They're not really that poor

Australia's welfare lobby is at it again. In a report issued last week, an alliance of welfare groups claimed that more than 11 per cent of Australian households are living in poverty, and that their numbers are rising.

The Uniting Church president described this as scandalous. A St Vincent de Paul activist said it shows the need for a national vision instead of piecemeal programs. And the head of the Australian Council of Social Service came right to the point by demanding more funding for essential services.

Working people in this country are paying tax to support more than 700,000 disability support pensioners, about 600,000 welfare parents, nearly half a million unemployed and two million aged pensioners, not to mention more than three million families claiming Family Tax Benefit.

While unemployment figures are at 30-year lows, total welfare dependency is at record highs. A workforce of 10 million is supporting two million welfare claimants of working age, plus another two million aged pensioners. The cost is phenomenal: more than $70 billion on social security and welfare payments alone. Yet ACOSS says we should be spending even more.

Few Australians begrudge helping those who really need support, but they do resent paying for people who could be supporting themselves. Research a few years ago found 56 per cent think the welfare state makes people less willing to look after themselves, and only 34 per cent want more of their taxes spent on welfare benefits for the poor.

The welfare lobby is well aware of this public resistance to higher welfare spending. That's why it persists in producing wildly exaggerated and misleading reports about the size of our poverty problem. They think if they can get us to believe that huge numbers of our fellow citizens are suffering, our sense of fairness will lead us to support their demands for more government spending. They even called their latest report Australia Fair.

There are two reasons why we should refuse to go along with this.

The first is that their definition of poverty is entirely arbitrary. They say anyone is poor who has less than half the median income. On this definition, 11 per cent of Australians are poor. But their report also says you could define poverty as an income less than 60 per cent of the median income, in which case 19 per cent of Australians are poor. We could play this game indefinitely. To increase your poverty estimate, simply draw your line at a higher level.

What this report is really doing is measuring income dispersion, not poverty. It shows that the proportion of the population receiving less than half the median income has grown from 10 per cent to 11 per cent during the past three years. It calls this an increase in poverty, but all it really means is incomes have become slightly more spread out.

Comparing the incomes of people at the bottom with those higher up tells us about the difference between them, but it tells us nothing about whether they are poor or rich. This slight increase in the income spread has actually coincided with a rapid rise in real incomes at all levels, so everyone has been getting better off. To describe this as a growth of poverty (and even as sad and scandalous, as the Uniting Church did) is clearly absurd.

The second reason for taking this report with a pinch of salt is that it takes a static snapshot rather than looking at people's incomes over time. Household incomes fluctuate, so most people who appear under any arbitrarily drawn poverty line do not stay there long. Research following a panel of Australian households for several years found 12 per cent had less than half the median income in the first year, but only 6 per cent had an income this low for two years running, and just 4 per cent stayed under the line for three years. Sustained poverty, as against a temporary income drop, is thus much lower than the welfare lobby would have you believe.

Moreover, people adjust to fluctuating incomes through their lifetime by changing their pattern of borrowing, saving and spending, so their living standards actually vary much less dramatically than their incomes do. Research at the Melbourne Institute has found people on low incomes do not necessarily consume less food, clothing, transportation, gas, electricity, health insurance, alcohol, meals out or home maintenance than other people do. Living temporarily on a low income does not necessarily translate into poor living standards.

The Melbourne Institute study combines income and consumption into a single measure of poverty. It finds that only 3 per cent of the population comes out as poor at any one time on this measure, and just 1 per cent remains poor over two successive years. The study concludes: "Existing income-based measures (of poverty) are seriously in error. The results they give are much too high".

Some of us have been saying this for a long time, but it is not a message the welfare pressure groups seem willing to listen to.