Two sides of a growth

Two sides of a growth

by | 4 Jul, 2018 | Australia, economics, income, Inflation, medium read, social issues

With all the talk of wage stagnation, you’d be forgiven for thinking Australia lives in struggle town. Yet, incomes have increased so rapidly that today’s full-time median wage would put you in the top quartile 20 years ago!

Real growth

While growth slowed down over the past couple of years, Australians’ income is coming off two decades of boom. The average full-time wage (inflation adjusted) has increased by 41% over the period. This means that even with the increased cost of living, the average Australian worker can now buy almost half as much more stuff than in the late 90s.

But averages only paint a slither of the picture. More impressive is how the increase has permeated across all income levels (albeit to different degrees).

When spreading fulltime workers across an earning continuum, the past two decades have basically moved everyone up at least 20 percentile points.

Today’s median income (the 50th percentile) would put you above the 75th income percentile in 1996. And you only need to be around the 65th percentile to have an income equivalent to that of the top 10th percentile in 1996. Potentially most importantly, today’s poorest 10th percentile earns more than the 30th percentile did in 1996.

Does this mean Australia has eradicated the bottom 20 percentile of workers?

It depends on how you look at it.

A graph may paint a thousand words, but which words depend on your point of view.

Seen through a prism of ‘absolute’ progress, the graphs above suggest Australia has improved drastically. People are richer, and those on the lowest wages are much better off than they used to be.
Those primed for this view of the world will no doubt take that message from this story and have a reinforced idea that the world is getting better; we’re on the right path.

Relative growh

However, seen through a ‘relative’ prism of equality, the graphs highlight the growing gaps between the “haves and the have nots” (even if the have nots have much more than the have nots used to).
The boom was not felt equally.

While the median income increased by 35%, the income of the top decile increased by almost 50%. Meanwhile the 10th percentile increased by 25%. In 1996, the 90/10 percentile ratio was 255%. 20 years later the gap widened to 305%. While the real difference is narrowed by the taxes upon this incomes, it’s fair to say that income inequality has increased.

Real vs Relative

Most people are much better off than before. Yet, many still feel worst in comparison to those around them. The progress and improvements in our lives pale in comparison to comparisons themselves. This may be explained by behavioural economics better than the traditional variety. Perhaps comparing ourselves to those around us might be easier and more front of mind than accurately remembering the past. Perhaps it’s our bias towards feeling losses harder than gains. Whatever the case, I don’t think enough attention is being paid to all the things we have, and too much is being focused on what we’re missing out on. Should we not find a way to enjoy the situation we are in, and not let “comparisons be the thief of joy”1.

We have never lived in an age of such generalised affluence.Our standards and expectations are beyond what any previous generation dreamed of. The growing income, and more importantly wealth inequality are hugely important issues. But we should acknowledge the other side of the graph. Partisans often ignore one point of view fearing it will diminish their own. But ignoring the progress, or overly focusing on the negatives, misleads people to thinking we’re worst off than we are. We start feeling self-pity and fail to acknowledge our place in the world. We should continue to work towards a fairer world, but not at the cost our capacity to enjoy what we have.

Australia is not only at its richest point in time, it’s also among the richest in the place (world).  Perhaps by acknowledging how far we’ve come, we can start paying more attention to helping those beyond our coast lines.

We should fight to make this a better world, but we should not ignore the fact that our world, our time and place, is heaps good.

 

Sources:

All income data from :

ABS’s Employee Earnings and Hours, Australia

2016: http://abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6306.0May%202016?OpenDocument

1996: http://www.ausstats.abs.gov.au/ausstats/free.nsf/0/CE23DC841D70810FCA25722500073754/$File/63060_0596.pdf

1: Disputed quote from Theodore Roosevelt – https://en.wikiquote.org/wiki/Theodore_RooseveltQuote from

They don’t make rates like they used to

They don’t make rates like they used to

by | 9 Apr, 2017 | Australia, economics, housing, income, Inflation, social, social issues

Australian mortgage affordability has not changed in over 20 years.

This statement needs a pinch of caveats and a blanket of context, but when all is said and done housing costs have been surprisingly steady.

I didn’t want to write about housing affordability so soon after we checked our privilege, but a Fitzsimmons article in the Sydney Morning Herald piqued my interest. In it, Fitzsimmons focuses on two key affordability ingredients: interest rates and house prices, concluding that “younger Australians definitely have it tougher when it comes to housing affordability”.

There are many ways of measuring housing affordability, but I find Fitzimmons’ measure of choice to be more relevant than most. What proportion of a household’s income is spent on mortgage repayments. According to the article, in the late 80s and early 90s:

“When interest rates were 17 per cent, the proportion of household disposable income that went on the interest payments for the home loan was 6.1 per cent. It’s currently 6.8 per cent.”

These figures metaphorically killed my cat. If interest repayments are below 7%, then why all the commotion?

I believe the article is wrong about the figures, but nailed their consistency.

 

(Data sources for graph in notes below.)

 
According to data from the Australian Bureau of Statistics, households spent around 24% of their disposable income, on average, on mortgage repayments in 2010. Over half of which went to paying off the interests alone. Mortgage costs as a percentage of gross household income (I’ll use gross instead of disposable from here-on-in as it’s more readily available) have been steady since at least 1993, bouncing between 19% and 23%. Some of this fluctuation may even be ‘margin of error’ as the figures are roughly +/- 2%.  So servicing mortgages now appears at worst as affordable as back in the 90s and 2000s. At best about 4 percentage points lower than in the mid-90s. Repayments were a little smaller in the 80s but the difference is not as big as I expected (15% in 1984 and 18% in 1988-89). Some of this difference is also cushioned by decreasing costs of related items such as furniture and household equipment, which has halved in relative cost compared to 1984 (down from 6% of household income to 3%).

