line is maintained at its 2001 level of $18,187 (at December 2016 prices) has fallen dramatically, from 12.6 per cent in 2001 to 3.6 per cent in 2016.

“Thus, even among those in relative income poverty, average living standards … have increased over the full 16-year period.”

The report also reveals that the child poverty rate, which consistently has been below the community-wide poverty rate, fell to 7.6 per cent in 2016 — the lowest it has been across the period.

It found highly persistent or recurrent poverty was confined to about 5 per cent of men and 6 per cent of women who were in poverty in at least five of the 10 years.

Consistent with the downward trend in the rate of poverty across the HILDA Survey period, the 10 years from 2007 to 2016 saw slightly lower proportions of working-age people experience each level of poverty duration.

According to Wilkins, that all adds up to a society that its “treading water” or holding “steady” in regards to economic wellbeing of its households.

“We’re not going backwards or forwards,” he says.

It’s an unsensational take that is unlikely to be shared by the Australian Council of Social Service, which persistently has argued that inequality is a worsening problem.

Today ACOSS will release its own report, titled Inequality in Australia 2018, which will highlight “stark disparities” in income and wealth that will potentially “change the nature of our society”.

According to the ACOSS report, households in the highest 20 per cent income bracket have five times as much income as those in the lowest 20 per cent, while the top 1 per cent receive as much income in a fortnight as the lowest 5 per cent get in a year.

It says wealth inequality is even greater, with households in the highest 20 per cent holding almost 100 times the wealth of the lowest 20 per cent ($2.9 million, compared with $30,000). ACOSS chief executive Cassandra Goldie says the report findings serve as a reminder that Australia is among the most unequal wealthy nations, along with the US and Britain.

“Our finding that those in the highest 1 per cent earn as much in a fortnight as those in the lowest 5 per cent in a year deeply challenges our sense of Australia as an egalitarian country,” Goldie says.

“The Australian experience in recent decades shows that inequality has increased strongly in economic boom times and flattened with a slower economy and slow wage growth across the board.

“Unfortunately, the heavy concentration of investment income in high-income households and long-term growth in inequality of hourly wage rates means that, once income growth is restored, we can expect inequality to rise further unless governments, business, unions and communities actively work together to prevent this.”

Wilkins says although it is true that the top 1 per cent of earners has been increasing, focusing on such outliers has the potential to distort the picture.

He says the debate over inequality — and whether it is rising — largely is being driven by the stagnation of average incomes since the GFC.

Income inequality had been rising before that and was picked up in the HILDA data but, given wages were rising at the time also, it attracted little commentary, he adds.

“When incomes stopped growing, people started thinking — ‘Hang on! Mine’s not growing!’ — and started looking at what the very rich were getting,” he says.

According to the latest HILDA survey, there is one cohort where increasing inequality has been identified: those aged 65 and older.

The group, as well as those in the 55 to 64 age bracket, is considered to have higher levels of inequality than younger age brackets.

Wilkins says that may be explained by the different circumstances of older Australians, some of whom will be retired with healthy superannuation balances, and income from investment properties, others who are still working, and those who’ve retired on less and are having to rely on the Age Pension.

He also acknowledges the situation facing many younger Australians who are struggling to get into the housing market because of high property prices and the impact on their financial wellbeing.

“They are looking at the baby boomers who’ve paid off their homes and perhaps bought an investment property, so they’re processing inequality through that lens,” he says.

With a federal election looming, and the Opposition Leader and the ACTU having gained significant traction on pushing the inequality line, it is unlikely that it will quieten down.

Claims that Australia is at risk of becoming an “Americanised society of working poor” if people are not given a pay rise and mantras of “inequality kills hope”, not surprisingly, have played to people’s fears.

And fear has a habit of lingering long after the facts call for calm.

The Committee for Economic Development of Australia recently looked hard at this issue, commissioning several pieces of research in a bid to get a better handle on the data, and its potential impact for Australia’s future prosperity.

CEDA chief executive Melinda Cilento says the findings are interesting, showing that perception is different from the reality.

“When we looked at the data, the measures of inequality hadn’t gotten worse … but a vast majority of people believed the gap between the rich and the poor was unacceptable,” she says.

Cilento agrees that when incomes were rising, the issue wasn’t garnering attention. “What we’ve seen with the slowing wages growth, living costs going up, people’s sense of their own financial wellbeing is not great,” she says.

“One-third of people say that are having difficulty living on their income. Further to that … we’re seeing quite significant inequality in opportunity and education and postcode inequality — dispro­portionate disadvantage in a small number of postcodes. These issues influence attitudes.”