STUDENT:David HarvyID:4238 1940

Major Essay

1.) How has the level of economic inequality changed in Australia over the past 30 years? What changes in government policy might explain these changes in inequality? What other factors are important to understanding inequality?

DUE DATE: March 2, 2011

(By prior arrangement)

The shrinking middle class has been a striking feature of economic growth in Australia

during the thirty years from 1981 to 2011. This has exacerbated economic inequality

with both the evidence and the reality pointing to the marked increase in

accommodation costs. The poorest percentile have suffered from a lack of equal

starting opportunities or particularly, the ability to attain the purchase of opportunities

(Stokes 2002, p. 5). The rich have extended their wealth accumulation and earnings.

The reasons for these trends and how they inter-relate will be examined with the

argument that while society generally has benefited from steady economic growth the

gap between the ‘haves’ and ‘the have nots’ has discernibly increased. Interestingly,

government policies have not necessarily followed party lines in their affect on the

ultimate measure of economic inequality, disposable income. Although statistical data

will be referred to it will also be argued that this is skewed and an inconclusive measure.

Finally, I will look at education, gender and race to further illustrate greater

understanding of inequality.

There is a wealth of literature on economic inequality which is generally described as a

measure of the distribution of Australia’s wealth and earnings amongst society.

Changes in the Australian Bureau of Statistics (ABS 2009) methodology has resulted in

using the Gini co-efficient as a standard measure which appears to best define

movements in economic inequality over the past thirty years. A recent article (Gittins

2011) concurs generally with my findings however it does appear to rely on ABS

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statistics which are noted as being inconsistent. Recent reports (News 2011) on the real

inflation figure of being up to five times higher than the official rate highlights how

statistical data does not offer the final answer.

As stated by Stillwell and Jordan (2007, p. 21) the evidence suggest that there has been

a long-term redistributive trend from labour power to capital during the past twenty five

years. This conceivably relates to particular government policies during that period

which tended to favour big business, the major employer groups. A good example is the

political era of corporatism during the mid to late 1980s notably embraced by the Hawke

government. Potential relationships between changes in both economic inequality

measures and government policies will be examined in depth later. The Gini co-efficient

is a standard economic measure based on the Lorenz curve whereby 0.000 would

equate to equal economic distribution and 1.000 would be where one household has all

the income (Jordan & Stillwell 2007, p. 5). The data commencing at 0.400 for the

financial year 1982 shows a consistent slight increase until 1995 when the co-efficient

spiked upward to 0.443 before continuing a more gradual rising trend (Jordan & Stillwell

2007, p. 6). Measures of 0.450 in 2000 (Stokes 2002, p. 3) and 0.468 in 2008 (ABS

2009) buck the rising trend, regressing slightly.

Policies of successive governments tended until recently to be averse to the particular

political party’s ideology. The 1983 Accord of the Hawke government averted a fall in

earnings for those at the bottom percentiles with wage increases linked to productivity.

At the same time there was a marked increase for those at the top of the earnings

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distribution (Gregory & Woodbridge 1993, pp. 226-228). This is the basis for my

introductory remark concerning the shrinking middle class. During recent years no one

could have escaped knowing of some of the massive rises in property values,

pertinently domestic properties. With a strong increasing population trend the demand

for housing near jobs has pushed up values significantly. The de-regulation of the

financial markets in the mid 1980s (Emy & Hughes 1988, pp. 86-88) provided greater

access to the funds required to purchase these properties. Growth in the employment

market was mainly in part-time positions and was dominated by women (Stokes 2002,

p. 6). The great Australian dream now required increasingly larger deposits and larger

mortgage repayments. The effect was to transform the former middle class into the new

working poor. By the mid 1980s the social wage had fallen with corporate profits rising

by up to 70 per cent, and importantly some award rates dropped (Emy & Hughes 1988,

p. 95). The late 1980s and early 1990s highlighted the plight of the middle class with a

redistribution to the richer percentiles. The bottom 20 per cent were better supported

due to higher social security payments and increased benefits (Freebairn 1993, p. 42).

