Key points
Ginis ranging from 0.5 to 0.53), but they have
One of the main differences between high- and
dramatically different levels of inequality after taxes
low-inequality countries is the amount of
and transfers are taken into account. France and
redistribution they do through taxes & transfers.
Germany do a lot of redistribution, and reduce
Australia does less redistribution than most OECD
inequality by about .20 points from .50 to .30. The US
countries.
doesn’t do nearly as much redistribution, so its Gini
The amount of redistribution that Australia does
coefficient after taxes and transfers is about 0.39 –
has fallen over time, partly due to policy choices.
America only reduces inequality by about half as
The budget will further reduce redistribution in
much as France or Germany. Chile does virtually no
Australia and therefore increase inequality.
redistribution at all, so it has a post-tax, post-transfer
Government could improve the budget bottom
Gini of 0.50.
line without increasing inequality, such as by reforming super tax concessions. There are a lot of factors that affect the level of inequality in a country. But perhaps the biggest factor is the amount that the country chooses to redistribute through taxes and cash transfers (like age and disability pensions, family payments, and unemployment allowances). Countries with similar levels of inequality in market incomes make different choices about the amount of redistribution to undertake, and the result is very different levels of inequality in disposable incomes. Inequality is measured using the Gini coefficient, which ranges from 0, in the case of perfect equality, to 1, where one person has all the income.
Look, for example, at the United States, Germany, France and Chile. These four countries have a roughly similar level of pre-tax, pre-transfer inequality (with
Figure 1: Income inequality in OECD countries: Gini coefficient before and after income tax and cash transfers Ireland Greece Portugal Chile United Kingdom Spain France United States Germany Italy Austria Japan Finland Belgium Estonia Israel Luxembourg Turkey Poland Australia Czech Republic Slovenia New Zealand Canada Sweden Denmark Netherlands Norway Slovak Republic Iceland Switzerland Korea
Post-tax, posttransfer
0
0.1
0.2 0.3 0.4 Gini coefficient
Pre-tax, pretransfer
0.5
0.6
Source: OECD Income Distribution Database. The data are the latest available for each country; for most countries this is 2011.
ACTU Economic Bulletin – August 2014 – Page 1
Australia’s level of pre-tax, pre-transfer inequality is
from those who can afford it most, and what we
lower than in many other OECD countries (Gini 0.46),
spend goes overwhelmingly to those who need it
but
is
most, but we’re a low-tax, low-spending country. As a
somewhat higher than the typical developed country
result, we’re a low redistribution, somewhat high
(Gini 0.32). The difference between those two figures
inequality country.
our
post-tax,
post-transfer
inequality
– 0.14 Gini points – is a measure of the extent of redistribution that Australia does through direct taxes
The amount of redistribution that Australia does
and cash transfers. Figure 2 shows that Australia
through income taxes and cash transfers has also
redistributes income to a lesser extent than most
fallen over time. In the mid-to-late 1990s, we
OECD countries, and only a little bit more than the
reduced inequality by about 0.16 Gini points through
US.
direct taxes and transfers. Now that figure is 0.14.1
Figure 2: Reduction in inequality through taxes and transfers: Difference between pre- and post-tax/transfer Gini coefficients
Figure 3: Reduction in inequality over time: Difference between pre- and post-tax/transfer Gini coefficients Gini points 0.20
Ireland Finland Greece Belgium Austria Slovenia Germany Luxembourg Czech Republic France Portugal United Kingdom Italy Denmark Spain Norway Poland Sweden Estonia Slovak Republic Iceland Japan Netherlands Australia New Zealand Canada United States Israel Switzerland Turkey Korea Chile
0.27 0.23 0.22 0.22 0.21 0.21 0.21 0.20 0.20 0.20 0.20 0.18 0.18 0.18 0.18 0.17 0.16 0.16 0.16 0.16 0.15 0.15 0.15 0.14 0.13 0.12 0.12 0.10 0.08 0.06
UK 0.15 Canada
0.05
US
0.10
0.05 1992
1997
2002
2007
2012
Source: ACTU calculations based on OECD Income Distribution Database.