Also, while the outlay in the 80s was smaller, a larger proportion of the repayments were spent covering the interest rather than going towards decreasing the debt.

 

 
What about outside of our beautiful borders?

Affordability seems to me more relative than absolute. Australian mortgages may not have changed much in the last decades, but how do we compare to other countries? Lacking an internationally recognised standard for such a measure I was only able to research other rich English speaking countries (my French, Arabic and Chinese aren’t quite up to scratch). And from what I gathered, repayments here are comparable to those in Canada, UK, USA and NZ.

 

 
None of this talks about people’s difficulty in breaking into the market, nor how hard it is for low income families to afford a home of their own. But it does suggest that Average Aussie Anne’s situation is not special. Housing has been at similar levels for a while, and it is also at similar levels in other similar countries. So, either the level of affordability is fine, or it’s equally un-affordable elsewhere/else-time.

Also, if the situation is so similar in other countries which have very different taxation systems, with or without such policies like Capital Gains, Negative gearing, and building controls, then ‘solving’ this may not be as easy as some suggest.

 

Sources

  • The Graph 1 is made from 2 different sources:
  • The Household Expenditure Survey, detailing Interest and Principal Payments separately.
  • The Housing Occupancy and Costs Survey which only provides a total amount. This survey only has “housing costs”, which also includes rates, etc. To account for this, estimates for non-mortgage costs are derived by subtracting the value of “Owner without a mortgage” from “Owner with a mortgage”. It isn’t perfect, but I believe it accurate enough for this purposes.
  • Australian data:
    http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6530.02009-10?OpenDocument (various years)
    http://www.abs.gov.au/ausstats/abs@.nsf/PrimaryMainFeatures/4130.0?OpenDocument
  • USA:
    https://www.census.gov/programs-surveys/ahs/data/interactive/ahstablecreator.html#?s_areas=a00000&s_year=n2011&s_tableName=Table10&s_byGroup1=a7&s_byGroup2=a1&s_filterGroup1=t2&s_filterGroup2=g1https://www.census.gov/programs-surveys/ahs/data/2005/ahs-2005-summary-tables/h150-05.html
  • UK:
    https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/compendium/familyspending/2015/chapter4trendsinhouseholdexpenditureovertime
    https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/compendium/familyspending/2015/chapter2housingexpenditure
  • NZ:
    http://www.stats.govt.nz/browse_for_stats/people_and_communities/Households/HouseholdExpenditureStatistics_HOTPYeJun16.aspx
  • Canada:
    http://www5.statcan.gc.ca/cansim/a47
    http://www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-014-x/2011002/tbl/tbl03-eng.cfm

Helping all – UK’s distribution of public funding

Helping all – UK’s distribution of public funding

by | 11 Sep, 2016 | consumption, economics, Europe, income, public funding, social issues, social security, tax

Redistribution of funds through tax can happen in one of two main ways:

  • you collect more from the rich than the poor and give everyone an equal share, or
  • you collect the same amount from everyone and distribute more to those in most need.

Gov Exp 1

 

But how much is the UK doing of either?

In short, relatively nothing on the first type of distribution, and not a lot on the second.

I say relatively nothing as households across the UK pay roughly the same percentage of their income on tax, no matter what their income. Obviously, those with higher incomes pay larger amounts, but as a proportion, it is not greater than what the poor pay.

On the second type, while the Government does provide greater benefits to the poorer sections of the community, the difference between benefits to the poor and rich is not way near as large as many would have you believe.

 

Collecting more from the rich

As discussed in a previous post, the amount of tax paid across the community is pretty much the same, relative to their income. So, while the rich contribute the most, they contribute the same percentage of their income that the poor do (when including income tax and indirect taxes).

 

Are we distributing more to the poor?

According to the latest UK Budget papers, the UK Government will spend roughly “£772 billion in 2016-17”[1].

The budget gets spent as follows:

  • £517 (67%) on services consumed by individuals, e.g. health, education, social security
  • £168 (22%) on untargeted national stuff, e.g. defence, paying debts, public order
  • £87 (11%) on services which may or may not support some over others, but it’s harder to ascertain its distribution, e.g. agriculture, industry, employment, transport

For the purposes of this post, I will ignore the 11%, as I can’t find reasonable distribution analysis, and what’s 11% anyway.

Gov Exp 11

So, how do targeted services get dispersed across the income groups?

Health

Health accounts for 19% of all UK Government expenditure, with the average household in 2013/14 consuming around £4,200 in services.  While obviously not every household consumes the same amount, the difference across income groups is surprisingly small.

Gov Exp 2

That’s to say, households from across the various income groups in the UK consume just over £4,000 worth of health services. Those with the lowest and highest incomes appear to consume slightly smaller amounts.

 

Education

Consumption of education services does vary. In 2013/14, the poorest 3 deciles consumed just over double what the richest 10% of households did.  This difference, however, appears to be largely driven by the number of students in the house, rather than their income.  Students (from primary school to university) are twice more likely to live in the poorest 30% of households than in the richest 10%.  After adjusting for number of students per household, education expenditure is remarkably similar across the income ranges.

