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Despite strong economic growth and low inflation, many Australians believe that the benefits and costs have not been fairly shared and that inequality has been rising. Indeed, according to Newspoll, ‘by a margin of 70% to 28%, Australians would prefer the gap between “rich” and “poor” to get smaller rather than have the nation’s overall wealth grow as quickly as possible’ (The Australian, 17/06/00) The Australian government addresses the ‘problem’ of income distribution in Australia but as you will come to realise, it is not on the top of their agenda when it comes down to economic management. This paper will observe the causes of widening income dispersion, the effects of this inequality, and analyse the attempts of the government to stem the tide, which is so evidently worrying to society. Overview of the Situation- indicators of inequality in Australia The 2001 SoE Report on Human Settlements noted the fact that Australia's transition into the 21st century had been marked by an extended period of economic prosperity unmatched for several decades, but one where certain classes of people were not found to be sharing equally in the benefits of growth in national wealth. Income – Wages and salaries account for more than 60% of gross household income and Pappas (2001) has found that increasing inequality of wages is the main reason for the increasing inequality of market incomes in recent years. Average gross incomes for the most affluent 10% of Australians had increased 3–6 times more than the middle and bottom income distribution between 1982 and 1997 (National Centre for Social & Economic Modelling (NATSEM) 2000). By 2000 more than 1 in 4 Australian children lived in families that relied on social security payments for a substantial part of their income, whereas 10 years before fewer than 1 in 6 children lived in a family on income support, and 30 years ago it was about 1 in 25 (The Age, 28 August 2000: 1). Of course, unemployment was much lower 30 years ago. The dramatic redistribution of income in the 'nineties has been noted by many critics. However, the federal Governments' own Productivity Commission has now confirmed the trends towards greater economic inequality. This is significant because this conservative institution is usually associated with 'economic rationalist' prescriptions. Certainly you would be brave to accuse it of left-wing bias! Yet, its report, called Distribution of the Economic Gains of the 1990s, published in November 2000, clearly shows a widening chasm between rich and poor, with a 'shrinking middle' in between. As mentioned above, the richest ten percent of Australian households increased their incomes faster than any other group over the 'nineties. Those at the bottom end have struggled to maintain their income share, while there has been some hollowing out in the middle of the income distribution. Overall, income inequality is increasing. The distribution of wealth is even more unequal. The Productivity Commission report notes that, despite the explosion of share ownership from 9% to 54% of households between 1986 and 1989, mainly as a result of the privatisation of public enterprises, the top 10 per cent of income earners own 90 per cent of the shares held directly by individuals. Wealth from home ownership is also unevenly distributed, with the top 50 percent of households having 90 per cent of the total: that means that the other half of households has only 10 percent. As the report says 'wealth distribution is more unequal than income and became more unequally distributed during the late 1990s'. 1. The Ginis set out below for Australian families suggest sharp increases in the inequality of business, investment, wage and earned income between 1982 and 1996-97. Government cash benefits became more progressive over this period, so the rise in government transfers helped to offset the growing inequality of private income produced by the market. The rise in the Gini for total income was thus much less substantial than that for private income. Income taxes also became more progressive during this period, so that income taxes helped to further offset the growing market based inequality. Thus, the Gini for disposable income remained about the same. After taking account of the needs of families using an equivalence scale, the results suggest that overall income inequality remained much the same from 1982 to 1996-97. You may think this contradicts what was said earlier, the truth is that it is a contradiction. If you look at the bottom half of the table, where the figures involve the use of some form of equivalence scale, including government support, you will notice that there does not seem to be an expansion in inequality. In researching for this paper there were many conflicting perspectives on the distribution of income, because different analysts use different techniques for determining “equality”. Some say that inequality is shrinking because first quintile incomes are increasing by a higher percentage. Others comment that distribution has remained steady when non-cash government benefits like public goods and merit goods, such as health and public housing are included. Others say that there is a shrinking of the middle classes taking place.
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