Executive Summary: Australia has seen an increasing divide between the wealthy and poor and income distribution has widened. The effects can be increasing unease between the affluent and the poor and can cause problems from lack of social integration to increase in crime. It can be seen that there was a period of economic growth and that government policy as well as social factors have an effect of increasing this disparity. I would agree that strong economic growth is to blame and that macroeconomics cannot be seen as the solution to the problem as a number of factors exist.
Australia has had considerable gap between the rich and poor and this gap has widened in recent years. Whilst the overall income has increased across the population a number of factors have created a super rich class and also created a very poor group. The economy has helped promote this and it will continue to do so unless change is implemented. Whilst Australia looks at other countries like the U.S and UK for answers to it problems one has to remember that this is a problem faced in these countries as well. Ability is not the factor that accumulates support and that 94%of the public claim that hard workers should earn more then those who don’t. It is simply matter luck if some are more intelligent and skilful then others (Aalberg, Toril.2003)
In the 1995 -1996 period almost half of the income generated by economic growth benefited those in the top fifth which meant that it was of no benefit to the bottom four fifths of the population (Saunders, P.2003) .Inequality in incomes increased in the 1980’s. There is a theory that Australians are less accepting to equality and more likely to favour unequal distribution of wealth. (Saunders, P.2003) The intention of the Howard government was to increase indirect taxation rather then direct taxation. However this in effect favoured the rich who could work the system to their benefit but penalised the working class who couldn’t do anything about their level of tax. (Gibson, S.1999)
Australia in the 1990s had economic growth at 2.3 percent per capita per year and labour productivity has grown by 2.9 % per year yet unemployment at the end of the 1990s was high at more then 7 percent .It resulted in a wide distribution of income amongst the population. Accordingly if regulatory barriers are reduced and blockages to competition are eliminated factors that are low in demand lose and in this case the demand for labour was low and so the inequality. (Delong, B.2000)
There has been a demand for highly skilled workers and these types of jobs attract higher wages. The level of salary is determined by qualifications and experience and attracts people by a significant salary package. As more economic growth has occurred there has been more demand for high skilled workers but less demand for unskilled leaving these sectors in a job shortage and unemployed. Also as women have entered the work force most families in the high skilled bracket have two incomes from both partners and this elevates the earning levels. (Ziguras, S.2002.)
However the earning across the population has increased by 23 % which is a good figure. . (Ziguras, S.2002.)
This level of inequality has an effect on families and children of these families with many children growing up in poverty comparable to developing countries. It is a sad situation and shouldn’t exist in developed countries where governments. Poor children in the USA are worse off in real terms than poor children in all of the other 12 OECD countries in the study, except for the UK. Australia comes 11th out of 13: only in the UK and the USA are the poor worse off than in Australia. These findings mirror those of the United Nations Development Programme (UNDP) on poverty rates in developed countries where Australia comes 14th out of 17 countries, followed only by the UK, Ireland and the USA (UNDP 2001). . (Ziguras, S.2002.)
Macroeconomic policy looks at the behaviour of regional economy as a whole taking into account factors such as national income, unemployment, inflation, savings, investment, international issues like trade and finance. The Australian government has utilised these principles in trying to sustain economic growth while minimizing inflation and unemployment. (Nguyen, D)
Examining families in the bottom income quintile a majority of these families rely on transfers from the government as the main source of income. It is more likely that there is unemployment in these groups. Low income families saw a shift in the labour force status of the head of the family between 1998 and 2005 with part time workers or being out of work being more common. Even after changes in family payments in the 2004/2005 budget the median disposable incomes for all families remained almost double the average income of the least affluent one fifth of families. (.McNamara, Justine.Lloyd, Rachel.Toohey, Mathew.Harding, Ann2004)
In 2000 the family tax package introduced a 10 % goods and services tax and abolition of wholesale tax meant that taxes on consumption increased by 3%. The tax free threshold was increased. Family tax benefit part B helped single parents and sole parent families gain an income of up to $ 22
And introduced a maternity allowance of $854 which was available only to those families qualifying for family tax benefit A. The benefits of this tax arrangement show a rise in earning for the poorest families. (.McNamara, Justine.Lloyd, Rachel.Toohey, Mathew.Harding, Ann2004)
However the GST on essentials such as food, clothing and utilities affects these poor families. There was no direct taxation on food until the GST of 10 percent was introduced. The poorest 20% of households spend around 25% of their income on food; double the proportion of the richest 20% of households (Johnson et al., 1998).
The introduction of tax cuts on the other hand for the high income earners makes them better off then before A single person with no dependents earning $75,000 who will gain $86 per week is significantly better off than a single income couple with two children earning only $25,000. This low-income family will gain tax cuts of only $12 per week (Catholic social service 1999)
In conclusion unless reforms are brought about by government and more is done to help the poor families not much change can be brought about. The taxation laws need change with more taxation on the high income earners. Also it is a problem that subsidies and transfers are difficult to sustain in the long term so more concrete programs that reach everyone such as secondary education, childcare and immunization. Also giving tax breaks and vouchers for school, health and housing helps the poor become effective consumers. (Birdsall, Nancy.1998) Also considerable emphasis on education and family structure to help these poor families provide future generations which can rise above poverty or else it just repeats like a circle. Macroeconomics might be a possibility in some countries but in Australia it is a number of other factors which need to be addressed and changed to bring about improvement. It is not a simple solution but indeed a wider solution to the problem and involves all levels with individuals working together for a wider goal of eliminating unfairness.
Aalberg, Toril. (2003) Achieving Justice: Comparative Public Opinion on Income Distribution. Brill.http://books.google.co.uk/books?id=l3EIVG4caZ0C&pg=PA50&lpg=PA50&dq=Unfair+income+distribution+in+Australia&source=web&ots=F4pnhc1jAU&sig=uMdZXTsjkxAN22-0YM2G1i3PcPY&hl=en&sa=X&oi=book_result&resnum=7&ct=result#PPA45,M1
Birdsall, Nancy. (1998) Life is Unfair: Inequality in the World. Foreign Policy, No. 111Carnegie Endowment for International Peace. http://www.mtholyoke.edu/acad/intrel/birdsall.htm
Catholic social services (1999) Moral Imperatives and the 1999 Tax Package: Equity Implications of the Tax Reform Debate. COMMON Wealth No. 1 of Volume 7http://catholicsocialservices.org.au/publications/COMMON_Wealth/1of7
Delong, J.Bradford. (2000)What Are Australia’s Economic Prospects?http://www.j-bradford-delong.net/Econ_Articles/Australia_docs/Australia_prospects.html
Gibson, Steve (1999) A Short History of Taxation in Australia.http://www.cpa.org.au/amrarch/41sg.htmlAustralian Marxist Review No. 41
Johnson, D., Freebairn, J., Creedy, J., Scutella, R., Cowling, S. ; Harding, G., 1998, Tax Reform: Equity and Efficiency. Report No.2, `Indirect Taxes: Evaluation of Options for Reform’. University of Melbourne: Vanderstadt Printers.
McNamara, Justine.Lloyd, Rachel.Toohey, Mathew.Harding, Ann (2004) prosperity for all? How low income families have fared in the boom times. http://www.aifs.gov.au/institute/afrc9/mcnamara.pdf
Nguyen, D. Macroeconomic policy in Australia .http://www.kewpid.net/notes/macro_reform.pdf
Saunders Peter (2003) Examining the recent changes in income distribution in Australia .Social project research centre http://www.sprc.unsw.edu.au/dp/DP130.pdf
Ziguras, Stephen (2002) Measuring the income divide: how does Australia compare?