Research Team: Peter Saunders (Chief Investigator) and Melissa Wong (Research Associate)

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2 Social Policy Research Centre, UNSW Research Team: Peter Saunders (Chief Investigator) and Melissa Wong (Research Associate) Contact for follow up: Peter Saunders ( ) or Suggested Citation: Saunders, P. and Wong, M. (2012), Promoting Inclusion and Combating Deprivation: Recent Changes in Social Disadvantage in Australia, Sydney: Social Policy Research Centre, University of New South Wales. For a full list of SPRC Publications visit: or contact: Publications, SPRC, Level 2, John Goodsell Building University of New South Wales, Sydney, NSW, 2052, Australia. Telephone: +61 (2) Fax: +61 (2) sprc@unsw.edu.au ISSN: ISBN: Published: December 2012 The views expressed in this publication do not represent any official position on the part of the Social Policy Research Centre, but are the views of the individual authors.

3 Acknowledgments The study on which this report is based received funding from the Australian Research Council (ARC) under Linkage projects grant LP Additional cash and in-kind support was provided by the following Partner Organisations: Mission Australia; The St Vincent de Paul Society; Anglicare (Victoria); The Benevolent Society; The Australian Council of Social Service (ACOSS); The Australian Social Inclusion Unit in the Department of Prime Minister and Cabinet; The Social Inclusion Unit in the South Australian Department of Premier and Cabinet; and the Social Inclusion Unit in the Tasmanian Department of Premier and Cabinet. The authors would like to acknowledge the support provided by all of these agencies, specifically the on-going advice provided by our contacts in each of the Partner Organisations. We were fortunate to have such a broad support base that spanned both government (federal and state) and non-government sectors and their involvement added greatly to the expertise we were able to build on at all stages of the research process. The project benefitted from the input provided by a Project Reference Group (PRG) of which all of the Partners were members and that group played a critical role in commenting on the survey instrument and the results as they were produced, and providing feedback on the initial draft of this report. The authors acknowledge in particular the helpful comments provided by John Landt, Jacinta O Meara, Sarah Fogg, Emilija Belic, Peter Davidson and Ann Herbert but remain solely responsible for the views expressed and for any remaining errors of fact or interpretation. A special word of thanks is also due to those Australians who took the time and effort to respond to the survey and provide the information on which this reports draws. Without that willingness to contribute important information, this project would not have been possible and we hope that the insights it contains does justice to the valuable information they provided. Peter Saunders and Melissa Wong December 2012

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5 Contents List of Tables... iii List of Figures... vi Abbreviations... vii Executive Summary... ix 1 Introduction Indicators of Social Disadvantage Introduction and Background Poverty, Deprivation and Exclusion... 9 Deprivation and Social Exclusion Poverty and Deprivation Poverty and Social Exclusion Summary Survey Design, Methods and Sample Characteristics Survey Methods Sample Characteristics Summary The Essentials of Life in 2010: Identification and Robustness Testing Introduction Purchasable Items Non-Purchasable Items Summary Deprivation: Measurement and Change Measurement Issues Overall Deprivation Sensitivity Analysis Multiple Deprivation and Deprivation Scores Core Deprivation Summary An Application: Using Deprivation to Assess the Adequacy of Wages and Income Support Payments Introduction Defining Adequacy Methods Comparing Payment Adequacy Assessing the Impact of the Pension Review Summary Social Exclusion The Policy Background Exclusion Indicators The Incidence of Exclusion Exclusion Score Comparisons Summary i

6 8 The Impact of the Global Financial Crisis on Deprivation, Poverty and Economic Exclusion Introduction and Background Existing Studies Main Findings Reported Impacts Inferred Wellbeing Impacts Objective Indicators Impacts Overlap Analysis Summary Locational Aspects of Social Disadvantage, Deprivation and Exclusion Introduction The Broad Picture Locational Differences in Economic Status Access to Facilities and Services Neighbourhood Problems Local Participation and Engagement Identity and Influence Differences in Subjective Wellbeing Locational Differences in Deprivation Locational Differences in Social Exclusion Comparisons with ABS SEIFA Data Changes over Time Summary Concluding Comments References ii

