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Memo to Morrison: Inequality is on the rise

Back in July, Treasurer Scott Morrison dismissed suggestions that inequality was getting worse. “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,” Morrison said.

A few days later, Reserve Bank governor, Philip Lowe, contradicted Morrison stating publicly that inequality in Australia had risen.

It turned out not to be Morrison’s week when it was reported that just 8% of voters in his own electorate of Cook agreed with him. A whopping 63% believed inequality was worsening.

Most recently, this week the ABS released its 2015-16 Household Expenditure Survey where it concluded that, “The wealthiest 20 per cent of households in Australia has remained stable since 2013-14,” ABS chief economist Bruce Hockman said.

Were the ABS and Morrison right after all?

Not according to two leading academics who, this week, refuted claims by the ABS that inequality in Australia has remained stable since 2013-14.

The academics, Christopher Sheil, a fellow in History at the University of New South Wales and Frank Stilwell, Professor Emeritus in Political Economy at the University of Sydney, have written an article posted on the ABC’s News website entitled, “The ABS is Wrong: Inequality is getting worse in Australia” demonstrating how comparing the wealth at the two extremes (the richest 20% with the poorest 20%), is a better indicator of inequality.

The ABS released a report last week that showed the wealth of the top 20% increased by 0.4% to 62.5% and the wealth of the bottom 20% fell by 0.1% to 0.8%.

Sheil and Stilwell claim that because the increase in the top 20% of 0.4% equals half of the total wealth of the bottom 20%, that inequality has continued to increase at these two extremes.

The second richest quintile (60-79%) fell 0.1 to 20.4% and the remaining two quintiles spanning 21-59% were unchanged. The two academics challenge the ABS’s conclusion because the methodology they use (the Gini coefficient), ignores the increase in wealth above the 90th percentile where most of the wealth increase occurs.

In their study, Sheil and Stilwell adopted the global standard best practice which uses data for the top 1%, the top 10% and the bottom 50%, drawing on OECD data and “ABS data supplied to the OECD not published in Australia.”

They concluded that the top 10 per cent of households owned at least 50 per cent of the total wealth, and the top 1 per cent owned at least 15 per cent. It is hard to argue against such an imbalance and confirms what most people have always believed.

As Opposition leader, Bill Shorten has made inequality a major issue leading up to the next federal election, it would appear Scott Morrison has been caught offside with his defensive comments. It also seems he was just plain wrong.

New data shows that with household debt at record highs and interest rates at a record low, even a small increase in interest rates will place one million Australian households in danger of financial stress, with one in four already under stress. If mortgage rates were to increase by 0.5%, the ratio would be one in three.

The next twelve months leading up to the election will be a testing time for Morrison whose blustering confidence in the strength of the Australian economy may well be his downfall.

Clearly, government spending is the only thing keeping growth above zero. How long that will last remains to be seen.

6 comments

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  1. Glenn Barry

    Scott Morrison has the ignominious distinction of being kicked off of Ray Hadley’s radio show because too many listeners complained that he talked nonsense – just how low do you have to go to reach that depth is beyond me, it’s not like that audience is renowned for critical thinking and discerning taste

  2. Jamesss

    John, I can only suggest to people, remove your funds from the banks!!!

  3. totaram

    Jamesss: I don’t understand where you are coming from. Funds in the banks are guaranteed by the federal govt. (upto some limit). Do you expect the govt. and state to collapse?

  4. jamesss

    totaram there is a document created by apra re Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) bill 2017. which I am very suspicious of.

  5. Pingback: The Gini coefficient and income inequality in Australia – Numbers and Shapes

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