tag:theconversation.com,2011:/au/topics/income-distribution-10401/articlesIncome distribution – The Conversation2024-01-29T01:05:04Ztag:theconversation.com,2011:article/2218512024-01-29T01:05:04Z2024-01-29T01:05:04ZStage 3 stacks up: the rejigged tax cuts help fight bracket creep and boost middle and upper-middle households<figure><img src="https://images.theconversation.com/files/571758/original/file-20240128-23-bf36qc.png?ixlib=rb-1.1.0&rect=45%2C152%2C1871%2C1031&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The winners and losers from the Albanese government’s <a href="https://treasury.gov.au/sites/default/files/2024-01/tax-cuts-government-fact-sheet.pdf">rejig</a> of this year’s Stage 3 tax cuts have already been well documented.</p>
<p>From July 1 every taxpayer will get a tax cut. Most, the 11 million taxpayers earning up to A$146,486, will also pay less tax than they would have under the earlier version of Stage 3, some getting a tax cut <a href="https://theconversation.com/albanese-tax-plan-will-give-average-earner-1500-tax-cut-more-than-double-morrisons-stage-3-221875">twice as big</a>.</p>
<p>A much smaller number, 1.8 million, will get a smaller tax cut than they would have under the original scheme, although their cuts will still be big. The highest earners will get cuts of $4,529 instead of $9,075.</p>
<p>But many of us live in households where income is shared and many households don’t pay tax because the people in them don’t earn enough or are on benefits.</p>
<p>The Australian National University’s <a href="https://csrm.cass.anu.edu.au/research/policymod">PolicyMod</a> model is able to work out the impacts at the household level, including the impact on households in which members are on benefits or don’t earn enough to pay tax.</p>
<h2>More winners than losers in every broad income group</h2>
<p>We’ve divided Australian households into five equal-size groups ranked by income, from lowest to lower-middle to middle to upper-middle to high.</p>
<p>Our modelling finds that, just as is the case for individuals, many more households will be better off with the changes to Stage 3 than would have been better off with Stage 3 as it was, although the difference isn’t as extreme.</p>
<p>Overall, 58% of households will be better off with the reworked Stage 3 than they would have under the original and 11% will be worse off.</p>
<p>Importantly, there remain 31% who will be neither better off nor worse off, because they don’t pay personal income tax.</p>
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<p>But it is different for different types of households. </p>
<p>In the lowest-earning fifth of households, far more are better off (13.5%) than worse off (0.2%) with the overwhelming bulk neither better nor worse off (86.3%).</p>
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<p>In the highest-earning fifth of households, while more than half are better off (54.4%), a very substantial proportion are worse off (42.3%).</p>
<p>Very few (only 3.1%) are neither better nor worse off.</p>
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<h2>But high-earning households go backwards on average</h2>
<p>In dollar terms, the top-earning fifth of households loses money while every group gains. That’s because although there are more winners than losers among the highest-earning fifth of households, the losers lose more money.</p>
<p>The biggest dollar gains go to middle and upper-middle income households with middle-income households ahead, on average, by $988 per year and upper-middle income households by $1,102. The highest-income households are worse off by an average of $837 per year.</p>
<p>As a percentage of income, middle-income households gain the most with a 1% increase in disposable income. Lowest income households gain very little, while the highest-income households go backwards by 0.3%.</p>
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<h2>The rejig does a better job of fighting bracket creep</h2>
<p>And we’ve found something else.</p>
<p>The original version of the Stage 3 tax cuts was advertised as a measure to overcome <a href="https://theconversation.com/the-2-main-arguments-against-redesigning-the-stage-3-tax-cuts-are-wrong-heres-why-221975">bracket creep</a>, which is what happens when a greater proportion of taxpayers’ income gets pushed into higher tax brackets as incomes climb.</p>
<p>We have found it wouldn’t have done it for most of the income groups, leaving all but the highest-earning group paying more tax after the change in mid-2024 than it used to in 2018.</p>
<p>The rejigged version of Stage 3 should compensate for bracket creep better, leaving the top two groups paying less than they did in 2018 and compensating the bottom three better than the original Stage 3.</p>
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<p>Not too much should be made of the increase in tax rates in the lowest income group between 2018 ad 2024 because some of it reflects stronger income growth.</p>
<p>We find that overall, the redesigned Stage 3 does a better job of offsetting bracket creep than the original. It is also better targeted to middle and upper-middle income households.</p>
<p>Having said that, the average benefit in dollar terms isn’t big. At about $1,000 per year for middle and upper-middle income households and costing the budget about what the original Stage 3 tax cuts would have cost, its inflationary impact compared to the original looks modest.</p>
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Read more:
<a href="https://theconversation.com/the-2-main-arguments-against-redesigning-the-stage-3-tax-cuts-are-wrong-heres-why-221975">The 2 main arguments against redesigning the Stage 3 tax cuts are wrong: here's why</a>
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<p class="fine-print"><em><span>Ben Phillips does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An ANU economic model finds even among the highest earning households, the policy change produces more winners than losers.Ben Phillips, Associate Professor, Centre for Social Research and Methods, Director, Centre for Economic Policy Research (CEPR), Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2029502023-04-13T20:08:16Z2023-04-13T20:08:16ZUnequal? Our analysis suggests Australia is a more equal society than has been thought<figure><img src="https://images.theconversation.com/files/520716/original/file-20230413-14-zdozai.png?ixlib=rb-1.1.0&rect=1516%2C808%2C2389%2C1399&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>It has long been known that incomes in Australia are more evenly distributed than in the United States. </p>
<p>But Australia has been thought to be a less equal society than many European ones, sitting somewhere in the middle between the United States and countries such as France.</p>
<p>We can measure income equality using the so-called <a href="https://corporatefinanceinstitute.com/resources/economics/gini-coefficient">Gini coefficient</a>, which gives a score of 0 to a country in which incomes are completely evenly distributed and a score of 1 to a country in which one person has all the income. </p>
<p>The OECD gives the US a score of 0.375, Australia a score of <a href="https://data.oecd.org/inequality/income-inequality.htm">0.32</a> and France a score of 0.29.</p>
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<p>But we’ve done work using a <a href="https://docs.iza.org/dp15651.pdf">broader measure of income</a> that incorporates all taxes paid, all company profits and (importantly) in-kind benefits such as health and education. And we’ve found the positions of Australia and France are reversed.</p>
<p>The US has an even less equal distribution of incomes under this measure (0.49 compared to 0.375), France a somewhat less changed distribution (0.33 compared to 0.29), and Australia a more equal distribution (0.28 compared to 0.32), making Australia the most equal country of the three in terms of income broadly defined.</p>
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<p>We can show this in another way, comparing the share of broadly defined national income going to the top 10% of income earners.</p>
<p>On this measure, the US is easily the least equal of the three, with high earners getting 39% of national income. In Australia and France they get about 25%.</p>
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<p>The US is also the least equal of the three, with Australia and France almost tied, when comparing the share of broadly defined income going to the bottom 50%. </p>
<p>In Australia and France, the bottom 50% get the most, at around 29%. In the US, the least, at 19%</p>
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<p>We used a method pioneered by researchers in the <a href="https://doi.org/10.1093/qje/qjx043">US</a> and <a href="https://www.aeaweb.org/articles?id=10.1257/app.20200703">Europe</a> that combines household survey data, administrative tax data and national accounts data to create what are known as <a href="https://wid.world/document/distributional-national-accounts-guidelines-2020-concepts-and-methods-used-in-the-world-inequality-database/">distributional national accounts</a>.</p>
<p>Compared with previous measures of inequality, it fully accounts for the effects of Australia’s system of in-kind government provision of services such as health and education, all company profits (including those not paid out as dividends) and all taxes including income tax, company tax and the goods and services tax.</p>
<p>Although we find Australian incomes are much more evenly distributed than previously thought, they have gotten less equal in the past three decades.</p>
<p>Since 1991, the average incomes of Australia’s top 1% – and the top 0.1% in particular – have grown far faster than the average incomes of the bottom 90%.</p>
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Read more:
<a href="https://theconversation.com/who-gets-what-who-pays-for-it-how-incomes-taxes-and-benefits-work-out-for-australians-98627">Who gets what? Who pays for it? How incomes, taxes and benefits work out for Australians</a>
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<p>We also find a persistent gender gap in incomes, even when we account for income sharing in households, and for government spending on education, health, housing and social programs. Broadly measured, female economic wellbeing remains below that of males.</p>
<p>Our approach, described in full in our <a href="https://docs.iza.org/dp15651.pdf">paper</a> and guided by previous studies for <a href="https://doi.org/10.1016/j.jpubeco.2018.01.012">France</a> and the <a href="https://doi.org/10.1093/qje/qjx043">US</a>, leaves room for refinement.</p>
<p>But it is enough to make clear that standard measures that leave out components of income and don’t account for taxes and benefits don’t tell the full story.</p><img src="https://counter.theconversation.com/content/202950/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roger Wilkins receives funding from the Australian Research Council. </span></em></p><p class="fine-print"><em><span>Nicolas Herault receives funding from the French Ministry of Higher Education and Research and the French National Research Agency. </span></em></p><p class="fine-print"><em><span>Matthew Fischer-Post does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia has been thought to be a less equal society than many European ones. But Australian incomes turn out to be as evenly distributed as those in France when everything is taken into account.Roger Wilkins, Professorial Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, The University of MelbourneMatthew Fischer-Post, Research Fellow, Harvard Kennedy SchoolNicolas Herault, Professor, Bordeaux Schoool of Economics, Université de BordeauxLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1720642022-05-11T19:55:42Z2022-05-11T19:55:42ZHow well off you are depends on who you are. Comparing the lives of Australia’s Millennials, Gen-Xers and Baby Boomers<figure><img src="https://images.theconversation.com/files/461946/original/file-20220509-16-qd8tmh.png?ixlib=rb-1.1.0&rect=57%2C491%2C2934%2C1594&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Most Australian voters are either Baby Boomers (born 1946 to 1964), Generation Xers (1965 to 1980) or Millennials (1981 to 1996).</p>
<p>And at one time or another most have been told that their generation is better off (or worse off) than the ones that came before it.</p>
<p>It’s tempting to think the most recent generation is always the worst off, with all the talk about the cost of living and other things in election campaigns.</p>
<p>But without data, or living the lives of other generations, it is hard to be sure.</p>
<p>Boomers are currently aged 58 to 76. They were 25-35 between 1971 and 1996.</p>
<p>Gen Xers are currently 42-57 and were 25-35 between 1990 and 2015. Millennials are in their 20s and 30s right now. </p>
<p>For most of the dimensions of well-being in which we are interested, the questions turn out to be surprisingly easy to answer, so long as we remember that the data tells us a lot about lives on average, and little about the lives of individuals.</p>
<p>In a <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/publication/taxstudies_crawford_anu_edu_au/2021-09/complete_wp_abelson_september_2021.pdf">study</a> prepared for the Australian National University’s Tax and Transfer Policy Institute I’ve attempted to provide answers for nine dimensions of well-being, used by the OECD, comparisons, ranging from income to housing, to personal safety to inequality.</p>
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<img alt="" src="https://images.theconversation.com/files/437487/original/file-20211214-15-9vzqr3.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/437487/original/file-20211214-15-9vzqr3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437487/original/file-20211214-15-9vzqr3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437487/original/file-20211214-15-9vzqr3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437487/original/file-20211214-15-9vzqr3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437487/original/file-20211214-15-9vzqr3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437487/original/file-20211214-15-9vzqr3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<h2>Income and wealth ✅</h2>
<p>Net national disposable income per capita has been climbing over time, meaning that Millennials aged 25-35 are 51% better off than Generation Xers were at that age, and 91% better off than Boomers at that age.</p>
<p>And those figures are likely to understate how much better off their standard of living is.</p>
<p>The quality and range of goods and services from food to cars to healthcare to computers to mobile phones with cameras has improved in ways figures can’t capture. Many didn’t exist in the 1970s.</p>
<p>Although the Bureau of Statistics attempts to adjust its measures for improvements in quality, it concedes its efforts are incomplete. The Bureau’s underestimation of quality improvements is likely to be significant.</p>
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<p>Millennials are also wealthier than Gen Xers and Boomers were at the same age, although recently the wealth of older Australians has been climbing more rapidly than the wealth of younger Australians, due in large measure to home prices. </p>
<p>Offsetting this, in due course, should be big inheritances passed from Boomers to Gen-Xers and Millennials.</p>
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<h2>Housing ❌</h2>
<p>Millennials aged 25 to 34 are much less likely to own their homes than Boomers were at the same age.</p>
<p>Among those aged 25-34, home ownership has fallen from 60% in 1976 to 37% in 2017-18.</p>
<p>While much of this is due to prohibitively high prices, some is due to Millennials finishing education and entering the workforce and marrying later. </p>
<p>It should be noted that Millennials who do own a home are no worse off in terms of payments relative to income than were Boomers. But getting a deposit (unless there’s an offer from the <a href="https://www.abc.net.au/news/2021-05-03/the-bank-of-mum-and-dad-house-prices-property-first-home-buyer/100102132">bank of mum and dad</a>) has become much more difficult.</p>
<p>Private rents have been remarkably constant over the past 25 years, at about 18% of average household income.</p>
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<p>Rents for low earners (in the bottom fifth) remain extraordinarily high, in Sydney taking up about 30% of household income. But this isn’t a generational problem. Low earners’ rents have been high and stable as a share of income for decades.</p>
<p>What is a problem for the most disadvantaged is that public housing has slid from 5.8% of the housing stock in the late 1990s to about 3% today.</p>
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<h2>Work ✅</h2>
<p>Women are much more likely to be in paid employment than 40 years ago. </p>
<p>Whereas in 1978, when Boomers were aged 25-35, only 40% of women were in paid work, by 2018 when Millennials were that age, a record 57% were paid workers, a proportion that climbed even higher during COVID to an unprecedented 60%.</p>
<p>Men are less likely to be employed. Whereas in 1978, 75% of men were paid workers, male employment fell to 67% in 1998 when Gen-Xers were 25-35, and stayed there when Millennials were that age in 2018. </p>
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<p>And there has been a major shift from blue-collar to white collar work. As detailed in the <a href="https://treasury.gov.au/publication/2021-intergenerational-report">Intergenerational Report</a>, in 1966, machinery operators and drivers comprised 11% of the workforce, and technicians and tradespeople 21%. By 2016 these proportions had almost halved to 6% and 14%. </p>
<p>The share of the workforce employed in (generally less physically-demanding) professional jobs has doubled, while the share employed in personal service jobs nearly tripled. Arguably these changes mean more pleasant working conditions.</p>
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<p>Work is also more part-time - the proportion of the workforce employed part-time has doubled, climbing from 15% in 1978 to 30% – and more casual. In 1988 only <a href="https://www.abs.gov.au/statistics/labour/earnings-and-working-conditions/working-arrangements/latest-release">19%</a> of the workforce was employed in jobs without leave entitlements. By 1998 the proportion had climbed to 27%, and has since declined to 22.5%.</p>
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<img alt="" src="https://images.theconversation.com/files/437706/original/file-20211215-13-156f7t1.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/437706/original/file-20211215-13-156f7t1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437706/original/file-20211215-13-156f7t1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437706/original/file-20211215-13-156f7t1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437706/original/file-20211215-13-156f7t1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437706/original/file-20211215-13-156f7t1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437706/original/file-20211215-13-156f7t1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<h2>Health ✅❌</h2>
<p>Australians are taller and heavier than half a century ago, in part because of better nutrition.</p>
<p>But we are more obese. Between 2007-08 and 2014-15 the proportion of children defined as overweight and obese women has climbed from 24.7% to 26.4%</p>
<p>Despite this, the extra years of life expected by men who reach 65 have climbed dramatically, from 12.3 years for a boomer born in 1953-54, to 19.6 for a Millennial born in 1994-96, to 22.3 for a man born more recently.</p>
<p>The extra years of life for a woman at age 65 has climbed from 15 to 19.6 to 22.3.</p>
<hr>
<p><iframe id="dgQbW" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/dgQbW/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>Importantly, the Institute of Health and Welfare finds most of the additional years are <a href="https://www.aihw.gov.au/getmedia/be95235d-fd4d-4824-9ade-34b7491dd66f/aihw-aus-231.pdf">healthy years</a>, with the proportion of lives spent in ill health little changed. </p>
<p>Suicide rates have fallen for women (from 7.8 per 100,000 females in the 1970s to 5.7 in the 2010s) but not for men (where they remained at about 18 per 100,000).</p>
<p>On the other hand, both men and women experienced major increases in reported anxiety and mood disorders, with the proportion of women reporting anxiety climbing from 12% to 16% between 1997 and 2017, and the proportion of men climbing from 7% to 11%. But harmful alcohol use and illicit drug use fell.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/437698/original/file-20211215-17-1baeqo5.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/437698/original/file-20211215-17-1baeqo5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437698/original/file-20211215-17-1baeqo5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437698/original/file-20211215-17-1baeqo5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437698/original/file-20211215-17-1baeqo5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437698/original/file-20211215-17-1baeqo5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437698/original/file-20211215-17-1baeqo5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<h2>Education ✅</h2>
<p>Millennials are much more educated (in terms of post-school qualifications) than Baby Boomers or Generation X. </p>
<p>Between 1975 and 2016 the proportion of men with a tertiary qualification climbed from less than 4% to 20% and the proportion of women with a tertiary qualification from less than 2% to 24%.</p>
<p>The benefits for those with degrees go beyond the financial. The Household, Income and Labour Dynamics survey finds they extend to well-being, social interactivity and healthy behaviours, such as physical activity and abstaining from drinking and smoking.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/437705/original/file-20211215-13-xfpbcn.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/437705/original/file-20211215-13-xfpbcn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=608&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437705/original/file-20211215-13-xfpbcn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=608&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437705/original/file-20211215-13-xfpbcn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=608&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437705/original/file-20211215-13-xfpbcn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=764&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437705/original/file-20211215-13-xfpbcn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=764&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437705/original/file-20211215-13-xfpbcn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=764&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<h2>Safety ✅❌</h2>
<p>Between 1996 and 2016 victims of homicide and related offences fell 50%, victims of robbery fell 56%, victims of motor vehicle theft fell 65% and victims of other theft fell by 21%.</p>
<p>Reported sexual assaults moved in the opposite direction, climbing from 80 per 100,000 people in 1996 to 95 in 2016.</p>
