Saturday, September 24, 2011

Trouble in Paradise: Incomes

This chart, based on yearly income tax data available at The World Top Incomes Database (WTID), speaks quite eloquently by itself: this is a clear graphical representation of growing income inequality in Australia.

However, I will add a few comments.

Over the first 20 or so years represented in the chart, the top 1% average income (blue line) oscillated over a relatively constant $100K-$150K $150K-$200K band (all money figures in 2010 dollars).

Meanwhile, after an initial period of relatively constant growth from the early 1960s to the early 1970s, the bottom 90% income average (green line) tended to stabilize during the rest of the 1970s and early 1980s. Considering that the top 1% income average remained relatively stable over the same period, the behaviour of the adult average income (red line) can safely be considered a result of the behaviour of the bottom 90% income average. In the chart this shows as the red line paralleling the green line.

1983: Bob Hawke (Labor) occupied the prime ministership (see chart: from A to B). In 1991 Paul Keating (Labor) replaced Hawke as prime minister (from B to C). In 1996 John Howard (Coalition) assumed the prime ministership, which he kept until 2007 (from C to D): the last year for which the TWID has data.

The Hawke/Keating government has the dubious honour of starting Australia's "economic rationalization", principle guiding economic policy in Australia ever since.

Another common feature of this period is that the top 1% income average shot up in quite a regular manner: 197.4% over the entire period; but at an increasing pace: averaging 4.0% p.a. during the Hawke period, 4.7% p.a. during the Keating period and 7.5% p.a. during the Howard period. [1]

That result does not account for the 2 periods of unusually high growth for the top 1% income average: the 1986-1990 years (first spike in the blue line, within the Hawke period), and the 1998-2001 years (second and smaller spike in the blue line, within the Howard period).

As a comparison, during the period 1983-2007 the bottom 90% income average (green) at times remained almost unchanged, sometimes increasing, sometimes decreasing. As a result, over the whole period, the bottom 90% income average grew 29.8% (1.2% p.a.).

It can be seen in the chart above that the adult average income (red line) starts to separate from the bottom 90% income average (green line): the growth in adult average income is driven in large part by the growth in the top %1 average income; thus adult average income increasingly overestimates the real income situation of most Australians.

The following chart zooms in to provide a clearer picture (see chart legend: colour code changes!):

We must consider the current campaign to revive WorkChoices in the previous context, taking into account that the world seems on the verge of a renewed recession, with the consequent increase in unemployment and lower wages.

The opposition knows its leader Tony Abbott has a very good opportunity of giving the Coalition a historical electoral victory against the weak minority Labor Government.

If I had to guess what's behind this campaign, I'd say that big business (acting with characteristic opportunism) and former PM John Howard and Peter Reith consider this a chance to further lower wages and reduce working conditions, at very little political cost. And given that any cost of an unlikely defeat would fall upon Abbott, it's possible that Reith would not regret that event that much.

In any case, the adoption of a technocratic rationalization (productivity and "flexibility" at its forefront) is simply for PR reasons.

At the other hand, Tony Abbott is understandably reluctant to risk a defeat or even a pyrrhic victory, after all the personal effort he's put into his relentless opposition.

So a first question is who'll prevail within the Coalition, Abbott or the hardliners? More importantly, would Abbott choose to fly under the radar on this subject, before the election, just to announce his intentions to resurrect WorkChoices after becoming PM?

But, foremost, would the combined votes of the Labor remnants and the Greens be enough to stop him?

See also accompanying piece Trouble in Paradise: the Bogeyman Strikes Back.

[1] Calculated for the Hawke period, as an example, in the following manner:
100*($205,914-$156,042)/$156,042 = 32.0%; 32.0%/(1991-1983) = 4.0%

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