7 List of Tables Table 2.1: Australian Government Social Inclusion Areas, Domains and Headline Indicators 19 Table 3.1: Breakdown of Survey Responses Table 3.2: Comparisons between the CUPSE and PEMA Samples and the Australian Population Table 3.3: The Age Composition of the PEMA Main and Follow-up Samples and the General Population Table 4.1: Support for Purchasable Items being Essential in 2006 and 2010 (percentages).. 34 Table 4.2: Support for Selected Items Being Essential, by Age in 2010 (unweighted percentages) Table 4.3: Need Classification of the Essentials of Life in Table 4.4: Support for Essentiality and Access Rates for Non-Purchaseable Items in 2006 and 2010 (weighted percentages) Table 5.1: Deprivation Rates in 2006 and 2010 (weighted percentages) Table 5.2: Estimated Deprivation Rates in 2010 Sensitivity Analysis (weighted percentages) (a) Table 5.3: Changes in the Incidence of Multiple Deprivation (weighted percentages) Table 5.4: Changes in Deprivation Scores by Age and Family Type (weighted percentages). 53 Table 5.5: Changes in Deprivation Scores by State/Territory, Main Activity, Principal Source of Income, Education, Housing Tenure, Social Class, Country of Birth, Indigenous Status and Disability Status (weighted percentages) Table 5.6: Changes in the Incidence of Deprivation among Those Facing Severe Multiple Deprivation (D 4) (weighted percentages) Table 5.7: Deprivation Scores for Those Experiencing Specific Forms of Deprivation in 2010 (weighted percentages) Table 6.1: Income Group Definitions and Sample Sizes Table 7.1: Social Exclusion Domains and Indicators Table 7.2: Social Exclusion Incidence Rates, 2010 (weighted percentages) Table 7.3: The Incidence of Multiple Exclusion in 2010 (weighted percentages) Table 7.4: Changes in Disengagement Scores by Age and Family Type (weighted percentages) Table 7.5: Changes in Service Exclusion Scores by Age and Family Type (weighted percentages) Table 7.6: Changes in Economic Exclusion Scores by Age and Family Type (weighted percentages) iii

8 Table 7.7: Changes in Disengagement Scores by State/Territory, Main Activity, Principal Source of Income, Education, Housing Tenure, Social Class, Country of Birth, Indigenous Status and Disability Status (weighted percentages) Table 7.8: Changes in Service Exclusion Scores by State/Territory, Main Activity, Principal Source of Income, Education, Housing Tenure, Social Class, Country of Birth, Indigenous Status and Disability Status (weighted percentages) Table 7.9: Changes in Economic Exclusion Scores by State/Territory, Main Activity, Principal Source of Income, Education, Housing Tenure, Social Class, Country of Birth, Indigenous Status and Disability Status (weighted percentages) Table 8.1: Reported Impacts of the Financial Crisis (weighted percentages) Table 8.2: Changes in Subjective Wellbeing between 2006 and 2010 (percentages or mean scores) Table 8.3: Changes in Financial Stress between 2006 and 2010 (percentages) Table 8.4: Changes in Deprivation and Severe Deprivation, 2006 to 2010 (weighted percentages) Table 8.5: Changes in Estimated Poverty Rates (weighted percentages) Table 8.6: Changes in the Incidence of Deprivation and Mean Deprivation Scores (weighted percentages) Table 8.7: Changes in the Incidence of Alternative Definitions of Consistent Poverty (weighted percentages) Table 8.8: Changes in the Composition of the Poor using Alternative Definitions (weighted percentages) Table 8.9: Changes in Economic Exclusion among Full and Deep-excluded Samples, 2006 to 2010 (weighted percentages) Table 9.1: Breakdown of Respondents by Type of Location in Table 9.2: Population Structure in Different Location Types, 2010 (weighted percentages) Table 9.3: Indicators of Economic Status by Location, 2010 (weighted percentages) Table 9.4: Access to Local Facilities and Services by Location, 2010 (weighted percentages) Table 9.5: The Incidence of Neighbourhood Problems by Location, 2010 (weighted percentages) Table 9.6: Participation in Community Activities by Location, 2010 (weighted percentages) Table 9.7: Indicators of Identity and Influence by Location, 2010 (weighted percentages). 130 Table 9.8: Indicators of Subjective Wellbeing by Location, 2010 (weighted percentages) Table 9.9: Deprivation Rates by Location, 2010 (weighted percentages) Table 9.10: The Incidence of Disengagement by Location, 2010 (weighted percentages) iv

9 Table 9.11: The Incidence of Service Exclusion by Location, 2010 (weighted percentages) 136 Table 9.12: The Incidence of Economic Exclusion by Location, 2010 (weighted percentages) Table 9.13: Changes in the Incidence of Local Problems and Community Participation Rates, 2006 to 2010 (percentages) Table 9.14: Changes in the Distribution of Deprivation and Social Exclusion by Locational Disadvantage, (mean scores v

10 List of Figures Figure 1.1: Trends in Unemployment and Long-Term Unemployment... 3 Figure 2.1: Survey Questions and Method used to Identify Deprivation Figure 3.1: Trends in Unemployment and the Timing of the Before and After Surveys.. 24 Figure 3.2: The Age Structure of the Population and the Two 2010 Samples Figure 4.1: Scatter-plot of Support for Items being Essential in 2006 and 2010 (weighted sample percentages) Figure 4.2: Scatter-plot of Support for Items being Essential in 2010 by Age (unweighted percentages) Figure 6.1: Indicators of Deprivation by Income Source, Figure 6.2: Deprivation by Age Pensioner Category, Figure 6.3: Changes in Consumer Prices and Selected Incomes between June 2006 and June Figure 6.4: Changes in Deprivation by Income Source, 2006 to Figure 6.5: Changes in Deprivation by Age Pensioner Category, 2006 to Figure 8.1: Changes in Poverty by Household type, 2006 and 2010 (weighted percentages) Figure 9.1: Allocating the Postcode Location of the PEMA Sample to the IRSD Deciles Figure 9.2: Satisfaction with Location by IRSD Decile (mean score based on Very satisfied = 5, to Very dissatisfied = 1) Figure 9.3: Incidence of Noisy Neighbours/Loud Parties by IRSD Decile Figure 9.4: Incidence of Teenagers Hanging Around on Streets by IRSD Decile Figure 9.5: Incidence of Rubbish or Litter Lying Around by IRSD Decile Figure 9.6: Incidence of Vandalism, Grafitti and Damage to Property by IRSD Decile Figure 9.7: Incidence of Too Much Traffic by IRSD Decile Figure 9.8: Incidence of Inadequate or Infrequent Public Transport by IRSD Decile Figure 9.9: Incidence of No Identified Problems by IRSD Decile Figure 9.10: Mean Deprivation Score by IRSD Decile Figure 9.11: Mean Disengagement Score by IRSD Decile Figure 9.12: Mean Service Exclusion Score by IRSD Decile Figure 9.13: Mean Economic Exclusion Score by IRSD Decile vi

