The Smith Family's poverty report is simply misleading

Anyone trying to make sense of this debate should bear in mind three further points.

First, there is little doubt that the income figures used by The Smith Family are unreliable, particularly at the bottom end of the distribution. We know from many previous studies that those claiming to have the lowest incomes are often under-reporting how much they actually receive. Many of them regularly spend more than they say they earn, and it may actually make more sense to gauge people’s living standards by their expenditure rather than their reported incomes.

Second, the Smith Family calculations completely ignore the value of government services like Medicare and public schooling, yet these are designed precisely to supplement people’s final living standards. Add these into the calculations and the ‘poor’ get a lot better off, while the gap between the top and bottom narrows.

Third, the report ignores the fact that many of the people who find themselves below the poverty line this year will be above it next year. There is a lot of ‘churning’ in and out of poverty, and the number of people who are in long-term, sustained poverty is much smaller than the number who appear under the ‘poverty line’ at any one time.

Put these three points together, and it is clear that our estimates of the size of the poverty problem need to be revised downwards quite dramatically. We suspect that there are no more than one in twenty Australians living in real, long-term poverty – and it may well be even fewer than that.

The Smith Family, however, continues to insist that poverty is widespread and is getting worse. In a letter sent out to donors and supporters earlier this month, they have repeated their claim that “the rate of poverty in Australia has increased”, and in their February newsletter, they are still maintaining that 11 of their 12 measures show an increase in poverty through the 1990s. It is as if the debate never took place!

Why are organizations like the Smith Family and ACOSS so keen to assure us that things are getting worse when quite clearly they are not? It may be partly because bad news gets you noticed, and these organizations need publicity. But it may also reflect their commitment to a political agenda which favours increased welfare spending and a radical redistribution of people’s incomes. The claim that poverty is getting worse is used to justify the argument that welfare benefits are too low.

Most of those whom the Smith Family says are ‘poor’ are living on government benefits. Exaggerated claims about the plight of Australia’s ‘poor families’ thus translate easily into arguments for an increase in the value of welfare payments (and we should remember that this is an argument which can be repeated over and over, for with a mean-based ‘poverty line’, any increase in the value of benefits will push up the average income, thereby hoisting the poverty line to a higher level and leaving many welfare claimants on incomes which will still be below it, even though they have increased).

Clearly, public opinion is being softened up so that we will accept yet higher taxes and more government spending on welfare. But the best way to help people on income support to improve their living standards is not to raise the level of benefits – it is to get them into the workforce.

The debate we have been having with the Smith Family may sound like two sets of researchers nit-picking, but its implications are enormously important. If the Smith Family was right that one in eight people in this country are poor, we would be looking at a major problem possibly requiring massive and hugely expensive new policies to rectify it (ACOSS, for example, has already urged that welfare benefits be raised).

Fortunately, though, the Smith Family are not right. Poverty today is a manageable, targetable problem, caused mainly by lack of paid work, and it can in large part be overcome by policies designed to get the long-term poor participating actively in the labour force.