The first term Hawke government made a creditable effort in social reform but appeared

to side with business in later terms. This was a time in the political landscape when

many reforms needed to be tackled resulting in a transition period of restructuring

efficiencies which needed to first favour the corporations that would provide major

ongoing and future employment opportunities (Emy & Hughes 1988, p. 466). The

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economic effect was that disposable income was consumed by expenditure on housing

costs into patterns of increased debt levels.

The oil shock of 1973 and excessive social reform spending by the Whitlam government

was curtailed by the subsequent Fraser government known for its neo-classical

pragmatism and ‘razor gang’ cutbacks. The Hawke era did little to change the steadily

growing economic inequality. Early gains were off-set by the downward cost-push

toward real wages growth and a declining social wage in later years. By contrast the

Keating government (1991 to 1995) is hailed for having the right economic agenda to

take advantage of the resources boom, “…delivering huge material gains for most

families.” (Latham 2010, p. 26). The Gini co-efficient for 1995 would therefore appear to

be more connected with the economy growing overall with a disparity of income and

wealth gains to the advantage of the richer percentiles. While there is consistent

evidence that increasing economic inequality occurred from 1978 through to 1993

studies of income distribution often ignore access to government services. For example

it has been cited by Keating (1993, p. 75) that government spending initiatives in health

services, employment strategies, child care and training has made a positive effect

upon economic inequality. These increases in cash transfers reduced the tax poverty

rate by 1.5 per cent for the period of 1982 to 1990 for families with children, renters and

the long-term unemployed. During this same period there were small tax cuts for those

earning below average weekly earnings (AWE) and larger tax cuts for those earning

three times or higher AWE (Harding 1993, p. 234).

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Following efficiency reforms to the labour market, financial deregulation and the plan to

phase out tariff protection (Emy & Hughes 1988, pp. 86-91) the Keating government

assisted the ‘battlers’ but the earnings dispersion continued to widen. The Hawke

government lowered unemployment by reducing wages and stimulating employment

growth (Emy & Hughes 1988, p. 95). Increased spending on social programs with the

addition of some further taxation reform by the Keating government off-set the

increasing economic inequality for the poorest 40 percentile (Stokes 2002, p. 5). The

Gini data for net wealth is the same for 1998 as 1986 (Stokes 2002, p. 4). This tends to

suggest that the massive rise in household debt from 1992 (Inside Story 2009) occurred

as people needed to borrow more due to increased housing costs, and to maintain and

build on their wealth accumulation.

The suppression of a general wages push in the 1980s was consolidated by the

Workchoices legislation of the Howard government in the 1990s. The Howard Liberal-

National coalition (1996 to 2004) practiced neo-classical economics with an accent on

national savings and budget surpluses to prepare for the next economic downturn (The

Howard Years 2008). The Howard government in fact increased social expenditure in a

number of areas with total taxation expenditure peaking at 4.4 per cent of Gross

Domestic Product (GDP) in 2001(Tax Expenditures Statement 2004, p. 8). This

accounts toward the nominal rise in the Gini index to 0.450 for the year 2000 (Stokes

2002, p. 3). The greater part of the wealth gains for the same time was concentrated in

the richest one per cent who increased their share by 12 to 15 per cent. This has been

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attributed to largely a corresponding decrease at the expense of middle income earners

(Stokes 2002, p. 3). The Howard era can be characterised as one where the poorest

members of society were paid off, home owners worked more for less and the rich got

richer through earning more and spending less (Blacklow 2002, p. 31). However, there

is evidence from ABS data that demonstrates a shrinking of the earnings dispersion

inequality for the period 2000 to 2005 (Saunders 2005, p. 1). Additionally there is

evidence of targeted increases in government spending suggesting the Howard

government spent more efficiently (Tax Expenditures Statement 2004, pp. 9-10), if not

with a social justice attitude.

The Rudd government clearly reflected Keynesian economic theory running the budget

into deficit. History suggests the massive stimulus package of 2008 kept Australia out of

an international recession. The major boost to pension payments was also a prominent

spending initiative under this first term Labor government. The Rudd government simply

applied Keynesian economics and ran a deficit budget when the inherited budget

surplus was consumed. (Daily Telegraph 2010). Consequently, statistical data

demonstrates a shrinking of economic inequality for the 2008 financial year (ABS 2009).

