: Super User; Region; 10 November 2011; Hits: 1195

Growing Income Inequality Down Under

IN THE early 1960s, when Australian author Donald Horne temporarily set aside his trenchant criticisms of the national psychology to remark that Australia was “one of the most evenly prosperous societies in the world”, few citizens were inclined to disagree. After all, Australians have long believed that they live in an egalitarian society.

Today, however, many are not quite so sure. The Occupy Wall Street protests have struck a sympathetic chord in Australia, with demonstrators following the lead of their United States counterparts by setting up temporary campsites in the business districts of cities across the nation. The development is particularly striking, given that the Australian economy has continued to grow well despite the global economic downturn.

“The evidence is mounting of a growing divide, with more people hitting hard times and falling into poverty,” Australian Council of Social Service chief executive Cassandra Goldie told the media late last month.

According to the council, there are now about 2.2 million Australians – about 11 per cent of the population – living in poverty. This compares to just 8 per cent of the population in 1994. The richest 20 per cent hold 62 per cent of the nation’s wealth – an average net worth of A$2.2 million (S$2.9 million) – while the poorest 20 per cent, with just 1 per cent of national wealth, have an average net worth of just A$32,000.

A lack of relevant statistics makes it difficult to say exactly how income equality has changed over the course of Australian history. Even so, most economists believe that there was a substantial long-term decline in inequality between the 1940s and the 1970s.

After the Australian Bureau of Statistics (ABS) began publishing the results of its regular surveys on household income in 1981, however, a different trend has emerged. Take the Gini coefficient, a widely accepted measure of income inequality. ABS statistics show that Australia’s Gini rose to 0.33 from 2009 to last year. This compares to just 0.27 from 1981 to 1982. In other words, income inequality has grown worse during the period. A value of 0 represents absolute equality and 1 absolute inequality.

A rise in housing prices has added to the public disquiet. “The great Australian dream (of owning a home) is definitely on the way out,” CEO John Edwards of housing information research provider Residex told the media last month. A recent survey found that close to half of 20- to 49-year-olds believe that getting a foot on the property ladder is now “somewhat” or “completely” unrealistic.

Decades of home price increases have pushed the median dwelling price in Australia to 12 times the median annual household income, well above what is considered affordable. According to Macquarie Bank senior economist Brian Redican, the average income in Australia is between A$55,000 to A$60,000. But the median income, the mid-point in the range, is about A$35,000. Home price research group RP Data-Rismark says that the national median home price was A$450,000 at the beginning of this year.

Home rental costs are also rising. According to Australians for Affordable Housing (AAH), about 100,000 households in Sydney are facing poverty because of the high cost of renting.

Meanwhile, job insecurity is adding to the public disquiet. Trade union leaders say that the number of casual workers, who are not eligible for sick pay or guaranteed incomes, has almost doubled in the last 25 years.

Recent developments have also begun to exacerbate differences between the states. Economists now talk about a “two-speed” or “three-speed” economy, as the mining boom boosts the West Australian economy while growth in the eastern states slows. New South Wales, once the strongest of all, now appears to be the weakest.

The gap between industrial sectors is also widening. High commodity prices have driven up the exchange rate, eroding the competitiveness of sectors such as manufacturing, tourism and export-oriented education. The retail sector is also weak. Construction, on the other hand, is going strong, thanks partly to the mining boom and partly to rebuilding in Queensland in the wake of the natural disasters there earlier in the year.

How can this situation be changed? Australian policymakers have little control over international economic trends, but they may be able to find ways of tweaking domestic policies.

A close look at the Gini coefficient over the past 30 years shows that, despite the long-term trend, there were brief periods when the degree of inequality actually fell. Studying these developments may give policymakers some ideas about how future policies might be formulated.

Meanwhile, the nation’s politicians might like to draw on Singapore’s experience and focus on housing. AAH spokesman Sarah Toohey put it well: “A secure home is a fundamental building block for everything else we do in life.”

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Key Political Risks

Asia is the fastest growing region in the world, and is likely to remain so in 2013. However, a number of risks cloud the picture.

The good news is that domestic demand in the region remains strong and should continue to cushion the impact of weaker external demand on overall economic growth. The completion of national elections in Japan and South Korea in December 2012 should also help reduce political uncertainties.

But Asian governments will need to guard against the adverse impact of prolonged easy financial conditions on inflation.

Rising inequality also continues to threaten social stability. Ethnic and religious rivalries remain just below the surface in many countries. When combined with government corruption and (in some countries) high youth unemployment, this could become a deadly mix. This seems particularly true of China.

Territorial disputes also require close monitoring. Much diplomatic activity in the new year is likely to be centered on finding ways to reduce tensions over resource-rich islands in the South China Sea, where Beijing's claims overlap with those of Japan, Vietnam and other Southeast Asian states. South Korea and Japan also have rival territorial claims.

North Korea remains the wild card. Inclined to believe its own propaganda, Pyongyang's new leadership could miscalculate, making belligerent moves that plunge the region into a military conflict that nobody wants.