The Age‘s take on yesterday’s ABS Household Income and Income Distribution 2005-06 was predictable: ‘Rich are richer, while the have-less struggle’ read its headline. Yet what was more interesting was how little impact on overall inequality the growing number of high-income households is having.
Since 1994-95 the number of households in Australia has increased by 21%. But the number of those households with gross household incomes exceeding $3,000 a week, after adjusting for inflation, is up by 172%. The proportion of households in this group has gone from 2.6% to 5.9% (though the earlier figure will be understated somewhat, as salary sacrifices are now included).
Yet the Gini coefficient is not changing much. It is a measure of inequality, where 0 would indicate every household has the same income and 1 would indicate a single household has all the income. Over the 1994-95 to 2005-06 time period the Gini coefficient has only gone from 0.302 to 0.307.
One reason is that the number of poor households, with weekly incomes below $400, is dropping. In 1994-95, 24.3% of households were in this group. By 2005-06 it was down to 15.8% (though as the explanatory notes rather indirectly suggest, the self-reported income of these groups may not be accurate; for example their spending is much higher than their income. 15% of households in the bottom quintile give as their principal source of income ‘own unincorporated business’, ie the realm of under-reported cash-in-hand transactions.)
Another reason for the stable Gini co-efficient is that the Prime Minister is something of a conservative social democrat. Despite the proportion of households principally reliant on government pensions and benefits dropping from 28.5% in 1994-95 and 28% when Howard come to power in 1996 to 26.1% in 2005-06, welfare spending per person is up by more than a quarter in real terms, while the top 25% of income earners pay larger shares of the tax bill, at least to 2004-05. The ABS does note that the Gini coefficient would have been .303 if 2003-04 tax rates had applied to 2005-06 incomes.
On my pet topic of family welfare, the 1994-95 data doesn’t let me do a direct comparison. But going back to 1999-2000 we can see how more families are being sucked into the social security system. In 1999-2000, 38.4% of couples with dependent children reported government pensions and allowances as nil or less than 1% of gross income. By 2005-06 that was down to 30.3%, despite the increase in real incomes across all income groups. But encouragingly the proportion of such families relying on government for 50% or more of their gross income dropped from 11.5% to 6.2%.
The Australian‘s take on this ABS report was, as usual, far more positive than the same story in the Fairfax press. ‘Howard is the wage slave’s best friend, figures reveal’ read its headline. The Age had worked hard to find the only possible negative for the government. Except for Clive Hamilton, who will be upset that people have more money to spend, there is good news here for virtually every ideological group: those on the right can be pleased that income is up and welfare dependency is trending down, while those on the left can be satisfied that the proportion of people who are reporting a low income is down and overall inequality is stable.