A commonly used yardstick by welfare groups in Australia (such as ACOSS or the Brotherhood of St Lawrence) is relative poverty. This is typically defined as the share of people living in households whose post-tax incomes put them below half the median.
What’s important to note about this is that the poverty rate will go up if:
- incomes at the bottom fall; or
- incomes at the middle rise by more than incomes at the bottom
Bearing this in mind, I thought it might be worth taking a trot through the policies announced this election, to see what effect they will have on relative poverty.
- Tax cuts: increase poverty
- Education tax rebates: increase poverty (since poor families are less likely to spend to the threshold, and more likely to have their kids drop out of school early)
- Housing savings accounts for new homebuyers: increase poverty (the structure of these accounts is very strongly skewed to the affluent)
- Expand dental care for those with chronically ill health: decrease poverty (if we count in-kind transfers)
- 50 Family Emergency Medical Centres: probably decrease poverty (if we count in-kind transfers)
- Tax cuts: increase poverty (though not by as much as the Coalition’s tax cuts)
- Education tax rebates: ambiguous effect on poverty (targeted towards the bottom 2/3rds of households, but the above factors still apply)
- Scrap AWAs: probably no effect on poverty (most are at the top of the distribution)
- Restore unfair dismissal protection: probably no effect on poverty (the general economic consensus is that the link between employment rates and employment protection is pretty weak)
- Create Fair Work Australia: ambiguous effect on poverty (see here for some work of my own on the relationship between minimum wages and relativeÂ poverty)
- Create savings accounts for first homebuyers: ambiguousÂ (takeup will be higher among richkids, but the young are poorer as a group)
- Expand dental care 12-17 year olds: decrease poverty (if we count in-kind transfers)
- Universal preschool for 4 year olds and higher childcare rebate:
ambiguous (not clear whether the employment change will be greatest for low-wage or high-wage parents)probably reduce poverty (I’m reminded that the Melbourne Institute modelling Labor commissioned suggests that the policy will raise participation by 34,000 over 5 years, of whom 16,000 will be sole parents)
This is only a smattering of the policies on offer, focusing mainly on those that involve a transfer of money or aim to affect labour market outcomes. But I was struck by the fact that many of the policies (andÂ most of theÂ dollars) are going towards policies that will raise relative poverty.
It seems to me that there are a few reasonable answers to this:
- We shouldn’t care about relative poverty. At an inequality I attended in Seville recently, the feistiest debate was between the Europeans arguing for relative poverty lines, and the Americans arguing for absolute poverty lines. I’ve written a little about this on the blog recently.
- I’ve mistakenly classified some policies. Mine is very much a back-of-the-envelope calculation, so if you think I’ve mistakenly classified a policy, or skipped an important policy, let me know in comments.
- Relative poverty matters, and the parties have their priorities wrong. If this is the case, it’s surprising that the welfare groups who often talk about trends in relative poverty haven’t said much on the topic.