GLOBAL INEQUALITY AND AUSTRALIA S ROLE PRESENTATION TO A RECEPTION HOSTED BY OXFAM AUSTRALIA GOVERNMENT HOUSE, HOBART, TASMANIA 29 TH MAY 217
The good news: global poverty has fallen by almost 6% over the last twenty years Total number of people living on less than US1.9 per day 2, Million people % of global population 45 1,8 4 1,6 1,4 1,2 Down by more than 1 bn (6%) or 23 pc pts of the world s population since 1993 35 3 25 2 1, 15 8 1 6 5 4 1981 1984 1987 199 1993 1996 1999 22 25 28 21 211 212 213 Number (left scale) Pc of world population (right scale) Note: Global poverty line of US$1.9 per day is at 211 prices and converted from national currencies into US dollars at purchasing power parities. US$1.9 per day is roughly equivalent to A$1 per week. Source: The World Bank, PovcalNet. 2
Not so good news (unless you re Chinese): three-quarters of the decline in the number of people living in poverty has occurred in China Total number of people living on less than US1.9 per day - China Total number of people living on less than US1.9 per day rest of the world 1, 9 Mn people % of China's population 1 9 1,3 1,2 Mn people % of global population excluding China & high income countries 4 35 8 7 6 5 4 3 2 Down by more than 645mn (96%) or 55 pc pts of China s population since 1993 8 7 6 5 4 3 2 1,1 1, 9 8 7 6 Down by more than 435mn (37%) or 19 pc pts of the population since 1993 3 25 2 15 1 1 1 5 5 1981 1984 1987 199 1993 1996 1999 22 25 28 21 211 212 213 4 1981 1984 1987 199 1993 1996 1999 22 25 28 21 211 212 213 Number (left scale) Pc of China's population (right scale) Number (left scale) Pc of world population (right scale) Note: Global poverty line of US$1.9 per day is at 211 prices and converted from national currencies into US dollars at purchasing power parities. Source: The World Bank, PovcalNet. 3
The number of people living in extreme poverty in Africa is still rising Total number of people living on less than US1.9 per day, by major region 1, Mn people 9 8 7 6 5 4 3 2 1 East Asia & Pacific Europe & Central Asia Latin America & Caribbean South Asia Sub-Saharan Africa Middle East & Nth Africa 1987 1993 213 Note: Global poverty line of US$1.9 per day is at 211 prices and converted from national currencies into US dollars at purchasing power parities. US$1.9 per day is roughly equivalent to A$1 per week. Source: The World Bank, PovcalNet. 4
Also, most of the people who have escaped from extreme poverty are still very poor by Western standards Total number of people living below alternative definitions of poverty in 213 6, Million people % of global population 9 5, 8 7 4, 6 3, 5 4 2, 3 1, 2 1 $1.9 $2.85 $3.8 $5.7 $9.5 $14.25 $19. US$ per day in 211 prices at purchasing power parity Number (left scale) Pc of world population (right scale) Note: Global poverty line of US$1.9 per day is at 211 prices and converted from national currencies into US dollars at purchasing power parities. US$1.9 per day is roughly equivalent to A$1 per week. Source: The World Bank, PovcalNet. 5
Cumulative increase in real income Growth in global real income since the late 198s has been very unequally distributed Growth in real income by percentiles of the global income distribution, 1988-28 8 % 7 'Top 1%' 6 5 'Middle class' in 'emerging economies' 4 3 2 'Working / middle classes' in 'advanced economies' 1 1 5 1 15 2 25 3 35 4 45 5 55 6 65 7 75 8 85 9 95 99 Percentiles of the global income distribution Note: Real income measured in 25 US dollars (converted at purchasing power parities. Source: Christoph Lakner and Branko Milanović, Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession. 6
That s partly because income growth has been unequally distributed across the world s major regions Growth in real per capita GDP, by major region, 1986-216 7 % per annum 6 5 4 3 2 1 'Advanced' economies (a) Developing Asia Latin America & Caribbean Middle East & North Africa Sub-Saharan Africa Central & Eastern Europe (b) Former Soviet Union (c) 7 Note: (a) Includes USA, Japan, members of the euro area, UK, Canada, Sweden, Norway, Denmark, Switzerland, Czech Republic, Iceland, San Marino, Australia, New Zealand, Korea, Taiwan, Hong Kong, Macao, Singapore, Puerto Rico and Israel. (b) Includes Turkey, Poland, Hungary, Romania, Bulgaria, Serbia, Croatia, Macedonia, Montenegro, Bosnia & Herzegovina, and Albania. (c) Includes members of the former Soviet Union, other than the Baltic States. Source: International Monetary Fund, World Economic Outlook database, April 217.
