The facts on the income distribution

Are the rich getting richer and the poor getting poorer?

According to popular opinion and recent debate not only is this trend a reality but threatening the nation's social fabric and out-stripping the capacity of the welfare system.

The data by the National Centre for Social and Economic Modelling (NATSEM) however provides a somewhat different and more optimistic picture.

The NATSEM data shows that although the rich have got richer, the poor have not got poorer.  Indeed it shows that thanks to a well targeted welfare system, the poor have improved done remarkably well.

Between 1982 and 1997, households in the highest income group experienced growth income (after-tax basis and including government transfers) of 14 per cent or $229 per week in real terms.  This represents a high rate of growth when compared to previous periods.

This trend is hardly surprising.  Globalisation has opened-up many new and lucrative markets and opportunities particularly for the mobile and educated.  Women are working more and earning more and high income-earning women tend to marry high income-earning men.  There has also been solid growth in housing values which has tended to help the wealthy most.

What is surprising is the outcome for the poor.  Over the 1982-97 period the average income of the poorest 10 per cent of households grew by more than a third in real terms.  The next poorest group of households (in the second lowest 10 per cent) also did very well over the period with income growth of 15 per cent.  And these figures will tend to understate the gains achieved by the poorer household as they are based on data which does not include a host of services provide free or at subsidies rates by government such as health, education, public transport, child care, and recreation.

How did the poor gain by so much?  Simple.  Governments have been both generous with and very good at targeting financial assistance to the poor.  The bulk of income gains made by the bottom twenty percent of household over the last twenty years has come from government transfers.

Are governments going to be able or willing to continue this level of generosity and targeting into the future?  Thanks to the globalisation and tax reform, governments are unlikely to suffer from shortage of money.  The GST may bolster the total tax-take by bringing into the tax net services and sections of the black economy.  High income tax rates applied to the rapidly growing incomes of the well-to-do will also add to a growing pool of funds (despite recent tax cuts high income earner in Australia still confront very high rates of tax by world standards).

The challenge to funding of the welfare state is likely to come from the middle class.  Although the income of middle income households has increased over the last twenty years, they have not benefited anywhere near as much as poor households in relative or absolute terms.  This is despite middle class families often working two jobs and longer hours.

In short, the concern should not be so much with the rich or the poor but with the middle.

ADVERTISEMENT