New data from the bureau of statistics shows the drop in spending by households due to the pandemic increased the level of savings, but while incomes rose strongly for low income households due to a big rise in social assistance, inequality remains worse than it was at the start of the century.
Every two years the bureau of statistics provides data on the distribution of household income, consumption and wealth. The latest figures for 2019-20 take into account the start of the pandemic and show the impact of social assistance on income and how our spending and saving habits changed.
Household disposable income grew stronger in the two years from 2017-18 to 2019-20 for most households than the previous two:
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The only group that had lower income growth was the richest 20% of all households mostly due to falling property income returns, which matter more to them than others, and because social assistance grew strongly due to the pandemic, which matters less:
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But despite this, the share of gross disposable income held by the richest 20% remains more than it was a decade ago and well above what it was in 2003:
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But while the richest 20% of households hold 41% of total income after tax and social assistance benefits, the situation is better when we take into account what is known as “social transfers in kind” – in effect the costs foregone through areas like public health and education:
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These social transfers together with social assistance payments do the greatest work reducing inequality.
While our income tax system does see the wealthiest 20% pay 52% of all tax, the difference in the level of income held does not greatly change even once tax is taken out.
The share of income held by the richest 20% falls from 48% to just 46% once tax is taken out, but the addition of social assistant benefits reduces it to 41% and social transfers takes it down to a 35% share:
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This is why public services are so vital for ensuring a more equitable society, and why when you hear talk of cuts to education or health, what you are also hearing are more to increase inequality.
The figures also show how poor and rich households spend their money and how much of it they need to spend.
The pandemic saw all households spending decline compared to 2017-18. As we know, there was just fewer opportunities to actually spend money – especially on eating out and accommodation:
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But even with this drop in spending, the poorest households were still having to spend more than they earned.
While in 2019-20 the richest 20% were able to save 35% of their gross disposable income, the poorest were spending 16% more than they earned.
The big reason is that the poorest households need to spend 81% of their income on essential items such as food, utility bills and transport, compared to just 42% by the richest households:
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And while you might think the poorer households should just cut down on “discretionary” spending, such spending is not “luxury” – it is just things that you can mostly avoid and still stay alive and with a roof over your head.
The bureau of statistics for example includes clothing and footwear, and alcohol as “discretionary” items. Now yes, you can go without both (for a while at least with clothing) but neither are hardly extravagances.
The amount of household income spent on food and drink shows how difficult it is for lower income households to limit their spending within their income:
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The wealthiest households spend much less of their income on all food and drink – including alcohol and eating out – than do the poorest households on just food and non-alcoholic beverages.
It highlights that even when spending is reduced, many households are unable to make ends meet, and that while progressive taxation is vital to reducing inequality, welfare assistance and public services such as education and health remain the bigger drivers of a more equal society.