The 2014-15 Budget, if legislated, will further reduce the amount of redistribution Australia does through income taxes and transfers. As a result, income
0.03 0.03 0
Australia
inequality will rise. 0.1
0.15 0.2 Gini points
0.25
0.3
Source: ACTU calculations based on OECD Income Distribution Database. Data are the latest available for each country; for most this is 2011.
At first, this might seem counter-intuitive. Australia
Low income earners will be hit the hardest by the proposed
budget
measures.
Figure
4
shows
NATSEM’s analysis of the effect of the budget on
has a relatively progressive personal income tax system and we have by far the most targeted welfare system in the OECD. But the simple fact is that we don’t raise much in taxes or spend much on transfers. What we do raise in taxes comes disproportionately
1
A recent paper by Herault and Azpitarte (2014) finds that the decline in income redistribution is mostly due to a change in the distribution of market incomes, but that policy change (such as a reduction in income tax progressivity) also played a role.
ACTU Economic Bulletin – August 2014 – Page 2
various household types. In general, the lower the
of budget measures such as freezing or reducing
income, the larger the reduction in disposable
indexation of payment rates or eligibility thresholds
income as a result of this budget. Some low income
increases over time as wages and prices grow. Figure
families will see their disposable incomes reduced by
5 shows NATSEM’s estimate of the effect of the
over 5% this financial year; by contrast, very high
recent budget on the incomes of various household
income earners will only see a 0.3% decline as a
types in 2017-18, after the temporary levy has
result of the “temporary budget repair levy”.
expired.
Figure 4: Change in disposable income in 2014-15 as a result of the Budget by household type
The inequitable effect of the recent budget can be
Change in disposable income (%) 0% Single person, no -1% kids
seen most clearly in Figure 6, which shows the average change in disposable income for each Dual income couple, 2 kids
-2%
Single income -3% couple, 2 kids
income quintile for this financial year and for 201718. This year, the average income of low income earners is expected to be cut by 1.3% by the budget; the average income of high income earners will fall
-4%
by 0.3% relative to where it would otherwise have
Single parent, 2 kids
-5%
been. By 2017-18, the average income of low income earners will be 2.2% lower than it would otherwise
-6% $0
$50,000
$100,000
$150,000
$200,000
Source: Phillips 2014, ‘NATSEM Budget 2014-15 Analysis’, May 26. Available online: http://www.natsem.canberra.edu.au/storage/201415%20Budget%20Research%20Note.pdf
Figure 5: Change in disposable income in 2017-18 as a result of the Budget by household type Change in disposable income (%) 0% Dual income couple, 2 -5% kids
-10%
Single parent, 2 kids
-15%
2014 budget measures hadn’t been implemented.
Change in disposable income (%) 0.5%
Single income couple, 2 kids
0.0% -0.5% -1.0% -1.5%
-20% 50,000
better off (+0.2%) than they would’ve been if the
Figure 6: Mean change in disposable income by quintile as a result of the 2014 Budget in 2014-15 and 2017-18
Single person, no kids 0
have been, while high income earners will be slightly
100,000
150,000
200,000
Source: Phillips 2014, ‘NATSEM Budget 2014-15 Analysis’, May 26. Available online: http://www.natsem.canberra.edu.au/storage/201415%20Budget%20Research%20Note.pdf
The temporary levy on high income earners is, as the name suggests, temporary. By contrast, the measures that will affect low income earners are permanent
-2.0%
2014-15 2017-18
-2.5% Lowest
Second Middle Fourth Income quintile
Top
Source: Phillips 2014, ‘NATSEM Budget 2014-15 Analysis’, May 26. Available online: http://www.natsem.canberra.edu.au/storage/201415%20Budget%20Research%20Note.pdf
and their effect will grow over time. The real impact ACTU Economic Bulletin – August 2014 – Page 3
The budget will increase inequality in Australia. The
are taxed at 15% regardless of income. This means
gap between the richest and poorest in Australia will
that the lowest income earners pay more tax on their
grow, as the amount of redistribution we achieve will
retirement savings than on their regular income,
be reduced further.
while those earning between $20 500 and $37 000 pay about the same tax rate on their super as their
If the government wished to improve the budget
take home pay. In other words, they receive no
bottom line, there are policy choices it could have
concession on their retirement savings. By contrast, a
made that would not have increased inequality.
