A chasm of inequality? Really?

Last week, the St Vincent de Paul Society released a report (pdf file 232KB) warning that Australia is set on "a headlong dash into the chasm of inequality". Unless the Government does something to reverse this trend (presumably by raising taxes on higher earners and increasing welfare payments for those lower down), the report warned of impending catastrophe. "Our society," it predicts, "will face severe dislocation". It warns of "sharpening divisions, discord, increased crime and urban degeneration". It even foresees "a return to the dismal social injustices that characterised the dawn of the industrialised era, when people were kicked when down while governments idly stood by".

Whoa! Wait a minute! Vinnies is a fine organisation that does much good work for the least advantaged in our community. But that doesn't justify its researchers making wild assertions without a shred of evidence or argument to back them up. Where, for example, is the danger of government "standing idly by", given that Canberra this year is spending a record $87 billion on welfare payments? Australia makes a higher level of net cash transfers to the poorest 30 per cent of the population than Japan, the US, Italy, the Netherlands, Germany, Denmark or even Sweden. Vinnies' rhetoric flies in the face of the evidence.

Similarly, the claim that we are on a "headlong dash into the chasm of inequality" is sheer hyperbole. Income inequality can be measured on the distribution of private incomes (before government gets involved), disposable incomes (after tax is deducted and welfare payments are included) or final incomes (taking account of all taxes paid and government welfare, housing, health care and schooling received). Whichever we take, the Vinnies claim does not stand up.

In a speech last month, John Howard noted that the strongest growth in private incomes since 1997 has occurred among low-income households. The Vinnies report dismisses this claim as "a mathematical illusion", pointing out that the huge percentage increase in private incomes recorded for the bottom 10 per cent of earners (up 167 per cent) was tiny in absolute terms (just $26 per week).

This is true but irrelevant because income data for this bottom group is notably unreliable and misleading. Much more reliable are the figures for the second income decile (which the report ignores). This second-bottom group substantially increased its average weekly private income during this period from $196 to $301. This is a big gain in absolute and relative terms, and the 53 per cent increase was much bigger than anything achieved by any higher income group.

Howard, therefore, was correct. Those at the bottom increased their incomes faster than anyone else and this was no mathematical illusion.

Of course, what matters is not our original income but our disposable income once the Government has finished with us. The Vinnies report claims there has been "a very significant shift to greater inequality" in disposable incomes, but this is grossly misleading.

Australian Bureau of Statistics surveys between 1994-95 and 2002-03 suggest there may have been a small increase in inequality of disposable incomes. A statistic called the Gini coefficient, which measures inequality on a scale from 0 (total equality) to 1 (maximum inequality), rose in this period from 0.302 to 0.309. The ABS warns that a gain of just 0.007 is not statistically significant: it could have resulted from sampling error. But Vinnies refers to this change as very significant.

The ABS also tells us that since 2000-01 real average disposable incomes grew by 4 per cent at the bottom compared with just a 2 per cent rise in the middle and at the top. There is, however, no mention of this in the Vinnies report. Nor does the report say anything about the distribution of final incomes during this period, yet research by the National Centre for Social and Economic Modelling finds that "final income distribution [was] largely unchanged between 1995-96 and 2001-02".

Far from hurtling towards social meltdown, what all these figures show is that little has changed in the distribution of incomes since the mid-1990s. Private income differentials may have narrowed a bit; disposable incomes may have widened a fraction; final incomes don't seem to have changed. Yet on the strength of these figures Vinnies calls for action against the "unfettered growth of injustice and want".

Why is Vinnies risking its reputation putting out such exaggerated and hysterical material? This is not the first example. In recent years, it has attacked the privatisation of Telstra as a social crime; dismissed the market system as exploitative; criticised labour reforms as a frontal assault on the working class; demanded higher taxes on high earners and an end to government support for private schools; and complained of an insidious American influence over Australian society.

The original St Vincent de Paul was a French monk who devoted his life to caring for orphans, founding a hospice, giving work to the unemployed and establishing rural kitchens. Research by the organisation that bears his name today seems to find more inspiration in Karl Marx than in St Vincent.