Gov Exp 3

(As student estimates are rounded to 1 decimal place, the estimates graphed include an unrounded range, e.g.: the poorest households have 0.7 students per house, but are graphed from 0.65 to 0.75)

 

Social Protection & Personal social services

Unlike health and education, social protection and personal services are targeted based on income. But even these payments are possibly less lopsided than is expected.

The poorest half of the community receives 80% more than the bottom half. While the average household receives £6,000, the 2nd and 3rd poorest received the most, at £9,000. The richest and second richest deciles, on the other hand, received £2,400 and £3,500 per year respectively.

Gov Exp 35

 

When you add it all up

Other than social security, which is mostly targeted at the lower middle class, the majority of government spending is spread out quite evenly across the income groups. The end product, being one that while leaning towards supporting the lower middle class, provides a relatively equal distribution.

Gov Exp 4

*not including 11% spent on Agriculture, Transport, Industries, etc.

 

Sources

[1] https://www.gov.uk/government/publications/budget-2016-documents/budget-2016

http://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/datalist?filter=datasets

Parliament photo by : luxstorm – https://pixabay.com/en/users/luxstorm-1216826/

Equality: what progressive income taxes giveth, consumption taxes taketh away

Equality: what progressive income taxes giveth, consumption taxes taketh away

by | 29 Aug, 2016 | consumption, economics, Europe, income, politics, social issues, tax

There are two broad types of taxes: direct and indirect.

Direct taxes are charged directly by governments, usually on income. This facilitates progressive targeting, taking more from high earners and alleviating the  burden on the poor.

Indirect taxes (e.g. VAT, GST, fuel and tobacco levies) are charged by anyone providing a good or service upon consumption. And the 7–Eleven down the street doesn’t know whether you are rich or poor. So a chocolate bar will incur a 20% tax, whether you earn £10,000 or £100,000.

 

How much does this matter?

The impact of indirect taxes depends on how much you earn. Unfortunately, the less you have the more it impacts.  While income tax progressively increases as your income increases, consumption taxes are regressive. As a result the poorest 10% of UK’s households spend a third of their income on indirect taxes.  The richest 10% on the other hand only spend £1 of every £10 they earn in indirect taxes¹.

Indirect Tax UK 1

The impact of these regressive indirect taxes are such that they cancel out the progressiveness of the income taxes.  That is, once both sets of taxes are considered; households across the UK’s income spectrum contribute the same amount relative to their income. In fact, the poorest 10% of households contribute 10 percentage points more than any other income group.

This trend grew drastically from the late 70s till 2002, and appears to have plateaued since. But it does not appear to be disappearing.

Indirect Tax UK 2

 

But, what if…

…  the UK got rid of indirect taxes. What if it raised the same revenue as it does today entirely through income taxes, using its current progressive pattern?

Using this ‘what if’ scenario, some measures of inequality would be almost halved:Indirect Tax UK 4

To put the Gini value in perspective, the estimated 0.26 value would put the UK among the most equal countries, alongside Norway, Finland (based on UNDP figures²).

 

Indirect Tax UK 3

Removing the VAT by itself would make a significant impact, as it accounts for almost half of all indirect taxes.

 

Reality check

Granted, moving to an entirely direct revenue raising system is neither likely nor simple. But this ridiculous scenario does highlight just how unequal the indirect taxing system is, and what impact it has on equality.

It also suggests that every new or increased indirect tax implemented continues to drive a wedge between the haves and the have-less. This includes the increases in VAT from 15% to 17.5% to 20% over the past 25 years, and any additional levy.

Similarly, if a key aim over the coming years is to decrease inequality, then there may be worse places to start than by lowering VAT, and compensating where necessary with increased income taxes.

 

Sources:

[1] http://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/datasets/averageincomestaxesandbenefitsbydecilegroupsofallhouseholds

[2]  http://hdr.undp.org/en/content/income-gini-coefficient

UK auto disqualified after poor lifting

UK auto disqualified after poor lifting

by | 10 Aug, 2016 | Europe, income, Inflation, politics, social issues, social security, tax

In the aftermath of Brexit, the pointy finger of blame has fallen squarely on the rise of conservative patriotism, racism and the stench of economic stagnation among the working poor.

But when analysing the economic situation of UK’s households over the last few decades, it’s hard to see what Brexiters are complaining about.

While American working class wages got stuck in the 1970s, the UK’s have been rising steadily, especially since 1990. In fact since Thatcher lost office, the poorest 40% of households have seen their disposable income increase at twice the rate of the rest of the country.

PoorPoms1

(I use disposable income as it’s a more complete measure of a household’s situation than wages.  It includes all income (private and government cash benefits) and removes direct taxes (income tax).  It’s the money which lands in people’s pockets.)

After adjusting for inflation, household disposable income grew by 71% for the poorest 20% of households, and 59% for the 2nd poorest since 1990.  The rest of the UK only grew by 34%.

The poor are not only getting richer in absolute terms, but also in relative terms.

PoorPoms2

Firstly, absolute growth

The poorest quintile has seen their disposable income increase from £7,200 in 1990 to £12,300 in 2014/15 (after inflation). The second poorest quintile increased from £12,400 to £19,800. No matter how hard life is today for poor households, it would be a lot worse with £6,000 less a year.