very high income earner faces a marginal tax rate of
Foremost among these is reducing and reforming tax
45% and pays the same 15% flat tax on super
expenditures,
to
contributions, thus receiving a concession of 30
superannuation. A recent IMF working paper showed
percentage points. The value of this concession to
that Australia foregoes more revenue through tax
top income earners is so large that they actually
expenditures than all the other advanced economies
receive more support for their retirement, through
it analysed (Figure 7).
super tax concessions, than low income earners do
particularly
those
related
Figure 7: Tax expenditures in advanced economies Australia Italy USA UK Spain Greece Austria Denmark Norway France Canada Netherlands Switzerland Germany Korea Portugal
through the age pension, as shown in Figure 8.
8.3 8.1 7.5
Figure 8: Government support for retirement by income level Total support $600,000 Super tax concessions Age pension $500,000
5.9 3.8 3.1 2.9 2.7 2.6 2.2 1.9 1.8
$400,000 $300,000
1.1 0.9 0.9 0.6 0
2
$200,000 $100,000 4 6 Per cent of GDP
8
10 $0 10 20 30 40 50 60 70 80 90 95 99
Source: Tyson, J. 2014, ‘Reforming Tax Expenditures in Italy: What, Why and How?’, IMF Staff Working Paper, WP/14/7.
Measuring the size of tax expenditures, and particularly comparing them across countries, is a
Percentile of income distribution Source: Treasury 2012, ‘Distributional Analysis of Superannuation Tax Concessions’, Paper to the Superannuation Roundtable. Figures pertains to percentiles of the male income distribution.
difficult and fraught task. Nevertheless, it is clear that
The
Australia’s tax expenditures are large and growing.
superannuation tax concessions if it wished to
The
improve the budget bottom line. Instead, it has
biggest
tax
expenditures
relate
to
government
could
have
reformed
chosen a package of measures that will make
superannuation and housing.
Australia more unequal. Perhaps the most inequitable among these is the flat tax on superannuation contributions. Contributions
Please
send
any
comments,
corrections,
criticisms
compliments to Matt Cowgill at mcowgill@actu.org.au.
ACTU Economic Bulletin – August 2014 – Page 4
or
The tables and charts below summarise the latest
Figure 10: Change in employment in the year to July Thousands 120
available data about the Australian labour market.
100
101.7
Table 1: Summary of labour force figures Level
Monthly change
Yearended change
11,576,600
-300
101,700
8,077,400
14,500
61,000
40
3,499,200
-14,800
40,600
20
19,069,200
26,000
342,100
0
60.7%
-0.1
-0.6
Unemployment rate
6.4%
0.3
0.7
Unemployed persons
789,000
43,700
103,300
Youth unemployment rate
14.1%
0.5
2.1
Participation rate
64.8%
0.1
-0.1
6.0
7.6
0.2
0.3
5.5
Employed persons - Full time employment - Part time employment Working age population Employment-topopulation ratio
80 66.3
61.0 60 40.1 40.6
34.8
35.4
26.2
0.5 Full time Males
Part time Females
Total Total
Source: ACTU calculations based on ABS 6202, seasonally adjusted.
Figure 11: Unemployment rate
Underemployment rate (quarterly)
Source: ABS 6202, seasonally adjusted.
6.7 1.6
-5
-0.3
-1.9 -5.1
-15
Full time Males
3.5
-21.5 Part time Females
Seasonally adjusted Jul 06
Jul 08
Jul 10
Trend Jul 12
Jul 14
Figure 12: Employment to population ratio (15+) Per cent 64 63
-14.8
-25
4.0
Source: ABS 6202.
0
-20
4.5
3.0 Jul 04
5
-10
6.5
5.0
Figure 9: Change in employment between June and July 2014 Thousands 25 19.6 20 14.5 15 10
Per cent 7.0
62 Total Total
61
Source: ACTU calculations based on ABS 6202, seasonally adjusted.
60 59 58 Jul 04
Jul 06
Source: ABS 6202.
