Monday, March 21, 2016

The Australian Boom and Poverty

An analysis of economic and social data shows that Australia's 25-year boom improved the lot of the poorest Australians a little but the gap between richest and poorest widened markedly.

The Poverty Report published in 2014 by the Australian Council of Social Service (ACOSS) reports that 2.55 million Australian residents lived below the poverty line in 2012.  This is about 14 per cent of all Australian residents in 2012.

Research show that between 1993 and 2009, mean household incomes steadily increased by 76 per cent or 4.7 per cent per annum. So incomes were growing as the economy was growing.  Our calculations, however, also reveal that economic inequality – the gap between the rich and the poor, as measured by the Gini coefficient – increased by 8.6 per cent over that same period. Inequality levels worsened relatively slowly between 1993 and 2003, at a total overall rate of just 2.4 per cent for the entire 11-year period (or about 0.22 per cent each year); while inequality levels rose sharply by 8.6 per cent overall between 2003 and 2009 (this translates to a 1.4 per cent increase in inequality level each year in that  six-year period). So, the gap between the rich and the poor increased as the economy grew, and it increased more sharply after the global financial crisis.

Calculations show that national poverty rates appeared steady at 11 per cent between 1993 and 2010, but in fact, poverty estimates followed a U-curve path during that 17-year period. More specifically, we found that poverty rates decreased by 10 per cent between 1993 and 1998; but from 1998 to 2010, poverty rates increased by about 0.6 per cent per annum or a total of 6.4 per cent. This latter 13-year period can be further divided into 1998-2003 and 2004-09, where the second period incorporates the global recession of 2008. Calculations show that poverty rates increased during both four-year periods, but it is curious to find that the increase in poverty rates during the recession-free period of 1998-2003 was larger than the increase in poverty rates observed in the recession-riddled period of 2003-09.

Average household incomes increased as the economy grew in the 1990s, but economic inequality also increased through the period. Poverty rates appeared to have decreased with growth in the early years, but this did not last, presumably because the global crisis dominated outcomes in the economy including an increase in overall poverty levels in the last few years.

The income of poor households grew slower than the growth of average income, and/or that the income of the rich grew faster than the average income. Australia has had some success in poverty reduction during its years of economic growth, but the results are not consistent over the long run. In some periods of growth, poverty increased and inequality levels worsened all throughout.