11 Abbreviations ABS ACOSS ACT ARC ASIB ATSI CASE COAG CUPSE DSS EU FAHCSIA GFC GSS HILDA IEO IER IMF IRSD ISRAD NATSEM NSW OECD PEMA SEIFA SEIFI SEU SPRC UNSW Australian Bureau of Statistics Australian Council of Social Service Australian Capital Territory Australian Research Council Australian Social Inclusion Board Aboriginal and Torres Straits Islander Centre for the Analysis of Social Exclusion Council of Australian Governments Community Understanding of Poverty and Social Exclusion (survey) Department of Social Security European Union (Department of) Families, Housing, Community Services and Indigenous Affairs Global financial crisis General Social Survey Household, Income and Labour Dynamics in Australia (survey) Index of Education and Occupation Index of Economic Resources International Monetary Fund Index of Relative Socio-economic Disadvantage Index of Relative Socio-economic Advantage and Disadvantage National Centre for Social and Economic Modelling New South Wales Organisation for Economic Cooperation and Development Poverty and Exclusion in Modern Australia (survey) Socio-economic Indexes for Areas Socio-economic Indexes for Individuals Social Exclusion Unit Social Policy Research Centre University of New South Wales vii

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13 Executive Summary This report builds on an earlier study to examine how three of the main forms of social disadvantage: deprivation, social exclusion and poverty can provide important new insights into the nature and causes of social disadvantage by drawing directly on people s actual experiences and the living standards they attain. The need to gain a better understanding of the nature, causes and consequences of different forms of social disadvantage was given added impetus in 2008, when the Australian economy was first affected by the global financial crisis (GFC). Previous Australian studies of social disadvantage have focused on measuring poverty on the basis of income using a poverty line. Different studies have used different poverty lines, laying them open to the criticism that the choice of line (and hence the results produced) are arbitrary. Until recently, little effort has gone into applying a deprivation approach in Australia, although it can contribute to improved understanding of poverty, defined in terms of the (in)adequacy and (un)acceptability of living standards. Deprivation exits when people lack the resources needed to purchase goods and participate in activities that are customary, or at least widely encouraged or approved in society. It reflects an enforced lack of socially perceived necessities (or essentials) Research on social exclusion has also grown rapidly since social inclusion became the focus of the Australian Government s social policy agenda. An individual is socially excluded if he or she does not have the opportunity to participate in key activities in the society in which he or she lives. Such exclusion reflects a lack of connectedness that is often entrenched and multi-dimensional. Data was collected in a survey of 6,000 adults drawn at random from the electoral rolls in late-april 2010 and a follow-up survey was also sent to 1,000 of those who had responded to an earlier survey, conducted in Detailed comparisons with official (ABS) data indicate that the 2010 sample (like that in 2006) is broadly representative of the general population. The main area where the samples in both years diverge from the population is in relation to age. A series of weights were derived from the actual population structure in each year to adjust for any age-related bias in the two samples, allowing them to be compared. The essentials of life are those items that receive at least 50 per cent support in the community as being things that no-one in Australia should have to go without today. Of the 45 items included in the 2010 survey that can be purchased by individuals, 25 received majority support for being essential. Further analysis reduced the list by one to 24 and these items were used to identify deprivation. ix

14 The essentials of life items can be grouped into six broad categories: basic material needs; health-related needs; accommodation needs; children s needs; social functioning needs; and risk protection needs. Australian views on the essentials of life were remarkably stable over the period. This is true for the respondents to the 2006 and 2010 samples, and for those who participated in both surveys. All but one of the 28 non-purchasable items was regarded as essential by well over half of the community in The sole exception was a social club, which received exactly 50 per cent support. Individual item deprivation rates in 2010 varied from below one per cent (in the case of a substantial daily meal) to almost 12 per cent for dental treatment if needed, and to over 18 per cent for a week s holiday away from home each year. There were some notable changes in specific instances of deprivation between 2006 and Dental deprivation declined and policy may have played a role in this. Other areas where deprivation declined substantially are: emergency savings (down 2.3 percentage points); computer skills (down 2.0 percentage points); and a week s holiday away (down 3.9 percentage points). There are a small number of items where deprivation increased between 2006 and 2010, but in all cases the rise was very small and often was not statistically significant. There was also a decline in multiple deprivation over the period, with for example, the percentage deprived of 2 or more items declining from 27.2 per cent to 24.5 per cent. Deprivation among those aged 65 and over in 2010 was around half of that for the community as a whole and less than 40 per cent of that for people aged between 17 and 24. The deprivation approach was used to examine the adequacy of social security payments, an issue that attracted attention from the Pension Review in Deprivation was estimated for those receiving different social security payments, for lowwage workers and for self-funded retirees. The results indicate that in round terms, low-wage workers were deprived of around 2 essential items, disability pensioners of around 3 items, unemployed people on Newstart of around 4 items, and sole parents of close to 5 items. All of these deprivation levels are significantly higher than that experienced on average by the age and service pensioner groups, where the average level of deprivation was around one. There are also differences in deprivation within the age pensioner group that are related to age and whether they are single or living as a couple. However, the greatest difference is that between renters and homeowners or purchasers. x

