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Inequality in Australia

Recent political discussion in Australia has shone a light on inequality. Australia certainly isn’t the most equitable country (ranked 53 out of 154 countries based on the Gini Index). But you could certainly do worse (South Africa). We also aren’t on a rapid decline into inequality. The data shows us that there has been a very marginal change in the divide between rich and poor since 1980.

What is inequality?

In its simplest form, inequality is the gap between the haves and the have-nots. One of the underlying cultural features of Australian society is egalitarianism, whereby everyone is respected and deserves equal rights and opportunities. It is a pretty easy political argument to do a little ‘tall poppy‘ trimming by trying to pit the blue collar workers against the white collar workers. As always it is worth looking at the numbers to see if the chirping from Canberra is based on substance.

Below, we have a quick look at how Australia stacks up in terms of inequality and how things have changed over the last 30 years.

How do you measure inequality?

The Gini Index

A common concept of inequality is the difference between the wealthiest and the poorest – the larger the gap the greater the inequality. A useful metric is the Gini Index. The Gini Index ranges from:

  • 0 – perfect equality (everyone has the same income) to,
  • 100 – extreme inequality (all wealth is held by a single individual).

The Gini index is calculated by looking at the distribution of wealth – the wider the distribution, generally the higher the index. Australia’s Gini index has been pretty stable through time, ranging from 31-35 since 1980 (Figure 2).

To put that in context, Australia’s Gini index is pretty close to France and the United Kingdom. Better than the USA and worse than Sweden.

Figure 1: Gini index for key nations through time (source: World Bank)

A map is always a great way to get some global perspective. Figure 2 shows global trends in the Gini index. There are clearly a lot of red countries (most of South America and Southern Africa) which have high levels of inequality. The green countries have low inequality.

As you would expect, the great social services provided by the nordic countries (Norway, Sweden and Finland) shows them doing pretty well on measures of equality. However, the top 20 most equitable countries (Figure 3) includes a few surprises (to me anyway) from eastern Europe (Slovenia, Slovakia, Kazakhstan, Kyrgyzstan). I don’t know if this is a reflection of a renewed socialism paradigm in eastern Europe or the reflection of a depressed economy in in those countries (making everyone poor).

Figure 2: Global Gini through time (source: World Bank)

Figure 3: Top 20 most equitable countries based on most recent Gini score (source: World Bank)

What is perhaps more interesting that equality alone is how countries have been changing, Figure 4 shows the biggest improvers in equality. From the World Bank Gini Index records (1980-2014) Figure 4 shows the greatest reduction in Gini index. Many of those same Eastern European countries with currently low inequality came from a high base.

Figure 4: Biggest improvers in equity (source: World Bank)

Where is the wealth?

A simple way to think about inequality is to focus on who has the money. In Australia the top 10% most wealthy collectively own 27% of the wealth (Figure 5), compared to the bottom 10% who collectively own 3% of Australia’s wealth (Figure 6).

This sounds dramatic – the top 10% own nearly 10 times more wealth than the bottom 10%. The similarity of the colours across all countries in Figure 5 and all countries in Figure 6 shows that it is pretty standard to have a huge proportion of the wealth controlled by a few.

Figure 5: Wealth held by top 10% (source: World Bank)

Figure 6: Wealth held by bottom 10% (source: World Bank)

How owned are you?

If we simply take the proportion of wealth held by the top 10% (Figure 5) and divide it by the wealth held by the bottom 10% (Figure 6) we end up with how many times the top 10% can buy the bottom 10%. Figure 7 shows how many times over the wealthy can own the poor (2014 figures). For Australia the rich own the poor ten times over. Compare this to Haiti where the rich could buy the poor nearly 90 times over or South Africa where the rich have 55 times more wealth than the poor. In the USA, the rich can own the poor 18 times over.

Figure 7: Wealth held by top 10% divided by wealth held by bottom 10% (source: World Bank)

Living in Poverty

A final consideration on inequality is to look at the proportion of people living in poverty. Most western countries (Australia included) don’t even feature in the World Bank data which reports the percentage of the population living below the poverty line (Figure 8). There are some seriously difficult places to live in Africa. For example 69% of people in Eritrea live below the poverty line, as do 64% of people in The Democratic Republic of the Congo.

Figure 8: Living below the poverty line (source: World Bank)

Canberra may claim that inequity is spiraling out of control in Australia. However the data shows that the range between the haves and the have-nots in Australia hasn’t changed much in the last 30 years. Rather than focus on how things are changing in Australia (which they aren’t), why not focus on how Australia can move from being the 53rd most equitable nation to the top.

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