ACTU Economic Bulletin - August 2014

ACTU Economic Bulletin – August 2014 –

Key points

One of the main differences between high- and

low-inequality countries is the amount of

redistribution they do through taxes & transfers.

Australia does less redistribution than most OECD

countries.

The amount of redistribution that Australia does

has fallen over time, partly due to policy choices.

The budget will further reduce redistribution in

Australia and therefore increase inequality.

Government could improve the budget bottom

line without increasing inequality, such as by

reforming super tax concessions.

There are a lot of factors that affect the level of

inequality in a country. But perhaps the biggest factor

is the amount that the country chooses to

redistribute through taxes and cash transfers (like age

and disability pensions, family payments, and

unemployment allowances). Countries with similar

levels of inequality in market incomes make different

choices about the amount of redistribution to

undertake, and the result is very different levels of

inequality in disposable incomes. Inequality is

measured using the Gini coefficient, which ranges

from 0, in the case of perfect equality, to 1, where

one person has all the income.

Look, for example, at the United States, Germany,

France and Chile. These four countries have a roughly

similar level of pre-tax, pre-transfer inequality (with

Ginis ranging from 0.5 to 0.53), but they have

dramatically different levels of inequality after taxes

and transfers are taken into account. France and

Germany do a lot of redistribution, and reduce

inequality by about .20 points from .50 to .30. The US

doesn’t do nearly as much redistribution, so its Gini

coefficient after taxes and transfers is about 0.39 –

America only reduces inequality by about half as

much as France or Germany. Chile does virtually no

redistribution at all, so it has a post-tax, post-transfer

Gini of 0.50.

Figure 1: Income inequality in OECD countries: Gini coefficient before and after income tax and cash transfers

Source: OECD Income Distribution Database. The data are the latest available for each country; for most countries this is 2011.

Pre-tax, pre-

transfer

Post-tax, post-

transfer

IrelandGreece

PortugalChile

United KingdomSpain

FranceUnited States

GermanyItaly

AustriaJapan

FinlandBelgiumEstonia

IsraelLuxembourg

TurkeyPoland

AustraliaCzech Republic

SloveniaNew Zealand

CanadaSweden

DenmarkNetherlands

NorwaySlovak Republic

IcelandSwitzerland

Korea

0 0.1 0.2 0.3 0.4 0.5 0.6

Gini coefficient

http://stats.oecd.org/Index.aspx?DataSetCode=IDD


Australia’s level of pre-tax, pre-transfer inequality is

lower than in many other OECD countries (Gini 0.46),

but our post-tax, post-transfer inequality is

somewhat higher than the typical developed country

(Gini 0.32). The difference between those two figures

– 0.14 Gini points – is a measure of the extent of

redistribution that Australia does through direct taxes

and cash transfers. Figure 2 shows that Australia

redistributes income to a lesser extent than most

OECD countries, and only a little bit more than the

US.

Figure 2: Reduction in inequality through taxes and transfers: Difference between pre- and post-tax/transfer Gini coefficients

Source: ACTU calculations based on OECD Income Distribution Database. Data are the latest available for each country; for most this is 2011.

At first, this might seem counter-intuitive. Australia

has a relatively progressive personal income tax

system and we have by far the most targeted welfare

system in the OECD. But the simple fact is that we

don’t raise much in taxes or spend much on transfers.

What we do raise in taxes comes disproportionately

from those who can afford it most, and what we

spend goes overwhelmingly to those who need it

most, but we’re a low-tax, low-spending country. As a

result, we’re a low redistribution, somewhat high

inequality country.

The amount of redistribution that Australia does

through income taxes and cash transfers has also

fallen over time. In the mid-to-late 1990s, we

reduced inequality by about 0.16 Gini points through

direct taxes and transfers. Now that figure is 0.14.1

Figure 3: Reduction in inequality over time: Difference between pre- and post-tax/transfer Gini coefficients

Source: ACTU calculations based on OECD Income Distribution Database.

The 2014-15 Budget, if legislated, will further reduce

the amount of redistribution Australia does through

income taxes and transfers. As a result, income

inequality will rise.