and because income has become more unequally distributed within most countries Income inequality as measured by Gini co-efficients, selected advanced and developing economies, 1988 and 213.7 Inequality Greater Lesser.6.5.4.3 ~ 1988 ~ 213.2.1 Note: The Gini co-efficient is a measure of income distribution ranging from (where everyone in a population has exactly the same income) to 1 (where one person has 1% of total income). Sources: LIS Cross-National Data Centre (previously known as Luxembourg Income Study); The World Bank; OECD. 8
In advanced economies, incomes of the top 1% have grown three times faster than those of the rest of the population over the past three decades Real market income per capita in advanced economies, 198-212 3 198= 1 Top 1 percent 25 2 Total population 15 Bottom 99 percent 1 5 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 Note: Market income means individuals income before taxes and transfers. Advanced economies includes Australia, Canada, Denmark, France, Germany, Ireland, Italy, Japan, Korea, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Source: International Monetary Fund, Fiscal Monitor, April 217; based on data from World Wealth and Income Database and IMF World Economic Outlook database. 9
Australia is at the Swedish end of the spectrum of increases in incomes going to upper income groups Upper income groups share of total pre-tax income in selected advanced economies Top 1% Top 1% Top.1% 5 45 4 35 3 25 % of total NZ Sweden US Canada UK Australia 24 22 2 18 16 14 12 1 8 6 % of total Canada US UK NZ 9 8 7 6 5 4 3 2 % of total Australia Australia US UK Canada Sweden 4 Sweden 1 2 197 1975 198 1985 199 1995 2 25 21 215 2 197 1975 198 1985 199 1995 2 25 21 215 197 1975 198 1985 199 1995 2 25 21 215 1 Note: Shares are of pre-tax taxable income as reported to and published by national tax collection agencies. Source: Facundo Alvaredo, Tony Atkinson, Thomas Piketty, Emmanuel Saez and Gabriel Zucman, The World Wealth and Income Database.
The Australian tax-transfer system does a reasonable job of moderating the effects of market forces on the distribution of income Income, transfer payments and income taxes by household income quintiles, 213-14 Market income Transfers and income taxes Disposable income 6 % 7 % 6 % 5 6 Income taxes Pensions & allowances 5 4 5 4 4 3 3 3 2 2 2 1 1 1 Lowest Second Middle Fourth Highest Lowest Second Middle Fourth Highest Lowest Second Middle Fourth Highest Income quintiles Income quintiles Income quintiles 11 Note: Quintiles are 2% shares of Australian households ranked in ascending order of disposable income. Market income means income from wages and salaries, business, property and investment income, and income from overseas, before tax, and excluding government pensions, benefits and allowances. Source: Australian Bureau of Statistics, Household Income and Wealth 213-14 (catalogue no. 6523.).
