Recent Trends in Income Redistribution in Australia: Can Changes in the Tax-Transfer System Account for the Decline in Redistribution?

Abstract

We examine trends in the redistributive impact of the tax-transfer system in Australia between 1994 and 2009 using a framework that allows us to separate the contributions of taxes and benefits to overall income redistribution. Furthermore, we identify the effect of taxtransfer policy reforms on changes in income redistribution over the period by controlling for changes in the distribution of market incomes. We find that after reaching a peak value in the late 1990s, the redistributive impact of taxes and transfers steadily declined. Although reforms to the tax-transfer system contributed to the decline in redistribution, their contribution was limited.

Labour Market Inequality in Australia

“…Furthermore, studies using the HILDA Survey estimate an increase in inequality in disposable income over this period at the lower end of estimates from ABS data sources (Wilkins, , ). Part of the explanation for the increase in inequality in disposable income since the mid‐1990s appears to be a reduced redistributive effect of government tax and transfer policies over this period (Herault & Azpitarte, , table 2; Greenville et al ., , p. 13).…”

Understanding Changes in the Distribution and Redistribution of Income: A Unifying Decomposition Framework

“…Important policy reforms were implemented during this period. With regard to the income tax, the various reforms led to a substantial reduction in income tax rates and to an increase in the top tax thresholds, which affected the total amount of taxes paid and its distribution by income groups (see Herault and Azpitarte, , for details). Furthermore, various tax offsets, such as the Low‐Income Tax Offset, were extended to protect low‐income families from potential bracket‐creeping resulting from the reduction in real terms of the tax‐free threshold (see http://onlinelibrary.wiley.com/doi/10.1111/roiw.12160/suppinfo).…”

“…Following Shapley (1953) and Shorrocks (2013), we measure the effect of each component by their arithmetic mean values over all possible decompositions (that is, attributing the same probability to each): As an illustration of the decomposition method, we analyze the changes in the distribution and redistribution of income in Australia between the financial years 1999/00 and 2007/08, a period characterized by significant policy reforms and important changes in labor force participation. These two years also mark the beginning and end of the period of decline in the redistributive capacity of the tax and transfer system (Herault and Azpitarte, 2014). Moreover, this period has the advantage of avoiding distortions from business cycle variations, as it represents a peak-year to peak-year comparison.…”

The performance of the Australian welfare system in a time of neoliberal economic reform

“…The authors make two trend claims. First, “The Gini of market income was fairly stable until 2000, when it started to decline, so that by 2009 the value of this index was almost 5 per cent lower than its 1994 value” (Herault & Azpitarte, , p. 7). This is contestable.…”

“…Thus, their claim that market income inequality fell in the 2000s is not strongly supported. Second, they say, “[T]he Gini coefficient of net income [disposable income] rose by nearly 10 per cent between 1994 and 2007” (Herault & Azpitarte, , p. 7). This contention is supported by one ABS‐based trendline shown in the wider survey in Fenna and Tapper (, p. 6), but another trendline shows only a 3% increase.…”