Inequality fell under Swan, but it wasn't his doing

WAYNE Swan tells us his source of inspiration is Bruce Springsteen, and his anthems for the working-class battlers of America. It's a new way to try to persuade us that Labor's goal is to make Australia a more equal place and the Liberals' goal to make it a more unequal one.

It might work, because this is an issue on which Labor has a good story to tell. While John Howard in his first eight years as PM was sensitive to the needs of the "battlers", he lost office largely because he lost that focus as he went on. Swan as Treasurer has done nothing dramatic to make Australians more equal. But he has persistently pushed his "Labor values" into virtually every reform, every fiscal package, to nudge the outcomes in that direction.

It's gone surprisingly unnoticed, except by those on high incomes, who have found themselves excluded from virtually every initiative Labor has taken to "ease the burden on struggling Australian families". That has fuelled the perception among some of them that Swan is a class warrior, and his bid to recruit Springsteen to the cause only intensifies that.

To take a few examples:

. All of Labor's handouts to families were targeted to lower and middle-class households, and left out those on incomes above $150,000. High-income earners have lost their tax rebates for private health insurance, and those on more than $300,000 have had their superannuation tax breaks pruned.

. Making employers lift their superannuation contributions from 9 per cent to 12 per cent could make workers better off, unless employers recoup the cost from lower wage rises.

. Pensioners, including the disabled, won big pension rises in 2009 from the Harmer review although, typically, the unemployed were excluded.

. The big bipartisan tax cuts from the 2007 election went everywhere, but Labor's tax cuts since have gone to the lower half of income earners. The latest lot cut tax by $10 a week for workers on $25,000 a year, but just 5? a week for those earning $80,000 or more.

No economist has tried to piece it all together, so we don't know how much of a difference it has made. The latest income distribution data from the Bureau of Statistics is for 2009-10, and won't be updated for another year. And in any case, so many other factors affect income distribution that its data can't tell us what impact government policies have had.

For example, the distribution of wages and salaries has become far more unequal as we have moved away from national wage fixing and industry awards to enterprise bargaining and individual contracts. That was what was meant to happen, but the size of the shift is startling.

Bureau of Statistics figures show that in the three years to August 2011, average wages for full-time workers at the bottom fell by $4 a week, or 0.6 per cent. Those in the middle had an average wage rise of $36 a week or 3.4 per cent, while those at the top had an average rise of $206 a week, or 10.3 per cent. These changes swamp anything the government has done.

The wage share of national income has fallen and the profit share has risen, so that returns to investors now account for a far bigger share of income. This boosted the share of income going to high-income earners in the boom years, and has shrunk it since the GFC bust.

Moreover, Swan's concern for working families specifically excludes the unemployed. Even in opposition, when he wrote a book, Postcodes, on the inequity of Australia's income distribution, he ignored the ugly fact that we pay the unemployed a benefit below the poverty line. Now in office, this Springsteen fan ignores them still, expecting them to live on $35 a day.

But Labor has kept intervening in small ways to favour working battlers, and it is false to pretend otherwise as The Australian did last Thursday when it ran across its front page a supposed expose.

"Inequality has grown on working-class warrior's watch", its headline ran. "Income inequality has increased slightly on Wayne Swan's watch", its story began. Yet the figures it cited showed the opposite.

It reported that inequality had increased over a 10-year period (which 10 years was not clear). Yes, the bureau data shows inequality did rise between 1995-96 and 2007-08, but that was under the Howard government. Swan became Treasurer only at the end of 2007. His first budget took effect in 2008-09. The Australian chose to blame Swan for the growth of inequality under Howard.

Its story eventually quoted the data for what happened under Swan's watch. The share of income going to the top 20 per cent of earners "rose to 47.6 per cent in 2007-08 before easing back to 46.7 per cent in 2009-10". Inequality in fact fell on Swan's watch.

But that wasn't primarily due to him. The GFC cost investors a heap of money, and investors tend to be in the top 20 per cent of income earners. Let's get real.

What is remarkable in all this is that, in small ways, Swan has quietly put income equality back on Australia's political agenda. It's nothing dramatic. Probably all Labor has done has been to moderate the growing inequality of wage and investment income.

But if you believe in equality of opportunity, it is a step forward. Those doing well in the markets don't need more help from government. It should focus on helping those who need it.

Read more >>

The rich getting richer ... again

THE 2008-09 financial year - when the global financial crisis took hold - was a bad one for Australia's rich.

As share prices dived, markets froze in fear and everyone's wealth shrank, the top 1 per cent of income earners saw their share of Australia's total taxable income slashed from 10.1 per cent to 8.6 per cent.

But the following year, 2009-10, was better at the top. Calculations by economist and Labor MP Andrew Leigh show that - even after tax accountants had done their best - the top 1 per cent of earners declared 8.9 per cent of all taxable income in Australia. This was almost twice their share 30 years ago.

Dr Leigh, who was a professor at the Australian National University before entering politics, presented his findings this week to the annual conference of the Economic Society. He argued that the widening gap in income distribution offended Australians' sense of ''a fair go''.

His findings, based on Tax Office data, show that in 2009-10:

?The top 0.1 per cent of adults (17,500 people) earned at least $650,823 each - 3 per cent of Australia's income.

?The top 1 per cent (175,000 people) earned at least $194,365, and almost 9 per cent of all income.

?The top 10 per cent (1.75 million people) earned at least $78,375, and 31 per cent of all income.

Dr Leigh said many economists thought inequality did not matter, dismissing it as ''the politics of envy''.

But he argued that many people showed ''a preference for equality'', seeing balanced income distribution as ''a public good''. Inequality also had practical implications, he said.

His data shows that inequality was most extreme in the 1920s, when the top 1 per cent earned 11.4 per cent of taxable income.

