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Inequality: latest research
Company tax rorts
- the leading companies pay an average effective tax rate of 23 per cent, which is well below the corporate tax rate of 30 per cent;
- 29 per cent of the companies have an effective tax rate of 10 per cent or less;
- 14 per cent have an effective tax rate of 0 per cent, i.e., zero, nothing. blot, zilch;
- this represents the loss of an estimated $8.4 billion in annual public revenue;
- in 2013, 57 per cent of ASX 200 companies disclosed subsidiaries in secrecy jurisdictions (tax havens), but this could be much higher as reporting is not mandatory.
Fiscal policy must be re-orientated from the bottom up
Perhaps surprisingly, the explosion of inequality is in part a function of there being winners and losers from fiscal policy action. In the latest issue of the Journal of Post Keynesian Economics, Pavlina R. Tcherneva (pictured) shows that the conventional approaches to macroeconomic stabilisation during the postwar era have not only failed to secure full employment, they've also contributed to the inequality of incomes.
In the article, ‘Reorienting fiscal policy: A bottom-up approach’, Tcherneva shows that most of the income gains experienced in the United States during the post-war expansions — the periods from the trough of one recession until the onset of another — initially accrued to the majority, i.e., the bottom 90 per cent received at least most of the rise in income. Basing her analysis on data from Thomas Piketty and Emmanuel Saez, Tcherneva shows that, with each expansion in sequence, the bottom 90 per cent have captured an ever smaller share.
Since the 1990s, the top 10 per cent have got an overwhelming proportion of the income gains. From 2001 to 2007, 98 per cent of the income gains accrued to the top 10 per cent. Indeed, in the first three years of the current expansion, incomes actually fell for the bottom 90 per cent, even as they have risen for the top 10 per cent — so that the top 10 per cent have captured an incredible 116 per cent of the income gains. Even more striking when you think about it, the top 1 per cent captured 95 per cent.
In sum, the orthodox approaches to macro-economic stabilisation have proved an effective means of avoiding recessions turning into depressions, but in so doing they have merely perpetuated the more general systemic failure of ‘trickle-down’ assumptions to limit the growth of inequality. The upshot is that the recent period has witnessed the largest transfer of income to the rich in history, as Tcherneva shows:
Tcherneva argues that full employment is as important as ever and within policy reach as long as we heed the original Keynesian message. Policy must be reoriented ‘away from the two contemporary demand-side trickle-down measures and toward a bottom-up approach that is based on labor-demand targeting. Full employment, environmental sustainability, and public stewardship are sensible cardinal measures for fiscal policy effectiveness, and a carefully designed permanent program for direct employment of the unemployed can serve as an important institutional vehicle that can deliver long-term full employment, macro-economic stability, and shared prosperity.'
The average person still doesn’t have a clue
Research to be published in a forthcoming issue of Perspectives on Psychological Science by Chulalongkorn University’s Sorapop Kiatpongsan and Harvard Business School’s Michael Norton (pictured) finds that most people still have no real idea how unequal today’s societies have become.
The survey covered some 40 countries, of which 16 were investigated in more detail. Broadly, the average citizen in the world today thinks that CEOs earn about 10 times the pay of the average worker, and that the ideal ratio would be about half that, i.e., about 5 times. The still barely known truth of the matter is that the average CEO actually earns about 100 times the ordinary average.
In the US, the average earnings of CEOs is 354 times that of the average worker. The average US citizen thinks that the ratio is only 30 times, and believes that a fair ratio would be 6.7 times. Australia’s CEOs earn 93 times the average wage, but our citizens think that the ratio is about 40 times, only a bit more realistic than the average American, and they say (on average) that they would settle for a ratio of 8.3 times.
