Australia: no longer land of the fair go

Cross-posted from The Conversation:

Australians often pride themselves on living in the land of the “fair go”. However, the available evidence shows the distribution of wealth in this country is no more egalitarian than the average for the OECD countries.

In fact, depending on how wealth is measured, Australia may have above average inequality in wealth distribution.

Most think of inequality in terms of income differences between rich and poor people. But even more fundamental are the differences in the value of the assets that people own. It is the presence (or absence) of this accumulated wealth that determines people’s social position and their opportunities in life; who gets what depends substantially on who owns what.

Until recently, we have known very little about wealth inequalities. The last official national census of wealth in Australia was 101 years ago.

In recent years, however, international data compiled by the OECD and political economist Thomas Piketty’s research have provided a better basis for seeing how Australia compares with other nations.

Wealth distribution in Australia

A new report by the Evatt Foundation marshals the existing evidence on wealth in Australia.

As you would expect, Australia as a whole has become much wealthier since 1970: the total stock of capital has grown twice as fast as national income during the decades since then.

But what is more striking is the marked increase in wealth inequality over the same time. We have become collectively richer but much more unequal.

A reasonable estimate is that, currently, the poorest 40% of Australian households effectively have no wealth at all: about half of them actually have negative net wealth because of their personal debts. At the opposite pole, the wealthiest 10% have more than half the nation’s total household wealth. The top 1% alone have at least 15% of the total wealth.

This affluent elite is getting cumulatively richer – not only when compared with poor households but also, significantly, relative to the middle 50% of households.

Two faultlines are widening. One is between the bottom 40% and the rest, and the other is between the top 10% and the 50% in the middle. The latter division is ultimately explosive, since it indicates that the broad Australian middle class is getting a shrinking share of the fruits of economic progress.

Distribution of wealth in Australia, 2013-14. Evatt Foundation

How does Australia measure up internationally?

Compared with the 16 other OECD countries for which comparable data exists, Australia looks slightly more egalitarian than average if all forms of wealth are included.

However, this is largely because of ownership of household durables, such as clothing, furniture, appliances and cars. The household durables represent 12% of our wealth compared with the OECD average of 7.7%.

There are many reasons why durables should be excluded to improve comparability. The national accounts, for example, excludes durables from the aggregate household balance sheet. Piketty’s analysis also excludes durables. Australia’s HILDA survey excludes all durables except cars.

The Evatt Foundation report shows that if we also exclude durables from the OECD wealth data, Australia’s top 10% of households own about the same wealth share as their counterparts in France, Norway and Canada. The only rich countries that are clearly less egalitarian than Australia are Austria, the Netherlands, Germany and the US.

What does this mean for politicians?

Ultimately, the case for Australian egalitarian exceptionalism is weak. Australia is not more equal than most other comparable rich countries, and its wealth inequality is growing.

Dealing with this situation is perhaps the biggest challenge facing our political leaders today, although you might not get this sentiment from the victors’ public statements in the recent election.

Other recurrent political economic stresses need attention – most obviously, climate change, financial instability and job insecurity. But these challenges are interlinked, and they all need managing in relation to economic inequality. If the policies are not equitable, they will not be sustainable.

An emphasis on narrowing wealth inequality needs to be present in all public policies. These range from pensions and superannuation to disability services, housing provision, transport, regional policies and taxation.

Unless this integrated approach is taken, the cherished belief in a “fair go” will be a dwindling feature of life in Australia. The evidence suggests it is already disappearing.

Article by Christopher Sheil, Visiting Fellow in History at the UNSW Australia and Frank Stilwell, Emeritus Professor at the Department of Political Economy at University of Sydney

Unconventional Economist

Comments

  1. To be filed under, “no shit Sherlock!” This is nothing new, just accelerating at a greater pace.

    • Tassie TomMEMBER

      Good that someone’s separated “wealth” from “income” as a measure of richness though, and good that it’s getting out there – on the ABC website at least.

      • Indeed. We live in a world where vested interests say that taxing wealth is a way to destroy prosperity for the masses, yet the masses are being told they need to pay more tax on their income.

        Thankfully a post GFC populace is wising up to the Great Neoliberal Con Job.

