Inequality and Redistribution in the
Australian Welfare State
Peter Whiteford, Crawford School of Public Policy
peter.whiteford@anu.edu.au
Acknowledgements
•
Research supported as part of the GINI project – “Growing Inequalities’
Impacts” http://www.gini-research.org/articles/research. EU Seventh
framework programme cooperation, Theme 8, Socio-economic sciences and
humanities, SSH-2009 - 2.2.1 social inequalities, their implications and policy
options
• “The project focus is inequalities in income/wealth and education and their
social, political and cultural impacts. It highlights potential effects of individual
distributional positions and increasing inequality for a host of ‘bad outcomes’ (both
societal and individual) and allows feedback from these impacts to inequality itself in
a frame of policy-oriented debate and comparison across 25 EU countries, the USA,
Japan, Canada and Australia.”
•
Also based on work undertaken and to continue with Gerry Redmond
(Flinders University), Philip Hayes and Elizabeth Adamson (UNSW),
“Supporting families: Horizontal and vertical equity in the Australian taxbenefit system in historical and comparative perspectives “, funded by ARC
(LP 100100596).
Background and outline
• Increasing interest internationally and in Australia in trends in
inequality.
– Questions about the contribution of growing income inequality in USA
to financial crisis (R.G. Rajan, “Fault Lines”, 2010)
• This presentation is primarily descriptive – what has happened
to income inequality in Australia over recent decades, and
what factors appear to be associated with these trends.
• Data and methods; measures of inequality
• Situating Australia internationally
• Income inequality: trends and driving forces
• Redistribution through taxes and benefits
• Discussion and conclusions
Data and methods
•
•
•
•
Data are from Australian Bureau of Statistics (ABS) income surveys from
1981-82 to 2007-08 and in some cases 2009-10. The ABS has changed
and improved income measures over time; for consistency we use the
“unimproved” income measure, showing lower inequality after 2005-06, but
effects on earlier trends uncertain.
Income measure is current weekly income of income units (nuclear family),
adjusted for household size using “revised OECD equivalence scales”.
Income is conventionally made up of market income (earnings, selfemployment, investment and property income, private transfers); the
addition of transfers from government (social security benefits) or privately
(e.g. child support) produces gross income; direct taxes are deducted to
estimate cash disposable income.
Also important to bear in mind what is not included in cash disposable
income – e.g. imputed income from housing, indirect taxes, non-cash
benefits, superannuation - or is/maybe included but is not easily identifiable
– e.g. tax expenditures (concessions) .
How is inequality measured?
• What inequalities are we interested in or concerned about –
inequality of income, inequality of opportunity, inequality of wealth?
• Inequality is often thought of as disparities or gaps – what is the
distance between a low income and a high income household, or
what is the ratio of their incomes, e.g. what is the gap between the
richest 10% and the poorest 10% (decile) or the richest and poorest
20% (quintile)?
– A lot of inequality is at the extremes, i.e. within the richest and
poorest income groups
• The measure of inequality most commonly used is the Gini
coefficient, which varies between zero – when all households have
exactly the same income and one – when one household has all the
income. Preferred because it is calculated for everyone in the
population.
• Other measures are sensitive to inequality at the extremes.
Previous studies
• A notable recent study of income inequality trends in Australia is the
2011 Fay Gale lecture by Professor Denise Doiron, UNSW.
• There are a number of similarities between our results and hers, but
also some differences.
• Because our work is interested in long-term trends, we exclude the
effects of the improvements made to surveys from 2007-08.
• Also this work looks mainly at households of working age, rather than
all households as in Professor Doiron’s analysis.
• Despite this, overall trends fairly similar – except Figure 4 in the Fay
Gale lecture which shows a decline in real income for the poorest 20%
between 2003-07. As shown below we find significant real increases.
• Note also recent OECD studies, Growing Unequal and Divided We
Stand, which also use unadjusted ABS figures.