<p>Driving on roads has become far safer. Between 1976 and 2016 road deaths per 100,000 people fell from 25.5 to 5.3. </p>
<p>Overseas, far more Australians (many of them conscripts) died in the Vietnam war than in Afghanistan, making the toll from overseas conflicts the greatest for Boomers, much less for Millennials and nonexistent for Generation Xers.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/437709/original/file-20211215-19-1rxpgxu.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/437709/original/file-20211215-19-1rxpgxu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437709/original/file-20211215-19-1rxpgxu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437709/original/file-20211215-19-1rxpgxu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437709/original/file-20211215-19-1rxpgxu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437709/original/file-20211215-19-1rxpgxu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437709/original/file-20211215-19-1rxpgxu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<h2>Loneliness and connections ❌</h2>
<p>The proportion of Australians actively engaged in community organisations fell from 33% in 1967 to 18% in 2004, with major declines in church attendance, membership of unions and political parties, and participation in organised sport. </p>
<p>Whereas in the Boomer year of 1984, Australians had an average of nine trusted friends each, by the Gen-X year of 2018 that number had fallen to five. </p>
<p>In 1984, people could drop in on 10 neighbours. By 2018, it was only four. Seven per cent of people who could not drop in on a single neighbour in 1984. By 2018 it had climbed to <a href="https://www.blackincbooks.com.au/books/reconnected">17%</a>.</p>
<p>Offsetting this to some extent is evidence of substantial volunteer work in the recent floods and bushfires, social support services that did not exist 20 or 30 years ago, and the increasing use of online communication.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/461923/original/file-20220509-3310-wrlgii.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/461923/original/file-20220509-3310-wrlgii.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/461923/original/file-20220509-3310-wrlgii.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/461923/original/file-20220509-3310-wrlgii.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/461923/original/file-20220509-3310-wrlgii.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/461923/original/file-20220509-3310-wrlgii.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/461923/original/file-20220509-3310-wrlgii.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<h2>Environment ❌</h2>
<p>The US National Aeronautics and Space Administration finds the past seven years have been <a href="https://www.washingtonpost.com/climate-environment/2022/01/13/global-temperature-record-climate-change/">the hottest in recorded history</a>.</p>
<p>The CSIRO finds that Australia’s climate has warmed on average by <a href="https://www.csiro.au/en/research/environmental-impacts/climate-change/State-of-the-Climate">1.44°C</a> since national records began in 1910, and the Intergovernmental Panel for Climate Change expects Australia to suffer more from longer and hotter summers and more frequent bush fires than the rest of the world. </p>
<p>More than <a href="https://www.awe.gov.au/environment/biodiversity/threatened/species">1,700 </a>Australian species and ecological communities face extinction.</p>
<p>Only partially offsetting this for Millennials are less air and water pollution than in the 1970s, <a href="https://www.abs.gov.au/statistics/environment/environmental-management/water-account-australia/latest-release#">less water use</a>, and better building standards.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/461927/original/file-20220509-22-81qkq6.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/461927/original/file-20220509-22-81qkq6.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/461927/original/file-20220509-22-81qkq6.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/461927/original/file-20220509-22-81qkq6.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/461927/original/file-20220509-22-81qkq6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/461927/original/file-20220509-22-81qkq6.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/461927/original/file-20220509-22-81qkq6.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<h2>Inequality ❌</h2>
<p>While the economy Millennials entered their 20s and 30s is richer than in earlier generations, its wealth and income are less equally distributed.</p>
<p>The Productivity Commission finds income inequality has increased “modestly” since the 1980s and wealth inequality has increased by more.</p>
<p>Between 2003-04 and 2015-16 the wealth of the poorest tenth of households climbed not at all, while the wealth of middle-earners climbed 27%, and the wealth of the top tenth by nearly <a href="https://www.pc.gov.au/research/completed/rising-inequality/rising-inequality.pdf">40%</a>, largely due to growing superannuation balances and home prices.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/intergenerational-reports-ought-to-spark-action-as-well-as-scare-us-163505">Intergenerational reports ought to spark action, as well as scare us</a>
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<p>Assessing the overall position of Millennial voters compared to Gen-X and Baby Boomer voters requires value judgements about the dimensions that matter the most, and also judgements about the future, including the ways in which Australia will buffeted by and respond to potential major threats including climate change, social media and the erosion of privacy, and conventional and cyber warfare.</p>
<hr>
<p><em>Peter Abelson wishes to acknowledge the assistance of Aliya Gul, a Millennial.</em></p><img src="https://counter.theconversation.com/content/172064/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Abelson is a war-baby.</span></em></p>On many dimensions, Millennials aged 25-35 are better off than were Boomers, with housing and the environment the big exceptions.Peter Abelson, Economist, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1622512021-06-08T04:47:02Z2021-06-08T04:47:02ZOther Australians don’t earn what you think. $59,538, is typical<figure><img src="https://images.theconversation.com/files/461939/original/file-20220509-26-g1sgw.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">taxret</span> </figcaption></figure><p>I’m guessing you earn less than A$200,000. </p>
<p>And I’m guessing you think you’re missing out. People keep telling you so.</p>
<p>On one side of politics Labor leader <a href="https://anthonyalbanese.com.au/media-centre/transcript-of-radio-interview-2-gb-money-news-monday-24-june-2019">Anthony Albanese</a> says anyone earning $200,000 dollars a year “can’t be described as being in the top end of town”.</p>
<p>On the other, Prime Minister <a href="https://www.pm.gov.au/media/doorstop-parkhurst-qld">Scott Morrison</a> parries with interviewers when asked whether people on $180,000 to $200,000 (the biggest beneficiaries of his planned 2024 Stage 3 tax cut) are “high income”.</p>
<p>“They’re hardworking people working out on mines and difficult parts of the country,” he says. “They deserve a tax cut.”</p>
<p>Hardworking or not, Australians on more than $200,000 are rare. And an awful lot of them don’t work at all.</p>
<h2>$200,000 is unusual</h2>
<p>I’ve never quite understood why politicians are so keen to tell us such incomes are normal. It might be because they are on them. Each backbencher gets <a href="https://www.remtribunal.gov.au/sites/default/files/2021-01/Remuneration%20Tribunal%20%28Members%20of%20Parliament%29%20Determination%202020%20DOE%2001-07-2020.pdf">$211,250</a> plus a $32,000 electorate allowance (boosted by $19,500 if they turn down the use of a private-plated vehicle) plus home internet and travel allowances.</p>
<p>Very detailed tax office figures (<a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2018-19/?page=2#Navigating_Taxation_statistics">updated on Monday</a>) tell us what the rest of us earn, all 14.3 million of us.</p>
<p>Only 2% of those required to pay tax earned more than $211,365. Only 3% earned more than $188,667.</p>
<p>Everyone else — the other 97% — earned less than $188,667, most of them a good deal less, and many more earned even less and weren’t required to pay tax.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">What you report to myGov, the ATO reports to us, with a lag.</span>
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<p>The figures released on Monday are for 2018-19, because it takes a while for the tax office to receive and process all the forms. 2019 is when Albanese said $200,000 wasn’t the “top end of town”, 2018 is when Morrison unveiled Stage 3.</p>
<p>The typical taxable income (typical in the sense that half earned more than it, half less) was $59,538. If that’s what you’re on, you’re more likely to find people who earn close to what you do than anyone who earns more or less.</p>
<p>We can get an idea of how lonely it is at the top by examining the top 1%, those Australians with a taxable income of greater than $350,134.</p>
<p>There aren’t many of them, just 110,613 — 82,258 men and 28,355 women. </p>
<p>Only 39,209 have taxable incomes of more than $500,000, and of these only 14,467 have taxable incomes of more than $1 million.</p>
<h2>Life at the top needn’t be taxed</h2>
<p>You’re probably thinking there’s a difference between taxable incomes and actual incomes, and the tax office figures show you’re right. </p>
<p>15,358 Australians reported total incomes of more than $1 million. By the time they had applied legitimate tax deductions, the number had shrunk to 14,467.</p>
<p>Some of these million-dollar earners were able to shrink their taxable incomes very low indeed. 45 cut their taxable incomes to less than the tax-free threshold of $18,200 — meaning they didn’t have to pay anything, not even the Medicare levy.</p>
<p>Another eight managed to escape the Medicare levy even though their taxable incomes were above $18,200, and another 21 escaped income tax while paying the Medicare levy.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/yes-some-millionaires-pay-no-tax-but-crimping-deductions-mightnt-help-139279">Yes, some millionaires pay no tax, but crimping deductions mightn't help</a>
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<p>Many of these millionaires weren’t “hardworking” in the sense Morrison meant. Only 9,144 of the 14,467 Australians on taxable incomes of more than $1 million worked. Only 172,305 of the 222,813 Australians on more than $250,000 worked.</p>
<p>Only nine of the 45 million-dollar earners who cut their taxable incomes to less than the tax-free threshold worked. 27 received so-called <a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">franked dividends</a> from companies that had paid tax, enabling them to cut their own tax bills or receive rebates from the tax office. On average, each received dividends of $2.25 million.</p>
<h2>Many who aren’t taxed are generous</h2>
<p>Seventeen of the 45 million-dollar earners received capital gains, on average $6.4 million each. 38 received interest, averaging $290,000 each.</p>
<p>Against that were set expenses, small and large. Three claimed for work-related car expenses averaging $27,340 each, 13 claimed expenses averaging $57,200 for assistance with tax affairs, eight claimed for previous losses from farms averaging $684,000 each, and eight for losses from other businesses averaging $408,000.</p>
<p>But by far their biggest expense was donations. 14 gave away a total of $161 million in gifts or tax-deductible donations — an extraordinary average of $11.5 million each.</p>
<p>Most of us aren’t like these people. </p>
<h2>Most of us claim more modest deductions</h2>
<p>Three-quarters of Australians in the tax system earn less than $89,173. </p>
<p>Those on that income typically claim between $1,500 and $1,900 in deductions (men claim more than women) and, thanks to negative gearing, claim losses on properties of between $1,800 and $2,600 (again, men claim more than women). </p>
<p>Such Australians typically report between $1,200 and $2,100 in capital gains (more for women than for men).</p>
<p>If higher-earning Australians are unaware of how most of us live, it’s understandable. Surgeons mix with other surgeons. On average each of Australia’s 4150 surgeons earns $394,303, making surgery our highest-paying occupation.</p>
<h2>We mix with, and marry, people like us</h2>
<p>And they increasingly marry each other. In 2010 the Productivity Commission found that 68% of Australia’s high earners were <a href="https://www.pc.gov.au/research/supporting/income-distribution-trends/income-distribution-trends.pdf">married to other high earners</a>. A decade earlier it was 49%.</p>
<p>And high earners live near each other. The average income in Sydney’s Double Bay (Australia’s highest-earning suburb) is $202,598. The average income in Ruse in Sydney’s Campbelltown is $55,100.</p>
<p>People in Double Bay don’t drive through Ruse on their way to the city.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-low-and-middle-income-tax-offset-has-been-extended-yet-again-it-delivers-help-neither-when-nor-where-its-needed-160772">The Low and Middle Income Tax Offset has been extended yet again. It delivers help neither when nor where it's needed</a>
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<p>In the United States it is often the other way around. There, low-income suburbs are more likely to be near the city, meaning that high-income Americans at least see them as they go in to town.</p>
<p>That most of us have little idea of what others earn suits those in charge when they propose tax cuts <a href="https://theconversation.com/the-low-and-middle-income-tax-offset-has-been-extended-yet-again-it-delivers-help-neither-when-nor-where-its-needed-160772">skewed to high earners</a>.</p>
<p>They can con us that most of us will be better off, and those on high incomes can con themselves they are not already better off.</p><img src="https://counter.theconversation.com/content/162251/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New tax office figures show only 2% of Australians earn more than $211,000 a year.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1500812020-11-25T19:02:29Z2020-11-25T19:02:29ZFrom here on the recovery will need redistribution<p>From the 1980s right through to the global financial crisis, the standard response in Australia and elsewhere to too weak or too strong an economy has been <a href="https://www.investopedia.com/terms/m/monetarypolicy.asp">monetary policy</a> — the manipulation of interest rates by a central bank, in our case the Reserve Bank.</p>
<p>Rates can be moved quickly, and central banks are seen to be independent and to behave responsibly, while governments are seen as making decisions for political rather than economic reasons.</p>
<p>But since the global financial crisis (in much of the world) and since COVID (in Australia) managing the economy has come to be seen once again as the role of the government through spending and tax decisions — so-called <a href="https://www.investopedia.com/insights/what-is-fiscal-policy/">fiscal policy</a>.</p>
<p>One reason is interest rates have fallen so low there’s been little left to cut.</p>
<p>After the 1990s recession, the Reserve Bank cut its cash rate from 17% to 7.5%. After the financial crisis it cut it from 6% to 3.25%. By the time COVID came around the rate was already at a record low of 0.75%</p>
<p>The bank did cut, as much as it could — first to a new record low of 0.5%, then to 0.25% and now to <a href="https://theconversation.com/5-ways-the-reserve-bank-is-going-to-bat-for-australia-like-never-before-149311">0.1%</a>, but there’s little more it can do, at least with the cash rate.</p>
<h2>Rate cuts have been used up</h2>
<p>And there’s little that whatever cuts it could make could do to boost the economy. Their immediate impact would be to push up the prices of houses and other assets and worsen inequality.</p>
<p>So the government has turned to fiscal policy. Since the onset of the pandemic the Commonwealth has provided A$257 billion in direct economic support; about 13% of GDP. </p>
<p>By comparison, in response to the global financial crisis it spent $72 billion; about 6% of GDP.</p>
<p>It will help, but it will do little about the underlying reason why rate cuts have become ineffective, which is an excess of savings over opportunities to invest them.</p>
<h2>We’re in a savings glut</h2>
<p>As far back as the mid-2000s the then chairman of the US Federal Reserve, Ben Bernanke, was talking about a savings glut: too many savings chasing too few opportunities to invest.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/371214/original/file-20201125-24-1lgti4n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/371214/original/file-20201125-24-1lgti4n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/371214/original/file-20201125-24-1lgti4n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/371214/original/file-20201125-24-1lgti4n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/371214/original/file-20201125-24-1lgti4n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/371214/original/file-20201125-24-1lgti4n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/371214/original/file-20201125-24-1lgti4n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/371214/original/file-20201125-24-1lgti4n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Too many savings chasing too few opportunities.</span>
<span class="attribution"><span class="source">Ashwin/Shutterstock</span></span>
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<p>For a while the US and other economies remained strong as the downward pressure of excess savings on demand was held at bay by households borrowing ever increasing amounts in order to spend. </p>
<p>That escape valve closed after the global financial crisis, and numerous (mostly American) economists began talking about ongoing slow economic growth, which they described as “<a href="https://theconversation.com/have-australian-bankers-bought-the-secular-stagnation-theory-29765">secular stagnation</a>”.</p>
<p>There are two suggested explanations. One involves <a href="https://www.investopedia.com/terms/s/supply.asp">supply</a>. It might be that the ability of the economy to supply more of what we want is slowing. </p>
<p>The other involves <a href="https://www.investopedia.com/terms/d/demand.asp">demand</a>. It might be that we not demanding enough of the things the economy can produce.</p>
<p>Potential supply might be slowing because modern-day technological progress, principally in the form of information and communications technology, is having <a href="https://rootsofprogress.org/summary-the-rise-and-fall-of-american-growth">less of an impact</a> than previous new technologies such as electricity, the internal combustion engine or the automated production line. </p>
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Read more:
<a href="https://theconversation.com/why-zero-interest-rates-are-here-to-stay-149523">Why zero interest rates are here to stay</a>
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<p>Australia’s treasury has also suggested the Australian economy might be <a href="https://treasury.gov.au/speech/s2019-396067">less dynamic</a>, with lower levels of firm entry and job switching, slower adoption of frontier technologies and processes, and less labour reallocation of resources from low to high productivity firms. </p>
<p>It is these supply-side constraints that have captured the attention of the Australian authorities.</p>
<p>On the other hand, in the US, former Treasury Secretary Lawrence Summers has pointed out that if supply-side constraints were the principal problem, <a href="http://larrysummers.com/2016/02/17/the-age-of-secular-stagnation/">inflation would have been expected to accelerate</a> as capacity to supply fell short of demand, whereas in fact it has decelerated.</p>
<h2>Low spending means low investment</h2>
<p>What’s more likely is there’s insufficient demand for the goods and services the economy is able to supply. </p>
<p>This would explain why firms are reluctant to invest (and invest in new technology) to make more goods and services, a reluctance that might itself be slowing technological progress and the rate of increase in potential supply so that it better matches the slow increase in demand.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/371222/original/file-20201125-17-yxlyp7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/371222/original/file-20201125-17-yxlyp7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/371222/original/file-20201125-17-yxlyp7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/371222/original/file-20201125-17-yxlyp7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/371222/original/file-20201125-17-yxlyp7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/371222/original/file-20201125-17-yxlyp7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/371222/original/file-20201125-17-yxlyp7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/371222/original/file-20201125-17-yxlyp7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Treasury Secretary Steven Kennedy.</span>
<span class="attribution"><span class="source">AAP</span></span>
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<p>It would also explain why interest rates have been falling. Businesses don’t need funds to invest on the scale they once would have, however widely available those funds are.</p>
<p>According to Australia’s <a href="https://treasury.gov.au/speech/policy-and-evolution-uncertainty">treasury secretary</a> Steven Kennedy, this savings glut is the reason the neutral interest rate (the real cash rate that is neither <a href="https://theconversation.com/why-zero-interest-rates-are-here-to-stay-149523">expansionary or contractionary</a>) has been falling over the last 40 years. </p>
<p>He attributes these lower rates to “some combination of population ageing, the productivity slowdown and lower preferences for risk among investors”.</p>
<p>Given the international literature, it is surprising he hasn’t also identified changes in the distribution of incomes.</p>
<p>As is well known, higher income families tend to have a higher propensity to save than low income families.</p>
<h2>Our incomes are becoming more skewed</h2>
<p>This means changes in the distribution of incomes can drive changes in demand. </p>
<p>In Australia’s case — and Australia is far from the worst among the advanced economies — over each of the decades in the 1990s and 2000s male real earnings grew by about <a href="https://fbe.unimelb.edu.au/__data/assets/pdf_file/0009/1427409/1192CoelliBorland.pdf">30%</a> at the top of the distribution, while at the bottom of the distribution they grew not at all in the 1990s only by 10% in the 2000s. </p>
<p>For females, real earnings grew by about 15% for women on below median earnings in each of the decades, while at the top of the distribution, female real earnings grew by 25% in the 1990s and <a href="https://fbe.unimelb.edu.au/__data/assets/pdf_file/0009/1427409/1192CoelliBorland.pdf">35%</a> in the 2000s.</p>
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Read more:
<a href="https://theconversation.com/what-the-bureau-of-statistics-didnt-highlight-our-continuing-upward-redistribution-of-wealth-121731">What the Bureau of Statistics didn't highlight: our continuing upward redistribution of wealth</a>
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<p>Although the available data doesn’t show any further increase in income inequality during the 2010s, it shows the previous increases haven’t been reversed.</p>
<p>In addition, the unequal distribution of wealth has <a href="https://www.abs.gov.au/statistics/economy/finance/household-income-and-wealth-australia/latest-release#key-findings">worsened dramatically</a>. </p>
<p>For fiscal policy to be effective from here on it will need to be directed toward Australians with high propensity to spend and away from Australians with a high propensity to save. This means it will have to adopt as a goal a more egalitarian distribution of incomes, and perhaps wealth.</p>
<h2>We’ll need to boost low incomes</h2>
<p>So far, the government response to the COVID crisis has been good in this respect.</p>
<p><a href="https://theconversation.com/the-key-to-the-success-of-the-130-billion-wage-subsidy-is-retrospective-paid-work-135042">JobKeeper</a> and the <a href="https://theconversation.com/scalable-without-limit-how-the-government-plans-to-get-coronavirus-support-into-our-hands-quickly-134353">Coronavirus supplement</a> for job seekers have both been of most benefit to lower income Australians. </p>
<p>Looking to the future, a sustained recovery in demand is unlikely to come from <a href="https://minister.infrastructure.gov.au/mccormack/media-release/morrison-government-delivers-75-billion-boost-transport-infrastructure-across-nation">extra spending on infrastructure</a>. These projects typically employ few people and have either no business cases or business cases of dubious value.</p>
<p>Nor will it come from general fiscal support, <a href="https://theconversation.com/top-economists-back-boosts-to-jobseeker-and-social-housing-over-tax-cuts-in-pre-budget-poll-146914">including income tax cuts</a> for high earners with high propensities to save.</p>
<p>Long-term, it will have to involve boosting the earning potential of low earners.</p>
<h2>Education and services are the places to start</h2>
<p>This will mean, as a first priority, boosting spending on education and training in order to improve skills and earning power and better suit skills to needs.</p>
<p>The second priority has to be improving the quality of and access to government services. </p>
<p>Services such as aged care have suffered from under-funding, denying employment opportunities to low earners and denying others support.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/if-we-have-the-guts-to-give-older-people-a-fair-go-this-is-how-we-fix-aged-care-in-australia-147461">If we have the guts to give older people a fair go, this is how we fix aged care in Australia</a>
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<p>In addition, cutting the cost of childcare and a revamping its means tests would encourage many women to increase their hours of work and thus their family income, as well as creating more jobs for carers.</p>
<p>One of the great benefits of fiscal policy is that it can be targeted in this way, refashioned to improve income distribution and consumer demand.</p>
<p>It is another reason for preferring it over monetary policy for some time to come.</p><img src="https://counter.theconversation.com/content/150081/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Keating does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The government has done a good job so far, but it will have to direct future support to the Australians most likely to spend.Michael Keating, Visiting Fellow, College of Business & Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1459382020-09-16T19:54:08Z2020-09-16T19:54:08ZWho suffers most from Melbourne’s extended lockdown? Hint: they are not necessarily particularly vocal <p>Businesses are protesting vociferously about Victoria’s extended lockdown. It’s “<a href="https://www.afr.com/politics/federal/victoria-s-lockdown-likely-to-be-extended-20200906-p55srw">gut-wrenching</a>,” “<a href="https://www.afr.com/politics/federal/i-ve-got-no-hope-roadmap-a-death-knell-for-restaurants-20200906-p55st0">devastating</a>,” a “<a href="https://www.afr.com/politics/federal/victoria-s-lockdown-likely-to-be-extended-20200906-p55srw">trainwreck</a>,” a “<a href="https://www.afr.com/politics/federal/i-ve-got-no-hope-roadmap-a-death-knell-for-restaurants-20200906-p55st0">death knell</a>”.</p>
<p>Yet businesses and shareholders are far from representative of those most at risk.</p>
<p>The best evidence we’ve got suggests the hardest hit are Victoria’s already disadvantaged.</p>
<p>Those arguing for extended lockdowns make the point that they are not as costly as they might seem (to anyone) because their effects need to be compared not with business as usual, but with business in which a pandemic encourages people to stay at home and reduce spending.</p>
<p>Australia’s recession began <a href="https://theconversation.com/the-economy-in-7-graphs-how-a-tightening-of-wallets-pushed-australia-into-recession-139960">during the March quarter</a>, almost all of which was before the lockdowns began on <a href="https://www.theguardian.com/world/2020/may/02/australias-coronavirus-lockdown-the-first-50-days">March 24</a>.</p>
<p>Victoria’s job losses accelerated <a href="https://theconversation.com/tracking-victorias-job-losses-theres-no-road-to-recovery-without-containing-covid-19-145621">well ahead</a> of the renewed Stage 3 and then Stage 4 lockdowns which began on July 8 and August 2.</p>
<p>In the United States it has been found that lockdowns only had a <a href="https://www.nber.org/papers/w27061.pdf">modest effect</a> on job losses compared to what came before; one estimate is <a href="https://www.nber.org/papers/w27432.pdf">10%</a>.</p>
<h2>Lockdowns hurt some more than others</h2>
<p>But these are overall measurements. Lockdowns hurt some much more than others.</p>
<p>A study of 29 European Union nations found that people with high levels of education were <a href="https://voxeu.org/article/inequality-and-poverty-effects-lockdown-europe">twice as likely</a> as people with low education to be able to work through lockdowns.</p>
<p>A British study found employees in the bottom 10% of earnings were <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1475-5890.12232">seven times as likely</a> as those in the top 10% to work in a sector that had been shut down. </p>
<p>An Australian study found low income workers were <a href="https://theconversation.com/why-coronavirus-will-deepen-the-inequality-of-our-suburbs-143432">three times as likely</a> as high earners to face a high risk of losing their jobs.</p>
<h2>Mobility data shows it</h2>
<p>This isn’t obvious from mobility data, which seems to show the opposite.</p>
<p>Google statistics on the movement of people with Android phones show that residents of Melbourne’s most disadvantaged suburbs have <a href="https://www.theage.com.au/national/victoria/all-in-this-together-how-rich-and-poor-are-travelling-in-lockdown-20200821-p55o6i.html">restricted their travel the least</a>.</p>
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<p>The most likely reason that economically and socially disadvantaged Melbourne residents are still moving is that they are in jobs that don’t allow them to work from home.</p>
<p>A World Bank study finds the same thing on a larger scale. The extensive <a href="https://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-9242">voluntary reductions</a> in activity that proceeded lockdowns were present in only rich nations, not in developing ones. </p>
<p>This means, in the words of a Harvard University study, that in countries where many people live at or close to subsistence, it isn’t possible to save people from the pandemic without <a href="https://voxeu.org/article/horrible-trade-offs-pandemic">condemning them to deprivation</a>.</p>
<p>The story is as <a href="https://www.amazon.com/Rotten-Bodies-Contagion-Eighteenth-Century-Britain/dp/0300233523">old as the plague itself</a>.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-coronavirus-will-deepen-the-inequality-of-our-suburbs-143432">Why coronavirus will deepen the inequality of our suburbs</a>
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<p>During the Black Death of 1348 to 1349, King Edward fled London with his relics and staff for the safety of his country estates. The poor had nowhere to flee. Even though the odds of surviving the year in London were less than 50%, the odds of surviving without work weren’t much different. </p>
<p>During Great Plague of London in 1655, so many people of means deserted the city that it was dubbed “<a href="https://www.connotations.de/article/alan-rosen-plague-fire-and-typology-in-defoes-a-journal-of-the-plague-year/">the poore’s plague</a>”.</p>
<p>Throughout history and across countries, disadvantaged groups necessarily have fewer choices and hence carry a greater share of the burden of quarantine-type measures.</p>
<p>We should expect business to represent the interests of its shareholders - and business claims should be viewed through that lens, but there are other victims of lockdowns, less able to <a href="https://www.afr.com/politics/federal/victoria-s-lockdown-likely-to-be-extended-20200906-p55srw">provide ready quotes</a>. </p>
<p>However well intentioned the lockdowns are, the already-disadvantaged are likely to be hurting the most.</p><img src="https://counter.theconversation.com/content/145938/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Robertson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Low income workers are suffering much more than high income ones. It’s a pattern that dates back millennia.Peter Robertson, Professor, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1422512020-07-22T11:58:09Z2020-07-22T11:58:09ZTelework mostly benefits white, affluent Americans – and offers few climate benefits<p>Back in in 2018 – in the pre-pandemic world – about 5% of the U.S. workforce <a href="https://www.enotrans.org/article/2018-acs-survey-while-most-americans-commuting-trends-are-unchanged-teleworking-continues-to-grow-and-driving-alone-dips-in-some-major-cities/">teleworked from home</a>. That changed dramatically with the onset of the COVID-19 pandemic; by May 2020 that number had jumped to about <a href="https://doi.org/10.24149/wp2017">35%</a>. Tech giants Google, Facebook, Microsoft, Amazon and Twitter announced plans to <a href="https://www.washingtonpost.com/technology/2020/05/18/facebook-google-work-from-home/">extend teleworking well into the fall</a> and possibly beyond. It’s a sea change that will permanently <a href="https://www.gartner.com/en/newsroom/press-releases/2020-04-03-gartner-cfo-surey-reveals-74-percent-of-organizations-to-shift-some-employees-to-remote-work-permanently2">alter the way America works</a> – and how companies conduct business.</p>
<p>Telework offers a host of potential advantages, including <a href="https://doi.org/10.1093/qje/qju032">improved productivity</a>, <a href="https://globalworkplaceanalytics.com/telecommuting-statistics">lower costs for employers</a>, <a href="https://www.hbs.edu/faculty/Publication%20Files/19-054_2ecb5287-d0bd-4aa0-b3d8-36fb44b757b4.pdf">greater flexibility</a> and <a href="https://journals.sagepub.com/stoken/rbtfl/EnhOwEhELZ4aI/full">less stress</a> for workers, <a href="https://www.sciencedirect.com/science/article/pii/S001393511400156X?via%3Dihub">lower exposure to pollution for commuters</a> and <a href="https://www.sciencedirect.com/science/article/pii/S0966692319311305">less traffic congestion</a> – not to mention job security during the pandemic for those who can do it. A study conducted in 2017 found that many job applicants <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20161500">valued the option to work remotely</a> and would, on average, accept about 8% lower wages to do so. </p>
<p><a href="https://www.bu.edu/ise/2020/06/30/more-urgency-not-less-the-covid-19-pandemics-lessons-for-local-climate-leadership/">Our team is researching</a> connections between the pandemic, how people live and work in cities and city climate action. Transportation is central to this issue because it is a major source of greenhouse gas emissions and access to reliable and affordable transportation is inequitably distributed – and it was severely disrupted by the pandemic. </p>
<p><a href="http://onlinepubs.trb.org/Onlinepubs/trr/1990/1285/1285-012.pdf">Early research</a> suggested that teleworking reduced vehicle use – and with it, emissions – so it’s <a href="https://globalworkplaceanalytics.com/telecommuting-statistics">frequently touted</a> as a way to combat climate change. But <a href="https://www.nationalacademies.org/trb/blog/telework-transportation-research-in-light-of-the-covid-19-pandemic">subsequent studies</a> revealed a more nuanced picture. Our research indicates that a rush to embrace teleworking should be tempered with two realties: Increased telework will exacerbate inequality in America under current economic and social conditions, and the climate benefits are probably very modest, at best. </p>
<h2>Skewed opportunities</h2>
<p>Opportunities to telework vary greatly in the U.S., depending on race, income level and occupation. About <a href="https://doi.org/10.3386/w26948">37% of jobs</a> could be performed entirely at home, particularly in the fields of education and professional, scientific, technical and information services; in management positions; and in finance and insurance. </p>
<p>These positions are overwhelming held by white Americans. Meanwhile, <a href="https://bfi.uchicago.edu/wp-content/uploads/BFI_White-Paper_Mongey_3.2020.pdf">low-wage, work-from-home jobs</a> are among the few available to people of color. Well-paid telework is a quality of life benefit that is unavailable for many, especially those who are among the bottom half of U.S. wage earners or who lack a college degree. The service sector is a good example, with just 1 in 100 employees able to telecommute. Meanwhile, <a href="https://www.bls.gov/opub/reports/race-and-ethnicity/2018/home.htm">one-fifth of Black and Hispanic men</a> work in service occupations. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/347330/original/file-20200714-140154-pf8vl2.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/347330/original/file-20200714-140154-pf8vl2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/347330/original/file-20200714-140154-pf8vl2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=433&fit=crop&dpr=1 600w, https://images.theconversation.com/files/347330/original/file-20200714-140154-pf8vl2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=433&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/347330/original/file-20200714-140154-pf8vl2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=433&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/347330/original/file-20200714-140154-pf8vl2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=544&fit=crop&dpr=1 754w, https://images.theconversation.com/files/347330/original/file-20200714-140154-pf8vl2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=544&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/347330/original/file-20200714-140154-pf8vl2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=544&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A number of occupations are not suited for telework and are not distributed evenly across the U.S. population.</span>
<span class="attribution"><span class="source">Credit: Cutler Cleveland/Boston University</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Poor teleworking opportunities track alongside disparities in income and education. <a href="https://www.bls.gov/ncs/ebs/benefits/2019/ownership/civilian/table39a.pdf">One in 5 workers</a> in the top 10% income bracket work at home, but for the lowest bracket, numbers drop to just 1 in 100. Education matters, too: 37% of those with a bachelor’s degree or higher reported working from home in 2019 compared with <a href="https://www.bls.gov/news.release/atus.t06.htm">just 16%</a> of those who only held a high school diploma.</p>
<h2>Does telework benefit the environment?</h2>
<p>So how does teleworking impact the environment? Research has shown that, surprisingly, the climate benefits are lower than conventional wisdom suggests. Overall, it may even <a href="https://link.springer.com/article/10.1007/s13762-014-0556-5">increase emissions</a> because of <a href="https://iopscience.iop.org/article/10.1088/1748-9326/ab8a84">indirect or “rebound” effects</a>. Household energy use rises when people work from home. Prosperity can also increase emissions. Workers save on commuting costs and teleworking boosts labor productivity and wages, allowing <a href="https://iopscience.iop.org/article/10.1088/1748-9326/ab8a84">increased buying power of goods, services and a greater ability to travel</a> – but each of these have their own associated emissions. </p>
<p>The direct effect of working from home is straightforward: For those who once drove to work, fewer miles traveled translates to fewer emissions. But some telecommuting households actually <a href="http://www.sciencedirect.com/science/article/pii/S2214140517309258">drive more</a>. Errands once daisy-chained into a morning or evening commute may become multiple trips. In “car-scarce” households, other household members may jump at the chance to use the car. Without having to go into an office every day, there are <a href="https://www.npr.org/2020/07/08/887585383/new-yorkers-look-to-suburbs-and-beyond-other-city-dwellers-may-be-next">early signs of people relocating to suburban</a> or rural areas where daily life requires more driving – making for a longer drive when they do have to commute. </p>
<p><a href="https://www.portland.gov/sites/default/files/2019-07/cap-2015_june30-2015_web_0.pdf">Reducing automobile travel</a> is a core strategy for reducing greenhouse gas emissions, but our review of the research shows that teleworking is not a panacea in this regard. Other strategies that encourage changes in transportation, such as compact, walkable neighborhoods, <a href="https://theconversation.com/with-fewer-cars-on-us-streets-now-is-the-time-to-reinvent-roadways-and-how-we-use-them-140408">more extensive and safe bike lanes</a> and expanded public transit may be better tools to reduce both emissions and inequity.</p>
<h2>Urban policies</h2>
<p>On its own, further growth in telework will worsen social equity, while offering limited environmental benefits. But cities can address both issues with well-crafted policies. For example, better public transportation reduces emissions and simultaneously benefits people of color who rely on it more than white city residents. Steering energy efficiency programs toward multifamily dwellings that house low-income renters will bring benefits – smaller utility bills, better air quality, improved health and new jobs – to vulnerable households. </p>
<p>We believe the disproportionate number of people of color who cannot work from home deserve targeted assistance in the form of affordable child care, paid sick leave, nutrition assistance and unemployment benefits. And as cities develop climate policies, <a href="https://www.bu.edu/ise/files/2019/06/CFB_Social_Equity_Report_053119.pdf">social equity</a> needs to be a principal objective. </p>
<p>[<em>Get facts about coronavirus and the latest research.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=coronavirus-facts">Sign up for The Conversation’s newsletter.</a>]</p><img src="https://counter.theconversation.com/content/142251/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cutler J Cleveland receives funding from the Grantham and Summit Foundations.</span></em></p><p class="fine-print"><em><span>Jacqueline Ashmore receives funding from the Grantham and Summit Foundations.</span></em></p><p class="fine-print"><em><span>Alicia Zhang and Taylor Dudley do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Working from home has become the new norm for many during the pandemic. But it’s an opportunity that divides along racial and economic lines – and isn’t as beneficial to the environment as many believe.Cutler J Cleveland, Professor of Earth and Environment, Boston UniversityAlicia Zhang, PhD Student, Earth and Environment, Research Assistant, Institute for Sustainable Energy, Boston UniversityJacqueline Ashmore, Executive Director of the Institute for Sustainable EnergyResearch, Associate Professor of Mechanical Engineering, Boston UniversityTaylor Dudley, MBA Candidate, Questrom School of Business; Research Assistant, Institute for Sustainable Energy, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1288072020-03-12T14:26:14Z2020-03-12T14:26:14ZWelfare works: redistribution is the way to create less violent, less unequal societies<p>In his presidential address to the Royal Economic Society in 1996, the late Professor Anthony Atkinson famously called for discussion of inequality and income distribution to be brought “<a href="https://www.jstor.org/stable/2957944?seq=1">in from the cold</a>”. Since then there have been many examples of inequality worldwide: the pan-banging <em>cacerolazos</em> demonstrators of <a href="https://www.bbc.co.uk/news/world-latin-america-15981406">Argentina’s financial crisis in 2001-2002</a>, the <a href="https://www.history.com/topics/middle-east/arab-spring">Arab Spring</a>, the <a href="https://www.vox.com/the-highlight/2019/4/23/18284303/occupy-wall-street-bernie-sanders-dsa-socialism">Occupy Wall Street movement</a>, Spain’s <a href="https://www.bbc.co.uk/news/world-europe-18070246">“los indignados”</a>, the <a href="https://theconversation.com/gilets-jaunes-why-the-french-working-poor-are-demanding-emmanuel-macrons-resignation-107742">“gilets jaunes” protests and strikes</a> in France, and many others besides. </p>
<p>It was almost 20 years before the subject became a matter of mainstream debate, perhaps signified by <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674430006">the publication and success of Thomas Piketty’s Capital</a> in 2014. Yet the statistics that show rising inequality are well-known and have been staring us in the face for decades. In the US, the top 1% of the population accounts for <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674430006">20% of total national income and more than 30% of wealth</a>. Worldwide, around <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674737136">9% of the population receives 50% of global income</a>, while the bottom half the world’s population receive a mere 7%.</p>
<p>This inequality has been increasing since the 1980s when a series of <a href="https://www.ids.ac.uk/publications/inequality-trends-harms-and-new-agendas/">social, economic, and political factors</a> – including a shift of employment from factories and manufacturing into services and more differentiated jobs, the weakening of trade unions, more wage competition facilitated by globalisation, and fiscal pressures on welfare systems – combined to sustain rises in inequality not seen since the 1920s.</p>
<p>It is now known that inequality <a href="https://academic.oup.com/qje/article-abstract/104/3/537/1862861?redirectedFrom=fulltext">lowers economic growth</a> by reducing middle-class demand and increasing the costs of redistribution. It causes <a href="https://press.princeton.edu/titles/8176.html">poverty traps</a> by reducing social mobility, and creates social tensions. </p>