The proposed mining resource tax complies with social justice policy to redistribute

earnings more fairly. The future economic growth of Australia relies heavily on the

resource boom and this has been considered by the current Gillard government. To this

end the government plan to return the budget to surplus by the 2013 financial year

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(Commonwealth Budget 2010-11) recognises that Keynesian economic theory can work

effectively to stimulate demand and avert negative economic impacts. It also recognises

neo-classical views of the ‘boom to bust’ cyclical nature of a capitalist market system.

That is, there is a limit to deficit budgets and as we become more integrated into the

international economy we may well need to generate surplus funds to off-set any effects

from international economic downturns (Daily Telegraph 2010).

It is generally regarded that the standard of living has risen steadily in Australia as it

becomes the ‘luckier’ country to many more immigrants (ABS 2009, Daily Telegraph

2010, Davis, 2010, Gittins 2011, Saunders 2005,). Restructuring of industry, the labour

market, our ports, the fostering of free trade agreements and a program of tariff

reductions were necessary, if not timely, to ensure greater economic efficiency in

Australia and hence take advantage of any benefits flowing from the international

economy. Stimulation spending patterns, targeted and efficient social spending and

increasing equal opportunities for marginalised groups in society have also contributed

in reducing economic inequality. This government intervention has not always followed

the prevailing ideology of the respective party in power however. Recent Labor

governments’ economic management certainly appear to relate to a decreasing trend in

economic inequality.

The trickle down effect, particularly from the resource sector, may mask the reality of

income inequality as society is submersed into a higher standard of living overall. What

the data does reveal is a difficulty in accurately assessing ‘comparative’ movements due

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to changes in criteria for statistical collection (Blacklow 2002, p. 3). For example, the

ABS changed the criteria for Income Distribution data in 2004 (ABS 2009). In 1995 the

ABS also provisionally amended the counting income units (ABS 1995). As noted by

Harding (1993, p. 233) the traditional family income unit is a wide variable as definitions

change over time. This leads to at least fifteen possible measurements of income

distribution. The Gini co-efficient provides evidence to suggest that economic inequality

has been on a downward trend in recent years as previously outlined. The reality is that

the costs of housing has risen dramatically. We are saving more through maintaining

mortgage repayments and reducing consumer debt. At the same time we are enjoying

a higher standard of living (Gittens 2011). According to official ABS data the inequality

in dispersion of income has been shrinking since 2000. It is reported that the lowest end

of the income dispersion chain recorded the biggest gains (ABS 2009).

It is questionable that economic inequality assessed by the Gini indices is altogether a

suitable means of explaining changes in equality. A vast gap in income dispersion

between the lower and higher percentiles remains a feature in capitalist market systems

(Anzarut 1986, p. 45). More importantly it is useful to examine the interrelationship of

education, gender and race which can limit opportunities of income potential.

Employment growth during the past decade has largely been in part-time jobs and filled

mostly by women (Stokes 2002). What this represents is women having to juggle the

dual role of performing both unpaid and paid work in order to meet the inordinately

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larger household and consumer debts (Inside Story 2009). When issues of gender and

education are combined this exacerbates equal opportunities in the market. Two

reasons are that education subsidies are generally directed to suppliers, not

demanders. Secondly, males who dominate the full-time employment sector have a

disproportionate influence on education policy (Pincus 1993, p. 270). To be female,

performing unpaid work in the home and working in lower status part-time employment

is not by any means an equitable situation. Gender remains a significant determinate of

economic opportunities despite changing social attitudes and public policies over the

past four decades (Jordan & Stillwell 2007, p. 9).

When race is included in the equation the opportunities in accessing the same income

potential as white-Anglo educated males is severely restricted. In fact access to

education as a precursor to gaining access to better paid employment is worsening. A

recent report (Edwards 2011) noted that Year 10 attendance rates for indigenous

people had fallen in every state except Western Australia for the period 2007 to 2009.