Situating Australia Internationally
Level of inequality in OECD countries
2005
2008
Change in inequality, OECD countries,
1995 to 2007-08
Sen welfare index, OECD countries, 2008
Mean equivalised income, adjusted to USD (PPPs) and adjusted for
inequality
Change in real GDP, Australia and selected
OECD countries, 2008 to 2011
Q4 2007=100
110.0
105.0
100.0
95.0
90.0
85.0
80.0
Australia
Canada
France
Greece
Iceland
Ireland
Japan
New Zealand
United Kingdom
United States
Median Australian households have fared
extremely well 1998=1
Australia
USA
Income inequality: trends and
driving forces
Trends in income inequality in Australia,
1981-82 to 2009-10
Gini coefficient
Annual
0.4
0.38
0.36
0.34
0.32
0.3
0.28
0.26
0.24
0.22
0.2
Current
Revised
Working age
Trends in alternative inequality indicators for
working age households, 1981-82 to 2009-10
Gini
P90/P50
P50/P10
P90/P10
SCV
1.6
1.5
1.4
1.3
1.2
1.1
1
0.9
1982
1986
1990
1994
1995
1996
2000
2002
2003
2005
2007
2009
Patterns of income growth by decile and
period, Australia, 1981-82 to 2007-08
Average annual percentage change in real equivalent household income,
working age
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1
2
3
1982 to 1996
4
5
6
1996 to 2003
7
8
2003 to 2007
9
10
Components of change in real disposable
income, working-age households, 2003-04 to
2007-08
600
500
400
300
200
100
0
Decile 1
Decile 2
Decile 3
Decile 4
Decile 5
Decile 6
Decile 7
Decile 8
Decile 9
-100
-200
Taxes
Transfers
Property and investments
Self-employment
Female earnings
Male earnings
Decile 10
Trends in income inequality in different income
components among working age households,
Australia, 1982 to 2007-08
Gini coefficient
0.45
0.43
0.41
0.39
0.37
0.35
0.33
0.31
0.29
0.27
0.25
1982
1984
1986
Male earnings
1988
1990
1992
Female earnings
1994
1996
Family earnings
1998
2000
2002
Self-employment
2005
Other
2007
Redistribution
Assessing redistribution
• Redistribution refers to the outcomes of different tax and benefit
systems – how much do the benefit and tax systems actually
change the distribution of household income?
• Conventionally measured by comparing measures of income
inequality at different stages in the income accounting framework:
– Difference between inequality in market and gross incomes is
measured as the impact of social security benefits,
– Difference between inequality in gross and disposable incomes
is measured as the impact of taxation.
• Redistribution is the product of the volume of taxes and benefits and
their distribution across income groups (progressivity).
• Possible to disaggregate inequality by income sources, type of
household (family composition) or location.
Trends in income inequality in different income
measures among working age households,
Australia, 1982 to 2007-08
Market
Gross
Disposable
0.45
0.43
0.42
0.41
0.39
0.39
0.42
0.42
0.42
0.41
0.41
0.40
0.40
0.39
0.37
0.35
0.33
0.35
0.33
0.34
0.31
0.30
0.29
0.35
0.34
0.34
0.35
0.33
0.31
0.29
0.35
0.35
0.30
0.29
0.31
0.30
0.31
0.32
0.30
0.27
0.25
1982
1990
1994-95
1995-96
1996-97
2000-01
2002-03
2003-04
2005-06
2007-08
Reduction in inequality among households
of working age, Australia, 1982 to 2007-08
Point difference in Gini coefficient
Transfers
Taxes
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
1982
1990
1994-95
1995-96
1996-97
2000-01
2002-03
2003-04
2005-06
2007-08
Trends in progressivity of transfers and taxes for
working age households, 1982 to 2007-08
Concentration coefficient
Transfers
Taxes
-0.4
0.6
-0.45
0.55
0.5
-0.5
0.45
-0.55
0.4
-0.6
Average tax rates (%) by deciles of household
income, 1982, 1996-97 and 2007-08
1982
1996-97
2007-08
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Decile 1
Decile 2
Decile 3
Decile 4
Decile 5
Decile 6
Decile 7
Decile 8
Decile 9
Decile 10
Assessing income inequality trends
•
•
•
•
•
Trends in inequality differ by time period, income components and income measures.