<p>The “trickle-down economics” ideology that dominated the 1980s and 1990s (and which has now reappeared in US president Donald Trump’s <a href="https://www.forbes.com/sites/jameshcarr/2017/10/24/president-trumps-trickle-down-tax-cuts-further-fuel-economic-inequality/#eeb2234f44f7">tax plan</a>) has been well and truly debunked: economic growth does not automatically produce better lives for everyone.</p>
<p>There is <a href="http://www.igmchicago.org/surveys/inequality-populism-and-redistribution">widespread agreement</a> among experts that high inequality destabilises societies. Increasing inequality can undermine democracy, trust <a href="https://www.ids.ac.uk/press-releases/ids-launches-major-international-project-on-trust-governance-and-the-future-of-democracy/">between social groups and institutions</a>, and even result in <a href="https://www.cambridge.org/core/books/economic-origins-of-dictatorship-and-democracy/3F29DF90519971B183CAA16ED0203507">substantial changes to the political order</a>. Today, increases in inequality have been accompanied by unprecedented growth of far-right politics, growing protest movements, and the election of governments with nationalistic overtones.</p>
<p>There are steps that could be taken to curtail rising inequality, but not a great deal is being done.</p>
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<h2>What works</h2>
<p>In <a href="https://journals.sagepub.com/doi/abs/10.1177/0022002719827370">research</a> drawn from 18 countries across Latin America between 2010 and 2014, we found that those taking part in protests were more likely to be strongly in favour of redistribution, and were motivated by the perceived failure of public services, institutions, corruption and lower standards of living. But some countries – the US, for example – are <a href="https://www.oxfordscholarship.com/view/10.1093/0199267669.001.0001/acprof-9780199267668">tolerant of inequality</a>, as can be seen for example in how the US has s less progressive tax system, less public spending to benefit the poorer off, and limited employment rights in comparison to European countries.</p>
<p>When inequality reaches certain thresholds, it may lead to social conflict and sometimes violence. Whether or not it gets to this stage depends on whether action is taken to reduce inequality. One solution to avoid potential instability is to redistribute wealth through welfare programmes. </p>
<p>About <a href="https://www.sciencedirect.com/science/article/pii/S0305750X1830086X">half the reduction in violent conflict</a> experienced in Latin America since the 1990s can be attributed to increases in government welfare spending, largely in the form of cash transfer programmes. Welfare transfers are also an effective (and cheaper) means to mitigating riots than the police – as can be seen looking at <a href="https://opendocs.ids.ac.uk/opendocs/handle/123456789/5749">data from India between 1960-2011</a> where states with higher levels of welfare spending experienced less rioting.</p>
<p>The relationship between welfare programmes and socio-political tensions has deep historical roots. Otto von Bismarck initiated the world’s <a href="https://www.smithsonianmag.com/history/bismarck-tried-end-socialisms-grip-offering-government-healthcare-180964064/">first social insurance programme</a> when he was chancellor of Germany in the late 19th century as a response to the threat of social instability by dissatisfied workers’ unions. The idea of using welfare transfers to curtail potential instability spread rapidly across Europe during the early 20th century, becoming a central part of a social contract between states and citizens. </p>
<p>But welfare spending has been drastically reduced across the world since the 1980s, and it may not be surprising that inequality and social tensions have risen at the same time.</p>
<p>Welfare policies, such as cash transfers to the poor, unemployment benefits, child subsidies and universal health care – funded by progressive taxation – can break cycles of poverty and social discontent by addressing economic vulnerabilities and reinforcing resilience among those least well-off. More fundamentally, today, as in Europe at the turn of the 20th century, welfare programmes can sustain peace and stability because they remain a central part of the social contract between states and citizens. </p>
<p>When the social contract is seen to be broken, those that lose out feel disenfranchised and at the margin of societies while a few continue to amass great fortunes at the cost of the many. But unchecked rises in inequality come at a high societal cost, from protests and strikes, to the rise of nationalism and autocracy. It may well be high time to bring redistribution in from the cold.</p><img src="https://counter.theconversation.com/content/128807/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patricia Justino receives funding from the UK Economic and Social Research Council. </span></em></p>Economic inequality is growing across the world, but few are talking about the ways to tackle it.Patricia Justino, Professor and Senior Research Fellow, World Institute for Development Economics Research (UNU-WIDER), United Nations UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1272332019-11-24T00:13:49Z2019-11-24T00:13:49ZThat moving graph of US tax rates that went viral, it’s probably wrong. Here’s why<figure><img src="https://images.theconversation.com/files/302572/original/file-20191119-496-12fwn07.jpg?ixlib=rb-1.1.0&rect=1555%2C270%2C1791%2C1018&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The evocative graphic shows the tax rate of high earners falling below that of low earners as 2018 approaches.</span> <span class="attribution"><span class="source">Shutterstock/NYT</span></span></figcaption></figure><p>Over the past month a huge political dispute has sprung up in the US about the fairness of its tax system. It is fuelling debates between Democratic presidential rivals, and it is raising questions about the fairness of tax systems everywhere, including in Australia.</p>
<p>It began with a New York Times article entitled <a href="https://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.htm">The Rich Really Do Pay Lower Taxes Than You</a>.</p>
<p>It was accompanied by one of the most evocative graphics you are likely to see:</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1181004566088814594"}"></div></p>
<p>Here’s what the graphic shows.</p>
<p>The vertical axis is total tax (US federal, state and local) as a proportion of income. The horizontal axis is income band, from lowest to highest.</p>
<p>At first the yellow line displays the graph for 1950 which is sloping upwards, showing that the highest earners paid the highest proportion of their income in tax (70%) and the low earners the lowest (less than 20%). </p>
<p>It shows what is known as a “progressive” tax system, in which those with the highest income sacrifice the greatest proportion of their income.</p>
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Read more:
<a href="https://theconversation.com/so-you-want-to-tax-the-rich-heres-which-candidates-plan-makes-the-most-sense-111945">So you want to tax the rich – here's which candidate's plan makes the most sense</a>
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<p>Hit “play” on the graphic, and the yellow line gets less progressive over time until 2018 when it becomes pretty flat, except for the few very rich Americans at the very top of the income distribution who pay less of their income in tax than everyone else.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/302607/original/file-20191120-479-10rm9wu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/302607/original/file-20191120-479-10rm9wu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/302607/original/file-20191120-479-10rm9wu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=910&fit=crop&dpr=1 600w, https://images.theconversation.com/files/302607/original/file-20191120-479-10rm9wu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=910&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/302607/original/file-20191120-479-10rm9wu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=910&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/302607/original/file-20191120-479-10rm9wu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1144&fit=crop&dpr=1 754w, https://images.theconversation.com/files/302607/original/file-20191120-479-10rm9wu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1144&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/302607/original/file-20191120-479-10rm9wu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1144&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The Triumph of Injustice, by Emmanuel Saez and Gabriel Zucman.</span>
<span class="attribution"><a class="source" href="https://wwnorton.com/books/the-triumph-of-injustice">W.W. Norton</a></span>
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<p>The graph is derived from a new book by economics professors Emmanuel Saez and Gabriel Zucman entitled <a href="https://wwnorton.com/books/the-triumph-of-injustice">The Triumph of Injustice: How the Rich Dodge Taxes and How to Make them Pay</a>. </p>
<p>Their claim that the US has sleepwalked away from progressive taxation is compelling partly because it is so different from the conventional wisdom. </p>
<p>Warren Buffet might pay <a href="https://www.theatlantic.com/politics/archive/2009/03/why-buffett-pays-less-than-his-secretary/1616/">less tax than his Secretary</a>, but the traditional story is that the US tax system is progressive, along the lines of Australia’s. </p>
<p>That’s been the view of the US <a href="https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Summary-of-Treasurys-Distribution-Analysis.pdf">Treasury</a>, the US <a href="https://www.cbo.gov/publication/55413">Congressional Budget Office</a>, and the US <a href="https://www.taxpolicycenter.org/taxvox/federal-taxes-are-very-progressive">Tax Policy Centre</a>.</p>
<p>It’s also the finding of the <a href="https://stats.oecd.org/Index.aspx?DataSetCode=REV"> Organisation for Economic Co-operation and Development</a> and a peer-reviewed 2018 <a href="http://gabriel-zucman.eu/files/PSZ2018QJE.pdf">Quarterly Journal of Economics</a> article by Saez and Zucman themselves.</p>
<h2>It depends on what you think is income</h2>
<p>Heavyweights such as Nobel Prize winner <a href="https://twitter.com/paulkrugman/status/1184161320381440003">Paul Krugman</a> and former US treasury secretary <a href="https://twitter.com/lhsummers/status/1188079872884776964?lang=en">Larry Summers</a> have chimed in, taking opposing positions pn <a href="https://twitter.com/hashtag/econtwitter">#econtwitter</a> about the veracity of the graph. </p>
<p>More helpfully, David Splinter from the US Joint Committee on Taxation <a href="http://www.davidsplinter.com/Splinter-TaxesAreProgressive.pdf">points out</a> that Saez and Zucman’s <a href="http://gabriel-zucman.eu/usdina/">measure of income</a> differs from the traditional measure in two significant respects:</p>
<ul>
<li><p>It assumes that underreported, untaxed income goes primarily to high-income earners. This under-reporting occurs when US taxpayers report less income than they earn, or claim more deductions, exemptions or tax credits than they are entitled to (a <a href="https://www.brookings.edu/blog/up-front/2019/04/09/how-big-is-the-problem-of-tax-evasion/">large and underappreciated issue</a>). That explains much of the apparent low rate of tax on income at the top end.</p></li>
<li><p>It excludes from its definition of income government payments other than social insurance payments and deducts payroll taxes. Given that government payments are directed more to those at the bottom end than the top, this has the effect of pushing down apparent income at the bottom and pushing up the apparent tax rate.</p></li>
</ul>
<p>The impact of the first is that if a top earner gets, say, $10 million of taxable income and pays $6 million of it in tax, but is assumed to earn an extra $3 million in untaxed income and $1 million in untaxed retirement income, that person’s implied overall tax rate falls from 60% to 43%.</p>
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Read more:
<a href="https://theconversation.com/what-did-the-rich-man-say-to-the-poor-man-why-spatial-inequality-in-australia-is-no-joke-73841">What did the rich man say to the poor man? Why spatial inequality in Australia is no joke</a>
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<p>The impact of the second can be illustrated by this thought experiment: imagine increasing the marginal tax rate of those earning more than $1 million to as much as 100%, and then returning all the tax to them via a government payment. </p>
<p>Saez and Zucman’s method would treat this as a genuine tax rate of 100% for high earners and find that the system had become extraordinarily progressive, even though no-one’s cash position would have changed.</p>
<p>Without these peculiarities of measurement, calculations by Wojciech Kapczuk of Columbia University suggest that the tax system has remained <a href="https://twitter.com/i/status/1183121913830346752">pretty progressive</a>, retaining its upward sloping graph.</p>
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<p>Kapczuk and other economists have <a href="http://www.columbia.edu/%7Ewk2110/bin/ColumbiaZucman.pdf">also questioned</a> the imprecision of some of the data, particularly the guesses needed to calculate the tax paid by the top 400 taxpayers since 1950, and the latest data, which was incomplete when the book was published.</p>
<p>Harvard University’s Larry Summers and Greg Mankiw demolished Saez in a rather unforgiving fashion during a debate at a recent <a href="https://www.youtube.com/watch?v=oUGpjpEGTfE&feature=youtu.be.">Peterson Institute workshop on combatting Inequality</a>.</p>
<h2>It might damage the cause of research</h2>
<p>To their credit, Saez and Zucman have welcomed scrutiny and released a <a href="http://gabriel-zucman.eu/files/SaezZucman2019Incidence.pdf">partial working paper</a> responding to critiques and a <a href="https://taxjusticenow.org/#/faq">Q&A</a> dealing with some of the issues on the book’s website.</p>
<p>The graph has alarmed many people, and by being released in a popular book during the US primaries has had a more immediate impact than it would have had it been subject to the slower and more painful academic process designed to establish the truth.</p>
<p>The credibility of Saez and Zucman’s work hangs in the balance. Should it ultimately be discredited, trust in economic research more generally will suffer. We will all lose.</p><img src="https://counter.theconversation.com/content/127233/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Breunig does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The graph says Americans on the highest incomes now face lower tax rates than Americans on low incomes. It’s a consequence of an unusual definition of income.Robert Breunig, Professor of Economics and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1217312019-08-20T20:05:55Z2019-08-20T20:05:55ZWhat the Bureau of Statistics didn’t highlight: our continuing upward redistribution of wealth<p>The results of the latest Australian Bureau of Statistics biennial survey of income and wealth have met with an uneven response, perhaps in part due to a slipshod <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/6523.0%7E2017-18%7EMedia%20Release%7EInequality%20stable%20since%202013%E2%80%9314%20(Media%20Release)%7E20">press release</a>.</p>
<p>Released with the data on July 12, it was headed: “<a href="https://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/6523.0%7E2017-18%7EMedia%20Release%7EInequality%20stable%20since%202013%E2%80%9314%20(Media%20Release)%7E20">Inequality stable since 2013-14</a>”. </p>
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<a href="https://images.theconversation.com/files/288651/original/file-20190820-123741-km5hhq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/288651/original/file-20190820-123741-km5hhq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/288651/original/file-20190820-123741-km5hhq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=265&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288651/original/file-20190820-123741-km5hhq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=265&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288651/original/file-20190820-123741-km5hhq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=265&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288651/original/file-20190820-123741-km5hhq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=333&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288651/original/file-20190820-123741-km5hhq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=333&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288651/original/file-20190820-123741-km5hhq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=333&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>It began:</p>
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<p>Income inequality has remained stable in Australia while income growth has been slow, according to new information released by the Australian Bureau of Statistics today.</p>
</blockquote>
<p>Oddly, the press release didn’t include data to back up its conclusion. That was left for reporters and analysts to find, diving into the trove of more detailed information assembled by the bureau, from which a somewhat different picture emerged, particularly for wealth.</p>
<p>Writing for the <a href="https://www.abc.net.au/news/2019-07-12/household-income-and-wealth-abs-data-shows-rich-are-richer/11302696">ABC</a>, Stephen Long and Michael Janda noted that average (mean) household wealth has been climbing quickly whereas typical (median) household wealth has not, implying that the rich are getting richer much more quickly than Australians in the middle.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inequality-is-growing-but-it-is-also-changing-as-australias-super-rich-evolve-119925">Inequality is growing, but it is also changing as Australia's super rich evolve</a>
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<hr>
<p>They also noted an increase in the so-called <a href="https://theconversation.com/heres-why-its-so-hard-to-say-whether-inequality-is-going-up-or-down-81618">Gini coefficient</a>, commonly used by the bureau and others to measure inequality.</p>
<p>And they noted that the “ultrawealthy” were probably under-counted in the survey, as is to be expected in essentially voluntary random surveys.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/288649/original/file-20190820-123710-4h12d6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/288649/original/file-20190820-123710-4h12d6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/288649/original/file-20190820-123710-4h12d6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=269&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288649/original/file-20190820-123710-4h12d6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=269&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288649/original/file-20190820-123710-4h12d6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=269&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288649/original/file-20190820-123710-4h12d6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=339&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288649/original/file-20190820-123710-4h12d6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=339&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288649/original/file-20190820-123710-4h12d6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=339&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>In the <a href="https://www.smh.com.au/politics/federal/revealed-the-households-with-surging-wealth-and-the-households-standing-still-20190712-p526js.html">Sydney Morning Herald and Age</a>, Shane Wright and Eryk Bagshaw tracked the trends since 2003-04, when the bureau began its income and wealth survey.</p>
<p>Examining “quintiles” (which divide Australia’s households into five equally sized groups, in this case from least wealthy to most wealthy), they found an increasingly divided society.</p>
<p>Their captions read: “The wealthiest 20% have left the rest behind” and “<a href="https://www.smh.com.au/politics/federal/revealed-the-households-with-surging-wealth-and-the-households-standing-still-20190712-p526js.html">The rich are getting richer</a>”.</p>
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<a href="https://images.theconversation.com/files/288653/original/file-20190820-123727-b4f4cs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/288653/original/file-20190820-123727-b4f4cs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/288653/original/file-20190820-123727-b4f4cs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288653/original/file-20190820-123727-b4f4cs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288653/original/file-20190820-123727-b4f4cs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288653/original/file-20190820-123727-b4f4cs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288653/original/file-20190820-123727-b4f4cs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288653/original/file-20190820-123727-b4f4cs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>Both sets of journalists were right not to accept the bureau’s sunny headline. </p>
<p>According to the bureau’s own data, over the four years since 2013-14, the top 20% of households increased their share of the nation’s private wealth from 62.1% to 63.4%. Their share was 59% in the first survey back in 2003-04. </p>
<p>The wealth share of every other quintile fell. </p>
<p>The share of the second wealthiest quintile fell from 20.5% to 20.4%; the share of the middle quintile from 11.4% to 11.1%; the share of the second poorest quintile from 5.1% to 4.5%; and the share of the bottom quintile from 0.9% to 0.7%.</p>
<p>That is not a picture of stable inequality.</p>
<p>It is more reasonably described as a picture of gradually increasing inequality, of the kind we would expect given the underlying dynamics of modern Australian capitalism.</p>
<h2>Unchecked, things will get worse</h2>
<p>In the absence of deliberate redistribution, the inequalities associated with accumulated wealth tend to increase over time.</p>
<p>Unless actively restrained, the trends identified (but not publicised) by the bureau suggest that Australia will become increasingly unequal. </p>
<p>Yet there is more to the story than correctly describing the data presented.</p>
<p>There is also what’s missing. The survey does not present a figure for total household wealth. This means we don’t know how much wealth it didn’t find.</p>
<h2>An increasing amount of wealth is missing…</h2>
<p>We will get a good idea in about a year when the bureau reconciles its income and wealth survey with the Australian National Accounts.</p>
<p>Previous reconciliations suggest that wealth missed is growing.</p>
<p>The gap between wealth identified in the survey and the national accounts climbed from about 5% in 2013-14 to 8% in 2015-16. That 2015-16 figure amounts to A$626 billion, which is a lot of missing wealth – considerably more than the total wealth of the poorest 40% of households.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inequality-in-the-oecd-is-at-a-record-high-and-society-is-suffering-as-a-result-119962">Inequality in the OECD is at a record high – and society is suffering as a result</a>
