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Income inequality in Australia: looking behin. . .

Income inequality in Australia: looking behind the headline figures

By David Stanford.
Published on the VCOSS Voice on 5 August 2013.
http://vcoss.org.au/blog/income-inequality-in-australia-looking-behind-the-headline-figures/

Income inequality in Australia has improved if we look with a narrow focus on the latest data released last week – but  there remains a significant and disadvantaged section of the community for whom the gap continues to grow as the ABS analysis of ‘low economic resource’ households reveals.

With the federal election campaign underway, the  release last week of the Australian Bureau of Statistics (ABS) data on Household Income and Income Distribution 2011-12 provides some timely and detailed data on inequality in Australia.  The publication, based on a survey of 14,569 households across the country, provides an indication of the level and distribution of disposable household income.  It also estimates the widely used measure of income inequality known as the Gini Coefficient for Australia.

The importance of this biennial publication lies not just in the fact that it allows us to track what is happening with incomes in Australia but also that it allows us to see how Australians on lower incomes are faring compared  to middle and high income households.  The regular collection of this data enables us to track any trends in income inequality and whether it is increasing or decreasing over time.

The headline numbers

Interestingly, compared to the previous data set in 2009-10, income inequality in Australia has decreased. This is a positive trend that VCOSS hopes can be maintained in coming years. However, this finding is tempered by the experience of what the ABS calls low economic resource households over the same period. Let’s have a look at the findings to get a greater sense of what is happening with income inequality in Australia.

Findings on income[1]

  • Real disposable incomes for low income households rose by 5 per cent between 2009-10 and 2011-12. For middle income households, income rose by 4 per cent over the same period.
  • There was no significant change in real household income for high income households.
  • Wages and salaries were the main sources of incomes for high and middle income households whereas government pensions and allowances were the main income sources for 60 per cent of low income households.
  • People living in households with older residents had the lowest weekly household incomes in the country.
  • Incomes were 21 per cent higher in capital cities compared to rural and regional areas.

Findings on wealth[2]

  • The wealthiest 20 per cent of households account for 61 per cent of household net worth with an average net worth of $2.2 million.
  • The poorest 20 per cent of households account for 1 per cent of household net worth with an average net worth of $31,205.

I dream of Gini

The Gini Coefficient provides a measure of inequality amongst a set of values and is the most widely used statistic to measure income inequality. The Gini Coefficient is a number between 0 and 1. In the case of income, if 14,000 houses were surveyed and only one household received all the income, its value would be 1 demonstrating extreme inequality. Its values would be 0 if all surveyed households received identical incomes. The Gini Coefficient declined in 2011-12 compared to the previous measure in 2009-10 from 0.329 to 0.320. This indicates the level of income equality improved in Australia between 2009-10 and 2011-12.

The experience of low economic resource households

Interestingly, low income households in the study had the highest incidence of full ownership of their home. This reflects the fact that many of the low income households surveyed are composed of older people who have worked and paid off their home but are now living on a significantly reduced income from superannuation or pensions.

This is likely among the reasons why the ABS decided to undertake some further analysis of what it terms low economic resource households. These households are in the low income sample but also have (if you can forgive the use of the unfortunate statistical term) ‘low net worth.’  Specifically, the low economic resource measure includes households in the bottom 40 per cent in relation to disposal income and well as household net worth. It therefore excludes households with either high incomes or high net worth.[3]

This approach can provide a clearer picture of the number of households that are likely to have the greatest challenges maintaining a decent standard of living given the significant restriction on the resources available for their consumption expenditure.[4]

According to the data around 5 million Australians fall into this category and live in low economic resource households.  Some of the common characteristics of these households include[5]:

  • more household members and more members under the age of 18 than the population as a whole
  • an over-representation of single parent families with dependent children compared to the population as whole
  • considerably lower incomes and wealth than the population as a whole with these households receiving on average 52 per cent of the national average income and 13 per cent of the national average wealth
  • a large proportion of renters (68 per cent) compared to the broader population.

An analysis of these households brings us to one of the biggest findings of concern in the release:

“The mean income and wealth measures for all persons between 2003-04 and 2011-12 grew more than for people in low economic resource households, resulting in a widening gap between the low economic resource group and the population average.”[6]

This demonstrates that while a narrow focus on income indicates income inequality has improved, there remains a significant and disadvantaged section of the community for whom the gap continues to grow.

Some thoughts

The improvements in income equality can be attributed to a number of elements.  One likely contributing factor is the substantial increase to government pensions implemented by the Commonwealth Government since 2009. This demonstrates the importance of fair rates of government benefits to address income inequality in the Australian community.

However, it also highlights the ongoing failure of government to address the insufficient levels of the unemployment benefit or Newstart allowance. It would be interesting to analyse the extent to which increasing levels of inequality between low economic resource households and the broader population can be attributed to this failure.

[1] Australian Bureau of Statistics (2013) Household Income and Income Distribution 2011-12, 6523.0, p. 5

[2] Ibid

[3] Australian Bureau of Statistics Op. Cit. p. 19

[4] Australian Bureau of Statistics Op. Cit. p. 14

[5] Australian Bureau of Statistics Op. Cit. p. 19

[6] Australian Bureau of Statistics Op. Cit. p. 22

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