This may be related to a notable increase in government expenditure per capita for the

private school sector and a decrease in the public sector (Inside Story 2009).

Government programs to provide mature age apprenticeships, indigenous employment,

increasing skilled migration and specific gender opportunities are commendable to a

degree (McMahon 2011). Most of the opportunities are in lower paid employment with

little opportunity to increase earnings over time. This suggests that the middle class has

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changed during the past thirty years by being absorbed into the working class

represented by the lower percentile groupings.

Recent insight into fully participating in education and the workforce highlights the

difficulties facing people of poor health and disability. When sufferers and carers are

combined it is notable that this segment of society is mostly female, of a lower

education level and at the base roles, commonly new Australians (Mead 2011). This

further supports the growing trend of income inequality tempered by the fact that all

segments of society have increased their economic prosperity to differing degrees. ABS

statistics do provide trend measurements that are undoubtedly useful in assisting to

shape policies that seek to redress inequalities on a macro scale. Further investigation

into the realities of lifestyle choices need to be examined to determine whether

economic inequality is, to a greater or lesser extent, a product of the rise of the welfare

state.

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LIST OF REFERENCES

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Australian Bureau of Statistics 1995, A Provisional Framework for Household Income, Consumption, Saving and Net Worth, 1995; cat. no. 6549.0, viewed 16 February 2011, <www.abs.gov.au/Ausstats/abs@.nsf/Latestproducts/6549.0Main%20Features11995?opendocument&tabname=Summary&prodno=6549.0&issue=1995&num=&view=>.

Australian Bureau of Statistics 2009, Household Income and Income Distribution, Australia, 2007-08; cat.no. 6523.0, viewed 17 February 2011, <www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6523.0Main%20Features99992007-08?opendocument&tabname=Summary&prodno=6523.0&issue=2007-08&num=&view=>.

Blacklow, Paul 2002, ‘Expenditure and Income Inequality in Australia 1975-76 to 1998-99’, University of Tasmania : School of Economics Discussion Paper Series, pp.1-39.

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Edwards, V 2011, ‘School attendance for indigenous kids still on the decline’, The Australian, 14 February, p. 3.

Emy, HV & Hughes, OE 1988, Australian Politics:Realities in Conflict, Macmillan, South Melbourne.

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Freebairn, J 1993, ‘Economic Rationalism?:Economic Policies for the 1990s’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp.42-48.

Gittins, R 2011, BusinessDay, The Saturday Age, 19 February, p.10.

Gregory RG & Woodbridge GL 1993, ‘Economic Rationalism and the Earnings Dispersion’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp. 220-231.

Harding A 1993, ‘Comments’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp. 232-235.

Inside Story 2009, ‘The Howard Impact’, edited extract in R Tiffen & R Gittins (eds) 2009, How Australia Compares, 2nd edn, Cambridge, North Ryde, viewed 18 February 2011, <www.inside.org.au/the- howard - impact / >.

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Latham, M 2010, ‘No Exit’, The Monthly, November, Collingwood, pp. 18-27.

McMahon, M 2011, ‘Indigenous Employment Plan’, Business Daily, Herald Sun, 11 February, p. 56.

Mead R 2011, ‘Health Reform Hasn’t Started’, The Australian, 14 February, p.14.

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Pincus, J 1993, ‘Market Failure and Government Failure’, in S King & P Lloyd (eds), Economic Rationalism:Dead end or way forward?, Allen & Unwin, St Leonards, pp. 261-276.

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Saunders, P 2005, ‘A Headlong Dash into the Chasm of Hyperbole’, Issue Analysis, No.59, The Centre for Independent Studies, St Leonards, pp.1-8, viewed 20 February 2011, <www.cis.org.au/.../ issue - analysis / >.

Stillwell, F & Jordan, K 2007, Who gets what?:Analysing economic inequality in Australia, Cambridge, North Ryde, viewed 22 February 2011, <www. books . google . com / books >.

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The Howard Years 2008, transcript, ABC1, Sydney, 17 February, viewed 22 February 2011, <www.abc.net.au/news/howardyears/content/s2421917.htm>.

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