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</p>
<hr>
<p>The discrepancies appear to be associated with understatements of the value of property assets, loans, shares, trusts, and other equities of the type mainly held by wealthy Australians.</p>
<h2>…and the ultrawealthy are invisible</h2>
<p>The bureau’s released data ignores the distribution of wealth at the very top. </p>
<p>The data is reported in quintiles (fifths) and percentiles a decile apart, but inequality is likely to be growing the fastest at the very top where the data isn’t reported.</p>
<p>The so-called P90/P10 ratio provides a clue. This is the ratio of the wealth of the households 10% from the top of the wealth distribution and the wealth of the households 10% from the bottom. In other words, it compares the quite rich with the quite poor.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/dont-believe-what-they-say-about-inequality-some-of-us-are-worse-off-102332">Don't believe what they say about inequality. Some of us are worse off</a>
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<p>The latest survey shows that the wealth of a household 10% from the top is 71 times the wealth of a household 10% from the bottom, up from 52 times in 2013-14, and 45 times when the survey began back in 2003-04.</p>
<p>It means the gains of households at the halfway point of the top 20% have been bigger than those of the top 20% as a whole, suggesting increasing inequality within the top 20%, which is likely to more extreme within the top 1%.</p>
<h2>We really need to know</h2>
<p>Statistics are windows on change. Despite our criticisms, the bureau’s biennial income and wealth survey gives us the best view of inequality we’ve got, but large areas remain foggy. </p>
<p>In research for the <a href="https://evatt.org.au/papers/wealth-inequality-australia-2012-present.html">Evatt Foundation</a>, we have used data from the Bureau of Statistics, Organisation for Economic Co-operation and Development and national accounts to estimate that, for the first time in more than half a century, the richest 10% of households own more than half of Australia’s private wealth.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/theres-a-reason-youre-feeling-no-better-off-than-10-years-ago-heres-what-hilda-says-about-well-being-121098">There's a reason you're feeling no better off than 10 years ago. Here's what HILDA says about well-being</a>
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<p>The Evatt Foundation’s results seem to stand up well, but governments should really be producing better data themselves. </p>
<p>Inequality and its <a href="http://politybooks.com/bookdetail/?isbn=9781509528646">harmful effects</a> on economic output and stability are growing. We owe it to ourselves to find out by how much.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-not-just-the-abs-its-also-the-productivity-commission-downplaying-the-growth-in-inequality-104135">It's not just the ABS. It's also the Productivity Commission downplaying the growth in inequality</a>
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<hr>
<img src="https://counter.theconversation.com/content/121731/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Christopher Sheil is President of the Evatt Foundation affiliated with the University of Sydney.</span></em></p><p class="fine-print"><em><span>Emeritus Professor Frank Stilwell is Vice-President of the Evatt Foundation, affiliated with The University of Sydney.</span></em></p>Better data would tell us more about the ultrawealthy, but they really do seem to be growing more wealthy, more quickly, than the rest of us.Christopher Sheil, Visiting Senior Fellow in History, UNSW SydneyFrank Stilwell, Emeritus Professor, Department of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1149122019-04-05T05:50:19Z2019-04-05T05:50:19ZThose future tax cut promises… they’re nowhere near as big as you’d think<figure><img src="https://images.theconversation.com/files/267728/original/file-20190405-123426-1rjdpdm.jpg?ixlib=rb-1.1.0&rect=928%2C169%2C4458%2C2689&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Much of what's been promised would have had to happen anyway.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The 2018 budget contained big tax measures – worth <a href="https://budget.gov.au/2018-19/factsheets/lower-simpler-fairer-taxes.pdf">A$143 billion over the next decade</a> – initially targeted at lower and middle income Australians, but after five or so years to be heavily weighted towards higher income Australians. The 2019 Budget doubled down, including an <a href="https://budget.gov.au/2019-20/content/tax.htm">extra $158 billion of measures</a>, again heavily weighted towards higher income earners.</p>
<p>It’s possible to draw graphs showing that if the tax cuts came to pass, higher earners would be <a href="https://theconversation.com/natsem-federal-budget-will-widen-gap-between-rich-and-poor-114728">enormously better off</a> compared to everyone else, but the graphs miss a really important point.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/267739/original/file-20190405-123413-1bgim94.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/267739/original/file-20190405-123413-1bgim94.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/267739/original/file-20190405-123413-1bgim94.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=169&fit=crop&dpr=1 600w, https://images.theconversation.com/files/267739/original/file-20190405-123413-1bgim94.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=169&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/267739/original/file-20190405-123413-1bgim94.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=169&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/267739/original/file-20190405-123413-1bgim94.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=212&fit=crop&dpr=1 754w, https://images.theconversation.com/files/267739/original/file-20190405-123413-1bgim94.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=212&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/267739/original/file-20190405-123413-1bgim94.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=212&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="http://www.ausbudget.org/assets/NATSEM-BUDGET-ANALYSIS-2018.pdf">National Centre for Social and Economic Modelling</a></span>
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</figure>
<hr>
<p>The point is that high end tax rates would have been wound back over time anyway to stop people moving into higher tax brackets as their income grew.</p>
<p>The graph below shows the average personal income tax rate paid by households since 2000 and projections of what they will be through to 2029 under four assumptions – the (unlikely) scenario of no tax change; the 2018-19 Budget change; the combined 2018-19 and 2029-20 Budget changes; and the same combined scenario but with lower than average wage growth (2.5% per year).</p>
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<p><strong>Household average tax rates, 2000 to 2029</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/267752/original/file-20190405-114912-1s4mmy4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/267752/original/file-20190405-114912-1s4mmy4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/267752/original/file-20190405-114912-1s4mmy4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=304&fit=crop&dpr=1 600w, https://images.theconversation.com/files/267752/original/file-20190405-114912-1s4mmy4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=304&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/267752/original/file-20190405-114912-1s4mmy4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=304&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/267752/original/file-20190405-114912-1s4mmy4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=382&fit=crop&dpr=1 754w, https://images.theconversation.com/files/267752/original/file-20190405-114912-1s4mmy4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=382&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/267752/original/file-20190405-114912-1s4mmy4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=382&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Takes account of tax changes in 2018 and 2019 budgets and one-off energy supplement.</span>
<span class="attribution"><a class="source" href="http://csrm.cass.anu.edu.au/">ANU Centre for Social Research and Methods</a></span>
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<hr>
<p>This tells a very interesting story. The average household tax rate reached a peak of 15.5% in 2002 and then declined to 11.7% in 2010. Since then it has climbed to reach 13.7% in 2017. </p>
<p>Our modelling finds that without the tax changes announced in the 2018 and 2019 budgets wage growth and bracket creep would push the average rate to a record high of 16.4% in 2029. </p>
<p>It is unlikely that either side of politics would let this happen. The effects of bracket creep would almost certainly be at least partly eliminated through adjustments to tax thresholds or rates much earlier.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/natsem-federal-budget-will-widen-gap-between-rich-and-poor-114728">NATSEM: federal budget will widen gap between rich and poor</a>
</strong>
</em>
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<p>Our analysis shows shows that the <a href="http://csrm.cass.anu.edu.au/sites/default/files/docs/2018/5/CSRM_Research_Note_Federal-Budget-2018-19.pdf">2018 budget tax cuts</a> would have reduced but not entirely eliminated the effects of bracket creep. </p>
<p>The tax cuts announced in the <a href="https://budget.gov.au/2019-20/content/tax.htm">2019 budget</a> go further and mean that the average tax rate in 2024 would be much the same as in 2017, but that it would then start to grow again to be quite a bit higher at 14.5% by 2029 (assuming the wage increases projected in the Budget are correct).</p>
<h2>They’d be bigger if wage growth was lower</h2>
<p>While no one knows what wage growth will be over the next decade, the experience of the past decade suggests it could be substantially lower than the budget projection of 3.5% per year. </p>
<p>If it was 2.5% the average tax rate would be lower in 2024 than today and remain lower through to 2029.</p>
<p>Of course, projecting wages growth out that far is crystal ball territory and it is impossible to have much idea.</p>
<p>The biggest beneficiaries of the tax cuts are certainly households in the upper half of the income distribution. But this doesn’t mean their tax cuts weren’t necessary.</p>
<p>Welfare payments are largely “set-and-forget”. The rates increase over time with either prices or earnings. But tax rates need to be adjusted over time in order to stop more and more people being pushed into higher tax brackets.</p>
<p>Analysis of tax changes that ignores this will exaggerate their effects.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-just-happened-to-our-tax-heres-an-explanation-youll-understand-114913">What just happened to our tax? Here's an explanation you'll understand</a>
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<img src="https://counter.theconversation.com/content/114912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Gray has received funding for many Commonwealth, State and Territory governments and a range of other organisations.
Ben Phillips does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p><p class="fine-print"><em><span>Ben Phillips works on projects where the Australian National University receive funding from the Australian Research Council in addition to consulting projects. </span></em></p>The promised tax cuts will benefit high earners in 2022 and 2024, but by then they’ll need it.Matthew Gray, Director, ANU Centre for Social Research and Methods, Australian National UniversityBen Phillips, Associate Professor, Centre for Social Research and Methods, Director, Centre for Economic Policy Research (CEPR), Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1096572019-01-20T18:55:24Z2019-01-20T18:55:24ZStranger than fiction. Who Labor’s capital gains tax changes will really hurt<figure><img src="https://images.theconversation.com/files/254484/original/file-20190118-100292-zxkvtl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The losers from Labor's capital gains tax policy aren't all where you would expect them to be, whatever you expect.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Labor is going into the election promising to tax capital gains more heavily. Depending on who you listen to, it’ll either hit the very highest of earners, or middle earners – people such as teachers and nurses. The same critics have claimed different things at different times.</p>
<p>The truth is even stranger. In part because people who present as being part of one income group are often better described as being part of another.</p>
<p>It’s certainly stranger than fiction.</p>
<h2>What are capital gains?</h2>
<p>Capital gains are the profits made from buying something at one price and selling it at another. These profits are typically taxed at only <a href="https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-or-loss/working-out-your-capital-gain/the-discount-method-of-calculating-your-capital-gain/">half the rate of other income</a>. (Technically, only half of each capital gain is taxed.)</p>
<p>The discount, introduced by <a href="https://www.theage.com.au/opinion/revenge-bloodymindedness-and-gullibility-the-untaxing-of-capital-gains-20150810-giv8zg.html">Prime Minister John Howard</a> in late 1999, was sold as ensuring that profit takers wouldn’t be taxed on the workings of inflation, a concession that was already built into the system, although in a more complicated way.</p>
<p>But because inflation had fallen so dramatically, the 50% discount went much further. It taxed capital gains, so-called “unearned income”, at a much lower rate than income earned in the form of wages and salaries, and also at a lower rate than bank interest and other forms of income.</p>
<p>In the lead up to the coming election (and the last one) the Labor Party has promised to wind back the discount, cutting it from 50% to 25% for newly-purchased assets held for more than a year, meaning that for those assets <a href="https://www.alp.org.au/negativegearing">three quarters</a> of each gain will be taxed instead of one half.</p>
<p>There are two (apparently contradictory) views about who the changes will hit, both of them spelled out in the pages of The Australian, and both sourced to the treasurer Josh Frydenberg.</p>
<h2>Frydenberg/Bowen tweets</h2>
<p>On January 5 the treasurer said investors would pay the “<a href="https://www.theaustralian.com.au/national-affairs/treasury/investors-to-pay-worlds-highest-capital-gains-tax-under-alp/news-story/0e5fdcfd4c942f7346c5385a2848dc67">world’s highest tax</a>” under Labor’s changes.</p>
<p>But that would only be the case if they were the very highest earners, on more than A$180,000. And it would only be the case for a short time where the capital gains are a one off.</p>
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<p>Mr Frydenberg quoted a rate of 36.75% for capital gains tax, which would be three quarters of 49%, which itself would be made up of the top marginal rate of 45% plus the 2% Medicare levy plus the 2% temporary budget repair levy that Labor plans to reintroduce for two years.</p>
<p>That top marginal rate only applies to Australians on more than A$180,000.</p>
<p>Then ten days later on January 15, Mr Frydenberg said most of the workers hurt would be on much lower incomes, of up to A$80,000.</p>
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<p>Then shadow treasurer Chris Bowen entered the debate, calling Fyrdenberg’s second claim “silly”. He said 70% of the <em>total amount</em> of capital gains tax discounts claimed was claimed by the top earners.</p>
<p>But he didn’t address the treasurer’s contention that most of the <em>beneficiaries</em> are lower earners.</p>
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<h2>What the data says</h2>
<p>The Australian National University’s microsimulation model of the tax and social security system, <a href="http://csrm.cass.anu.edu.au/research/policymod">PolicyMod</a>, and the Australian Tax Officie’s <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2015-16/">Taxstats 2015-16</a> enable us to get at the truth.</p>
<p>Using a 2% sample of the tax returns submitted, including the information about capital gains and capital losses, we are able to work out who is the hardest hit by capital gains tax by income, age and gender. </p>
<p>At first blush we find that almost all capital gains tax collected - 85% - is paid by the top 10% of income earners. The bottom 10% (and also the bottom 20%) pay nothing.</p>
<p>It shouldn’t be surprising. High earners pay more tax than low earners because they earn more. The top 10% of earners also pay 51% of personal income tax.</p>
<h2>Not many people pay capital gains tax</h2>
<p>Around 900,000 Australians report capital gains per year, a figure <a href="https://www.theaustralian.com.au/news/inquirer/labors-capital-gains-tax-hike-will-hurt-the-economy/news-story/5f8c61d6b57c107dc70bad55553e8de7">used by the treasurer</a> to suggest capital gains are widespread.</p>
<p>But after taking losses into account, the number reporting net capital gains falls to 670,000. Only about 540,000 of them pay capital gains tax. The others have taxable incomes below the tax-free threshold.</p>
<p>Of the 540,000 who do pay capital gains tax, 29% are in the top 10% of earners by taxable income.</p>
<p>A very high 12.7% are in the top 3% of earners, meaning they are on the very highest tax bracket, earning A$180,000 or more.</p>
<p>Small in number though they are, the Australians in the top 3% who pay capital gains tax, pay 74% of it. They pay 30.7% of all personal income tax.</p>
<h2>They’re often retirees, and women</h2>
<p>Older Australians pay only 5.6% of all personal income tax but about 29% of all capital gains tax.</p>
<p>Surprisingly, partnered women are also over-represented, paying 19.4% of personal income tax but an outsized 28.7% of capital gains tax. This is what you would expect if couples planning to minimise tax put the asset they were planning to buy and sell in the name of the lower paid partner.</p>
<p>Persons with wages and salaries are underrepresented, paying around 88% of personal income tax but only around 47% of capital gains tax.</p>
<p>But these figures are misleading.</p>
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<img alt="" src="https://images.theconversation.com/files/254469/original/file-20190118-100261-8xw06n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/254469/original/file-20190118-100261-8xw06n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/254469/original/file-20190118-100261-8xw06n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/254469/original/file-20190118-100261-8xw06n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/254469/original/file-20190118-100261-8xw06n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/254469/original/file-20190118-100261-8xw06n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/254469/original/file-20190118-100261-8xw06n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Partnered women pay 19.4% of personal income tax but an outsized 28.7% of capital gains tax.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<h2>It gets stranger still</h2>
<p>By definition, most people’s incomes will be high in the year in which they pay capital gains tax. Examining their total income in that year, as we have done, will wrongly make it look as if it is mainly high income people who pay capital gains tax.</p>
<p>An alternative measure would be to rank people by their taxable income <em>after</em> deducting their capital gains. It’d rank them by something more like their normal income.</p>
<p>When we do that we find that the share of capital gains tax paid by the top 10% of earners is nothing like the 85% we first found. It’s a much lower 38%.</p>
<p>This measure produces another, very odd, result.</p>
<p>The bottom 10% turn out to pay, not none of the capital gains tax collected as we had thought, but an overweight 20%.</p>
<p>Stranger still, the next-bottom 10%, the people who fit somewhere between the bottom 10% and the 20%, pay only 4% of the capital gains tax collected.</p>
<h2>Our lowest earners embrace capital gains…</h2>
<p>There’s something odd at the bottom for those reporting capital gains. The clue lies in what they are at the bottom of. They are at the bottom of the <em>taxable</em> income scale.</p>
<p>And they are indeed odd. </p>
<p>The bottom 10% claim an awful lot of capital gains - an average of A$161,000 per capital gains tax payer, which is more than that claimed by any other income group, including the top 10%.</p>
<p>Capital gains make up a large share of their taxable income, larger than for higher income groups, and far lower than for other low income groups. Only around 8% receive government pensions or allowances. </p>
<p>Although their taxable incomes, after deducting net capital gains, are in the bottom 10%, their actual wealth and living standards are likely much higher up the distribution. Many own shares and businesses or have negatively geared investment properties. They get dividend imputation cheques and report business losses.</p>
<h2>…although they don’t act like low earners</h2>
<p>To get closer to the unvarnished truth, we would need to compare capital gains by household, examining the combined income of each household, which is less easy to manipulate than the income of an individual. But Australia’s tax system is built around individuals, so it’s hard to do. We would also like to know more about their typical income and whether capital gains were likely a one off or something more permanent.</p>
<p>Here’s what we can say:</p>
<p>Labor’s change will “grandfather” existing assets, meaning they will continue to be taxed under the present, more generous, arrangement. This means Labor’s change won’t have much of an effect for years, making any simple guess of how much money it makes an overestimate.</p>
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Read more:
<a href="https://theconversation.com/capital-gains-tax-concession-is-too-generous-economists-poll-75060">Capital gains tax concession is too generous: economists poll</a>
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<p>At the moment, personal taxpayers pay A$6.7 billion per year in capital gains tax. Labor’s changes could potentially reap half that amount, but they would build up to it slowly, and by the time they got there, fewer people would look for capital gains as a means of escaping tax, meaning they would never get there, and giving a boost to other kinds of tax revenue.</p>