15 Deprivation declined among pensioners receiving both the single and married rate between 2006 and 2010 partly as a consequence of the payment increases introduced following the Pension Review. The incidence of social exclusion was estimated using 27 indicators grouped into three domains: disengagement; service exclusion; and economic exclusion. There was a marked decline in the average incidence of social exclusion between 2006 and 2010 from 19.1 per cent to 16.6 per cent. This decline was accompanied by a decline in the incidence of most of the individual indicators. In contrast, there was a slight increase for those identified as most deeply excluded. The decline is most marked in the domains of service exclusion and economic exclusion, but is more mixed in relation to the change in disengagement, where several of the indicators increased. The incidence of multiple exclusion was higher than the incidence of multiple deprivation. Whereas only 13.1 per cent were deprived of 4 or more of the 24 essential items, 37.6 per cent were excluded from more than 4 of the 27 indicators used to identify exclusion. The impact of the global financial crisis (GFC) was examined what respondents said the impact had been, by comparing how a range of indicators of subjective wellbeing changed, and by examining changes in the reported incidence of financial stress and in estimated rates of deprivation, poverty, consistent poverty and economic exclusion. The reported impacts indicate that many older people experienced the impact of lower interest rates, whereas younger age groups were more likely to reduce their spending or pay off debts. There was little evidence of a decline in subjective well-being as a result of the GFC; most of the indicators remained fairly constant and those that moved showed an increase in wellbeing. The results provide no strong evidence that financial stress was any worse in 2010 than in The mean deprivation rate declined from 6.4 per cent to 5.7 per cent, but remained unchanged among the most severely deprived sub-group. Although the poverty rate increased slightly, the level of consistent poverty defined as those experiencing both low-income and deprivation declined between 2006 and 2010, on one measure from 8.9 per cent in 2006 to 7.9 per cent in Economic exclusion also declined in aggregate, although those identified as being in deep economic exclusion experienced less of a decline. The overlap analysis and results reinforce earlier findings by showing that those identified as poor, deprived or excluded are generally not the same. The three approaches thus capture different aspects of social disadvantage and all three can contribute to (and should form part of) future Australian research on social disadvantage. xi

16 Increasingly, where someone lives has the potential to exert a growing impact on the opportunities available to them and hence on their longer-term economic and social prospects. The 2010 survey allows people to be assigned to one of 6 locations: rural areas; small country towns; larger country towns; large towns; outer suburbs; and inner city areas. In terms of economic status, city residents have the highest incomes by a considerable margin, are more likely to own considerable assets, have the lowest poverty rates and are least likely to be reliant on a government benefit for their main source of income. There are marked differences in the degree of availability and access to local facilities and services, across different items and between different locations. Most items are widely available in all locations, with those most commonly available overall being a chemist shop, a sports oval, a local doctor/hospital and a bank or building society. Many of the indicators examined differ considerably between the 6 location types, although the patterns vary according to the indicator. Deprivation is lowest overall among residents of the cities (particularly among inner city residents) and highest among those living in large towns, country towns and rural areas. The level of social exclusion also varies across locations, with the patterns for disengagement and economic exclusion being similar to those for deprivation. In contrast, the spatial variation in the pattern of service exclusion is much lower. This suggests that services are allocated on the basis of individual need, not area disadvantage. The most deprived individuals live in the most disadvantaged areas and the least deprived individuals live in the least disadvantaged areas, although this pattern is not consistent across the entire distribution. The greatest variation is at the two extremes of the distribution, particularly among those in the lowest and highest three deciles. The locational variations in disengagement and economic exclusion are similar to those for deprivation, although the spatial variation in service exclusion is much less, with the exception of those in the bottom and top deciles. xii