To put this growth in perspective, we can compare today’s poor households to that of people in the past.  Today’s 2nd poorest quintile earns the same as the middle quintile earned in 1990. And going back a bit further, they earn the same that the 2nd richest quintile did in 1977, just before Thatcher took office. So, the economic situation of the working class today is similar to that of the upper middle classes when the (Royal variety) Queen celebrated her Silver Jubilee, and Queen (of the Freddy Mercury variety) released “We are the champions”.

 

Secondly, relative growth

As the poor households’ earnings grew faster than the rich ones, the relative gap has decreases considerably. The disposable income ratio of richest to poorest was 7 at the end of the Iron Lady’s regime. Today that figure is 5.4. Likewise, the ratio between the 2nd richest and 2nd poorest quintiles dropped from 2.4 times to 2.0. Of course, the ratio is still too large, but a 23% drop is worth noting.

 

Since GFC

The figures above look at the UK since the departure of Lady Thatcher in 1990, but what about a more recent focus?

Well, the picture is even rosier (relatively speaking) for the lowest quintile over the past 7 years.  While the richest 2 quintiles dipped between 5-10% around 2011-12, and have only just returned to pre-crisis levels, the poorest quintile now earns 11% more than they did in 2007/08, and never went behind pre-crisis levels over the period.  The 2nd lowest earners hovered steadily, but over the past 2 years increased to a small increase over pre-crisis levels.

PoorPoms3

A historical lens

A longer search shows that this was not always the case. The last dark age for the lower classes was clearly under Thatcher.  During Margaret’s 11 year regime, the disparity between rich and poor climbed steeply.  While the richest households in the UK experienced a 46% increase in real disposable income, the poorest 2 quintiles only increased by 11 and 13%. This resulted in the income ratio of richest to poorest to rise from 4.9 to 7 in an 11 year period.

PoorPoms4

It’s taken the following 25 years to bring this disparity back to pre-Thatcher levels for 2nd richest to 2nd poorest, but the Richest to poorest ratio is still much higher than it was in the late 70s.

PoorPoms5

Show me the money

Here’s where it gets super interesting. It would be easy to assume that seeing as the end of Thatcherism marked the turning point for income distribution; government handouts would be somewhat responsible for the change. But that is far from the truth. The income growth for the poorest has been largely driven by increases in private income. Since 1990, private income for the poorest has increased by 168%, while Government support only increased 22%! The opposite was surprisingly true under Thatcher, when the bulk of the poor’s income increases came from government benefits.

PoorPoms6

Since 1990, Government support has increased the least for the poorest quintile, in relative AND absolute terms.  While the government now gives the poorest quintile £1,400 more than they did in 1990 (after inflation), they also give middle income earners an extra £3,400, and the richest quintile an extra £1,700 per year, after inflation.

PoorPoms7

Brexit due to a lack of jobs available

Yeah, nah. Unemployment has not been lower than current rates since the mid-70s. Sure there was a momentary blip from the 2008 crisis, but not only did that not reach the unemployment levels seen in the 80s and 90s, it also finished a year ago. People should be high on finding employment at the moment.
PoorPoms8

It’s not you, it’s tax

Even income tax hasn’t been lower in the last 40 years. The poorest households now pay 5 percentage points less in tax than they did 25 years ago, and the middle and upper middle classes have dropped around 3 percentage points. The only section of the community paying more tax (per household) are the richest 20%, and even they only pay less than 1 percentage point more than they used to.

PoorPoms9

So, what the heck are Brexiters complaining about?

Overall the economic situation in the UK has been favourable across the community, and in particular the poorest sections.

  • Income is considerably up
  • Inequality is slightly down
  • Unemployment is at its lowest point in the last 40 years, and
  • Brits have not paid less in taxes in at least 40 years.

Furthermore, the government is increasingly supporting the middle and upper classes through direct cash benefits, so they can hardly complain about the support being handed out to those (arguably) more deserving.

What’s that leave us with

If Brexit was a vote of discontent at the current economic situation, it was a result of perception more than reality. More likely, it was a vote from fear. A xenophobic reaction to the constant hysteria bombarded at the populous, misleading on the current situation. The world is not getting worse. Neither from within, economically, nor from outside evils.

Time for more reasoned responses, from a better informed community.

 

 

Sources

All data is sourced from the Office of National Statistics (ONS) UK.

http://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2015

http://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/timeseries/mgsx/lms

More charity at home, less in Parliament House

More charity at home, less in Parliament House

by | 10 Jul, 2016 | development, income, philanthropy, politics, public funding, social issues

While Australians are increasing their personal donations, as a country they’ve been giving less and less to foreign aid.

Charity vs ODA

Is this suggesting a misalignment of sentiments between the community and its leadership? Is there a growing desire to support those closest to us, donating to support local causes, while diminishing our desire to help those abroad?

The period graphed included 9.2 different Prime Ministers so it’s hard to pin point the blame the Australian Government’s diminishing willingness to fund foreign aid. And while the coloured timeline suggests that upon winning office Labour increases and Liberal decreases Australia’s Official Development Assistance, the overall picture is clearly trending south. So much so, that Foreign Aid didn’t even rate a mention during the 2016 election campaign.

Australia’s generosity, as individuals and as a country however, leaves much to be desired.  Australians donate around 34 cents for every $100 earned, and the country spends $1.30 in foreign aid for every $100 spent in the federal budget.

But if charity is starting to take off at home, there’s hope it may influence the political agenda.