<p>It’s pretty certain that those who would feel it most would be higher income earners, older Australians, partnered women, quite often on behalf of their higher income partner.</p><img src="https://counter.theconversation.com/content/109657/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Gray has received funding for many Commonwealth, State and Territory governments and a range of other organisations.</span></em></p><p class="fine-print"><em><span>Ben Phillips does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>At times we are told Labor’s capital gains tax policy will hit mainly high earners. At other times, low earners. The truth, uncovered by our microsimulation model, tells us something about ourselves.Ben Phillips, Associate Professor, Centre for Social Research and Methods, Director, Centre for Economic Policy Research (CEPR), Australian National UniversityMatthew Gray, Director, ANU Centre for Social Research and Methods, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1039102018-10-01T20:09:03Z2018-10-01T20:09:03ZRelax. The divide between the taxed and the ‘taxed-nots’ isn’t new and doesn’t buy elections<figure><img src="https://images.theconversation.com/files/238634/original/file-20181001-195250-14uc5hv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's unsurprising that a large number of people pay no net tax.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/">Shutterstock</a></span></figcaption></figure><p>Might government benefits, and government employment, be a self sustaining machine – one in which those who benefit from government payments deliver the votes needed to ensure they continue?</p>
<p>It’s a proposition seriously put forward by researchers at the Centre for Independent Studies in a new paper entitled <a href="http://www.cis.org.au/publications/policy-papers/voting-for-a-living-a-shift-in-australian-%20politics-from-selling-policies-to-buying-votes/">Voting for a living: A shift in Australian politics from selling policies to buying votes?</a></p>
<p>The paper argues “there are now so many beneficiaries of government largesse that they may constitute a political force strong enough to bias policy outcomes”.</p>
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Read more:
<a href="https://theconversation.com/who-really-benefits-from-australias-tax-and-social-security-system-48808">Who really benefits from Australia's tax and social security system?</a>
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<p>It also says “when the number of public sector employees is added, there is a clear majority of voters benefiting more from government than they contribute.”</p>
<p>The authors reckon they’re on to something.</p>
<p>They use <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6537.0">Australian Bureau of Statistics data</a> to conclude that “the emergence of a large segment of the population that may in a sense ‘vote for a living’ could help explain much that has gone awry with public policy”.</p>
<p>Amplifying their argument in a column in the <a href="https://www.afr.com/opinion/columnists/when-buying-votes-replaces-selling-policies-%2020180912-h15aan">Australian Financial Review</a>, they ask whether the government’s decision to abandon raising the pension age was “an example of what may happen in a democracy when an increasing majority of its voters receive net benefits from government […] while only a diminishing minority is left to pick up the net tax burden?”</p>
<h2>A new idea it is not</h2>
<p>The argument has been around for a while. </p>
<p>In August 2016, <a href="http://www.abc.net.au/radionational/programs/drive/australias-new-divide,-the-taxed-and-%20taxed-not/7786370">then treasurer Scott Morrison</a> told us “more Australians are likely today to be net beneficiaries of the government than contributors – never paying more tax than they receive in government payments”.</p>
<p>He spoke of “a new divide”, between the taxed, and the taxed-nots.</p>
<p>The Heritage Foundation in the United States has argued there is a divide for a decade or more. And the argument goes back further, to the first half of the 19th Century and the American politician and political theorist <a href="https://www.jstor.org/stable/40751557?seq=1#metadata_info_tab_contents">John C, Calhoun</a>.</p>
<p>But it is based on a misunderstanding.</p>
<h2>In every system, everywhere, there’s zero net tax</h2>
<p>The ABS stats do indeed show that close to half of the population <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6537.0">receives more in cash benefits than it pays in income tax</a>. </p>
<p>If benefits in kind such as education and health care are included, and also indirect taxes such as the goods and services tax, the proportion climbs to 70-80%, at any point in time.</p>
<p>But it isn’t the same 70-80%, and it is unconnected to the size of government and the progressivity of the tax system.</p>
<p>To clear up some myths and misconceptions, the Tax and Transfer Policy Institute at the Crawford School at the ANU published <a href="https://taxpolicy.crawford.anu.edu.au/files/uploads/taxstudies_crawford_anu_edu_au/2016-%2011/zero_net_taxpayers_whiteford_nov_complete.pdf">a detailed policy brief</a> on the idea of “taxed-nots” in 2016.</p>
<p>Strikingly, it showed that a country’s share of “taxed-nots” was unrelated to its level of direct taxes and social security spending. </p>
<p>Australia’s 50% share of “taxed-nots” was similar to the share in the United States, and in New Zealand, and in Sweden – countries each of which have very different tax and spending systems.</p>
<h2>The tax take has little to do with it</h2>
<p>Korea and Denmark both had low shares of “taxed-nots”, at under 40%, but Denmark’s spending and tax was seven to eight times Korea’s.</p>
<p>The reason the share of “taxed-nots” has almost nothing to do with the level of spending or tax is that (as long as the budget is roughly balanced), by definition, the population on average has to pay zero net tax. </p>
<p>It makes no difference whether tax revenue is 46% of GDP as it is in Denmark or 26% of GDP as it is in Korea.</p>
<p>It is also not relevant how progressive the tax and social spending systems (that take less from low earners and give more to low earners) actually are.</p>
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Read more:
<a href="https://theconversation.com/factcheck-qanda-does-australia-have-one-of-the-highest-progressive-tax-rates-in-the-developed-world-77785">FactCheck Q&A: does Australia have one of the highest progressive tax rates in the developed world?</a>
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<p>Imagine a country in which everyone paid a flat poll tax, and the only spending was on goods with shared benefits, such as defence and public order.</p>
<p>In such a completely non-redistributive system, 100% of the population would be zero net taxpayers.</p>
<h2>Zero net tax is hard to avoid</h2>
<p>Far from being unusual or unsustainable, a situation in which a majority of taxpayers pay no net tax is close to unavoidable.</p>
<p>And the taxed and taxed-nots change places.</p>
<p>In Australia (as in all other high income countries) about 90% of households aged 65 or over receive more in public spending than they pay in tax. Most of them paid more tax than they received in public spending when they were younger.</p>
<p>The recent <a href="https://www.pc.gov.au/research/completed/rising-%20inequality">Productivity Commission inequality report</a> found more than one third of Australians spent at least one year in the richest 10% of the population between 2001 and 2016. </p>
<p>More than half of those who were in the richest 20% in 2001 where in the bottom half by 2016.</p>
<h2>Today’s taxpayer is tommorrow’s taxed-not</h2>
<p>Almost nobody stayed in the same income group for his or her entire working life. </p>
<p>Economic status changes when people finish study and get jobs, get promoted, lose jobs, raise families, marry, become sick, and become disabled or retire.</p>
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Read more:
<a href="https://theconversation.com/dont-believe-what-they-say-about-inequality-some-of-us-are-worse-off-102332">Don't believe what they say about inequality. Some of us are worse off</a>
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<p>The concept of the “taxed-nots” or “net benefit recipients” sounds scientific, but isn’t a meaningful guide to anything very much.</p>
<p>This doesn’t mean we can’t work to improve our tax and spending systems. </p>
<p>But it does suggest if we want to improve them we need to be clear about how they work.</p><img src="https://counter.theconversation.com/content/103910/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford has received funding from the Australian Research Council and the Department of Social Serivces. He is affiliated with the Centre for Policy Development. </span></em></p>Its extremely common, everywhere, for large numbers of people to pay no net tax. It tells us nothing about the size of the welfare state or about whether it bribes people to keep tax high.Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/986272018-06-22T04:59:13Z2018-06-22T04:59:13ZWho gets what? Who pays for it? How incomes, taxes and benefits work out for Australians<figure><img src="https://images.theconversation.com/files/224355/original/file-20180622-26579-v8a8dj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Public health spending is an important factor in reducing inequality between households in Australia.</span> <span class="attribution"><a class="source" href="https://pxhere.com/en/photo/603742">pxhere</a></span></figcaption></figure><p>The Australian Bureau of Statistics has just released its latest analysis of the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6537.0/">effects of government benefits and taxes on household income</a>. Overall, it shows government spending and taxes reduce income inequality by more than 40% in Australia. Disparities between the richest and poorest states are also greatly reduced.</p>
<p>The ABS analysis provides the most up-to-date (to 2015-16) and comprehensive figures on the impacts of government spending and taxes on income distribution. As well as direct taxes and social security benefits, it estimates the impact of “social transfers in kind” – goods and services that the government provides free or subsidises. These include government spending on education, health, housing, welfare services, and electricity concessions and rebates. </p>
<p>The figures also include a wide range of indirect taxes. Among these are GST, stamp duties and excises on alcohol, tobacco, fuel and gambling.</p>
<p>The 2015-16 results are the seventh in a series published every five to six years since 1984. The methodology is based on similar studies by the UK Office of National Statistics since the 1960s. The <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/datasets/theeffectsoftaxesandbenefitsonhouseholdincomefinancialyearending2014">latest UK analysis</a> coincidentally also came out on Wednesday.</p>
<h2>How do the calculations work?</h2>
<p>The ABS analyses income distribution in a number of stages. </p>
<p>First, it calculates the distribution of “private income”. This includes wages and salaries, self-employment, superannuation, interest, dividends and income from rental properties, among other items. It also includes net imputed rent from owner-occupied dwellings and subsidised private rentals. </p>
<p>Next the ABS adds social security benefits, such as the Age Pension, unemployment and family payments, to give “gross income”. </p>
<p>Then it deducts direct taxes – primarily income tax – to give “disposable income”. </p>
<p>The next stage is to add the estimated value households derive from government services. This is mainly the value of public health care and education spending. </p>
<p>The final stage is to deduct the estimated value of indirect taxes.</p>
<h2>So what are the impacts on income inequality?</h2>
<p>It is possible to calculate measures of economic inequality at different stages in this process. By implication, the difference between inequality measures is the result of the different government policies taken into account.</p>
<p>Figure 1 shows the Gini coefficient, which ranges between zero – where all households have exactly the same income – and 100% – where one household has all of the income. The Gini coefficient for private income in 2015-16 was 44.2. The addition of social security benefits, which mainly increase the incomes of low-income groups, reduces the coefficient by 8.1 percentage points. </p>
<p>Deducting income taxes – which are <a href="http://insidestory.org.au/is-australias-tax-and-welfare-system-too-progressive/">progressive</a> – further reduces inequality by 4.5 points. Government non-cash benefits reduce the Gini coefficient by nearly as much as the social security system. However, indirect taxes slightly increase income inequality. </p>
<p>The Gini coefficient for final income is 24.9. So, compared to a coefficient of 44.2 for private income, government spending and taxes reduce overall income inequality by more than 40%.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/224351/original/file-20180622-26558-54tfsf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/224351/original/file-20180622-26558-54tfsf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/224351/original/file-20180622-26558-54tfsf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=313&fit=crop&dpr=1 600w, https://images.theconversation.com/files/224351/original/file-20180622-26558-54tfsf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=313&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/224351/original/file-20180622-26558-54tfsf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=313&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/224351/original/file-20180622-26558-54tfsf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=393&fit=crop&dpr=1 754w, https://images.theconversation.com/files/224351/original/file-20180622-26558-54tfsf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=393&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/224351/original/file-20180622-26558-54tfsf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=393&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 1: Effects of government spending and taxes on income inequality, measured by Gini coefficient Australia 2015-16.</span>
<span class="attribution"><a class="source" href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6537.0/">Data source: ABS Government Benefits, Taxes and Household Income, Australia, 2015-16</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>While most of the reduction in inequality is due to government spending, taxes are obviously important to pay for this spending.</p>
<p>The social security system reduces income inequality (and poverty) because Australia <a href="http://insidestory.org.au/how-fair-is-australias-welfare-state/">targets benefits to the poor more than in any other high-income country</a>. </p>
<p>Figure 2 shows the distribution of social security benefits and government services across income groups, from the poorest 20% to the richest 20% of households. The poorest 20% receive about seven times as much in benefits as the richest 20%. The average for OECD countries is close to one, with rich and poor receiving about the same amount. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/224352/original/file-20180622-26561-fpihz9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/224352/original/file-20180622-26561-fpihz9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/224352/original/file-20180622-26561-fpihz9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=261&fit=crop&dpr=1 600w, https://images.theconversation.com/files/224352/original/file-20180622-26561-fpihz9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=261&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/224352/original/file-20180622-26561-fpihz9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=261&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/224352/original/file-20180622-26561-fpihz9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=328&fit=crop&dpr=1 754w, https://images.theconversation.com/files/224352/original/file-20180622-26561-fpihz9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=328&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/224352/original/file-20180622-26561-fpihz9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=328&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 2: Distribution of social spending ($ per week) by equivalised disposable household income quintiles, Australia 2015-16.</span>
<span class="attribution"><a class="source" href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6537.0/">Data source: ABS Government Benefits, Taxes and Household Income, Australia, 2015-16</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Government spending on social services is also progressively distributed. This spending is considerably greater than social security spending and includes both Commonwealth and state spending on education and health. </p>
<p>The poorest 20% receive about 70% more in non-cash benefits than do the richest. This is not due to income-testing. Instead, it’s largely a result of the greater value of public health spending on hospitals and Medicare for older people, who tend to be in the bottom half of the income distribution.</p>
<p>Taxes, of course, work to reduce income inequality, as high-income groups pay a higher share than low-income groups. Figure 3 shows that the poorest 20% pay about 5% of their disposable income in direct taxes, while the richest 20% pay about 30% of their disposable income.</p>
<p>In contrast, indirect taxes – particularly those on tobacco and gambling – are regressive. Low-income groups pay more than high-income groups as a share of their disposable income. However, the undesirable effects of smoking and gambling on the wellbeing of low-income households need to be borne in mind.</p>
<p>When direct and indirect taxes are added together the overall tax system is less progressive, but the richest 20% still pay nearly twice as much of their disposable income as do the poorest 20%.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/224353/original/file-20180622-26573-3fen5y.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/224353/original/file-20180622-26573-3fen5y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/224353/original/file-20180622-26573-3fen5y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=259&fit=crop&dpr=1 600w, https://images.theconversation.com/files/224353/original/file-20180622-26573-3fen5y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=259&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/224353/original/file-20180622-26573-3fen5y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=259&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/224353/original/file-20180622-26573-3fen5y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=325&fit=crop&dpr=1 754w, https://images.theconversation.com/files/224353/original/file-20180622-26573-3fen5y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=325&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/224353/original/file-20180622-26573-3fen5y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=325&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 3: Distribution of direct and indirect taxes (% of disposable income) by equivalised disposable household income quintiles, Australia 2015-16.</span>
<span class="attribution"><a class="source" href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6537.0/">Data source: ABS Government Benefits, Taxes and Household Income, Australia, 2015-16</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Redistribution also happens between age groups and states</h2>
<p>In addition to reducing inequalities between income groups, government spending and taxes redistribute across age groups. Government spending is much higher for households of Age Pension age than for younger households. This is because of both the Age Pension and older households’ use of the healthcare system. </p>
<p>For example, households where the reference person is 75 or older receive on average just over $1,000 a week in government spending but pay about $180 a week in direct and indirect taxes. Households with a person aged 45 to 54 pay the highest taxes on average – about $800 per week – and on average receive about $620 a week in social spending.</p>
<p>There is also redistribution across states and territories. For example, average private income is about 65% higher in Western Australia than in Tasmania. However, on average, Western Australian households receive about two-thirds of the social security benefits that Tasmanian households get. This reduces the disparity in gross income to about 45%. </p>
<p>Western Australian households pay about twice as much in income taxes as Tasmanians, reducing the disparity to 35%. Households in the West receive only about 3% more in spending on social services than in Tasmania, which reduces the disparity in average incomes to 28%. West Australian households also pay about 20% more in indirect taxes than Tasmanian households (although as a percentage of disposable income, this is a higher share in Tasmania).</p>
<p>These figures suggest that while the financing of fairly equal social services across most parts of Australia reduces inequality between states, the income tax and social security systems also significantly reduce disparities. This is because income tax and social security are national systems and because Tasmania is the poorest state largely due to the higher share of age pensioners in its population. </p>
<p>Overall, this publication provides an invaluable picture of how government spending and taxes affect household economic well-being. Its results are relevant not only to the political debate about tax cuts, but also to long-term policy development to prepare Australia for an ageing population.</p><img src="https://counter.theconversation.com/content/98627/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford has received funding from the Australian Research Council and the Department of Social Services. He is a Fellow of the Centre for Policy Development. </span></em></p>The Australian Bureau of Statistics’ latest analysis of the impact of government benefits and taxes on household income shows this reduces income inequality by more than 40% in Australia.Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/816182017-08-02T03:04:49Z2017-08-02T03:04:49ZHere’s why it’s so hard to say whether inequality is going up or down<p>Is inequality rising or falling? The answer, if <a href="https://twitter.com/ScottMorrisonMP/status/889630893383536640">recent</a> public <a href="https://twitter.com/ALeighMP/status/890084445159665667">debate</a> is anything to go by, may appear at first to depend on who you ask. </p>
<p>Part of the reason why we get such conflicting narratives about whether economic inequality is rising or falling is that it can be measured in different ways, using different data sets. </p>
<iframe width="100%" height="100%" src="https://www.youtube.com/embed/7eDYynM5RMA?ecver=1" frameborder="0" allowfullscreen=""> </iframe>
<p>And you might get a different answer depending on whether you’re talking about <em>income</em> inequality or <em>wealth</em> inequality. Income is the flow of economic resources over a certain period, while wealth is the stock of resources built up over time.</p>
<p>We can draw some insights from the newly released <a href="http://melbourneinstitute.unimelb.edu.au/hilda/publications/hilda-statistical-reports">Household Incomes and Labour Dynamics in Australia (HILDA) 2017 report</a>, which reveals the latest results of a longitudinal study that has been running since 2001. </p>