17 1 Introduction In 2007, the Social Policy Research Centre (SPRC) published a report that examined three of the main forms of social disadvantage that exist in Australia today: deprivation, social exclusion and poverty (Saunders, Naidoo and Griffiths, 2007). 1 The report drew on recent international research to define and measure these three concepts and examined in detail how they are related. One of the main goals of the research that underlies that report was to show how deprivation and social exclusion can provide important new insights into the nature and causes of social disadvantage by drawing directly on the actual experiences, living standards and aspirations of low-income Australians. Unlike conventional poverty studies that rely on a poverty line to identify who is at risk, studies based on deprivation and social exclusion seek to establish directly whether or not people s material and social functioning needs are being met at an acceptable level. This involves examining their living conditions to help establish their acceptability and identifying the role that inadequate economic resources or other factors play in explaining any shortfalls. The goal of this broader approach is not to replace poverty line studies, but to supplement them with new information that relates more directly to actual living conditions. The study was the first of its kind in Australia to apply concepts and methodologies that have been developed in Europe (initially mainly in the UK, but more recently in a range of other EU countries) to identify different dimensions of social disadvantage using a multidimensional framework. It built on earlier Australian studies that have examined the living standards of those most disadvantaged (including Travers and Richardson, 1993 and Bray, 2001) but represented a point of departure from the standard approach to these issues that has relied heavily on measuring and comparing poverty rates for different groups and examining trends over time (Harding, Lloyd and Greenwell, 2001; Saunders, Hill and Bradbury, 2007; Wilkins, 2008; ACOSS, 2012a). One of the key findings of the 2006 study was that there is relatively little overlap between those with incomes below the poverty line and those identified as being either deprived or excluded. This is an important finding because it challenges the view that poverty captures many of the other aspects of social disadvantage and can thus be used as a summary measure of the wider issue. Low income might well increase the risk of poverty, but that risk will not always translate into actual poverty because those affected may have access to other resources on which they can draw. Against this, it cannot be automatically assumed that all those with incomes above the poverty line are not poor particularly those with special needs or restricted access to other resources. 1 The original study received financial support under ARC Discovery project grant DP and Linkage project grant LP The latter project also received cash and in-kind support from Partner Organisations Mission Australia, the Brotherhood of St Laurence, Anglicare (Diocese of Sydney) and the Australian Council of Social Service (ACOSS). 1

18 Following the release of the report, a subsequent study applied the same ideas and methods to examine the nature of social disadvantage among clients of some of Australia s leading community sector welfare agencies (Saunders and Wong, 2008). This latter study was funded by the agencies themselves and this in itself confirmed that the new approach was capable of generating evidence that leading poverty relief practitioners found helpful and valuable. However, there was also a need to replicate the original study, which was based on information provided by a national sample of all adult Australians, in order to check on the robustness of the methods used. A second study could also confirm that the results conform to a commonsense understanding of how to identify and measure the different forms of social disadvantage. The need to gain a better understanding of the nature, causes and consequences of social disadvantage was given added impetus in 2008, when the Australian economy was first affected by the turmoil in international financial markets that followed what has since been called the Global Financial Crisis (GFC). As in most other countries, the onset of the GFC gave rise to concern about its economic effects, with many predicting at the time that it would lead to a severe and prolonged recession. If this occurred, there would be flow-on social effects as the rise in unemployment fed into increases in poverty and other forms of social disadvantage and, if the impacts were concentrated on those least able to afford them, to increased inequality. The newly-elected federal government responded swiftly and decisively to the impeding downturn in demand for Australian goods and services, introducing the first of two fiscal stimulus packages in December The measures included a series of one-off cash payments to pensioners (but not to the unemployed or sole parents in receipt of Newstart Allowance or Parenting Payment) to boost consumption spending. They included a series of long-term infrastructure projects, supported by $4.7 billion of new investment for road, rail and port infrastructure (Saunders and Deeming, 2011). Planned capital spending on national infrastructure projects was also brought forward to help counter the likelihood of a recession. These measures were largely funded from the large budget surplus that the government had inherited from its predecessor, as the Budget Papers make clear (Department of Treasury, 2008). A second Nation Building package, introduced in February 2009 at an estimated cost of $42 billion, included funding for infrastructure projects such as public housing and school construction and a range of other modernisation projects. The package also contained a second round of one-off cash stimulus payments at a cost of $12.2 billion, including a tax bonus for working families of up to $900 (depending on income), a single-income family bonus of $900 and a back to school bonus of $950 per child to families receiving Family Tax Benefits Part A with school-age children. These payments were not subject to income tax and were not included as income for social security income testing purposes. The government also established a Pension Review to examine the case for providing a permanent increase in pension rates particularly for single pensioners that was to report later that year (Harmer, 2009). When the second round of stimulus measures was introduced, most advanced economies were already in recession and there were growing fears about rising unemployment and concerns that the Australian economy might still retract. In the event, as Figure 1.1 2