ACTU Economic Bulletin – August 2014 – Page 5
Jul 08
Jul 10
Jul 12
Jul 14
Figure 13: Unemployment rates by state/territory
Figure 16: Employment growth in the year to May 2013
8.2
Tas
Other Services
7.5
Health Care & Social Assistance
6.4
SA
7.1
5.9 6.5 5.6 5.8
NSW 4.7 5.0
WA
5.6
NT
4.8
Jul 2013
4.0 3.9
ACT 0
2
8
25.7
Education & Training
22.3
Manufacturing
19.1
Construction
14.1
Retail Trade
12.4
Professional, Scientific &…
9.6
Electricity, Gas, Water & Waste…
4.6
Mining
Jul 2014
4 6 Per cent
33.4
Rental, Hiring & Real Estate…
6.6
Qld
43.2
Agriculture, Forestry & Fishing
5.8
Vic
46.8
4.0
Administrative & Support…
10
0.6
Transport, Postal &…
-6.1
Source: ABS 6202, trend.
Figure 14: Participation rate 15+ (%) 66.0
15-64 (%) 77.0 76.5
65.5
76.0
65.0
75.5
64.5
Financial & Insurance Services
-9.1
Public Administration & Safety
-9.3
Information Media &…
-9.8
Arts & Recreation Services
-15.8
Accommodation & Food Services
-33.3
Wholesale Trade
-51.1
-60 -40 -20 0 20 Thousands Source: ACTU calculations based on ABS 6202, trend.
75.0
64.0
74.5
63.5
74.0 Jul 04
15-64 (LHS) Jul 06
Jul 08
15+ (RHS) Jul 10
Jul 12
63.0 Jul 14
Source: ABS 6202.
Figure 15: Underemployment and unemployment rates Per cent 14 12 10 Underemployment 8 6 4 Unemployment
2 0 May 09
May 10
May 11
May 12
May 13
May 14
Source: ABS 6202, trend.
ACTU Economic Bulletin – August 2014 – Page 6
40
60
Figure 19: Annual growth in labour productivity (GDP per hour) Table 2: Summary of March quarter National Accounts Level
Quarterly change
Yearended change
Quarterly real GDP
394929
1.1%
3.5%
Real GDP per capita
16858
0.7%
1.8%
Labour productivity (total economy)
-
0.2%
2.1%
Labour productivity in the market sector
-
1.0%
2.7%
Terms of trade
-
-1.2%
-3.9%
Wages share of income
53.0%
-0.2
-0.9
Profits share of income
27.4%
0.0
0.9
Year-ended growth 5% Fair Work Act
Work Choices
4% 3% 2% 1% 0% -1%
Seasonally adjusted
Source: ABS 5206.
-2% Mar 04
Mar 06
Mar 08
Mar 10
Mining
6%
8.2%
Construction
5% 20-year average, 3.3%
7.5%
Rental, hiring and real estate…
7.2%
Health care and social…
5.1%
Arts and recreation services
3.9%
Public administration and…
3%
3.8%
Agriculture, forestry and fishing
3.6%
Administrative and support…
2%
Mar 06
Mar 08
Trend
Mar 10
Mar 12
Mar 14
2.2%
Retail trade
1.8%
Information media and…
0.9%
Accommodation and food…
0.7%
Other services Wholesale trade
Source: ABS 5206 and ACTU calculations.
Figure 18: Annual growth in nominal unit labour costs 8%
Transport, postal and…
-3.4%
6%
-15% Source: ABS 5206.
2%
0%
-2% Mar 94
Seasonally adjusted Trend Mar 98
Mar 02
Mar 06
Mar 10
-1.6% -2.2%
Professional, scientific and…
4%
0.4%
Electricity, gas, water and…
Manufacturing
20-year average, 2.5%
2.8%
Education and training
1% 0% Mar 04
Mar 14
14.1%
Financial and insurance…
Seasonally adjusted
Mar 12
Source: ABS 5206.
Figure 20: Growth in output (gross value added) – year to March 2013
Figure 17: Growth in real GDP per year
4%
Trend
Mar 14
Source: ABS 5206 and ACTU calculations. Non-farm.