<p>But it doesn’t show the whole story. Combining HILDA’s results with data from the Australian Bureau of Statistics (ABS) <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6523.0">income surveys</a> gives a more comprehensive picture of trends in economic inequality in Australia.</p>
<h2>HILDA data show lower income inequality than the ABS</h2>
<p>Firstly, you need to know that when we are talking about income, most people are referring to the disposable income of the <em>household</em>, not individuals.</p>
<p>That’s all the income that members of a household receive from various sources, minus tax. You can then then adjust for the number of people in the household, accounting for the differing needs of adults and children, to get what economists call “equivalised household disposable income”.</p>
<p>The HILDA Survey, funded by the Department of Social Services and conducted by the Melbourne Institute, has followed some 17,000 individuals every year since 2001. (The most recent <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6523.0">ABS income survey</a> final sample consists of 14,162 households, comprising 27,339 persons aged 15 years old and over.)</p>
<p>One commonly used way to measure inequality is called the Gini coefficient, which varies between zero (where all households have exactly the same income) and one (where only one household has all the income). The Gini coefficient for equivalised household disposable income varies between about 0.244 in Iceland to 0.397 in the United States (with most other high-income OECD countries falling between these two levels), but is as high as 0.46 in Mexico and 0.57 in South Africa. </p>
<p>The latest HILDA report puts Australia’s Gini coefficient at 0.296 and notes that it has “remained at approximately 0.3 over the entire 15 years of the HILDA Survey”.</p>
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<p>The HILDA surveys show a lower level of income inequality than the ABS figures do. Some of the differences between these estimates will reflect the broader definition of income used by the ABS, and the significant changes in this definition over time. </p>
<p>In a sense, the HILDA longitudinal survey is like a video where the same people are interviewed every year, whereas the ABS surveys are like a snapshot of the Australian population taken every two years.</p>
<p>But there are also problems with longitudinal surveys because participants often drop out of the survey over time. Also the survey is based on people who were living in Australia in 2001, thus leaving out immigrants who have arrived since then. While the survey has refreshed the sample in 2011 to address this problem, this attrition may reduce the representativeness of the sample. In addition, the sample size of the ABS surveys is about 50% greater than HILDA, which will reduce sampling errors.</p>
<h2>ABS data show inequality has risen</h2>
<p>The ABS has conducted <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6523.0">income surveys</a> since the late 1960s, although it is only surveys since 1982 that are comprehensive and available for public analysis. These ABS surveys are also used in most of the international data sources that compare income inequality across countries – <a href="http://www.oecd.org/social/income-distribution-database.htm">the OECD Income Distribution database</a> and the <a href="http://www.lisdatacenter.org/">Luxembourg Income Survey</a>. </p>
<p>The <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6523.0">ABS data</a> show a clear increase in both wealth and income inequality over the mid- to long run.</p>
<p>The chart below shows two long series of estimates from the ABS surveys – those published in 2006 by researchers David Johnson and Roger Wilkins (who now oversees the HILDA Survey) from 1981-82 to 1996-97, and official figures prepared by the ABS, from 1994-95 to 2013-14.</p>
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<p>Despite the differences in income measures and equivalence scales, the long-run trend from the ABS figures is clear.</p>
<p>There are periods in which inequality fell, but overall inequality rose over the whole period - including in the most recent period to 2013-14. The Gini coefficient in 2013-14 is a little lower than its peak just before the Global Financial Crisis, but the difference is not large.</p>
<p>True, the ABS’s survey methodology has changed over the years but these changes should not have an effect after 2007-08, as income definitions haven’t changed in a major way since then.</p>
<h2>Wealth is much more unequally distributed than income</h2>
<p>The ABS also publishes information on the distribution of net worth - that’s household assets minus liabilities. Wealth is much more unequally distributed than income. </p>
<p>According to the ABS, the Gini coefficient for net worth in 2013-14 was 0.605 (compared to a Gini coefficient for income of 0.333). This is a clear increase from a Gini of 0.573 in 2003-04.</p>
<p>Put another way, ABS data show a high-income household in the richest 20% of the income distribution has an income around 5.4 times as much as the average household in the bottom 20% of the income distribution, as this chart demonstrates:</p>
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<p>In contrast, ABS data show that households in the richest 20% of the distribution of net worth have average wealth of around $2.5 million, or more than 70 times higher than the average net worth held by households in the bottom 20% of the wealth distribution, as this chart demonstrates:</p>
<iframe src="https://datawrapper.dwcdn.net/lVOxB/1/" scrolling="no" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="550"></iframe>
<p>Somewhat surprisingly, however, the <a href="https://www.credit-suisse.com/corporate/en/research/research-institute/global-wealth-report.html">Credit Suisse Global Wealth Report</a> puts wealth inequality in Australia at below the world average (and the mean and median levels of net worth at among the highest in the world).</p>
<p>This largely reflects the still high level of home ownership in Australia and the high levels of wealth in home ownership, which accounts for nearly half of total net worth on average.</p>
<h2>Reconciling conflicting trends</h2>
<p>While these two major sources of data show conflicting trends on income inequality, the ABS sample size is much greater. Ultimately, however, the reasons for the differences between the findings of the ABS and the HILDA survey are not obvious. </p>
<p>One way forward would be for the ABS and the Melbourne Institute to jointly analyse the differences between their findings to identify why their estimates of inequality diverge. </p>
<hr>
<p>This piece is <a href="https://theconversation.com/au/topics/hilda-2017-41279">part of a series</a> on the recent release of HILDA Survey data.</p>
<p>Read more:</p>
<p><a href="https://theconversation.com/men-still-prefer-mothers-to-stay-at-home-12-charts-on-attitudes-to-work-and-family-81897"><em>Men still prefer mothers to stay at home: 12 charts on attitudes to work and family</em></a></p>
<p><a href="http://theconversation.com/australians-want-more-children-than-they-have-so-are-we-in-the-midst-of-a-demographic-crisis-81547"><em>Australians want more children than they have, so are we in the midst of a demographic crisis?</em></a></p>
<p><a href="http://theconversation.com/pokies-sport-and-racing-harm-41-of-monthly-gamblers-hilda-81486"><em>Pokies, sport and racing harm 41% of monthly gamblers: survey</em></a></p>
<p><a href="http://theconversation.com/home-ownership-falling-debts-rising-its-looking-grim-for-the-under-40s-81619"><em>Home ownership falling, debts rising – it’s looking grim for the under 40s</em></a></p><img src="https://counter.theconversation.com/content/81618/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford has received funding from the Australian Research Council and from the European Commission for work on inequality. He is affiliated with the Centre for Policy Development.</span></em></p>The two major sources of data show conflicting trends on income inequality.Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/738412017-03-30T19:17:17Z2017-03-30T19:17:17ZWhat did the rich man say to the poor man? Why spatial inequality in Australia is no joke<figure><img src="https://images.theconversation.com/files/161263/original/image-20170317-10892-1dm70yb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">New research shows that spatial segregation between the rich and poor in our six largest cities has been increasing over time.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/usachicago/4474141791/">John W. Iwanski/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><blockquote>
<p>What did the rich man say to the poor man? Nothing, they never met. *</p>
</blockquote>
<p>As in many other countries, <a href="https://theconversation.com/income-and-wealth-inequality-how-is-australia-faring-23483">income inequality in Australia</a> has grown over the past two decades. At the same time, Australia is one of the most urbanised countries in the world, with more than 60% of the population concentrated in just six major cities. Incomes in these cities are very spatially segregated, with high and low earners concentrated in different suburbs. </p>
<p>Do recent trends mean this joke is increasingly likely to be true?</p>
<p>In new research, I used census data to examine these patterns. Focusing on the incomes of men aged 25-54 in our six largest cities, I found that income inequality among men has grown substantially since 1991 – particularly during the 1990s. </p>
<p>This has been associated with increases in the relative income gaps between different areas within the cities. The share of inequality associated with location has also increased over time – an indicator of increasing segregation. </p>
<p>To the extent to which people draw on the resources of the people who live in their local area, this spatial segregation has potential implications for social cohesion and intergenerational inequality. There are also substantial differences across cities. Sydney was substantially more unequal than other cities over the whole period.</p>
<h2>The census tells us the gap has widened</h2>
<p>These results are based on detailed tabulations from the five censuses from 1991 to 2011. The focus on men aged 25-54 is partly for data availability reasons, but also permits a simpler focus on those income trends associated with wage growth and workforce-age income support payments. </p>
<p>The research examines how incomes vary across the local areas in our six largest cities. These areas are defined using the Australian Bureau of Statistics “statistical local areas” (SLAs) designation. </p>
<p>In Sydney and Melbourne, SLAs correspond closely to local government areas, while they are generally smaller areas in the other states. The income measure is the single census question on the person’s total income (before deducting taxes) – answered in categories. </p>
<p>Statistical interpolation techniques are used to generate a smooth income distribution and to compensate for a change in the payments of income support between 1991 and 1996. More details can be found <a href="https://drive.google.com/open?id=0B00VA4qEADIqTm9SazV4TTVUVTQ">here</a>.</p>
<p>The graph below shows trends in city-wide inequality since 1991. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/159510/original/image-20170306-919-fd0169.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/159510/original/image-20170306-919-fd0169.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/159510/original/image-20170306-919-fd0169.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/159510/original/image-20170306-919-fd0169.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/159510/original/image-20170306-919-fd0169.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/159510/original/image-20170306-919-fd0169.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/159510/original/image-20170306-919-fd0169.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/159510/original/image-20170306-919-fd0169.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 1: City-wide inequality.</span>
<span class="attribution"><span class="source">Author's calculations from ABS Census data</span></span>
</figcaption>
</figure>
<p>In each city, male income inequality grew substantially during the 1990s. It flattened out after 2001 (generally increasing slightly up to 2006, then falling back a little after the global financial crisis). In all years, incomes were substantially more <a href="http://theconversation.com/our-big-cities-are-engines-of-inequality-so-how-do-we-fix-that-69775">unequal in Sydney</a> than the other cities, with this gap widening over the period. </p>
<p>In part, this <a href="https://theconversation.com/our-big-cities-are-engines-of-inequality-so-how-do-we-fix-that-69775">reflects the larger size of Sydney</a>. However, Sydney is now only slightly larger than Melbourne. Most of the gap is likely due to the high wages in parts of the financial services industry centred in Sydney. </p>
<p>Within the sub-regions of each city, inequality also increased, following a similar pattern. However, the growth in income inequality within local areas was less than the overall growth in inequality. Corresponding to this, the gap between the average incomes in each region also increased. </p>
<p>This is indicated in the graph below, which shows a measure of between-region inequality – the extent to which the average incomes in each area differ. Using the “GE(1)” measure of inequality, this more than doubled between 1991 and 2001. It then increased slightly up to 2006 and fell back slightly after the GFC.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/159512/original/image-20170306-926-134dws8.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/159512/original/image-20170306-926-134dws8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/159512/original/image-20170306-926-134dws8.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/159512/original/image-20170306-926-134dws8.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/159512/original/image-20170306-926-134dws8.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/159512/original/image-20170306-926-134dws8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/159512/original/image-20170306-926-134dws8.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/159512/original/image-20170306-926-134dws8.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 2: Between-SLA inequality.</span>
<span class="attribution"><span class="source">Author's calculations from ABS Census data</span></span>
</figcaption>
</figure>
<p>The overall combination of these trends is that the share of city-level inequality associated with location has grown over the period. For the GE(1) measure, this share increased from about 15% to 18%. That is, spatial segregation between rich and poor has increased over time.</p>
<h2>Are we segregating ourselves?</h2>
<p>One simpler way of describing the spatial concentration of incomes is to consider the situation of the top 10% of Sydney men – those with annual pre-tax incomes of $141,000 or more in 2011. </p>
<p>What fraction of these rich men lived in the low-income areas of Sydney? If we define low-income areas as the SLAs with the lowest average incomes and containing 20% of the male working-age population, then we find that only 5% of rich men lived in these areas in 2011. </p>
<p>So while it is true that some rich men live in the areas that have low average incomes (and maybe they might meet poor men), they are four times less likely to do so than the average man (5% vs 20%). And this segregation has increased over time. Back in 1991, 6.2% (rather than 5%) of rich men lived in these poor regions.</p>
<p>The other cities are also segregated, though not quite as much as Sydney. Looking at the top 10% of earners in each city in 2011, the percentage of these who were in poor local areas was 5.6% in Melbourne and Brisbane, 5.9% in Adelaide, and around 9% in Canberra and Perth.</p>
<h2>Dark shades of inequality</h2>
<p>This data also allows us to consider which areas are more segregated or mixed. This is mapped below for Sydney and Melbourne.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/159514/original/image-20170306-898-vhl1on.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/159514/original/image-20170306-898-vhl1on.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/159514/original/image-20170306-898-vhl1on.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/159514/original/image-20170306-898-vhl1on.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/159514/original/image-20170306-898-vhl1on.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/159514/original/image-20170306-898-vhl1on.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/159514/original/image-20170306-898-vhl1on.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/159514/original/image-20170306-898-vhl1on.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 3a: Within-SLA inequality in Sydney.</span>
<span class="attribution"><span class="source">Author's calculations from ABS Census data</span></span>
</figcaption>
</figure>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/159517/original/image-20170306-914-1kme7i3.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/159517/original/image-20170306-914-1kme7i3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/159517/original/image-20170306-914-1kme7i3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/159517/original/image-20170306-914-1kme7i3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/159517/original/image-20170306-914-1kme7i3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/159517/original/image-20170306-914-1kme7i3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/159517/original/image-20170306-914-1kme7i3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/159517/original/image-20170306-914-1kme7i3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 3b: Within-SLA inequality in Melbourne.</span>
<span class="attribution"><span class="source">Author's calculations from ABS Census data</span></span>
</figcaption>
</figure>
<p>The darker shades indicate local areas with more within-area inequality – though for small regions such as this, it is more appropriate to use a word with more positive connotations such as “heterogenous” or just “mixed”. The more mixed areas are generally those with higher average incomes (plus some areas with high ethnic heterogeneity). </p>
<p>This is driven by the fact that most regions include at least some men with low incomes, but high-income men are unlikely to live in the more homogeneous outer suburbs.</p>
<p>The concentration of high-paying employment and the poor transport linkages of Australia’s major cities undoubtedly play a large part in driving this.</p>
<hr>
<p><em>* Apologies to <a href="http://thewireless.co.nz/articles/the-pencilsword-inequality-tower">Toby Morris</a>, who doesn’t think this is funny.</em></p><img src="https://counter.theconversation.com/content/73841/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Bradbury does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Not only has income inequality in Australia grown over the past two decades, rich and poor are also more segregated in terms of where they live in the big cities.Bruce Bradbury, Associate Professor, Social Policy Research Centre, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/444872015-07-10T16:35:59Z2015-07-10T16:35:59ZFact Check: are those with the broadest shoulders bearing the greatest burden?<figure><img src="https://images.theconversation.com/files/88068/original/image-20150710-17473-cq1w9m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Who is paying the most?</span> <span class="attribution"><span class="source">Tax burden via Orla/www.shutterstock.com</span></span></figcaption></figure><blockquote>
<p>Those with the broadest shoulders are bearing the greatest burden.</p>
</blockquote>
<p><strong>George Osborne, chancellor of the exchequer, in <a href="https://www.gov.uk/government/speeches/chancellor-george-osbornes-summer-budget-2015-speech">his budget speech</a> on July 8.</strong> </p>
<p>The chancellor’s claim is a difficult one to test. First, we might argue over what is meant by “burden” and how we should measure it. Second, the budget included a huge number of measures, some of them shifting the burden one way, others shifting it back (such as changes to working tax credits). This makes it difficult to come up with an overall assessment.</p>
<p>It might help to look at Osborne’s supporting claims immediately before and after the statement above:</p>
<blockquote>
<p>The analysis produced today shows that the richest are paying a greater share of tax than they were at the start of the last parliament. And more than that, we are continuing to devote a greater share of state support to the most vulnerable. As I said they would – those with the broadest shoulders are bearing the greatest burden. For we are all in this together. And, in the last fortnight we’ve seen independent statistics showing that since 2010, child poverty is down and so is inequality.</p>
</blockquote>
<p>In order to see whether Osborne is right, let’s examine these three statements and then discuss how they relate to “the burden”.</p>
<h2>The rich paying a greater share of tax</h2>
<p>This is technically true as shown in the chart below, taken from the Treasury’s <a href="http://im.ft-static.com/content/images/3b308686-2571-11e5-bd83-71cb60e8f08c.pdf">analysis accompanying the budget</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88057/original/image-20150710-17470-1xhkp6f.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88057/original/image-20150710-17470-1xhkp6f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88057/original/image-20150710-17470-1xhkp6f.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=431&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88057/original/image-20150710-17470-1xhkp6f.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=431&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88057/original/image-20150710-17470-1xhkp6f.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=431&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88057/original/image-20150710-17470-1xhkp6f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=542&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88057/original/image-20150710-17470-1xhkp6f.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=542&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88057/original/image-20150710-17470-1xhkp6f.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=542&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The chart shows a prediction for 2017-18, under the 2010-11 tax/benefit rules and the anticipated 2017-18 rules. It thus shows the cumulative effect of policy changes since the election of 2010.</span>
<span class="attribution"><a class="source" href="http://im.ft-static.com/content/images/3b308686-2571-11e5-bd83-71cb60e8f08c.pdf">HM Treasury</a></span>
</figcaption>
</figure>
<p>The bars below the axis show that the richest top income quintile (on the right hand side) pays well over its “fair share” of 20% of the tax burden. In fact it is around 50% and higher under the 2017-18 tax and benefit rules than the 2010-11 rules. However, this is a curious measure of fairness, which implies households should pay the same amount of taxes and receive the same benefits regardless of their level of income. </p>
