Why Scott Morrison isn't entitled to his own facts on inequality in Australia
Business Insider, 26 July 2017
“You are entitled to your own opinion, but you are not entitled to your own facts”, the great American professor-turned-senator Daniel Patrick Moynihan used to enjoy saying to opponents.
I thought of Moynihan’s words this week when Scott Morrison claimed that inequality has “actually got better”. From a twitter troll, the claim might be laughed off. But when the Treasurer of Australia is making up the numbers, it’s nothing to chuckle about.
Since 1975, the Australian Bureau of Statistics has collected data on earnings inequality. Over this period, real wages have grown by 72% for the top tenth, but just 23% for the bottom tenth. Put another way, the top tenth of earners earned twice as much as the bottom tenth in 1975, but by 2014 they earned nearly three times as much. If low-wage earners had enjoyed the same percentage gains as the highest paid, they would be $16,000 a year better off.
Across the economy today, plenty of workers are seeing their pay packets grow more slowly than consumer prices. Many Australians are today suffering a real wage cut. As Per Capita’s David Hetherington has pointed out, the labour income share in the economy has fallen from 75% in 1975 to 60% today. Fat profits – skinny paychecks.
But earnings aren’t the only measure of inequality. By contrast, Scott Morrison tells us that his favourite metric is the gini coefficient for household income. So let’s see what that measure says. Writing in the latest issue of Australian Quarterly, inequality expert Peter Whiteford shows that household income inequality – after taxes and transfers – became much more unequal.
Whiteford shows that the gini in 1981-82 was 0.27, but by 2013-14 had risen to either 0.30 or 0.33, depending on whether you use the Melbourne Institute’s Household, Income and Labour Dynamics in Australia survey, or Australian Bureau of Statistics income surveys.
For a longer perspective, my own estimates of the pre-tax gini coefficient for men span the period 1942-2010.
These estimates suggest that the gini coefficient fell from about 0.35 in the early-1940s to 0.27 in the early-1980s. But by the 2000s, the gini for men had risen to 0.36-0.38. It is true that male income inequality spiked upwards in 1950, but this was due to the Korean War wool boom (in that year, 90% of top earners were farmers). Putting that wool boom to one side, inequality in the 2000s was higher than it had been in any other decade since the 1940s.
Other inequality measures point in a similar direction. Using an approach pioneered by Thomas Piketty, the late Oxford scholar Tony Atkinson and I combined taxation data with external control totals to estimate top income shares since World War One. This work, which has now been taken over by economist Roger Wilkins, shows that since 1980, the top 1% have almost doubled their share of national income, while the top 10% have increased their income share by one quarter.
You have to go back to the 1940s to find a time when top income shares were as high as they have been in recent years (again, putting the wool boom spike to one side).
A final metric is wealth inequality, a metric that looks at the distribution of assets across the economy.
Using a variety of sources, Pamela Katic and I estimate the wealth share of the top 1% over the past century.
We estimate that wealth inequality became considerably more equal from World War One to the late-1970s, but that top wealth shares have at least doubled since then. This accords with recent research showing that the home ownership rate has now crashed to its lowest level in six decades. At the very top, Katic and I use figures from the BRW Rich Lists to show that the top 0.001% (the richest 1/100,000th of adults) tripled their share of national wealth since the mid-1980s.
Put together, the results show two things. First, there has been an unambiguous rise in Australian inequality over the past generation. As Roger Wilkins summed it up to me in an email last weekend, ‘inequality is currently high by modern (Australian) historical standards’.
But second, the historical data show us that inequality is not the price of progress. In the post-war decades, Australia enjoyed strong economic growth – but it was broadly shared across the community.
It is possible to have rising living standards and falling inequality. There is no iron rule of economics that wages must rise faster in the corner office than on the factory floor.
Policies can make a difference too. When Labor increased the single age pension by more than 10% in 2009, it took more than million pensioners out of poverty.
Ironically, some on the right now look at these data, and say that because inequality failed to rise in those years, it means the issue doesn’t matter. In fact, events show the opposite: inequality does matter, and governments can do something about it.
Unfortunately, the Abbott and Turnbull Governments have proposed a plethora of policies that would make Australia more unequal. Since 2013, their governments have proposed slowing the rate of pension increases, cutting the income support bonus, and removing consumer protections from the financial advice market. The Coalition wanted to impose a Medicare co-payment, and are making it harder for unions to organise.
They have reduced the pay of the men and women who clean their offices, but just delivered a $16,400 tax cut to those with million-dollar incomes.
Tony Abbott’s top business adviser used to say that Australian wages were ‘very high’, and Malcolm Turnbull’s government has supported cuts to penalty rates. Internationally, inequality is worsened by the near-halving of the foreign aid budget, and our failure to address climate change (which threatens the livelihoods of some of the most vulnerable people).
This approach is at odds with the inclusive growth strategy now advised by experts at the OECD, the International Monetary Fund, and the World Bank. Bill Gates, Pope Francis and Bono are among the many public figures to urge a focus on inequality. One of the world’s largest charitable foundations, the Ford Foundation, has shifted its grant-making to focus entirely on inequality.
As I recently argued in a trio of ‘Just Ideas’ speeches, reducing inequality should be a central focus for the Australian government. That’s why Bill Shorten has said that a Labor would prioritise need-based school funding, reform negative gearing, and oppose income tax increases on low-wage workers.
In 2012, Malcolm Turnbull wrote an essay on inequality in the Australian Financial Review. Though critical of then Treasurer Wayne Swan’s approach, Turnbull at least admitted that Australia had above-average inequality among advanced nations, that Australian inequality had risen, and that inequality was ‘a legitimate matter for politicians to be concerned about’.
Five years later, his government seems to prefer the Sargent Schultz approach: ‘I see nothing, I am not here. I did not even get up this morning’.