Low income earners will be hit the hardest by the

proposed budget measures. Figure 4 shows

NATSEM’s analysis of the effect of the budget on

1 A recent paper by Herault and Azpitarte (2014) finds that

the decline in income redistribution is mostly due to a change in the distribution of market incomes, but that policy change (such as a reduction in income tax progressivity) also played a role.

0.03 0.03

0.06 0.08

0.10 0.12 0.12

0.13 0.14

0.15 0.15 0.15 0.16 0.16 0.16 0.16

0.17 0.18 0.18 0.18 0.18

0.20 0.20 0.20 0.20

0.21 0.21 0.21 0.22 0.22 0.23

0.27

0 0.05 0.1 0.15 0.2 0.25 0.3

ChileKorea

TurkeySwitzerland

IsraelUnited States

CanadaNew Zealand

AustraliaNetherlands

JapanIceland

Slovak RepublicEstonia

SwedenPoland

NorwaySpain

DenmarkItaly

United KingdomPortugal

FranceCzech Republic

LuxembourgGermanySlovenia

AustriaBelgiumGreeceFinlandIreland

Gini points

0.05

0.10

0.15

0.20

1992 1997 2002 2007 2012

Gini points

UK

Australia

Canada

US



http://melbourneinstitute.com/downloads/working_paper_series/wp2014n02.pdf


various household types. In general, the lower the

income, the larger the reduction in disposable

income as a result of this budget. Some low income

families will see their disposable incomes reduced by

over 5% this financial year; by contrast, very high

income earners will only see a 0.3% decline as a

result of the “temporary budget repair levy”.

Figure 4: Change in disposable income in 2014-15 as a result of the Budget by household type

Source: Phillips 2014, ‘NATSEM Budget 2014-15 Analysis’, May 26. Available online: http://www.natsem.canberra.edu.au/storage/2014-15%20Budget%20Research%20Note.pdf

Figure 5: Change in disposable income in 2017-18 as a result of the Budget by household type


The temporary levy on high income earners is, as the

name suggests, temporary. By contrast, the measures

that will affect low income earners are permanent

and their effect will grow over time. The real impact

of budget measures such as freezing or reducing

indexation of payment rates or eligibility thresholds

increases over time as wages and prices grow. Figure

5 shows NATSEM’s estimate of the effect of the

recent budget on the incomes of various household

types in 2017-18, after the temporary levy has

expired.

The inequitable effect of the recent budget can be

seen most clearly in Figure 6, which shows the

average change in disposable income for each

income quintile for this financial year and for 2017-

18. This year, the average income of low income

earners is expected to be cut by 1.3% by the budget;

the average income of high income earners will fall

by 0.3% relative to where it would otherwise have

been. By 2017-18, the average income of low income

earners will be 2.2% lower than it would otherwise

have been, while high income earners will be slightly

better off (+0.2%) than they would’ve been if the

2014 budget measures hadn’t been implemented.

Figure 6: Mean change in disposable income by quintile as a result of the 2014 Budget in 2014-15 and 2017-18


Dual income

couple, 2 kids

Single income

couple, 2 kids

Single parent, 2

kids

Single person, no

kids

-6%

-5%

-4%

-3%

-2%

-1%

0%

$0 $50,000 $100,000 $150,000 $200,000

Change in disposable income (%)

Dual income

couple, 2 kids

Single income

couple, 2 kids

Single parent, 2

kids

Single person, no

kids -20%

-15%

-10%

-5%

0%

0 50,000 100,000 150,000 200,000


-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

Lowest Second Middle Fourth TopIncome quintile

2014-15

2017-18


http://www.natsem.canberra.edu.au/storage/2014-15%20Budget%20Research%20Note.pdf







The budget will increase inequality in Australia. The

gap between the richest and poorest in Australia will

grow, as the amount of redistribution we achieve will

be reduced further.

If the government wished to improve the budget

bottom line, there are policy choices it could have

made that would not have increased inequality.