<p>A better baseline of fairness might be that all people pay tax in proportion to their income. The top quintile earns approximately 50% of the original income so the burden might be said to be shared roughly equally, rather than on the broadest shoulders. </p>
<p>Some might argue that the small change between the 2010-11 and 2017-18 systems suggests that policy has become more redistributive. However, this is not accurate, since it shows how a given tax burden is shared, when that burden might be changing. For example, we could envisage a situation where the top quintile pays 100% of all taxes but, if those taxes were small enough, the amount of redistribution would be small. </p>
<h2>Greater share of support to the most vulnerable</h2>
<p>Here, the clever use of words creates a claim which is possibly technically correct but is misleading. The claim is that the most vulnerable (we interpret this as the poorest) obtain a larger share of the pie of state support. However, if the pie is shrinking the claim is quite consistent with the poorest becoming worse off. </p>
<p>With £12 billion of benefit cuts the pie is certainly shrinking – but the impact of that reduction is slightly mitigated for the very poorest. Cuts implemented <a href="https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015">through lowering the income</a> threshold (from £6,420 to £3,850) above which people start to lose tax credits mean that the very poorest are to some extent protected; but credits are going to be withdrawn earlier and more quickly as income rises. Over the threshold, you lose 48p of credit for every £1 earned, compared to 41p before the budget. </p>
<p>The government’s own analysis suggests that this focusing effect on the poorest is relatively small, as the following chart reveals:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88061/original/image-20150710-17458-1q6vie5.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88061/original/image-20150710-17458-1q6vie5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88061/original/image-20150710-17458-1q6vie5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=435&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88061/original/image-20150710-17458-1q6vie5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=435&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88061/original/image-20150710-17458-1q6vie5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=435&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88061/original/image-20150710-17458-1q6vie5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88061/original/image-20150710-17458-1q6vie5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88061/original/image-20150710-17458-1q6vie5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Where the cuts bite.</span>
<span class="attribution"><a class="source" href="http://im.ft-static.com/content/images/3b308686-2571-11e5-bd83-71cb60e8f08c.pdf">HM Treasury</a></span>
</figcaption>
</figure>
<p>Welfare spending in the bottom quintiles does not change significantly using the 2017-18 rules, which is perhaps curious, <a href="https://theconversation.com/free-from-the-confines-of-coalition-osborne-goes-on-benefits-rampage-44440">given the tax credit reforms</a>.</p>
<h2>Child poverty and inequality</h2>
<p>The Department for Work and Pension’s (DWP) most recent <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/437246/households-below-average-income-1994-95-to-2013-14.pdf">report on households living below average income</a> summarises the latest information in the following chart:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88062/original/image-20150710-17428-urwyhe.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88062/original/image-20150710-17428-urwyhe.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88062/original/image-20150710-17428-urwyhe.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88062/original/image-20150710-17428-urwyhe.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88062/original/image-20150710-17428-urwyhe.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88062/original/image-20150710-17428-urwyhe.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=447&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88062/original/image-20150710-17428-urwyhe.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=447&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88062/original/image-20150710-17428-urwyhe.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=447&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">UK child poverty, main measures, 1998-99 to 2013-14.</span>
<span class="attribution"><a class="source" href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/437246/households-below-average-income-1994-95-to-2013-14.pdf">Department for Work and Pensions</a></span>
</figcaption>
</figure>
<p>From this it is <a href="https://theconversation.com/tinkering-with-how-we-measure-child-poverty-wont-help-end-it-43860">difficult to see much change</a> since 2010-11, indeed there appears to be a slowing from the earlier downward trend. One of the key messages in the report is that “the percentage of children in relative low income BHC [before housing costs], remained flat at 17% in 2013-14 compared to the previous year. This follows a decrease between 2008-9 and 2010-11 and a period of stability from then onwards”.</p>
<p>It is difficult to see from the chart, and from other tables in the report, how Osborne’s claim for child poverty can be justified. A similar story can be told about inequality in general (using the DWP’s data). </p>
<h2>Verdict</h2>
<p>The chancellor’s claim about the broadest shoulders appears to rest on the slim foundations of selective and misleading statistics. A <a href="http://www.ifs.org.uk/publications/7855">budget briefing by the Institute of Fiscal Studies</a> has presented a more representative picture:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88064/original/image-20150710-17462-ek6y3i.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88064/original/image-20150710-17462-ek6y3i.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88064/original/image-20150710-17462-ek6y3i.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=441&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88064/original/image-20150710-17462-ek6y3i.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=441&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88064/original/image-20150710-17462-ek6y3i.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=441&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88064/original/image-20150710-17462-ek6y3i.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=554&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88064/original/image-20150710-17462-ek6y3i.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=554&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88064/original/image-20150710-17462-ek6y3i.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=554&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">IFS analysis of tax and benefit reforms.</span>
<span class="attribution"><a class="source" href="http://www.ifs.org.uk/publications/7855">Institute of Fiscal Studies</a></span>
</figcaption>
</figure>
<p>This clearly shows the poorest deciles of the population suffering the biggest income falls in relative terms since 2010 (the blue line) as well as being hit the hardest in this latest budget (the yellow bars). However, the very top decile also suffers significant losses due to various changes such as the tax treatment of pension contributions.</p>
<p>Perhaps we should not be surprised at all this. We expect our politicians to put a positive spin on what they do but the extent of it in this case is quite breathtaking. What this reveals is the importance of having institutions such as the Office of Budget Responsibility and the IFS which are relatively autonomous or independent of government. It is quite striking how the IFS in particular is now so central to our understanding of the public finances.</p>
<h2>Review</h2>
<p><strong>Eoin Flaherty, Queen’s University Belfast</strong></p>
<p>As this fact check makes clear, George Osborne’s budget is beyond spin: it is an assault on public welfare, and on the public understanding of government.</p>
<p>The real issue here is that the source of exchequer income is more varied than income tax. Direct income taxation is only one piece of exchequer receipts, the rest is made up through items such as indirect consumption taxes, levies on capital and import duties. Although the richest may spend and consume more in real terms, this represents a smaller proportion of their total income. In this respect, indirect taxes such as VAT (although not an issue here) are typically regressive, as they extract a greater proportional share of income from the poor. This is also the case with welfare cuts and caps, however, where the proportional reduction in disposable income among the poor will be highest.</p>
<p>The idea of a tax burden and how it is changing is the real issue, and the real hypocrisy in Osborne’s statement is that it doesn’t matter an iota whether the rich pay a higher share of tax or not. Further, since a good chunk of top incomes are made up of capital gains, rents, yields, dividends, they – quite literally – earn money doing nothing, compared to the work intensity of wage-dependent households.</p><img src="https://counter.theconversation.com/content/44487/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Barrow has previously received research funding from bodies such as the ESRC and was also a research fellow in the Department for Communities and Local Government in 2010-11.</span></em></p><p class="fine-print"><em><span>Eoin Flaherty does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In his budget, George Osborne said that we are all in this together. A look at the evidence shows that we’re not.Michael Barrow, Senior Lecturer in Economics, University of SussexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/409042015-06-09T04:18:42Z2015-06-09T04:18:42ZApartheid continues to cast shadow on equality of opportunity<figure><img src="https://images.theconversation.com/files/83643/original/image-20150602-6976-1o4b55v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Leonardo DiCaprio plays Jay Gatsby in the The Great Gatsby. Jay's story has been used by economists to explain the combination of unequal distribution of income and less economic mobility.</span> <span class="attribution"><span class="source">Reuters/Andrew Kelly</span></span></figcaption></figure><p>Countries with a more unequal distribution of income tend to have less economic mobility from one generation to the next. This relationship is often referred to as the <a href="http://milescorak.com/2012/01/12/here-is-the-source-for-the-great-gatsby-curve-in-the-alan-krueger-speech-at-the-center-for-american-progress/">“Great Gatsby Curve”</a>. </p>
<p>Generational mobility refers to the extent to which individuals have the opportunity to succeed economically regardless of the background of their parents. </p>
<p>There is growing global evidence on the nature of this relationship as well as on unequal access to opportunities in general. This has helped shine more light on the continued persistence of inequality. </p>
<p>Comparisons between countries point to a number of factors that result in inequality being passed from one generation to the next. </p>
<h2>South Africa makes an interesting case</h2>
<p>Given its high and dogged levels of inequality, South Africa represents a particularly interesting case. It also has a peculiar, and tragic, history of systematic racial discrimination against the majority of its population.</p>
<p>Recent <a href="http://www.sciencedirect.com/science/article/pii/S0305750X14003398">research</a> shows a high persistence of earnings from one generation to the next. This means that it is as difficult as ever for the children of those who were disadvantaged before the end of apartheid in 1994 to break out of circumstances they inherited from their parents. </p>
<p>In addition, unequal access to opportunities remains high.</p>
<h2>The white minority’s continued dominance</h2>
<p>Unsurprisingly, race is shown to be particularly relevant for economic mobility and opportunity. White South Africans made up only 10% of the sample but they accounted for about 40% of the intergenerational income persistence. This is measured as the association between the income of one’s parents and one’s earnings as an adult. </p>
<p>This result is similar to the <a href="http://www.sciencedirect.com/science/article/pii/S0165176508000918">findings</a> in the US, where African-Americans are persistently confined to the lower end of the income distribution. This generates a high proportion of the overall degree of intergenerational income disparity in the US.</p>
<p>Something similar may be happening in South Africa. The only difference is that the minority group is positioned at the top of the earnings distribution. In other words, a large part of the similarity of incomes across generations can be explained by the continued positioning of the white minority at the top.</p>
<h2>More than earnings</h2>
<p>The high persistence of earnings from generation to generation is an indication of unequal chances in the labour market. However, the achievement of equal opportunity does not imply simply getting rid of all sources of earnings resemblance between parents and children. </p>
<p>On its own, an intergenerational tie in the earnings of parents and children tells us little about the types of advantages passed from parent to child, or across generations.</p>
<p>Rather than pursuing the objective of zero correlation in the income of parents and their children, a <a href="https://www.aeaweb.org/articles.php?doi=10.1257/089533002760278686">better approach</a> for policymakers might be to focus on those mechanisms that drive the transfer of advantage that seem unfair. </p>
<p>For example, most people would agree that <a href="http://www.unicef.org/southafrica/SAF_resources_ncfabridged.pdf">family culture and ethics</a> should be preserved. But some would regard <a href="http://www.brookings.edu/blogs/social-mobility-memos/posts/2015/01/30-wealth-inheritance-mobility-sawhill">wealth inheritance</a> as less defensible. </p>
<p>There is one mechanism that is clearly unfair. It is the role of race in passing on economic status from one generation to the next. </p>
<h2>Removing obstacles to mobility</h2>
<p>Local and international studies point to obstacles that may explain the limited mobility and opportunity for the majority in South Africa.</p>
<p>First, virtually everyone agrees that family and public investments in <a href="http://www.bostonfed.org/inequality2014/papers/magnusun-duncan.pdf">early childhood development</a> are crucially important. Early childhood conditions for most South Africans are far from optimal. This amounts to denying entire cohorts of low-income children a realistic chance to climb the social ladder.</p>
<p>Governments can adopt a number of early childhood interventions to remedy inherited social disadvantages. </p>
<p>The World Bank <a href="http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTCY/EXTECD/0,,contentMDK:20260280%7EmenuPK:524346%7EpagePK:148956%7EpiPK:216618%7EtheSitePK:344939,00.html">lists</a> some relevant characteristics. These include: educating and supporting parents; delivering services to children; developing capacities of caregivers and teachers; and using mass communications to develop parents’ and caregivers’ knowledge. </p>
<p>Programs for children can be based at specialised centres or at home, can be formal or informal, and can include parent education.</p>
<p>Chances of economic success vary greatly across neighbourhoods. This is not simply a result of good neighbourhoods attracting individuals who <a href="http://www.nytimes.com/2015/05/05/upshot/why-the-new-research-on-mobility-matters-an-economists-view.html?_r=0&abt=0002&abg=1">would succeed anyway</a>. This creates an obvious channel of economic resemblance across generations. It may be particularly relevant in South Africa where entire communities were moved under apartheid to designated areas.</p>
<p>Finally, <a href="http://www.ft.com/intl/cms/s/0/b7708984-cdf9-11e2-a13e-00144feab7de.html#axzz3btSzYP5T">nepotism</a> and discrimination in hiring processes that determine access to good jobs may play a key role. This is one of the areas more consistently targeted by South African policymakers through, for example, affirmative action. </p>
<p>Being serious about effective policies calls for an appreciation of the various the ways that income inequality is passed on from one generation to the next. <a href="http://www.hesa.org.za/increased-access-higher-education">Increasing access</a> to higher education institutions, for example, will not be as effective in promoting equality of opportunity if academic success is largely determined by human capital investments in <a href="http://www.worldbank.org/en/topic/earlychildhooddevelopment">early childhood</a>.</p><img src="https://counter.theconversation.com/content/40904/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrizio Piraino has received funding from the National Research Foundation and the Economic Research Southern Africa program.</span></em></p>Evidence on the ability, or lack thereof, of children to rise above the economic status of their parents shines light on the continued persistence of inequality, including in South Africa.Patrizio Piraino, Associate Professor of Economics, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/265052014-05-14T03:44:43Z2014-05-14T03:44:43ZDefining what is meant by ‘fair’ in Hockey’s budget<p>Joe Hockey says that this budget shares the pain. But what is the right share for whom? This budget is like all the others – it lacks a compass that tells us the overall effect of government spending and taxation on fairness as indicated by the distribution of national income and wealth. We have no target for fairness in society and no way of assessing the budget against the target.</p>
<p>The budget is full of ad hoc piecemeal changes to the distribution of national income and wealth. Consider the range of arbitrary changes: the 2% tax on earnings over $180,000, the $7 co-payment to the GP, the tighter means-testing of Family Tax Benefits A and B, the effective cuts to pensions through lower rates of indexation, lower benefits to the young unemployed, the subsidy to companies for employing over-50s, paid parental leave of six months at full pay means-tested at $100,000 of income. </p>
<p>And these are just the measures with the most direct effects on income and wealth distribution. Other policies have more indirect redistributive effects, such as the increase in fuel excise, the 1.5% cut in the company tax rate, increase in university fees along with deregulation of fees, cuts to industry subsidies, and the increase in the pension age to 70 by 2035. </p>
<p>And there are even more indirect effects on income distribution such as the interest rate implications of the overall effect of the budget on economic activity - a contractionary budget like this one implies that interest rates will be lower than they otherwise would be. Changes in interest rates affect the distribution of income in complicated ways.</p>
<p>Where did all these piecemeal budget policies come from? What was the guiding principle in terms of fairness? I suggest there wasn’t one. It was driven by motives like “it’s time for all of us to contribute”, as Hockey said in his budget speech. </p>
<p>The actual budget numbers were apparently pulled out of the air since no analytical justification was provided – why $180,000 as the income threshold for the 2% tax? Why a $7 co-payment? Why indexation of parental leave at $100,000? And so on. We have no idea whether these changes, in total, will make household income and wealth more unequal, or less?</p>
<p>Government budgets are a hotchpotch of ad hoc tweaks here and there with no rhyme or reason. We need to fix this. First, governments should set a target for the distribution of household income and wealth using a standard measure such as the Gini coefficient. It is a number between zero and one. The higher the number the more unequal is the distribution – and it can be applied to both income and wealth, at the household or individual level, before and after tax, and so on. </p>
<p><a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6523.0Main+Features62011-12">According to the ABS</a>, Australia’s GINI coefficient for household after-tax income is 0.32 which is roughly the OECD average, <a href="http://www.natsem.canberra.edu.au/storage/Inequality%20and%20Redistribution%20in%20the%20Australian%20Welfare%20State.pdf">significantly below the United States but significantly above the Scandinavian countries</a>.</p>
<p>Once we’ve set the fairness target, we need an independent organisation like the National Centre for Social and Economic Modelling (NATSEM) to do a pre-budget assessment for the government, against our fairness target, of proposed budgetary changes. </p>
<p>Then at least we will be able to make an overall assessment of the fairness of the budget, in the same way as we assess the budget against a range of fiscal targets such as the budget deficit, growth of government spending and government debt.</p>
<p>Speaking of the fiscal targets and outcomes, we also need a more rational debate about the appropriate size of government. In this budget, government receipts are projected to increase from 23% of GDP (the amount of goods and services produced by the country in a year) in 2013-14 to 24.9% in 2017-18, while government spending is projected to fall from 25.9% of GDP to 24.8% in 2017-18, implying a return to a small surplus in those four years. </p>
<p>Is this good? The government thinks it is but has not really explained why, except for folksy stories about how we cannot continue to live beyond our means – the sort of thing a parent tells their young adult children.</p>
<p>We deserve a more mature analytical explanation from our national government about the target size of government. Is government spending of 25% of GDP too much, too little or just right on average over the economic cycle? Australia has small-ish government (across all levels combined) by OECD standards, smaller than most European countries but higher than some Asian countries. </p>
<p>Do we want to compare ourselves with Europe or Asia? We need to recognise for example that every dollar of government spending costs about 20 cents in <a href="http://www.eap-journal.com/archive/V27_I2_3.pdf">“deadweight losses”</a> through disincentive effects of the ultimate tax collections on working, saving and/or investing. </p>
<p>That needs to be weighed up against the social benefits of government spending, including achieving a “fair” distribution of national income which ultimately comes down to some social value judgements.</p><img src="https://counter.theconversation.com/content/26505/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ross Guest has received funding from the Australian Research Council.</span></em></p>Joe Hockey says that this budget shares the pain. But what is the right share for whom? This budget is like all the others – it lacks a compass that tells us the overall effect of government spending and…Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.