 

 

ODA vs Budget not ODA vs GNI

The graph shows foreign aid expenditure as a percentage of the total federal budget.  Most analysis compares foreign aid to Gross National Income (GNI), with governments stating they’re aiming to reach 0.5%. However, as suggested by Angus Barnes[1] the federal budget, which is within the government’s control, is “a more appropriate denominator”.

Either way the line is almost identical, with the only difference being magnitude – 1% of budget is roughly 0.4% of GNI.

 

Sources:

[1] http://devpolicy.org/the-odagni-ratio-does-it-truly-reflect-a-governments-commitment-to-aid-20130521/

http://dfat.gov.au/about-us/publications/Documents/statistical-summary-2013-14.pdf

http://www.budget.gov.au/2009-10/content/ministerial_statements/ausaid/html/ms_ausaid-10.htm

Australian philanthropy improving, yet miles behind

Australian philanthropy improving, yet miles behind

by | 10 Jul, 2016 | Australia, income, philanthropy, public funding, social issues

Australians are donating more money than ever.  Based on ATO data, tax deductible donations have increased from as $58 million in 1979 to a $2.6 billion in 2014[1].  This equates to an almost 4-fold increase in donations as a percentage of income. That been said, donations still amount to a tiny percentage of income.  On average, Australians only donate 0.34% of their income. That’s 34 cents for every $100 earned.   Also, while the percentage contributed increased steadily from 0.1% in the late 1970s, it seems to have plateaued over the last decade.

Increasing donations Australia

These figures make Australia look like the scrooge of the Anglo-world.  America’s philanthropic culture sees them donating 10 times as much as Australians do as a percentage of their income. The UK donates 8 times more, Canada 2.5 times, and NZ donates 50% more[2].

Anglophone world donations

(I compared Anglo countries as it was easier to find data online, and also due to the strong cultural aspects of philanthropy.)

According to analysis by the Fondation de France[3], British donors are the most generous in Europe.  But based on their measures of comparable concepts, other wealthy Europeans donate around half what the Brits do, which makes it around 4 times what Australians donate.  “Philanthropy in Europe” also suggests that countries with high taxes have lower individual contributions. High taxes suggest the government is looking after the needy, and thus individuals don’t have to.  It further highlights countries where tax revenue amounts to over 40% of GDP (such as France, Belgium and Italy) having lower donor participation. Yet, Australia’s tax burden is around 25% of GDP[4] and Australians donations are so miserly they round down to 0%.

No matter how many kilometres people run, bike or walk, nor how white, black or pink their ribbons are – Australians donate less than a deconstructed latte a week in $ terms.

Let’s hope they at least donate to the right causes.

 

Who are the givers?

While donations came from across the community, the super-rich gave the lion’s share.  Those with a taxable income over $1m (the top 0.1% of earners) gave 13% of all donations[5]. Those over $250k (the top 1.3%) gave 26% of all donations, and overall, half of all donations came from the top 15% of earners, those with a taxable income over $90k.

Who donates

On the other hand, while the lowest earners (under $6,000) donated small amounts, they gave by far the most as a percentage of their income, donating almost 5% of their income. This seems to be somewhat driven by retirees who may have low incomes but potentially amounted large wealth.

The middle and upper middle classes ($40k to $150k) contributed the least as a percentage of their income (0.25%).

 

 

__________________________________________

Reply to 1st comment:

Sources:

[1] Table 1:  https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-statistics/Taxation-statistics-2013-14/?page=4#Individuals_detailed_tables

[2] USA: Table 2.1https://www.irs.gov/uac/soi-tax-stats-individual-statistical-tables-by-size-of-adjusted-gross-income

UK: Table 2.6 – https://www.gov.uk/government/collections/charitable-donations-and-tax-reliefs-statistics

Canada: http://www.cra-arc.gc.ca/gncy/stts/t1fnl-eng.html

New Zealand:  http://www.ird.govt.nz/aboutir/external-stats/revenue-refunds/donation-rebates/

[3]https://www.fondationdefrance.org/sites/default/files/atoms/files/philanthropy_in_europe_2015_0.pdf (section D)

[4]https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

[5] Table 3: https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-statistics/Taxation-statistics-2013-14/?page=4#Individuals_detailed_tables

 

 

How Aus $ affects Aus votes

How Aus $ affects Aus votes

by | 11 May, 2016 | Australia, data, education, income, politics, social issues

There is no correlation between an electorate’s socio-economic standing and its preferred political party, at least not in the 2013 elections.

The simplistic view of politics suggests one party proposes policies which help poor people and the other party angles to improve the lives of those more fortunate. Yet, in Australia, the socio-economic make-up of an electorate is a very poor predictor of which party will be voted in, at least not nation-wide. It seems Labor electorates are not the working class suburbs usually portrayed, and Liberal electorates aren’t the prime real estate so often generalised.

This is clearly seen when focusing on the top 10 Liberal/National coalition seats.

Top 10 Liberal Seats

As the graph above shows, the ‘rich’ are grossly under-represented in the top 3 ‘liberal/national’ seats, and in three more of the safest Liberal seats.  On the other hand, they are hugely overrepresented in the other 4 of the top 10 seats (averaging 85% of each overrepresented electorate).  As an example, Mallee, on the NSW/Victorian border, has the highest Liberal vote, yet over 50% of the population falls in the bottom 30%, and only 6% are considered in the top 30% of Australia.

The graph below examines the link across all the electorates, by mapping the Labor 2-party preferred vote to the percentage of the electorate which falls in the bottom 30% of the socio-economic spectrum. (It’s a mess!)