      • It was the Conversation blog Tom. I think they discovered these facts five years after the rest of us. Good to give it an airing, but it’s a tad late methinks now the conservatives are off and running. No doubt the facts will come out when the census is disseminated. But most of us already know we have been in a wages recession for five years now and we’re in debt up to our necks. Our house prices are crazy so we look wealthy but we’re stuck because we can’t afford to cash up because we have to live or rent somewhere and our super is locked up. The study doesn’t compare apples because some countries have public pension schemes which were not counted, cultural aspects wrt to housing/accommodation were not properly considered either, so it’s really a pointless comparative study. This is a nice snapshot http://evatt.org.au/news/wealth-nation.html but what really gets me going is the clowns that penned the HILDA report which stirred up a lot of intergenerational tensions. Interesting the author on this blog seized upon that report but fails to mention it in reference to this one.

      • Sorry Tom I see you’ve covered it below. I have to stop reading on iPhone small screen. My bad.

  2. Tassie TomMEMBER

    All obvious, but I’m glad it’s starting to get out into the mainstream. This is on the ABC website too.

    The major reason for this increasing maldistribution is asset price inflation, particularly land. Effectively the “haves” have more, and the “have-nots” can never have.

    The government’s answer to revenue problems is often to increase income tax. This makes it even more unlikely that someone born without wealth can get themselves educated, get a “good job that pays good money” to quote Joe Hockey, and accumulate wealth. Meanwhile tax on capital that people are born with and have done nothing to earn is often heavily subsidised compared with income.

    The government needs to talk about deliberately lowering asset prices. (I know – fat chance of that ever happening). This is the only way that people can move “up” into a different wealth bracket. The “haves” don’t want this, because if people can move up, then it means that other people can also move down.

    I’d promote a 1%pa wealth tax on all wealth. The land component can be calculated separately, not being offset by debt, and the revenue returned to the state (as state decisions are primarily responsible for the value of the land). The “everything else” component can be applied to everything else, including improvements on land, and offset by debt, including debt on land.

    In return income tax should be slashed, and preferably flattened. The flat wealth tax would apply the “progression” since wealth is so skewed and would be fairer than “progressive” income tax. On the charts above, even with a flat rate of wealth tax, 1% of the population would pay 15% of it, and 10% of the population would pay 49% of it.

    Wealth should earn more than 1%pa anyway, so the rich will still get richer, but it should make an asset less valuable, hence the rich get poorer until the asset reaches a new fair value, then they get richer again.

    Another option is death taxes, but I’d prefer an annual tax.

    As an aside, most of us seem to have no problem paying a 1-2%pa wealth tax on our entire superannuation balance to the Sydney funds management industry.

    • Wealth isn’t built from having an education and a good job. Its built from leveraged speculation combined with a good tax minimization strategy.

      Perhaps the government should fund a few property seminars and perhaps organize some pooled funds for those who can’t afford an investment property of their own?

    • drsmithyMEMBER

      Why flatten income taxes ? It’s ridiculous that someone making $180k sits in the same tax bracket as someone earning a million or more.

      Bump up the tax-free threshold, increase the thresholds of the exist brackets similarly, and add a few more brackets at the upper end of the income scale. Base it off multiples of median wages to eliminate bracket creep and “fairness” arguments. Eg:

      <median: tax free.
      Median – 2x median: 20%
      2x median – 5x median: 30%
      5x median – 10x median: 40%
      10x median – 20x median: 50%
      20x median – 50x median: 70%
      >50x median: 90%

      • Tassie TomMEMBER

        Two couples live next door to each other in similar houses. Both households earn $100,000 each. One household has a single income earner, the other household has both partners earning $50,000 each.

        The single income earning household pays $7000 more tax than the dual income household.

        Ridiculous!

      • drsmithyMEMBER

        Two couples live next door to each other in similar houses. Both households earn $100,000 each. One household has a single income earner, the other household has both partners earning $50,000 each.

        The single income earning household pays $7000 more tax than the dual income household .

        Ridiculous!

        Why ? The single-income family will almost certainly have a higher quality of life despite their larger tax bill (and likely have access to more meaningful tax-reduction opportunities, but that’s quite a rabbithole).