Foremost among these is reducing and reforming tax

expenditures, particularly those related to

superannuation. A recent IMF working paper showed

that Australia foregoes more revenue through tax

expenditures than all the other advanced economies

it analysed (Figure 7).

Figure 7: Tax expenditures in advanced economies

Source: Tyson, J. 2014, ‘Reforming Tax Expenditures in Italy: What, Why and How?’, IMF Staff Working Paper, WP/14/7.

Measuring the size of tax expenditures, and

particularly comparing them across countries, is a

difficult and fraught task. Nevertheless, it is clear that

Australia’s tax expenditures are large and growing.

The biggest tax expenditures relate to

superannuation and housing.

Perhaps the most inequitable among these is the flat

tax on superannuation contributions. Contributions

are taxed at 15% regardless of income. This means

that the lowest income earners pay more tax on their

retirement savings than on their regular income,

while those earning between $20 500 and $37 000

pay about the same tax rate on their super as their

take home pay. In other words, they receive no

concession on their retirement savings. By contrast, a

very high income earner faces a marginal tax rate of

45% and pays the same 15% flat tax on super

contributions, thus receiving a concession of 30

percentage points. The value of this concession to

top income earners is so large that they actually

receive more support for their retirement, through

super tax concessions, than low income earners do

through the age pension, as shown in Figure 8.

Figure 8: Government support for retirement by income level

Source: Treasury 2012, ‘Distributional Analysis of Superannuation Tax Concessions’, Paper to the Superannuation Roundtable. Figures pertains to percentiles of the male income distribution.

The government could have reformed

superannuation tax concessions if it wished to

improve the budget bottom line. Instead, it has

chosen a package of measures that will make

Australia more unequal.

Please send any comments, corrections, criticisms or

compliments to Matt Cowgill at [email protected].

0.6

0.9

0.9

1.1

1.8

1.9

2.2

2.6

2.7

2.9

3.1

3.8

5.9

7.5

8.1

8.3

0 2 4 6 8 10

Portugal

Korea

Germany

Switzerland

Netherlands

Canada

France

Norway

Denmark

Austria

Greece

Spain

UK

USA

Italy

Australia

Per cent of GDP $0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

10 20 30 40 50 60 70 80 90 95 99

Total support

Percentile of income distribution

Super tax concessions

Age pension

http://www.imf.org/external/pubs/ft/wp/2014/wp1407.pdf

http://www.imf.org/external/pubs/ft/wp/2014/wp1407.pdf

http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/Distributional-analysis-of-superannuation-taxation-concessions

http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/Distributional-analysis-of-superannuation-taxation-concessions

mailto:[email protected]


The tables and charts below summarise the latest

available data about the Australian labour market.

Table 1: Summary of labour force figures

Level Monthly change

Year-ended change

Employed persons 11,576,600 -300 101,700

- Full time employment

8,077,400 14,500 61,000

- Part time employment

3,499,200 -14,800 40,600

Working age population

19,069,200 26,000 342,100

Employment-to-population ratio

60.7% -0.1 -0.6

Unemployment rate 6.4% 0.3 0.7

Unemployed persons 789,000 43,700 103,300

Youth unemployment rate

14.1% 0.5 2.1

Participation rate 64.8% 0.1 -0.1

Underemployment rate (quarterly)

7.6 0.2 0.3

Source: ABS 6202, seasonally adjusted.

Figure 9: Change in employment between June and July 2014

Source: ACTU calculations based on ABS 6202, seasonally adjusted.

Figure 10: Change in employment in the year to July

Source: ACTU calculations based on ABS 6202, seasonally adjusted.

Figure 11: Unemployment rate

Source: ABS 6202.

Figure 12: Employment to population ratio (15+)

Source: ABS 6202.