Wilfully Ignoring the woods to focus on fine differences between a few of the trees, local neo-liberal ideologues have leapt on the marginally higher CEO-worker ratio that the survey finds Australians are prepared to accept, and have claimed that this country thus has a higher tolerance for inequality. This not only seems fanciful in light of traditional national notions of egalitarianism, it could reflect any number of other things, including this country's relatively better idea of how much CEOs really earn. Australians don’t have much of a clue, but the 40 times ratio that they think applies means that they’re almost half way to the truth. On the other hand, the acceptance of the slightly higher ideal ratio could reflect the effectiveness of neo-liberal propaganda in this country, or whatever. Who knows? The difference is so small in the larger frame that you can hardly see it, let alone say why. The salient point is that, if the supposed ideal Australian 8.3 times pay ratio was actually achieved, i.e., if we introduced the ratio that shows how tolerant of inequality Aussies are, average pay would rise from the present US$45,000 to $502,000! If neo-liberals agree that this wage would represent the most inequality-tolerant society in the world, let's call it a deal:
The research has other interesting data, but has been taken down from the Harvard website. In the vacuum, the news reports are hard to follow because of some cross-hatching between the ‘unskilled worker’ and ‘average worker’ categories. While the published work looks worth the wait, there's a report on the Harvard Business Review Blog and Paul Krugman reflects on the 'invisible rich' in the New York Times.
The gender gap
Freshly published research in Feminist Economics shows that, on average, Australia's single male households achieve a level of net worth almost $38,000 (or 14.4 percent) higher than single female households. The gender wealth gap favours single women in the lowest quartile of the wealth distribution, but favours males by a large margin in the higher quartiles, reaching $137,300 in the top quartile and $952,000 at the 99th. As with all modern distributions, the wealth of single Australian households is grossly unequal and concentrated at the top. The net worth of both low-quartile single female and male households is negative (by $200 and $4,300 respectively). However, top-quartile single females achieve, on average, a net worth of $855,200, while that of single men in the top quartile is close to $1 million.
The researchers, Curtin University academics, Siobhan Austen, Therese Jefferson and Rachel Ong, examined the wealth differences using data from the 2006 Household, Income and Labour Dynamics in Australia (HILDA) Survey. They demonstrate that the gender wealth gap is concentrated in particular types of assets, and reflects the differences in composition. Their paper, 'The gender gap in financial security: what we know and don't know about Australian households', finds that individual factors play a relatively small role in accounting for the large gap at the top, the difference being largely due to differences in portfolios, i.e., the gap is largely associated with men's greater holdings of superannuation, business, and financial assets.
Across the wealth distribution, the lower earnings and smaller length of time in paid work of single women contribute to the gap, as does the prevalence of children. The dominant role that property assets play in the portfolios of single women implies they are more exposed to changes in rates of return on a single class of assets than their male counterparts. Further, their relatively low rate of participation in financial investments beyond the primary home may limit the ability of single women to accumulate wealth. Ideally, future research into women's dependence on primary home assets will take account of the unique geographic, social, and emotional dimensions of these assets. Primary home assets are typically linked closely to other elements of women's 'social capital', connections to family and friends, attachment to neighbourhood, ontological security, and access to services. Institutional aspects of men and women's asset portfolios, such as the long-term effects of asset distribution on divorce, are also worthy of further investigation.
By implication, presumably it's also worth noting that, when we're talking about extreme poverty, we should imagine a preponderance of single men over single women.
These briefs are produced as part of the Evatt Foundation's current research project on inequality.
- Contesting inequality
- Health spending shrinks
- The psychology of inequality
- Gender & Capital in the 21st Century
- Redressing inequality - 125 years ago
- Budget fuels financial discomfort
- Battlers & billionaires
- Addressing inequality at root
- Stiglitz: the price of inequality
- Behind the chaste veil: inequality in Australia, post-Piketty
- Piketty v. Marx
- New Poll, Oxfam
- Capital in the 21st Century: Review article
- Thomas Piketty: the book of the moment
- Australia's rich are on a roll
- The United States of Australia?