        You seem to be arguing for a flat income tax with no exemptions. That’s hardly fair on lower income earners and a plan for creating massive accelerating wealth disparity.

        You have presented an example showing why it might be a good idea to have an option for family taxation, like the US uses, not why a flat income tax is preferable.

        What do you think the purpose of taxation is ? What outcome are you trying to achieve with a flat income tax ?

      • Tassie TomMEMBER

        Those who can afford to contribute more should contribute more – that’s the fundamental principle behind progressive taxation.

        My argument is that it is the wealth is a better discriminator of who can afford to contribute more than income is. It is true that many with higher income also have higher wealth, but that’s beside the point.

        Can you argue that income is better discriminator of who can afford to contribute more than wealth?

      • When Mrs Medved returns to p/t work (2 days) from her studies, I can drop 2 days of a significantly higher paying job and essentially have the same household income thanks to the tax-transfer system. It discourages working harder/smarter.

        Or just go offshore like Turnbull and his mates.

      • Did someone say flat taxes…. ummmm….

        Yet some of the most successful CAPITALISTS today, including Warren Buffet and Bill Gates, have openly supported progressive taxes. They both deal in businesses dependent on a broad base of middle class consumers. They understand that they have more to gain by broad-based middle class prosperity that enables the capacity for consumer demand that fuels their industries.

        Or perhaps those who cry “socialist” have never heard of ADAM SMITH. For those familiar with basic economics, Adam Smith is known as the “Father of Capitalism” – the first person who articulated the concept of market-driven economics, coining the phrase about the “invisible hand” and “enlightened self interest,” guiding entrepreneurs to get ahead by meeting the needs of their customers.

        Here is what Adam Smith wrote in his seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations, from Book V, Chapter 2, Article I:
        “The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. … It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”

        So was Adam Smith – the “Father of Capitalism” – a communist? a socialist?

        For the record, Adam Smith DIED 28 years before Karl Marx was even born.

        Disheveled Marsupial…. I really wish whom ever has their hand on the narrative nob would quit with the spastic stuff….

      • drsmithyMEMBER

        Can you argue that income is better discriminator of who can afford to contribute more than wealth?

        Why do I need to ? Your argument is that it must be one or the other. My response is why not both ?

  3. In response to the article and he above comments – I continue my call for a dual-currency system. One currency that can be used and must be used to pay for labour. Absolutely fixed supply of this currency. Another currency for everything else.

    Immigration floodgates welded shut, with a small door open for genuine refugees.

    Get the labour/capital value relativities back to a sensible level.

    • The idea that labour == value is probably going the way of the dodo. In fact, the reality is most workers have little to offer the modern automated society. That is a large part of why everything is going haywire – nobody really knows how an economy works when consumer items are not scarce and peoples time is worthless.

      This is a big problem and is not widely acknowledged.

  4. Stephen Morris

    Most think of inequality in terms of income differences between rich and poor people. But even more fundamental are the differences in the value of the assets that people own.

    And even more fundamental than either of the above is equality of INFLUENCE in the government of the country.

    Under the corrupt system of “elective” government, wealth confers power which confers wealth which confers more power.

    Only Democracy – granting the People being governed the right to choose the form of government they prefer for their country – can remedy this.

    And who has a “Charter from Heaven” to decide otherwise??

    • What if people choose a form of government that prevents them from choosing another form of government ?

      • Stephen Morris

        It has never been observed to happen. In fact, people tend (almost invariably) to choose Democracy and then never choose to abolish it.

        Some states do however have a sunset or review provision (a form of “meta-constitution”) requiring the Constitution to be re-affirmed periodically. So even if one generation did do as suggested the later People (who would then be a different set of “people”) could remove the “constitutional mortmain” of their predecessors.

        Switzerland has a general meta-constitution (imposed by the federal constitution) for the cantons requiring that their constitutions must always be reviewable.

    • Who has a charter from Democracy? Who draws up the contract that’s to be voted on? Shouldn’t the contents be voted on before a binding vote is exercised?

      There’s more than one way to skin a dumb public, very few to skin a cogent one….