Link Labour SEIFA

Similarly, there appears to be no relationship between party allegiance and private schooling.  For all the apparent willingness of the Liberal party to support private schools, areas with a high percentage of kids attending private school are just as likely to vote blue as they are red.

Liberal Private schools

While it seems there is no link between ‘class’ and politics Australia wide, a relationship does exist within capital cities.  Filtering out electorates which have less than two-thirds of its population within a capital city (using ABS’s remoteness divisions), a correlation of 0.51 appears between the Labor vote and areas with high proportions of low socio-economic households.  This means that the larger the percentage of ‘lower class’ households in an electorate, the more likely Labor is to win the seat.  Similarly, the more rich households there are in a city electorate, the more likely the Liberal Party is to win.

(Graph slightly less messy.)

Link in Cities

No such link appears to occur outside of the major cities, neither in regional cities nor in rural areas.

So, are parties not catering to one side over the other, or are constituents unable to discern how each party’s policies will affect them, or do people not vote based on what may benefit them? Or is politics a whole lot more complicated than that?

 

 

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Sources

Voting from Australian Electorate Commission http://results.aec.gov.au/17496/Website/HouseDownloadsMenu-17496-csv.htm

Socio-economic and School attendance from ABS, Census Statistics.

http://www.abs.gov.au/websitedbs/censushome.nsf/home/Census?opendocument&ref=topBar

If Australia were 100 stereotypes

If Australia were 100 stereotypes

by | 25 Mar, 2016 | gender, income, occupation, social issues, tax

For as long as I can remember it’s felt like we’ve been breaking down barriers and tearing down the regimes of acceptability. Traditional roles are no longer the norm, travelled by choice not momentum. Everybody’s road-fork a choice to be made.
But despite the changes, work occupations are still bastions of gender segregation.

Clichés and stereotypes such as tradies are men and teachers are women may not help fight outdated and ingrained social expectations, but they’re still the case in Australia, according to the latest ATO figures for 2013-14. Based on self-identified information from tax returns, there are 52,305 carpenters in Australia, of which only 127 are women. Similarly, only 94 of the 34,362 plumbers are women. That’s 0.2% and 0.3% of each occupation.

To simplify the situation using a popular meme: if Australia were 100 carpenters (or plumbers), none of them would be women. Not one.

IfAuswere 100 Carpenters

(I’ve not stats on how many are called Warren)

While I expected clichés to imitate life, I assumed they were exaggerating.

Overall, 637,402 Australians work in occupations where men make up at least 99% of the workforce. That’s 6% of all people with a known occupation. More broadly speaking, 35% of tax-paying men have roles where men make up at least 90% of the occupation. 50% occupy roles where men dominate by at least 80%. That’s to say that half of all working men live in roles where they outnumber women by (at least) 4 to 1. This includes occupations such as:

Top men occupations

What kind of impact is this environment and constant reinforcement having on half of all men?

While women dominated roles are less pronounced, 40% of women work in roles where women make up (at least) 80% of the workforce. This includes the following occupations:

Top women occupations

This lopsidedness on both sides means a minority of all workers (17%) fill roles which are equally distributed. (Evenly distributed is defined as 50 +/- 10%.)

Distribution of sex occupations

If we are to break down the gap between sexes, either roles need to become a lot less “gendered” or occupations need to become a lot more evenly rewarded. Whilst some movements has been made towards more equal distributions in the past 30 years, the information above shows there’s a huge way still to go.

 

All figures based on ATO statistics for 2013-14, Individuals Table 14A&14B.

https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-statistics/Taxation-statistics-2013-14/

 

 

De-constructing the ‘g’ gap

De-constructing the ‘g’ gap

by | 15 Mar, 2016 | Australia, data, demography, gender, income, occupation, social issues

Last week was International Women’s Day so everyone should be up to date with the latest estimate of the gender pay gap (17%), and very well versed on at least three theories behind it.

Now, then, might be the perfect time to ask why the social progress and workforce changes which occurred over the last 30 years have had no impact on the gap.

The increasing awareness, numerous policies, university attendance explosion, increasing maternity leave and participation rates, industrial and occupational distributions, and a myriad other variables have increased or decreased to varying degrees. Mostly towards gender parity. Yet the pay gap for full-time women has not deviated more than +/- 2 percentage points since Lionel Ritchie first sang “Hello…. is it me you’re looking for?!”[1].

Gender Pay gap 83 15

The gap itself is a complex issue with many moving parts. This is a look at a few of those parts, and a general wondering: how is it not improving?

 

An aging workforce

One of the biggest changes in the workforce has been workers’ age. Average full-time wages increase rapidly with age, until they begin plateauing around 30, finally peaking in the late 30s to mid 40s (depending on occupation and role).  On average, workers under 25 earn 40% less than those 25 years and over[2].

Historically, one of the reasons behind the wage gap has been that working women are dis-proportionally younger than men, and therefore lower paid (i.e. junior staff on junior wages).  But the age demographic across the sexes has become a lot more equal over the last few decades.

While the overall percentage of workers under 25 has halved since 1983, women’s compositional distribution has changed much more than men’s (as shown by the graph below)[3].

Aging workforce by Sex

This suggests junior wages, or wages from young staff who are yet to reach role maturity, should have a much smaller impact on the overall average wage than it used to. Thus, diminishing one reason why there may be a pay-gap.

