Frydenberg goes the inequality raw prawn

Via Domainfax comes your new Treasurer:

Treasurer Josh Frydenberg has dismissed claims of rising inequality and urged voters to back the government agenda for economic growth, while naming housing affordability and youth unemployment as two priorities in his new job.

In a pivotal dispute with Labor ahead of the next election, the deputy Liberal Party leader cited economic advice to reject the argument that inequality was getting worse across the board, arguing instead that stronger growth was the best way to benefit all families.

“The first thing to say is there are Australians who are doing it tough,” Mr Frydenberg told Fairfax Media in his first policy interview since becoming Treasurer.

“They are the communities in drought stricken areas, the long term unemployed, the families who are struggling to meet higher energy costs.”

When asked if he believed inequality was getting worse, Mr Frydenberg said the struggle of some was not the experience of all.

“The Productivity Commission said exactly the opposite,” he said. “It said we had made strides in recent years in reducing inequality.”

The answer for those families was “not to redistribute the pie but to grow the pie”.

The Productivity Commission (PC) research report examining inequality in Australia found that income inequality has not materially worsened in recent decades, but wealth inequality has. Below are some key highlights:

Income and Consumption Inequality:

Income inequality has increased modestly since the late 1980s, but the extent of the increase is contested, and since the global financial crisis the trend indicates a slight decline.

Most developed countries have also experienced rising income inequality, and at a faster pace than in Australia. – Australia’s level of inequality is close to the OECD country average. The fact that inequality levels are so different among developed countries hints at the scope for policies, institutions and political environments to shape inequality…

Australia’s progressive income tax and highly targeted transfer system has a powerful equalising effect on household incomes…

Most recently, the incomes of young people (those aged 15 to 24 and 25 to 34) have grown relatively slowly…

Wealth Inequality:

Average wealth in Australia has steadily increased over the 12 years to 2015-16. Average household wealth rose by 43 per cent over the period, to just under $530 000. The gains have been across the distribution, but growth was stronger for the top half of the distribution. Owner-occupied housing and superannuation balances accounted for most of the increase in wealth. 

Wealth inequality increased over the same period — the Gini coefficient based on the ABS Survey of Income and Housing rose by 7 per cent. However, not all measures show a clear upward trend. Almost all the rise in wealth inequality occurred in the mining boom period through to 2010 (income inequality also rose during this period). The trend has since been fairly stable.

Wealth is much less evenly distributed than income and consumption. The Gini coefficient for wealth (at about 0.6) is close to double the Gini coefficient for income (at about 0.3) and nearly triple that for final consumption (at about 0.2). The person at the 90th percentile of the wealth distribution has almost forty times as much wealth as the person at the 10th percentile; for income, they have four times as much.

Australia’s households are wealthy, and household wealth is relatively evenly distributed, compared to other developed countries. Among 28 OECD countries:
Australia ranked fifth in average household wealth and third in median household wealth.

Australia has the eighth most equal wealth distribution, as measured by the Gini coefficient.

Considering wealth and income together provides a more complete picture of the economic resources available to support current and future consumption. People in higher wealth deciles have, on average, higher income and consumption.

In August last year, The ABC published a Fact Check, which found that inequality in Australia has unambiguously worsened since 1981 (Labor’s claim), even though the evidence is ambiguous over recent years:

Experts contacted by Fact Check broadly agree: Australia is less equal today than it was in, say, 1981.

And the broad trend over the decades since the early 1980s would appear to point to widening disparity.

However, the experts are not united about what has happened in recent years.

Some suggest inequality has got no worse, while others suggest it has.

This uncertainty is also reflected in the data: one credible set of figures shows a slight deterioration of inequality, another one a slight improvement.

We know from the latest Census that home ownership among younger cohorts has collapsed, whereas it has remained steady or increased among older cohorts:

And this was backed-up by the HILDA survey:

For example, the rate of home ownership among 18 to 39 year olds declined from 36% in 2002 to 25% in 2014. And within this same age group, the decline in home ownership has been largest for families with dependent children, falling from 56% to 39%.

Moreover, even for those in this group who have managed to buy a home, mortgage debt has risen dramatically. In 2002, 89% of home owners in this age range had mortgage debt, whereas by 2014 this had risen to 94%.

The HILDA survey also showed that differences in average wealth by age have grown dramatically. For example, in 2002 the median net wealth of those aged 65 and over was 2.8 times that of people aged 25 to 34, whereas in 2014 this ratio had increased to 4.5:

It doesn’t make much sense for the new Treasurer to split income and wealth inequality. He is only doing so as a rhetorical trick aimed at deflecting Labor’s narrative and policy.

If we compare the two party’s in terms of redress for inequality Labor comes out streets ahead. Labor’s proposed tax reform to negative gearing, capital gains, SMSF property borrowing, income tax cuts and imputation credits will lower house prices and boost working class income while stripping benefits from higher income and wealth households. Where Labor falls down is in its support for mass immigration which is also a very unfair policy for workers versus capital, implicitly lowering wages, boosting house prices and crush-loading amenity in public services.

The Coalition has no policy of any sort at this stage but what we can say is that its previous tax platform would have made inequality much worse given focused on regressive wealthy income tax cuts and corporate welfare. And it has the same support for mass immigration.

If redress for inequality is your focus for voting then Labor is a no-brainer in the two-horse race.