How often do we hear that the rich are getting richer while the poor are getting poorer, or that the Howard government’s tax and benefits policies were too generous to the rich? These assertions are often made with little reference to the facts. So let’s look at the facts.
Every five years or so, the Australian Bureau of Statistics gives us an illuminating snapshot of average incomes, taxes paid, and social benefits received by households in five income groups, from the bottom 20% to the top 20%. The figures for 2009–10 were released recently and shed light on changes in average household incomes, their distribution, and the redistributive impact of tax and benefit policies.
The first point is that while the rich got richer, so did everyone else. After adjusting for inflation and household size, the smallest increase in average private income (that is, before taxes and benefits) compared with 2003–04 was 17%, and that was for the middle of the five income groups. For the top 20%, the increase was 27% and for the bottom 20% it was 39%. After taxes and benefits, the smallest increase for any quintile was 20%. As befits an era of national prosperity, improvements in living standards were widespread.
The second point is that Australia’s tax and benefit system is highly redistributive. The 20% of households at the bottom of the private income scale received just 2.4% of total private income, but took home 10.3% after taxes and benefits were factored in. Conversely, for the top 20%, their 46.5% of total private income was reduced by tax and benefit policies to a 35.1% share of final income.
While the inequality of final incomes is much less than that of private incomes, some say it is still too unequal. Ultimately, this comes down to a value judgment, but in making that judgment everyone needs to acknowledge two matters: a) the extent to which tax and benefit policies already redistribute income, and b) the economic costs of working the redistribution machine even harder.
The third and final point concerns the change in distribution from 2003–04 to 2009–10. For all that is said about changes in tax and benefit policies during that period being too generous to the better-off, the truth is that very little had changed.
The share of final income going to the top 20% did go up slightly, but this was mainly because of an increase in their share of private income rather than the impact of favourable tax and benefit policies. The shares of the bottom three quintiles fell slightly, while the share of the fourth quintile was unchanged. The equalising impact of tax and benefit policies was slightly less in 2009–10 than six years earlier, but hardly enough to enrage those who want more redistribution or hearten those who want less.
Now it’s up to the public to decide whether they want to make informed comments about incomes and their distribution or twist these facts to suit their arguments.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.