      • Stephen Morris

        The solution to the problem of infinite recursion is to use a non-privileging aggregation device . . . which must have the characteristics of an indefinite-pass initiative-and-referendum system with compulsory voting. (http://www.macrobusiness.com.au/2013/10/a-modest-proposal-to-fix-canberra/#comment-287652)

        The initial question might be:

        Do you support a review of the Constitution with the details of review to be determined by a subsequent series of initiatives and referendums?

        If a non-privileged aggregation (in the case of a specific binary question such as this, a majority) indicated a preference for the existing system over any possible variation (i,e. a “No” vote) then there would be no change.

        If a variation were indicated, an indefinite series of initiatives and referendums with compulsory voting terminating only when no further changes were initiated would determine the non-privileged preferred variation.

        As a practical matter, a threshold of initiation is required (to stop a vast number of initiatives with no possible hope of success) but it must not be such that a variation which might be adopted would be prevented from being voted upon by the threshold condition.

        Article 51 of the Swiss Federal Constitution (the cantonal “meta-constitution”) handles this with the following wording:

        “The cantonal constitution must be approved by the people, and must be subject to revision if a majority of the people so requires.”

        This could be interpreted to mean that any revision which would be approved by a majority of the people cannot be precluded by a threshold condition.

        Alternatively, the threshold itself may be subject to a different initiation threshold, for example, allowing anyone to propose a lowering of the threshold by, say, 1% provided that no such proposal had been rejected in the preceding five years.

      • “Alternatively, the threshold itself may be subject to a different initiation threshold” I see, the solution to infinite recursion is indefinite recursion ???

      • the solution to infinite recursion is indefinite recursion

        Correct!! They are two very different concepts.

        With an indefinitely recursive system it remains a logical possibility that recursion will continue infinitely. But just because something is a logical possibility it does not mean that it will actually happen, or even that it is likely to happen.

        In practice, it may be observed that where thresholds are low – so low as to be below the level at which a precluded initiative would have had any prospect of being approved by referendum – the system in fact stabilises.

  5. https://au.news.yahoo.com/thewest/a/32273662/scott-morrison-spends-11-625-of-taxpayers-money-on-food-and-drink-during-budget-night/#page1
    Australia’s treasurer spent his first budget night warning people to be tight with money before reportedly spending over $11,000 on dinner and drinks – outspending his predecessor Joe Hockey.

    “This is not a time to be splashing money around,” Scott Morrison said when handing down the Budget with a promise to “ensure the government lives within its means”.
    Hours after Mr Morrison laid down a budget touting fiscal restraint, he hosted an invite-only dinner for staff and other VIPs costing taxpayers $11,625 for food and drinks, Fairfax reports.

    His 100 guests were spoiled with shredded slow-cooked lamb shoulder with pomegranate jelly, hickory-smoked beef sirloin, fig compote with parmesan-balsamic crunch and mini chicken pistachio lemon thyme sausage rolls.

    Guests washed their delectable snacks down with a selection of $20 bottles of Hollick’s “The Bard” sauvignon blanc, a German ale from Zierholz and a Clare Valley cabernet sauvignon, which retails for $18.

    Ah indeed we are governed well.
    Bunch of supercilious, smirking, lying, thieving weasels.

    • drsmithyMEMBER

      An average of $116/head sounds like a pretty tame celebration to me. I imagine lots of people paying for a wedding would be pretty happy to get away with that much.

      • At a wedding, you are using your own money to entertain, not others’s money like this prick is doing.

      • drsmithyMEMBER

        So… Nobody in the public service should look forward to a Christmas Party ?

        It’s this sort of focus on trivial bullshit that prevents real issues from being looked at.

        (I can’t believe I’m defending Scott Morrison.)

      • Respectfully, if public servants want a Christmas party they can all contribute out of their post tax wages to it, just like happens at my workplace.
        And im sure 11k is trivial to the likes of turnbull and morrison but its huge to someone on the poverty line. I would much prefer they had taken that money and given homeless people in the CBD a warm bed for a couple of nights than stuff their over privileged gobs.