19.6

-21.5

-1.9 -5.1

6.7

1.6

14.5

-14.8

-0.3

-25

-20

-15

-10

-5

0

5

10

15

20

25

Full time Part time Total

Thousands

Males Females Total

34.8

0.5

35.4

26.2

40.1

66.3 61.0

40.6

101.7

0

20

40

60

80

100

120

Full time Part time Total

Thousands

Males Females Total

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Jul 04 Jul 06 Jul 08 Jul 10 Jul 12 Jul 14

Per cent

Seasonally adjusted Trend

58

59

60

61

62

63

64


Per cent


Figure 13: Unemployment rates by state/territory

Source: ABS 6202, trend.

Figure 14: Participation rate

Source: ABS 6202.

Figure 15: Underemployment and unemployment rates

Source: ABS 6202, trend.

Figure 16: Employment growth in the year to May 2013

Source: ACTU calculations based on ABS 6202, trend.

3.9

4.8

5.0

5.8

6.5

6.6

7.1

7.5

4.0

5.6

4.7

5.6

5.9

5.8

6.4

8.2

0 2 4 6 8 10

ACT

NT

WA

NSW

Qld

Vic

SA

Tas

Per cent

Jul 2013

Jul 2014

63.0

63.5

64.0

64.5

65.0

65.5

66.0

74.0

74.5

75.0

75.5

76.0

76.5

77.0


15+ (%) 15-64 (%)

15-64 (LHS) 15+ (RHS)

0

2

4

6

8

10

12

14

May 09 May 10 May 11 May 12 May 13 May 14

Per cent

Unemployment

Underemployment

-51.1

-33.3

-15.8

-9.8

-9.3

-9.1

-6.1

0.6

4.0

4.6

9.6

12.4

14.1

19.1

22.3

25.7

33.4

43.2

46.8

-60 -40 -20 0 20 40 60

Wholesale Trade

Accommodation & Food Services

Arts & Recreation Services

Information Media &…

Public Administration & Safety

Financial & Insurance Services

Transport, Postal &…

Administrative & Support…

Mining

Electricity, Gas, Water & Waste…

Professional, Scientific &…

Retail Trade

Construction

Manufacturing

Education & Training

Rental, Hiring & Real Estate…

Agriculture, Forestry & Fishing

Health Care & Social Assistance

Other Services

Thousands


Table 2: Summary of March quarter National Accounts

Level Quarterly

change

Year-ended change

Quarterly real GDP 394929 1.1% 3.5%

Real GDP per capita 16858 0.7% 1.8%

Labour productivity (total economy)

- 0.2% 2.1%

Labour productivity in the market sector

- 1.0% 2.7%

Terms of trade - -1.2% -3.9%

Wages share of income 53.0% -0.2 -0.9

Profits share of income 27.4% 0.0 0.9

Source: ABS 5206.

Figure 17: Growth in real GDP per year

Source: ABS 5206 and ACTU calculations.

Figure 18: Annual growth in nominal unit labour costs

Source: ABS 5206 and ACTU calculations. Non-farm.

Figure 19: Annual growth in labour productivity (GDP per hour)

Source: ABS 5206.

Figure 20: Growth in output (gross value added) – year to March 2013

Source: ABS 5206.

20-year average,

3.3%

0%

1%

2%

3%

4%

5%

6%

Mar 04 Mar 06 Mar 08 Mar 10 Mar 12 Mar 14


20-year average,

2.5%

-2%

0%

2%

4%

6%

8%


Seasonally adjusted

Trend

-2%

-1%

0%

1%

2%

3%

4%

5%



Work Choices

Fair Work Act

Year-ended growth

-4.2%

-3.6%

-3.4%

-2.2%

-1.6%

0.4%

0.7%

0.9%

1.8%

2.2%

2.8%

3.6%

3.8%

3.9%

5.1%

7.2%

7.5%

8.2%

14.1%

-15% -5% 5% 15% 25%

Professional, scientific and…

Manufacturing

Transport, postal and…

Electricity, gas, water and…

Wholesale trade

Other services

Accommodation and food…

Information media and…

Retail trade

Education and training

Administrative and support…

Agriculture, forestry and fishing

Public administration and…

Arts and recreation services

Health care and social…

Rental, hiring and real estate…

Construction

Financial and insurance…

Mining

Annual GVA growth


Table 3: Summary of prices and wages data

Latest

quarter Level

Year-ended change

Wage Price Index (WPI)