Largely due to government policies, the inequality shrank steadily over the next 50 years to a low of 4.6 per cent in 1981-82, when Malcolm Fraser was prime minister and John Howard was treasurer.

By the end of the Hawke-Keating era in the mid-1990s, the share of the top 1 per cent had rebounded to 7.2 per cent. It climbed to 10.1 per cent before the GFC broke its rise.

The richest 10 per cent claimed 35 per cent of all individual incomes in 1941-42. Their share shrank to 25 per cent by 1978-79, then rebounded to 32 per cent by 2006-07.

Read more >>

Sense in carbon tax oddities

IT DOES seem weird. With all Australian households facing higher costs from the carbon tax, how is it that the biggest compensation will go to retired couples with a combined private income of $80,000?

Why is it that single working Australians on the same income will receive virtually no benefit from the tax cuts Labor proposes to ease the cost of the carbon tax?

And what is it about having a combined income of more than $150,000 that seems to disqualify households from receiving any benefit from Labor government programs - whether it's tax cuts, family benefits, paid parental leave - or now, relief from the carbon tax?

A close look at the detailed costs and benefits for households of 18 different types and 28 levels of private income might well leave one puzzled as to why the package was designed this way.

Treasury estimates that, of the 504 different households modelled:

. The biggest winners are (mostly) self-funded retiree couples with no dependants and a combined income of $80,000, split 70/30 between them. Thanks to a combination of tax cuts, pension rises and increased Medicare levy thresholds,they will get $2289 more from the government, yet they face a carbon tax bill of only $501. They will end up ahead by $1788 a year.

. In sharp contrast, a couple with three young children and a single income of $150,000 will get only $77 back from the government to help them pay an effective carbon tax bill of $785. They will end up behind by $708 a year.

. And single individuals will be net losers from the tax package if they earn more than $50,000. A single earning $80,000 will receive just $16 in benefits but pay $441 from businesses passing on the carbon tax.

This outcome seems to make no sense, but there are reasons why it happened.

Firstly, Labor wanted to ensure no one at the bottom was worse off. So it decided to lift benefits by 1.7 per cent, even though the modelling estimated the carbon tax would cost people on benefits just 1.1 per cent (which is more than the 0.7 per cent average for all households, because people on benefits spend more than they earn).

But in a futile bid to avoid complaints from the seniors lobby (which complained anyway), Labor passed on this benefit to anyone with a seniors health card. So self-funded retirees won on every count: pension rises, tax cuts, and for those in the sweet spot, exemption from the Medicare levy.

Secondly, the tax cuts. Since 2008, to boost work incentives, Labor has doubled the low-income tax rebate for millions of workers, from $750 to $1500. But people didn't see it as a real tax cut. So this time Labor will strip back the rebate and lift the tax-free threshold for all to $18,200 - and then claw back most of it by raising marginal tax rates. That means the tax cuts erode as your income rises, and cut out at $80,000.

While one aim was to lure more women and older people into part-time work by making it tax-free (to $18,200), inevitably, the main gains will go to people who did not get the low-income tax rebate: retirees whose incomes are from investments.

Family benefits will also rise, but they start cutting out at about $100,000, depending on how many children you have. By $150,000 they are gone, so families earning above that will get no help paying their carbon tax.

They also missed out on family handouts during the global financial crisis, on paid parental leave, on the baby bonus - and if Labor can get the legislation through, on tax breaks for private health insurance.

But bear in mind that individuals on $150,000 were the big winners from the Coalition's tax cuts. From 2003 on, they gained a massive $14,430 rise in take-home pay. Both sides protect their own.

Read more >>

Tax benefit anger wasted on those earning $150,000

IF YOU'RE earning $150,000 a year, are you living on Struggle Street? Should we be outraged for you if some government decides you don't need family benefits?

No. Taxation statistics imply that only 3 to 4 per cent of Australians earn $150,000 a year. Compared with other Australians, they're not struggling.

Far more Australians have household incomes over $150,000. Updating the latest household income data from the Bureau of Statistics, 17 per cent of households, or one in six, have pre-tax incomes of more than $150,000.

But that's almost irrelevant to the budget cuts. The only benefit that depends on household income being under $150,000 is the baby bonus. And freezing its threshold until 2014 will deny benefits to only about 2000 families.

Coalition and media claims that households on $150,000 would lose the much bigger Family Tax Benefit B are wrong. They would lose Family Tax Benefit B, or the dependent spouse rebate or paid parental leave, only if the income of the primary earner rises over $150,000.

Anyone on that salary is not on Struggle Street. In 2008-09, only 3 per cent of Australians reported taxable incomes of $150,000 or more. Since then, household incomes per head have grown by 5 per cent. If evenly distributed, that would put 3.5 per cent of Australians above $150,000.

Families Minister Jenny Macklin said yesterday that only about 20,000 people stand to lose Family Tax Benefit B under the changes. "And let's remember: if they get a pay rise, families will still have more money in their pocket overall," she said.

However, it is a different story for the biggest benefit of all: Family Tax Benefit A, which goes to 1.9 million families, and will cost taxpayers $13.7 billion next year. It has no single threshold, but a number of them, depending on how many children you have, and their age. They range from $101,191 upwards, with most between $110,000 and $150,000.

Bureau of Statistics data for 2007-08, updated for growth in household incomes since, implies that a third of Australian households now earn more than the lowest threshold and by 2014, almost one in two could be above the threshold at which about the basic benefit starts to reduce.

Ms Macklin said yesterday about 76,000 families, about 4 per cent of beneficiaries, are likely to lose Family Tax Benefit A because of the freeze on thresholds. Another 210,000 families, or 11 per cent, will face a reduction in benefits.

Read more >>