Although Australia is a low-tax country by advanced economy standards Taxation revenue as a share of GDP OECD countries, 214 5 % 45 4 35 3 25 2 15 1 Source: Organization for Economic Co-operation and Development (OECD), Revenue Statistics OECD Countries: Comparative Tables, 217. 12
Australia s tax system is in some important respects more progressive than many of those which collect a bigger share of GDP in tax Personal income taxation revenue as a share of GDP OECD countries, 214 Goods & services taxation revenue as a share of GDP OECD countries, 214 3 % 18 % 25 16 14 2 12 15 1 8 1 6 5 4 2 Source: Organization for Economic Co-operation and Development (OECD), Revenue Statistics OECD Countries: Comparative Tables. 13
and Australia s targeted transfer payments system is highly effective in redistributing income Size of cash transfers OECD countries, mid-2s.3.25.2.15.1.5. Progressivity of cash transfers OECD countries, mid-2s.9.8.7.6.5.4.3.2.1..14.12.1.8.6.4.2. Redistributive impact of cash transfers 14 Note: Size of cash transfers measured by their share of market income plus transfers; progressivity is the difference between the concentration coefficient of transfers and the concentration coefficient of market income; the redistributive impact is the difference between the concentration coefficient of market income plus transfers and the concentration coefficient of market income alone. Cash transfers include age and disability pensions, cash benefits to families, unemployment benefits and housing benefits. Source: Isabelle Joumard, Mauro Pisu and Debra Bloch, Less Income Inequality and More Growth: Are They Compatible? Part 3 Income Redistribution via Taxes and Transfers Across OECD Countries, OECD Economics Department Working Paper No. 926, OECD, 212, Annex Table A2.1
Wealth is much more unequally distributed in Australia than income and has become more so over the past decade 7 Shares of household income and wealth, 213-14 % of total 5 Change in shares of household income and wealth, 23-4 to 213-14 Percentage points 6 Income Wealth 4 Income Wealth 5 3 4 2 3 1 2 1-1 Lowest Second Middle Fourth Highest -2 Lowest Second Middle Fourth Highest Quintiles Quintiles Note: Quintiles are 2% shares of Australian households ranked in ascending order of disposable income and equivalized for differences in the average number of people per household. Source: Australian Bureau of Statistics, Household Income and Wealth 213-14 (catalogue no. 6523.). 15
What would help to reduce global inequality? 16 Peace conflict within and between nations is a major, on-going cause of poverty and diverts resources from more productive uses Good government (and governance) competent and honest politicians and administrators an adequate and effective taxation system universal literacy and numeracy, and primary health care adequate infrastructure recognition of basic property rights (in particular land titles and contracts) Emancipation and empowerment of women equal access to education and health care control over fertility Inclusive finance widespread access to payments systems, savings vehicles and forms of credit but appropriate supervision and regulation to prevent violent swings in lending and asset prices Trade access to foreign markets without discriminatory trade barriers Aid of the sort that improves peoples lives and doesn t come with political or commercial strings attached
Australians have a highly inflated perception of how much is spent on foreign aid but they re not Robinson Crusoe in that regard Australians perceptions of government spending on foreign aid, 216 Americans perceptions of US government spending on foreign aid, 214 14 % of total federal budget 3 % of total US federal spending 12 25 1 2 8 15 6 1 4 2 5 What Australians think the Government spends on foreign aid What Australians think the Government should spend on foreign aid What the Government actually spends on foreign aid What Americans think the US Government spends on foreign aid What Americans think the US Government should spend on foreign aid What the US Government actually spends on foreign aid Sources: Paul Karp, Australians massively over-estimate level of foreign aid in budget, poll finds, The Guardian (Australian edition), 29 th April 216; Kaiser Family Foundation, 'Data note: Americans Views On The U.S. Role In Global Health, 23 rd January 215. 17
Australia s spending on overseas aid is now lower as a proportion of our national income than at any time in the past 55 years Australian official development assistance as a per cent of gross national income.5 % of gross national income.45.4.35.3.25.2 1962 1967 1972 1977 1982 1987 1992 1997 22 27 212 217 Financial years ended 3th June Source: Robin Davies, What are the facts on Australia s foreign aid spending, The Conversation, 31 st January 217. 18
Australia now devotes a lower proportion of national income to overseas aid than the OECD average Official development assistance as a per cent of gross national income, OECD countries, 215 1.6 % of gross national income 1.4 1.2 1..8.6.4 Weighted average.2. Source: OECD, Development finance data, April 217. 19