Thus, there is no single trend, but the complex interaction of multiple influences.
Market income inequality rose in period of Labor government, mainly reflecting higher
joblessness and wider wage dispersion. Disposable income inequality rose
significantly less (about 1/3 as great), reflecting both transfer and tax changes.
Despite increasing wage dispersion, market income inequality fell from 1996-97 to
2007-08, mainly because of increased family earnings, particularly for women.
Capital income inequality rose significantly after 2003, but insufficient to offset lower
inequality in earnings.
The effectiveness of the tax system in reducing inequality was stable in the 1980s and
early 1990s, but reduced after 1996. Average tax rates fell most for the highest decile
(about 4 percentage points).
The effectiveness of the transfer system in reducing inequality increased by about
40% in the period of the Labor government, but fell back to its original level by 200708. This does not necessarily reflect explicit policy change, but rising earnings among
lower income groups lead to a scaling back of income support , heightened by
indexation of key benefits to prices.
Joblessness is a major source of inequality
in Australia
•
•
•
Earnings represent around three-quarters of total pre-tax household
income, the largest single component.
In 1983, a full-time worker at the 90th percentile earned 2.0 times as much
as a worker at the 10th percentile- this disparity increased to 2.3 in 1996, 2.5
in 2004, and 2.8 in 2009-10.
In 1982 a working-age family at the 90th percentile earned 112 times as
much as a family at the 10th percentile – this disparity reduced to 56 times
as much in 1996 and 49 times as much in 2009-10.
Benefits reduce inequality more than taxes
•
•
When social security benefits are added in, this disparity was reduced to 9.8
times as much in 1982, 10.2 times as much in 1996 and 11.4 times as
much in 2009-10.
Taxes reduced the disparity to 8.0 to 1 in 1982, 7.5 to 1 in 1996 and 9.6 to 1
in 2009-10.
But you also need taxes to pay for benefits
Income measures and concepts are important
•
•
•
Inequality is lower the longer the time period over which it is measured –
between 2001 and 2009 the Gini coefficient went from 0.306 in 2000, 0.300
in 2003, 0.312 in 2007 and 2008 and 0.299 in 2009; inequality over a twoyear period varied between 0.286 and 0.295; inequality over a four year
period varied between 0.273 and 0.282; inequality over the 9 years was
0.263.
Broader measures of resources also suggest lower inequality, particularly
the addition of non-cash benefits (health, education, community services)
even after subtracting indirect taxes. For example, the 90/10 ratio for
disposable income in 2009-10 was 3.9 to 1, but for “final income” it was 2.65
to 1.
Inequality is mainly reduced by raising the bottom not reducing the top:
–
–
Direct taxes and cash transfers increase the incomes of the 10th percentile by 231% and
lower the income of the 90th percentile by 19%;
The net effect of Indirect benefits and taxes is to raise the 10th percentile by a further 50%
and raise the 90th percentile by 1%.
27
Additional material
Inequality is lower the longer the time
period over which it is measured
29
Inequality of earnings among households of
working age, 2005
Gini coefficients for different earnings measures
Australia
Denmark
USA
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Personal earnings,
full-time workers
Personal earnings,
full-time and parttime
30
Household earnings,
all workers
Including jobless
Trends in earnings inequality for full-time
workers, Australia, 1975 to 2008
Full-Time Adult Non-Managerial Employees - Weekly Earnings - EEH Index June
1975=100
160
10th
percentile
25th
percentile
50th
percentile
75th
percentile
90th
percentile
Mean
earnings
150
140
130
120
110
100
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1976
1975
90
Trends in poverty, Australia, 1982 to 2009-10
Trends in income inequality (Gini coefficient) among
households with a head aged 65 years and over,
Australia, 2000-2001 to 2009-10
Couples 65 and over
Singles 65 and over
0.4
0.38
0.36
0.34
0.32
0.3
0.28
0.26
0.24
0.22
0.2
2000-2001
2002-03
2003-04
2005-06
2007-08
2009-10