      • Pretty much. In all my workplaces (I work across several environments both public and private sector) all Xmas parties involve staff dipping in to their own pockets. I don’t find it trivial that public servants (often those running budgets in the public milieu) expect that budgets should extend to their own Xmas festivities.
        It would be novel if the rule writers and enforcers would apply the same rules to themselves as they apply to us, the great mass of unwashed. This would apply to the little things like Xmas parties right through to the big things like superannuation rules.

      • drsmithyMEMBER

        Crikey you guys must work in some depressing and downtrodden workplaces if they don’t even do something like barefoot bowls for a Christmas party.

      • I’ve worked in the public and private sectors.

        For the public sector it was always paid for by the people themselves, usually via a social club of some sort. Same for the large private employers. However, a couple of smaller businesses threw in significantly towards the annual Christmas party.

        Staff in the OP’s context would have been political staffers, and not public servants, plus of course, VIPs.

        The point is that you don’t go about telling everyone else to tighten their belts, then give a lavish meal five minutes later. Maybe sandwiches, cask wine and chicken takeaway would have been a better look.

        Bronwyn couldn’t understand the fuss about the helicopter either. After all, it’s only $5k. Very small in the scheme of things. Right?

        Oh, and is that the real drsmithy? Hmmmm.

      • drsmithyMEMBER

        Oh, and is that the real drsmithy? Hmmmm.

        Look, I’m not particularly comfortable defending ScoMo, but I stand by my original point that $116/head for a work party to celebrate a major achievement is not a particularly outrageous amount, especially given the seniority of the people involved. I am quite confident our senior management spend at least that much several times a year for their celebrations, and I imagine our annual Christmas Party probably costs at least half again as much, if not more. When I had staff my allowed (ie: wouldn’t even raise an eyebrow) budget for end of project lunch/drinks was $50/head and they would have happened at least once a quarter.

        If he was doing it for Friday drinks every week it’d be a different matter.

        Focusing on these sorts of just not particularly significant amounts simply draws away from the much larger areas of waste and corruption. It’s like the way people like ScoMo like to focus on the handful of people rorting the dole.

      • fishbulbMEMBER

        I don’t think you could call the budget a “major achievement”, it’s part of the job. How does performing a yearly job requirement justify a celebration at tax payer expense? Surely getting paid a salary is adequate compensation.

      • Even StevenMEMBER

        I’m with smithy. $116 per head is not excessive. For those who say ‘not at the taxpayer’s expense’ … Would you prefer each of those people’s salaries had been increased by $116 and no party? Have a think about that.

        Alternatively, would you find it acceptable if each of those people’s salary was reduced by $116, and they did have a party?

        Oh. Maybe they already have?

        Hopefully you begin to see how absurd this discussion is in the absence of information on total remuneration levels, and difficulty of work.

    • What would our country be coming to if our esteemed leaders couldnt partake of fig compote with parmesan-balsamic crunch washed down with a little Hollick’s “The Bard” sauvignon blanc?

      • Pshaw! Away with your vignoble ignorance, clearly a pinot gris is the obvious choice for fig compote ?

  6. reusachtigeMEMBER

    This is ridiculous! If people just worked harder and got themselves better jobs the wealth divide would be far less!!

    • It’s a worry Reusa, if only these ugly lazy f#cks could be 40 years older we’d all be boomer rich!

      First world sucking on the marrow of the first world problems

    • Yet shortage-deniers found a statistic that showed rents had not risen over the decades.

  7. Sorting out the politically created artificial urban land racket, would be a very good place to start.

    Read this … and weep …

    Low Supply Lifts Housing Lot Prices To a Record ($US45,000) – WSJ
    … google search title if blocked …

    http://www.wsj.com/articles/low-supply-lifts-housing-lot-prices-to-a-record-1470442821

    The prices home builders pay for single-family lots hit a record high in the U.S. last year, a sign that a scarce supply of developed land is pushing up the cost of new homes.