19 Feb-1970 Aug-1971 Feb-1973 Aug-1974 Feb-1976 Aug-1977 Feb-1979 Aug-1980 Feb-1982 Aug-1983 Feb-1985 Aug-1986 Feb-1988 Aug-1989 Feb-1991 Aug-1992 Feb-1994 Aug-1995 Feb-1997 Aug-1998 Feb-2000 Aug-2001 Feb-2003 Aug-2004 Feb-2006 Aug-2007 Feb-2009 Aug-2010 Feb-2012 indicates, unemployment reached its peak of just over 6 per cent at the end of 2009 and then started to decline, illustrating the resilience of the economy in the face of a deep and unexpected external shock. As Figure 1.1 indicates, the depth of the GFC impact was less than those that followed earlier recessions of the mid-1970s, early-1980s and early-1990s. Figure 1.1: Trends in Unemployment and Long-Term Unemployment % Long term unemployment (%) Total unemployment (%) Several factors contributed to the strong performance of the Australian economy over this period. The first was the size and speed of the government s fiscal stimulus measures of , which have attracted wide praise from international agencies like the OECD and the IMF, as well as from expert commentators. 2 A second factor was the unexpectedly quick economic recovery in China, which produced a rapid increase in demand for Australian mineral exports that fuelled the mining boom, particularly in Western Australia and Queensland. Another factor was the increased flexibility of the Australian labour market, which allowed the labour market to adjust in ways that did not increase unemployment (e.g. by reducing hours worked or through negotiated enterprise level agreements to forgo pay increases until economic conditions had improved). The impact of these factors was facilitated by the strong prudential regulatory framework that was set in place in the 1980s and 1990s that helped to maintain confidence in the Australian financial system. Although the relative importance of these factors is not addressed here, their combined impact was to moderate greatly the negative impact of the GFC relative to what most commentators had expected when it first emerged. Even so, as Figure 1.1 shows, 2 In a visit to Australia in 2010, Nobel Prize winner and former World Bank chief economist Joseph Stiglitz was reported as saying that by introducing the stimulus measures the ALP Government did a fantastic job of saving Australia from the global economic crisis (Sydney Morning Herald, 2010). 3

20 unemployment did rise sharply in late-2008 and although it had started to decline again by the end of 2009, this was not the case for either the long-term unemployment rate, or for the youth unemployment rate (Commonwealth Bank of Australia and NATSEM, 2010). Thus although the overall picture was one of a prompt return to solid economic growth, the labour market evidence also points to areas where the adverse impact of the GFC was greater and more prolonged. This suggests that there were likely to have been adverse social effects that warrant detailed examination, and this was one of the main objectives of the study on which this report is based. In addressing this issue, the new study applied the methodologies developed in the earlier study, complemented by the more familiar methods and indicators used to monitor trends in the well-being of those most disadvantaged. A subsidiary, but no less important goal was to test the robustness of the methods used in the earlier study to develop the indicators of social disadvantage. Clearly, if these indicators are to prove valuable over the longer-term, it is important to establish that the methods used to generate them are robust and capable of producing results that conform to a commonsense understanding of actual developments. With these aims in mind, a proposal was submitted to the Australian Research Council (ARC) for funding under its Linkage Projects grants program in 2009 and funding was awarded for the two years requested, Cash and in-kind support was also provided by the following Partner Organisations: The Australian Council of Social Service; Anglicare, Victoria; The Benevolent Society; Mission Australia; The St Vincent de Paul Society; and the Social Inclusion Units of the Australian, South Australian and Tasmanian Governments. The proposal submitted for funding identified a number of goals that the research would achieve. They included to: review and refine the instruments developed in the earlier study and test the robustness of the methods and indicators used to identify different forms of social disadvantage; estimate the impact of the GFC on different dimensions of social disadvantage in Australia; examine the locational factors that contribute to different forms of social disadvantage; generate important new data on the dynamics of exclusion and deprivation in the Australian context; provide important new information on social exclusion that would be coordinated with related information-gathering activity being planned by the Australian Bureau of Statistics (ABS); and strengthen the existing research-policy-services links to provide a stronger evidence base for action within government agencies and the community sector to combat the different forms of social disadvantage. 4

21 The research was designed to shed new light on these issues and the resulting analysis provides the outline for this report, which is structured as follows. 3 In what follows, Chapter 2 provides a brief summary of the indicators developed in the earlier study and outlines their main advantages over the existing research instruments used to measure and monitor social disadvantage. Chapter 3 summarises the main features of the surveys used to generate the data on which the analysis is based and provides summary information about the 2006 and 2010 samples. Chapter 4 reports the findings on the robustness of the methods used to identify deprivation and social exclusion, and examines those items that constitute the essentials of life defined as things that no-one in Australia should have to go without today. It is the lack of these items that forms the basis of the identification of deprivation and different forms of social exclusion. Chapter 5 examines the incidence of different forms of deprivation in 2010 and compares the living standards of different socioeconomic groups using a deprivation approach. Changes in the overall patterns and in mean levels of deprivation between 2006 and 2010 are also examined. Chapter 6 illustrates the value of the deprivation approach by examining the relative adequacy of different forms of social security payments and how they changed between 2006 and These latter comparisons allow the impact of the changes to social security payment rates introduced following the Pension Review to be assessed. 4 Chapter 7 presents results on different forms of social exclusion using the framework and indicators developed in the earlier study. Again, comparisons over time allow the impact of reforms and other events to be estimated. Chapter 8 examines in depth the impact of the GFC on specific forms of social disadvantage, including financial stress, poverty, deprivation, the combination of poverty and deprivation (or consistent poverty) and economic exclusion. Chapter 9 provides a comprehensive examination of the locational aspects of social disadvantage in Australia, including how the extent of household disadvantage varies across areas ranked by the degree to which they are relatively disadvantaged. Finally, the main findings of the research and its main conclusions are brought together and summarised in Chapter This report does not include any analysis of the dynamics of deprivation and social exclusion, as that component of the research is still being conducted. These results will be reported separately in due course. 4 The deprivation approach could also be used (in combination with other approaches) to help assess the adequacy of Newstart Allowance, which is the subject of a Review currently being conducted by the Senate Employment, Education and Training References Committee (see ACOSS, 2012b). 5

