[PEN-L:2338] Income inequality in Australia

[Peter Colley / Cathie Sherrington]

Progressive economists interested in measurement of trends in income
distribution may be interested in the analysis used in an  Australian
Government funded study released in late December.  It will also be of
interest to people debating the success or failure of the social democratic
Australian Labor Party's record of government since 1983.

"Trends in the distribution of cash income and non-cash benefits"
(Australian Government Publishing Service, Canberra, 1995) by David
Johnson, Ian Manning and Otto Hellwig reaches the conclusion that income
distribution in Oz was _less_ unequal in 1993-94 than in 1981-82.  This
goes against conventional wisdom on both the left and the right that
Australia has become less egalitarian over that period (which the left
deplores and the right argues is inevitable/necessary).

They achieve this conclusion even though the study acknowledges that income
distribution defined in terms of wages, salaries and other private income
has become more unequal.  To this private income they have added not only
direct cash transfers form government (unemployment, old age, child and
other allowances) but also the impact of non-cash "social wage" expenditure
such as public education, health and public housing.  The income impact of
non-cash social wage benefits on household incomes was determined via
assumptions about entitlements and available data on level of take-up of
such services by different types of households.  The study also attempts to
measure the impact of indirect taxes on household income but is much less
confident of the results.

The basic numbers are that average real household income  increased by 9.1%
between 1981-82 and 1993-94.  The share of national income received by the
lowest 20% of households rose from 10 to 11.1% and the lowest 40% from 24
to 26.1%.  The share received by the highest 20% of households decreased
from 35.3% to 33.4%.

The approach is novel and certainly open to challenge.  There are many
major assumptions.  However, the authors claim to have validated the
aggregate results of their model against the official National Accounts.  I
have only read the 45 page summary and will probably never get the time to
read the full report.

It has been a claim of the Labor Government that its tighter targeting and
boosting of social wage expenditure - both cash and non-cash - to lower
income groups has at least mitigated and possibly overcome the negative
effects of greater private income inequality.  However, most studies of
income distribution in Australia have only looked at private income and
sometimes direct cash transfers / social security payments.  Saunders
(1990) and Stilwell (1993) have argued that income distribution in Oz is
much less equal than it was.  In contrast this study confirms and goes
beyond the findings of Bradbury, Doyle and Whiteford (1990)("Trends in the
disposable incomes of Australian families, 1982-83 to 1989-90", Social
Policy Research Centre, University of New South Wales) that disposable
incomes in Australia have gone up during the 1980s.

It does make sense that income distribution analysis is incomplete if it
does not look at the effect of non-cash social wage expenditure.  There is
little point in governments seeking to improve standards of living via
aspects of the welfare state if they are to be measured solely by their
impacts on wages, salaries and profits.  Particularly for those (economists
and others) who argue that governments should do more to reduce income
inequality this line of analysis warrants pursuing.  It is more than a
little silly, even inconsistent, to berate social democratic governments
for failing to control private incomes - an inherently difficult thing to
do in a capitalist market economy - and not analysing the income
distribution effects of that part of the economy which government _is_ more
able to determine - the social wage.

The above is interesting enough in itself, but it also throws up questions
about the merit of the "Accord" between the Labor government and trade
unions in Australia, and the wages and social policies pursued by unions
here over the last 10-15 years.  However, this post is already too long and
I'll save that for another day (no guarantee express or implied).

Peter Colley
Construction, Forestry, Mining & Energy Union
Sydney, Australia
[EMAIL PROTECTED]