On the other end of the maturity spectrum, the proportion of women over 40 has almost doubled since 1983.  This suggests a greater proportion of women are returning to full-time employment after giving birth, continuing to build on their careers, with advanced wages.

Aging workforce by catergories

The changes in women’s labour force have been so substantial that the average age gap between the sexes is less than a quarter of what it used to be: down from 4.5 years in 1983 to 1 year gap in 2015.

This said, women have not achieved age parity in the workforce, but it’s certainly a lot closer than it used to be. Yet, the pay-gap has not changed since ‘Return of the Jedi‘ hit the cinema screens.

 

Women learning it for themselves

One potential reason behind the maturing female workforce is the increasing number of women attending university.  University attendance has increased across the board, but women’s increase has doubled men’s.  While women had not achieved tertiary education parity by the early 80s, they well and truly have by 2015.  In 2013, 58% of all Australians studying at university are women. This is just as true for postgrads as it is for undergrads. In fact, women have been the majority at uni since 1987[4].

This increase in university attendance has flowed to the labour force.  Full-time working women are now 45% more likely to have graduated from university than their male counterparts.

Uni Attainment in LF by sex

However, not all graduates are created equal. Some fields of study pay more than others, and the figures above don’t provide that level of detail. But overall graduates earn substantially more than workers with no university qualifications, and women are increasingly dominating this sphere.

This further suggests a move towards pay parity.  Yet, the pay-gap has not changed since Bob Hawke first became Prime Minister of Australia.

 

From doing to managing – occupational changes

Higher paid occupations (e.g. managers and professionals) now make up much larger proportions of the workforce than they did in the mid80s. Whether it’s due to social progress, the growing number of university educated women, or any other reason, the proportion of women in these roles has increased faster than men’s over the period in question.  The proportions of full-time women in the two highest paid occupations, professional and managerial roles, have increased 12 and 6 percentage points respectively. Men, on the other hand, increased 7 and 2 percentage points.

To balance this out, the proportions of women filling admin, labouring and sales roles (the three lowest paid occupations) have decreased by 11, 4 and 3 percentage points, to men’s 2, 4 and 1.

The graph below compares the proportion of women and men by occupation in 2015 to 1986. Higher paid occupations have generally increased, and low paid decreased… and women have faired better at both ends of the spectrum.

 

Occupation can still account for some of the current disparity. Despite the move towards higher paid roles, women are still over represented in some of the lower paid occupations; e.g. 25% of women fill admin roles, as opposed to 7% of men. But the changes over the past 30 years should have had an impact on the pay disparity.

Yet, the pay gap has not changed since the average price for a Melbourne house was $52,000[5].

Changing occupations by sex2

Mining the AGEING boom

Unlike the other variables examined, women have not clearly moved to the higher paid industries over the past 30 years. In fact, women have slightly decreased proportional representation for the three highest paid industries when compared to men (i.e. mining, financial and professional services). Mining is of particular interest as it is the highest income by almost $40k, and the boom meant its growth outstripped every other industry’s growth. These two aspects combine to help stretch the pay-gap further apart.

Changes in Industry distribution, by sex, 1984 to 2015

Changing industry by sex 3

The industry experiencing the largest increase in women participation has been Health Care and Social Assistance, potentially on the back of Australia’s ageing population’s demand. While its income is only marginally below the average for all industries, the increase in Health and Social assistants means women have not migrated towards the higher paid industries in large numbers.

Having said that, as previously described, women have gained much ground in GP representation.  The proportion of women GPs has increased from 22% in 1984 to 43% in 2014*.  This means that whilst women continue to be over represented in lower paid industries, they are filling higher paid roles within these industries.

 

Ask for more

Data on workforce by “method of setting pay” (i.e. opportunity to negotiate pay, which some suggest promotes disparity) has been hard to come by. This aspect may be extended upon in future.

 

Yet, not.

Most of these changes suggest the gender pay gap should have decreased over the past 30 years. At the very least it shows the variability of many contributing aspects. To not have achieved pay parity is understandable, as there are still many obstacles to overcome, and underlying contexts/assumptions/social norms to change. And many tricky issues to figure out on how to get there.

  • Should more women work in higher paid industries, or should we (financially) value women-dominated industries more?
  • Are health and education paid less because they are women heavy industries, or are they women-dominated because they are lower paid?
  • Should we increase paternity leave to support women to stay, or support them to return after birth-giving?
  • Should women be encouraged to negotiate more or should industrial frameworks diminish the impact negotiation has on individual’s pay?

But to not have made any improvement, despite all the changes that have occurred seems odd. Changes in age  alone should have had massive impacts.

Yet, not. No change, improvement or otherwise.

This post has no answers or suggestions… just a baffled look to greater minds to tells us why…

 

 

 

[1] Based on Full-time ordinary wages, by sex from Average Wages, ABS: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6302.0Nov%202015?OpenDocument

[2] http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6306.0May%202014?OpenDocument

[3] http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.003Nov%202015?OpenDocument

[4] http://docs.education.gov.au/system/files/doc/other/time_series_data_1949_-_2000.pdf and http://highereducationstatistics.education.gov.au/

[5] http://www.econ.mq.edu.au/Econ_docs/research_papers2/2004_research_papers/Abelson_9_04.pdf

 

Wealthy fare well from welfare

Wealthy fare well from welfare

by | 2 Jan, 2016 | Australia, income, social security, tax

In 2013-14, the Australian Government dispersed a Robin Hoodesque $105 billion across the community through income support payments. That’s roughly 30% of its tax revenue. Unlike Robin, however, Kevin, Julia, Tony and their merry men gave much of their loot to the most fortunate, rather than to the poor.