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23 2 Indicators of Social Disadvantage 2.1 Introduction and Background Previous Australian studies of social disadvantage have focused on measuring poverty on the basis of income (e.g. Harding, Lloyd and Greenwell, 2001; Wilkins, 2008; Saunders and Hill, 2008), using a poverty line. Different studies have used different poverty lines, laying them open to the criticism that the choice of line (and hence the results produced) are arbitrary. Although most Australian researchers now use a poverty line set at 50 per cent of median income because this poverty line is based on a degree of public and researcher consensus, it is widely acknowledged that it (along with all other poverty lines) contains an element of arbitrariness (Wilkins et al. 2011: 34). Reflecting this, many studies also conduct sensitivity analysis using alternative poverty lines (e.g. 60 per cent of median income) to check the robustness of the estimates to variations in where the poverty line is set. These studies have shown that estimated poverty rates can be sensitive to small shifts in the poverty line, particularly for those whose income is mainly derived from social security payments. Many Australian benefits are set close to the poverty line and the flat-rate, income-tested nature of the Australian social security system leads to a bunching of incomes particularly for groups like the aged that are heavily reliant on the pension (Tanton et al., 2009). A small change in payment rates can thus result in large swings in the poverty rates of some groups, as they are moved from one side of the poverty line to the other side. There has also been concern about the reliability of the income data reported in household surveys, including those conducted by the Australian Bureau of Statistics (ABS) and this has thrown further doubt on the value of estimating poverty on the basis of income alone. The ABS has argued that this is a particular problem for those with lowest (reported) income and it now excludes those in the lowest decile when identifying low income households (e.g. ABS 2010). Although the ABS has introduced a series of measures designed to improve the quality of its income statistics across the entire distribution (ABS 2003; 2009a; 2011), this has made it harder to track changes over time in poverty (and income distribution) particularly over longer periods (see Saunders and Bradbury, 2006). In combination with the relative infrequency of ABS surveys (currently conducted every two years) and the inevitable delays in releasing the micro-data to researchers, these issues have undermined the usefulness of poverty research for monitoring social change and assessing the impact of policy. Despite this, it is clear that there is still a need for research that can identify which groups are most at risk of poverty and thus to identify where additional support is most urgently needed (see ACOSS 2008; 2012a). In recognition of the limitations (empirical and theoretical) of relying on income alone to produce estimates of poverty, indicators of financial stress or hardship have been used in several Australian studies to better identify who does not have access to an adequate level of economic resources (Bray 2001: Headey 2007; Marks 2007; Hahn and Wilkins 2008; Wilkins et al. op. cit.: chapter 9). Other studies have combined low-income with other indicators of low economic capacity as a way of better identifying who is actually 7

24 experiencing poverty (Saunders and Hill 2008; Scutella, Wilkins and Kostenko 2009). 5 Saunders and Naidoo (2009) have also extended earlier work by Saunders, Naidoo and Griffiths (2008) by combining low-income with a measure of deprivation to generate a measure of what has come to be called consistent poverty in the international literature (Nolan and Whelan 1996; Whelan, Nolan and Maître 2006). The proliferation of these studies illustrates the more fundamental issue that poverty has come to be seen as not just an important social issue in its own right, but also as one of a number of factors that can result in social exclusion. Low income may increase the risk of poverty but will not always result in poverty, so that defining and measuring poverty on the basis of income alone lacks credibility because the existence of poverty has not been demonstrated. The new indicators of disadvantage discussed below seek to address this limitation by building more directly on an approach that identifies unacceptable living standards (as in the case of deprivation), or by adopting an approach that broadens the underlying causes beyond those relating to a lack of economic resources (as in the case of social exclusion). Despite the growing chorus of criticism directed at poverty line studies, until recently little effort has gone into applying a deprivation approach in Australia. This is despite the Department of Social Security (DSS) concluding almost two decades ago that such research has the potential to contribute to improved understanding of the adequacy of social security payments (DSS, 1995). The Department funded a pilot deprivation project by Travers and Robertson (1996) on a small sample of its clients, and although that study demonstrated that the approach was viable and recommended that it should be applied more generally, this advice was not taken up. It did, however, result in a series of questions about different forms of financial stress being included in the Household Expenditure Survey conducted since (ABS, 2002b; Bray, 2001). A sub-set of these questions has also been included along with several others, in the Household, Income and Labour Dynamics in Australia (HILDA) survey that commenced in 2000 (Marks, 2007; Hahn and Wilkins, 2008; Wilkins and Warren, 2011: Chapter 7). Although the financial stress questions do not measure deprivation as such, they have been used to validate that those with low incomes are experiencing the kinds of financial difficulties that are expected to be associated with poverty. However, a degree of caution must be applied to the financial stress data because studies have shown that the reported incidence of financial stress is not restricted to those with incomes near or below the poverty line even though the questions from which the data are generated identify a shortage of money as the underlying cause (Bray, 2001; Saunders and Adelman, 2006; Harmer, 2009). Such findings raise concerns about how people interpret phrases like a shortage of money when answering survey questions, which may 5 Work being undertaken by the ABS on developing a measure of consumption possibilities fits within this tradition, although it does not overcome the challenge of determining who is poor, or where action is needed to address it (see ABS 2009b; Billing et al ) 8

