IMF Says Australia Has One of the Fastest Income Inequality Rates in the World

https://www.theguardian.com/business/2017/oct/12/imf-says-australia-has-one-of-the-fastest-rising-income-inequality-rates

Australia is among countries with the highest growth in income inequality in the world over the past 30 years, according to the International Monetary Fund.

Vitor Gaspar, the IMF’s director of fiscal affairs, has told an audience at the launch of the IMF’s latest Fiscal Monitor that Australia’s income inequality growth has been similar to the US, South Africa, India, China, Spain and the UK since the 1980s.

Last month the treasurer, Scott Morrison, said that income inequality was not getting worse in Australia.

Morrison told the Business Council of Australia in late September that Treasury and the Reserve Bank had found, in specific analysis of current wage fundamentals, that Australian wages were growing slowly across most industries in the economy, and most regions of the country, so the slow growth was evenly shared.

However, he would not release the Treasury analysis.

Graph showing inequality by country by the IMF.
 Graph showing inequality by country by the IMF. Illustration: IMF

Gaspar said IMF staff had used the Organisation for Economic Co-operation and Development’s income distribution database, Eurostat, and the World Bank’s Povcalnet data, among other sources, to calculate that income inequality had increased in nearly half of the world’s countries in the past three decades, and Australia had experienced a “large increase” in that time.

“Most people around the world live in countries where inequality has increased,” he said.

The IMF’s latest Fiscal Monitor, released overnight, is dedicated to the global growth in income inequality. It warns that while some inequality is inevitable in a market-based economic system as a result of “differences in talent, effort, and luck”, excessive inequality could “erode social cohesion, lead to political polarisation, and ultimately lower economic growth”.

It also warns that income inequality tends to be “highly correlated” with wealth inequality, inequality of opportunity, and gender inequality.

In July this year, when dismissing the Labor party’s plan to crackdown on trusts and other forms of tax minimisation, Morrison claimed that income inequality was actually getting better in Australia.

“The latest census showed on the global measure of inequality, which is the Gini coefficient, that is the accepted global measure of income inequality around the world and that figure shows it hasn’t got worse, it has actually got better,” he said.

He was technically right – if you only consider the last few years.

The Gini index is the most widely used measure of inequality. It looks at the distribution of a nation’s income or wealth, where 0 represents complete equality and 100 total inequality.

The 2016 census showed the Gini coefficient for equivalised disposable household income in Australia fell from 0.333 in 2013-14, to 0.323 in 2015-16.

Morrison did not mention that the Gini coefficient had been even lower in 2005-06, at 0.314.

Earlier this year, the OECD economic survey of Australia in April found “inclusiveness has been eroded” in the past two decades.

“The Gini coefficient has been drifting up and households in upper-income brackets have benefited disproportionally from Australia’s long period of economic growth,” the report said.

“Real incomes for the top quintile of households grew by more than 40% between 2004 and 2014, while those for the lowest quintile only grew by about 25%.”

In July the Reserve Bank governor, Philip Lowe, when asked about his views on inequality at a charity lunch in Sydney, said it had grown “quite a lot” in the 1980s and 1990s and had risen “a little bit” recently, but it was important to make a distinction between income and wealth inequality.

“Wealth inequality has become more pronounced particularly in the last five or six years because there’s been big gains in asset prices,” Lowe said. “So the people who own assets, which are usually wealthy people, have seen their wealth go up.”

He said income inequality had increased slightly in recent years, but wealth inequality was more pronounced because of rising asset prices.

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