Based on research conducted by the Australian Productivity Commission[1], the wealthiest half of households received just as much income support as the poorest half.  And whilst the poorest decile (10%) received the most support, those in middle upper wealth households (50th to 80th percentile) received the lion’s share.

The distribution of government support to wealthy households is largely driven by Aged and Family pensions, whilst Unemployment, Study and Disability payments go some way to balancing out the situation.

Newstart allowance (a.k.a. the dole) and Study Support programs are tightly targeted based on income and wealth of the recipient. Disability payments are also largely provided to less wealthy households. This leads to claims that the Australian Welfare system is one of the most targeted in the world.

Income Support - Dole and Study

However these two payments only make up 7% of all income support provided by the government.

The majority of the loot is given away in the form of Aged Pensions (44%) and Family Payments (26%).

Income support by payment

Unlike the dole, Aged Pensions and Family Payments are much looser in their targeting.  As a result, more of these benefits are paid to the top wealth brackets than to the poorer households.

Income Support - Pensions

Unfortunately, this appear to create an entirely misguided system in which the wealthiest households in Australia receive more welfare than those with limited resources, to the extent that the amount paid in Aged Pensions to the top 20% of households is $1.2 billion more than the entire unemployment benefits.

 

This is not to suggest that pension need cutting, nor that the Australian welfare system is over-inflated.

Rather that we’re failing to funnel funds to support those in the greatest need.

____________________________________________

[1] Productivity Commission – Tax and Transfer Research

[2] Image credit: hktang – Flickr – / CC BY – Modified

Two-speed tax decrease

Two-speed tax decrease

by | 23 Feb, 2012 | data, income, tax

Seeing as they are one of life’s two certainties, how is it that we’re so ignorant about taxes?
 
The federal government updates the income tax system roughly every second year, more often than not announcing tax cuts.  This kicks off a war of sound bites over who is prepared to deliver the deepest cuts and for whom.  What they rarely provide, however, is a clear and simple indication of what the impact of each tax plan will be on one’s paycheck.  While providing the intended tax brackets allows people to conduct the necessary analysis, I doubt most people would bother to do so, thus making assumptions on the impact of the changes.
 
Since converting the national currency to the Australian dollar in 1966, the average income has increased from just under $3,000 dollars per year to almost $55,000. Although the rate of growth has fluctuated, it has constantly been positive, with no year posting a negative growth.
*There is a break in series in 1981, as figure prior to 1981 are “Average Male Income”, and figures since 1981 are “Total Average Income”


 

Due to the combination of Australia’s progressive tax system and the continuous income growth, a government’s failure to update the tax system quickly translates into a tax increase.  For example, a person earning $50,000 this year is likely to earn around $51,500 next year due to income growth (average growth of around 4% per year since 1990).  This growth puts a larger percentage of their income in a higher tax bracket than before, therefore increasing their overall tax rate.
 

 

The graph below shows what would have happen to a person earning the average wage every year, had the tax rates been frozen in 1990-91.
 

 



Although the difference is small from one year to the next, a twenty year time-line clarifies the point.  While the average income in 1990 was $25,910 (falling within a tax bracket of 38.5%), 2011’s average income was $54,700, attracting the top tax rate of 47% back in 1990.
 




Income tax is a complex beast with many aspects including levies and rebates changing year to year.  In an attempt to simplify the history of income tax in Australia, the following graph displays the percentage of tax paid for different multiples of the average wage from the inception of the Australian dollar onwards.
*The resident Prime Minister is only indicative, as their timing doesn’t line up nicely with the financial years.



Other than a very curious bump in the late seventies*, the years since have not provided much excitement. The slow and gradual “ramp-up” through the nineties is explained by almost a decade of non-updated tax rates, similarly to a small bump in the early to mid ‘naughties’ (2001-2004).  Otherwise it has been a steady decrease of income taxes since Malcolm Fraser’s first term.  


Generally speaking, income taxes have decreased over the past few decades.  This decrease, however, is not evenly spread across the pay brackets.  While the average wage now gets taxed about 4 percentage points less than thirty years ago, people earning 3, 4 and 5 times the average wage have experienced decreases of 9, 11 and 12 percentage points.  This trend is even more pronounced if we used 1985-6 as the base year.  Since Hawke’s first term in office, income tax on the average wage has decreased 2 percentage points, while those earning over 3 times the average wage have experienced a 14 percentage point drop in their income tax!


Interestingly, people earning half the average wage are still paying roughly the same levels of tax as they did in the late 70s, hovering around the 12%.  


Of course, none of this includes the impact of tax breaks for Low Income Earners, nor does it include negative gearing or other benefits offered through our tax system.  It is purely a simple model of calculating income tax percentages, by different multiples of the average wage.  

The picture it tells appear lopsided, though mostly because there seems to be no other side in modern Australian politics.


_________________________


For references:
Tax brackets were sourced from the Australian Taxation Office’s (ATO) website:
http://www.ato.gov.au/individuals/content.aspx?doc=/content/73969.htm
Average Income from the ABS’ Average Weekly Earning’s publication:
http://www.abs.gov.au/Ausstats/abs@.nsf/0/14CDB5CD59F6A075CA2575BC001D6157?OpenDocument