25 not always reveal the existence of unmet need (as opposed to unfulfilled wants or poor budgeting). Australian research on social exclusion has also grown rapidly since the election of the current Australian Government in 2007, and its identification of the promotion of inclusion as the central theme of its social policy agenda. Studies of social exclusion have been conducted by two of the country s leading social research institutes the Social Policy Research Centre (SPRC) at the University of New South Wales (e.g. Saunders, Naidoo and Griffiths, 2007, Saunders and Wong, 2008) and the Melbourne Institute for Applied Economic and Social Research at Melbourne University (e.g. Scutella, Wilkins and Horn, 2008; Scutella, Wilkins and Kostenko, 2009). 6 This more academically-focused work has been complemented by that being undertaken within the federal government s Social Inclusion Unit with advice provided by the Australian Social Inclusion Board (ASIB). The ASIB (2009) has produced a proposed set of indicators to monitor performance towards social inclusion and compare it with that achieved in selected EU countries. The government has since modified that approach in its own social inclusion indicator framework and produced two reports that use it to assess how Australia is progressing towards improved social inclusion (Australian Government, 2010; 2012). As explained in more detail later, the most recent of these reports has drawn on new data generated from a special module on social inclusion, which was included in the 2010 General Social Survey conducted by ABS (2012). 2.2 Poverty, Deprivation and Exclusion 7 People are defined as living in poverty if their incomes are so inadequate as to preclude them from having an acceptable standard of living (Combat Poverty Agency, 2002). This definition is straightforward, but the measurement of poverty requires judgments to be made about what constitutes an acceptable standard of living, and how much income is needed to achieve it. Defined in this way, poverty is one of the most basic and enduring causes of social disadvantage. Those living in poverty are unable to meet their basic needs and as a consequence face an increased risk of poor health, are more likely to experience low selfesteem and social isolation - all of which reinforce the hardship associated with not having enough to make ends meet. Children, in particular, often carry the negative effects that result from childhood poverty into their adult lives. Poverty research has an important role to play in establishing the magnitude of the problem, identifying which groups are most affected by it, monitoring trends and developing policy responses. Without that research, our ability to combat poverty is seriously diminished. 6 Work by the Melbourne Institute on social exclusion is currently being conducted in collaboration with the Brotherhood of St Laurence (see Horn, Scutella and Wilkins, 2011; Azpitarte, 2012). 7 This discussion draws heavily on that presented in the earlier report by Saunders, Naidoo and Griffiths (2007). 9

26 Studies of Australian poverty have concentrated on comparing people's incomes (adjusted to allow for differences in family needs) with a poverty line in order to discover how many people are poor (the poverty rate), who is affected by it (the structure of poverty) and how it has changed over time (the poverty trend). These studies have been used to assess the adequacy of income support payments, in advocacy work undertaken on behalf of those identified as poor, and to pressure governments to improve their anti-poverty policies (e.g. ACOSS, 2008). They have also focused community attention on the need to tackle the root causes of poverty (e.g. unemployment and discrimination) and address its consequences (e.g. social alienation, psychological stress, restricted child development and poor health outcomes). Although income is a primary determinant of the standard of living of most people, other factors also play an important role in protecting people from poverty. If poverty is ultimately a matter of inadequate resources, then it has to be acknowledged that resources must be defined broadly to include, in addition to income, such factors as accumulated wealth (savings), access to credit and to the family and social networks on which many people rely in times of financial stress and unmet need. Once the role of these factors is recognised, the link between low-income and poverty becomes more tenuous (at least for some groups, or in some circumstances) because other resources can be used to protect those with low income from poverty. This insight suggests a need to examine approaches to poverty measurement that do not rely solely on income (in addition to the practical problems surrounding the measurement of income in surveys alluded to earlier). An alternative conceptual approach is also required to provide more convincing evidence that those identified as poor are actually experiencing deprivation. This implies that better data are needed to more comprehensively reveal the actual living conditions experienced by those who are most disadvantaged. These imperatives may conflict with each other, because those variables that can help to better identify poverty may not be able to be measured any more accurately than income. However, until we experiment with new indicators, the merits of using them compared with income will never be established. Deprivation and Social Exclusion Reflecting the limitations of poverty line studies, this study draws on an alternative approach to identifying different forms of social disadvantage that does not rely on the presumption that low income always equates with poverty. The approach involves drawing directly on the experiences and views of disadvantaged people to generate new data on two of the other main components of social disadvantage: deprivation ( missing out ); and social exclusion (being left out ). Deprivation and social exclusion have emerged as major themes in the poverty literature, although their development has tended to follow different trajectories. The concept of deprivation has mainly been used to identify who is in poverty and (in some early applications) to help set a poverty line (measured in terms of income). The deprivation literature builds on its initial development by British sociologist Peter Townsend (1979) and 10