Nation Beats Poverty Trap

Is poverty on the rise in Australia?

According to a recent report by the OECD, the answer is no!

The report -- which defined poverty in terms of the number of persons with disposable income (after taxes and welfare transfers) below 50% of median income -- found Australia to have a poverty rate of 9.5% in 1995 -- which was 2.5 percentage points below the poverty rate in 1975.

In fact the report found Australia to be doing a better job in terms of reducing poverty than are the 10 other OECD countries included in the study.  While Australia's poverty rate is about on parr with average rate of 8.9% across all countries, its rate of poverty has declined more significantly over the last 20 years than in any other OECD nation.

How has Australia be able to reduce poverty in the face of globalisation and while spending a relatively modest proportion of national income on welfare payments?

The main reason is faster growth.  The Australian economy grew on average by 3% per year over the last 20 years, while the other OECD countries included in the study grew on averaged by only 2.5% per annum.  Faster economic growth plus a generally more flexible labour market allowed Australia to generate more jobs, than most other OECD countries (with the notable exception of the US and UK).  And as the study reconfirms, job creation is the most successful anti-poverty program.

Globalisation and technological change has lead to a wider distribution of income (before tax and transfers).  Indeed this trend has been more significant in Australia than in any of the other country studied, including the US.  However, in Australia this was trend was off-set to greater extent by a well targeted tax/transfer system.

The Australia welfare system may be small relatively to those in Europe, but it is far better targeted and effective in terms of reducing poverty.  In Australia, 58% of transfer payments go to people in the bottom level of income, whereas in the other OECD countries most transfer payments (61% on average) are paid to people who are not in poverty.  The income tax system in Australia is also more progressive, with fewer loopholes, than in the other countries.  70% of income tax revenue in Australia comes from people on high incomes while the comparable figure is as low as 54% in Sweden and averages 60% across the other countries included in the study.

Young working households (headed by under 30 year olds) also appear to be doing better in Australia than in other countries.  While the aggregate poverty rate amongst young families averages 15% in Europe and North America, it is virtually zero in Australia.  This is in apart due to them receiving higher welfare payments in Australia, but more importantly because a larger proportion of Australia's young families have one and often two members in high paying jobs.  In other words Australia is a country in which yuppies do very well.

Of course Australia can do better in terms of reducing poverty, achieving higher growth, better targeting of welfare and getting youth into high paying jobs, but we are doing better in all these areas than are most other developed countries.

This is clearly something we should be celebrate.

ADVERTISEMENT