June - 2.6%

Full-time average weekly ordinary time earnings (AWOTE)

May $1,454.10 2.3%

Real full-time AWOTE

May $1,454.10 -0.7%

Total average weekly earnings (AWE)

May $1,123.00 1.6%

National Minimum Wage per 38 hour week

1 Jul 14 $640.90 3.0%

Headline CPI June - 3.0%

Trimmed mean (underlying CPI)

June - 2.9%

Employees’ cost of living (LCI)

June - 2.3%

Gender pay gap May 18.3% 0.8%

Source: ABS 6345, ABS 6302, FWC, ABS 6401, ABS 6467, ACTU calculations.

Figure 21: Annual growth in the CPI and workers’ cost of living (Employee LCI)

Source: ABS 6467, ABS 6401.

Figure 22: Headline and underlying CPI inflation

Source: ABS 6401.

Figure 23: Wage Price Index growth

Source: ABS 6345.

Figure 24: WPI growth in the public and private sectors

Source: ABS 6345.

-1%

0%

1%

2%

3%

4%

5%

6%

Jun 04 Jun 06 Jun 08 Jun 10 Jun 12 Jun 14

Underlying CPI

Employee LCI

0%

1%

2%

3%

4%

5%


Per cent

RBA's target band

Headline CPI

Underlying CPI

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Sep 98 Sep 03 Sep 08 Sep 13

Trend Seasonally adjusted

Long-run average

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%


Private

Public


Figure 25: WPI growth in the year to June by industry

Source: ABS 6345.

Figure 26: Range of WPI growth rates across industries

Source: ABS 6345 and ACTU calculations.

Figure 27: WPI growth in the year to March by state

Source: ABS 6345.

Figure 28: Average weekly ordinary time earnings for full-time adults

Source: ABS 6302.

Figure 29: Average annualised wage increase in federal enterprise agreements

Source: Department of Employment, Trends in Federal Enterprise Bargaining.

3.2%

3.0%

3.0%

2.9%

2.9%

2.8%

2.7%

2.6%

2.6%

2.5%

2.4%

2.4%

2.4%

2.4%

2.3%

2.3%

2.1%

2.0%

2.0%

0% 1% 2% 3% 4%

Education and training

Electricity, gas, water and…

Arts and recreation services

Construction

Health care and social…

Public administration and…

Manufacturing

Australia

Financial and insurance…

Mining

Transport, postal and…

Retail trade

Information media and…

Administrative and…

Rental, hiring and real…

Other services

Accommodation and food…

Wholesale trade

Wholesale trade

0%

1%

2%

3%

4%

5%

6%

7%


Range of growth rates in all industries

Australia

3.1%

2.8%

2.8%

2.6%

2.6%

2.5%

2.4%

2.3%

2.3%

0% 1% 2% 3% 4%

SA

Victoria

NT

Australia

Qld

NSW

WA

Tas

ACT

$2,493.20

$1,716.20

$1,665.40

$1,665.30

$1,659.10

$1,552.20

$1,530.80

$1,462.50

$1,454.10

$1,449.20

$1,442.50

$1,372.90

$1,304.60

$1,294.40

$1,287.30

$1,269.20

$1,088.00

$1,048.10

$1,040.40

$0 $1,000 $2,000

Mining

Professional, Scientific…

Information Media and…

Financial and Insurance…

Electricity, Gas, Water…

Education and Training

Public Administration…

Wholesale Trade

All Industries

Construction

Transport, Postal and…

Health Care and Social…

Arts and Recreation…

Manufacturing

Administrative and…

Rental, Hiring and Real…

Other Services

Accommodation and…

Retail Trade

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Mar 94 Mar 99 Mar 04 Mar 09 Mar 14

Per cent

All current agreements

Agreements lodged in

quarter

http://employment.gov.au/trends-federal-enterprise-bargaining

http://employment.gov.au/trends-federal-enterprise-bargaining

ACTU Economic Bulletin - August 2014

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