    Median single-family lot prices were $45,000 last year, surpassing the previous peak of $43,000 at the height of the housing boom in 2006, according to an analysis of the most recent census data by the National Association of Home Builders. …

    … Prices have hit record highs even as the typical lot has been shrinking. Median lot sizes for single-family homes last year dropped to 8,589 square feet (HP comment … 797.5 square metres), the lowest since the Census started consistently tracking the data in the early 1990s. … read more via hyperlink above …

    Five successful cities with cheaper houses than New Zealand – and what we can learn | Michael Daly | Fairfax NZ … Stuff.co.nz

    http://www.stuff.co.nz/business/82089717/Five-successful-cities-with-cheaper-houses-than-New-Zealand-and-what-we-can-learn

    The missing piece of the Auckland housing puzzle (Houston) | Catherine Harris | Stuff.co.nz

    http://www.stuff.co.nz/business/industries/77529177/The-missing-piece-of-the-Auckland-housing-puzzle

    In Houston, Texas, there’s no such thing as a housing shortage.

    The state’s biggest, blue-collar dominated city rolls out as much as is needed, and land is cheap. Real cheap.

    A decent house that might cost more than a million in Auckland will set you back US$200,000 to $300,000 in Houston. … read more via hyperlink above …

  8. truthisfashionable

    “artificial urban land racket”

    The developers are so obvious about it too.

    The Elara development in western Sydney released 37 new lots last weekend. You can visit the showroom and see the 100+ planned but unsold new lots that are already being built, however all those unsold lots aren’t able to be purchased for another 2 months when the next release is made available. From what the sales rep said, the next release will include up to 30 new lots, however they will all be less than 375 sqm.

    Apparently there was quite a line up for this artificial demand and the prices being paid were closer to $450k for 375sqm

  9. “Apparently there was quite a line up for this artificial demand”

    Or perhaps more accurately, this artificial shortage of (land) supply.

  10. Solution (to everything): Obliterate the price of housing to fair value… and keep it there!

    • But dear boy the boomers already have – fair value or you’re a lazy fugly! Give ahead. No, wait

      • Mig seriously… did boomers write propaganda for the property development lobby in the mid 50s [most powerful lobby at the time] and have thousand of books distributed nationally or was that Friedman and Stigler. Did the boomers also fund all the industry or ideological think tanks Hudson writes about in Think Tank Memoirs.

        That’s just a short list….

        Disheveled Marsupial….. and your evidence is based on what exactly… now in order to check it I need more than your assumptions…. something a bit more grounded and demonstrable random correlation please…

      • I’m sorry did the boomers cop stagnant wages and sky rocketing dwelling prices from those 50s machinations? Why no… No they didn’t. There’s my historical evidence!!!

      • Sorry mig but not gaining traditional share of productivity and financial industry making packet is not the same, not that at least 5 million got the flick post GFC all whilst the middle class is being liquidated as we speak….

        Disheveled Marsupial…. I thought I mentioned the thingy about correlation, hate is a bad substitute for causation IMO…. and if the market hates younger people is that the boomers fault – ?????

  11. Fair go….I’m pretty sure they were the instructions my relatives (that used to live in Punchbowl) got about a week before some ME bastard threw a brick through their front windows. Is that the Fair-Go you’re talking about.

    • Clever. Fair isn’t what it used to be, wait till its a skip throwing that brick – then you’ll know what a society the fair skinned politicians sold you – because they are. Fair go? If that’s how you play Go you already lost…

      • Why would I do that mig, meanwhile I don’t look at people based on ethnicity, were all human.

      • No dramas…. btw crazy but true… El Trumpo at his economic speech was using stuff from EPI….

        Disheveled Marsupial…. that’s a labour mob traditionally…. go figure…

  12. Thanassis Veggos

    it is a fair go, you come to Australia and you get screwed as much as the locals, it doesn’t get more fair than that.

    what I think people are trying to say is that there used to be class mobility, ie you used to come to australia with nothing and unless you screwed something badly in about 10 years you were middle class proper, complete with a paid off house, financial security etc. That there, yep, it’s gone.

    • It evaporated over the last 15 years, but like foolish American’s who cling to the American Dream ideal, Australian’s cling to the “fair go, mantra” even though it’s dead like a duck.

  13. there was never such thing as fair go in Australia. We are almost feudal country since our beginnings and that can easily be seen in old vs. new money. Most of money in Australia is still old feudal British money