ACTU Economic Bulletin – August 2014 – Page 7
-3.6% -4.2% -5% 5% 15% Annual GVA growth
25%
Figure 22: Headline and underlying CPI inflation Per cent 5%
Table 3: Summary of prices and wages data
Latest quarter
Level
Yearended change
June
-
2.6%
3%
Full-time average weekly ordinary time earnings (AWOTE)
May
$1,454.10
2.3%
2%
Real AWOTE
May
$1,454.10
-0.7%
1%
Wage (WPI)
Price
Index
full-time
4%
RBA's target band Headline CPI
Total average weekly earnings (AWE) National Minimum Wage per 38 hour week
May 1 Jul 14
$1,123.00 $640.90
1.6% 3.0%
0% Jun 04
Underlying CPI Jun 06
Jun 08
Jun 10
Jun 12
Jun 14
Source: ABS 6401.
Figure 23: Wage Price Index growth
Headline CPI
June
-
3.0%
4.5%
Trimmed mean (underlying CPI)
June
-
2.9%
4.0%
Employees’ cost of living (LCI)
June
-
2.3%
3.5%
Gender pay gap
May
18.3%
0.8%
3.0%
Source: ABS 6345, ABS 6302, FWC, ABS 6401, ABS 6467, ACTU calculations.
Figure 21: Annual growth in the CPI and workers’ cost of living (Employee LCI)
Long-run average
2.5% Trend 2.0% Sep 98
Sep 03
Seasonally adjusted Sep 08
Sep 13
Source: ABS 6345.
6%
Figure 24: WPI growth in the public and private sectors
5%
5.0% 4% 4.5%
3% 2% 1% 0%
4.0% Underlying CPI
3.5%
Employee LCI
3.0% -1% Jun 04
Jun 06
Source: ABS 6467, ABS 6401.
Jun 08
Jun 10
Jun 12
Jun 14
2.5%
Private Public
2.0% Jun 04
Jun 06
Source: ABS 6345.
ACTU Economic Bulletin – August 2014 – Page 8
Jun 08
Jun 10
Jun 12
Jun 14
Figure 25: WPI growth in the year to June by industry 0% 1% 2% 3% 4% Education and training
Figure 28: Average weekly ordinary time earnings for full-time adults $0 $1,000 $2,000
3.2%
Electricity, gas, water and…
Mining
3.0%
Arts and recreation services
3.0%
Construction
2.9%
Health care and social…
2.9%
Public administration and… Manufacturing
Information Media and…
$1,665.40
Financial and Insurance…
$1,665.30
Education and Training
2.7%
Australia
$1,716.20
Electricity, Gas, Water…
2.8%
Public Administration…
2.6%
Financial and insurance…
2.6%
Mining Retail trade
$1,462.50 $1,454.10
Transport, Postal and…
2.4%
Health Care and Social…
Information media and…
2.4%
Administrative and…
2.4%
Rental, hiring and real…
2.3%
Administrative and…
2.3%
Rental, Hiring and Real…
Other services Accommodation and food…
Arts and Recreation… Manufacturing
2.1%
Wholesale trade
2.0%
Wholesale trade
2.0%
Other Services Accommodation and… Retail Trade
Source: ABS 6345.
$1,530.80
All Industries Construction
2.4%
$1,659.10 $1,552.20
Wholesale Trade
2.5%
Transport, postal and…
$2,493.20
Professional, Scientific…
$1,449.20 $1,442.50 $1,372.90 $1,304.60 $1,294.40 $1,287.30 $1,269.20 $1,088.00 $1,048.10 $1,040.40
Source: ABS 6302.
Figure 26: Range of WPI growth rates across industries 7% Figure 29: Average annualised wage increase in federal enterprise agreements Per cent 5.5
6% 5% 4%
5.0
Agreements lodged in quarter
3% 4.5 2% 4.0
Range of growth rates in all industries
1%
Australia 0% Jun 04
Jun 06
Jun 08
Jun 10
Jun 12
Jun 14
Source: ABS 6345 and ACTU calculations.
3.0
Figure 27: WPI growth in the year to March by state 0% 1% 2% 3% 4% SA
3.1%
Victoria
2.8%
NT
2.8%
Australia
2.6%
Qld
2.6%
NSW WA
All current agreements
3.5
2.5 2.0 Mar 94
Mar 99
2.4% 2.3%
ACT
2.3%
Mar 09
Mar 14
Source: Department of Employment, Trends in Federal Enterprise Bargaining.
2.5%
Tas
Mar 04
Source: ABS 6345.
ACTU Economic Bulletin – August 2014 – Page 9