The claim

The notion that Australia is becoming less equal has become a point of contention in political debate, with Opposition Leader Bill Shorten claiming "the deck is stacked against ordinary people".

But Treasurer Scott Morrison rejects this. In an interview on ABC Radio he said the idea that inequality has been "going in the wrong direction" is "not borne out by the facts".

Sorry, this video has expired Scott Morrison tells Fran Kelly that income inequality is improving.

Mr Morrison claims the accepted international definition of inequality shows "it hasn't got worse, inequality, it's actually got better".

Does the data show that income inequality has fallen as Mr Morrison suggests? RMIT ABC Fact Check takes a look.

The verdict

Mr Morrison's claim is unjustified.

The evidence Mr Morrison puts forward to support his claim focuses on a relatively short time frame and is subject to volatility.

Furthermore, his claim is underpinned by income data from the 2016 census that is potentially problematic, and unpublished calculations that have not been released for independent scrutiny.

Experts contacted by Fact Check broadly agree: Australia is less equal today than it was in, say, 1981.

And the broad trend over the decades since the early 1980s would appear to point to widening disparity.

However, the experts are not united about what has happened in recent years.

Some suggest inequality has got no worse, while others suggest it has.

This uncertainty is also reflected in the data: one credible set of figures shows a slight deterioration of inequality, another one a slight improvement.

Mr Morrison was excessively definitive in the face of data which is not definitive.

How is inequality measured?

There is no single gauge of inequality. Judgements about movements in inequality depend on the measure being used, and the timeframe examined.

In making his claim, Mr Morrison has mostly relied on a common international measure known as the Gini index, or Gini coefficient.

This measures the average deviation from perfect equality for various income groups, ranging between zero and one.

If every household had the same income or wealth the rate would be zero, showing complete equality.

Conversely, if one household had all the income or wealth the rate would be one, showing complete inequality.

Using the Gini coefficient measure, the OECD ranks Australia as the 22nd most unequal out of 35 nations in terms of income inequality in its most recent findings (2014).

Iceland is ranked the most equal country on the list, with a Gini coefficient of 0.246, while Costa Rica is ranked least equal (0.491).

Reserve Bank governor Philip Lowe last month agreed with the proposition that inequality had increased in Australia.

However, he distinguished between "wealth" inequality and "income" inequality.

"Wealth inequality has become more pronounced, particularly in the last five or six years, because there have been big gains in asset prices," Dr Lowe said.

"So, the people who own assets, which tend to be wealthy people, have seen their wealth go up.

"[O]n income inequality, it's drifted up a little bit, but not very much. The movement in wealth inequality is a bit more pronounced because of the rise in asset prices."

The basis for Mr Morrison's claim

The distinction between wealth inequality and income inequality was also highlighted by Mr Morrison's office when approached by Fact Check.

A spokesman said: "It is also important to note, when the Treasurer was talking about inequality, he was referring to income inequality.

"When stating his case that inequality had worsened, the RBA governor Philip Lowe was referring to wealth inequality, which takes into account growth in assets, like real estate."

In his July 28 radio interview, Mr Morrison did indeed refer to "income inequality", rather than "wealth inequality".

Mr Morrison said: "What I don't accept … that this idea, that people and inequality and incomes have been going in the wrong direction, that's not borne out by the facts.

"The last census showed that on the global measure of inequality, which is the Gini coefficient – that is the accepted global measure of income inequality around the world – and that figure shows that it hasn't got worse, inequality, that it's actually got better."

A day earlier Mr Morrison gave a speech to the Australian Industry Group, in which he said: "Analysis of the more recent census data for the 2016 census shows the Gini coefficient based on gross household income has declined from 0.382 to 0.366 since 2011."

Mr Morrison's figures were derived using gross income data taken from last year's census, and are based on internal, unpublished calculations.

They were also cross-referenced against Australian Taxation Office figures.

In his speech, Mr Morrison also referred to data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, which is run by the Melbourne Institute and receives funding from the Department of Social Services.

"Between 2011 and 2014, the Gini coefficient for household disposable income based on the HILDA data decreased from 0.311 to 0.299," the Treasurer said.

Since Mr Morrison made his comments, the Melbourne Institute has released a new set of figures, including 2015.

Is the census data useful for measuring income inequality?

Professor Peter Whiteford, of the Crawford School of Public Policy at the Australian National University, says income ranges used in the census are broad, and for this reason "not precise" when making judgements about inequality.

For example, the top income range on the census form was $156,000 "or more per year".

As the Australian Bureau of Statistics notes: "In the Census, there is a tendency for incomes to be slightly understated."

"Testing of the topic has shown that there is some tendency for those not in the labour force to leave this question unanswered, as they consider income only applies to payments received as a result of employment. Similarly, pensioners and self-funded retirees sometimes state that they receive no income as they do not regard their pension as income."

Another problem, according to Professor Whiteford, is that the census asks people to estimate their gross income, before factoring in the redistributive impact of the taxation system.

Experts contacted by Fact Check said that the most reliable measures of income inequality use real household disposable income.

This measures the income of all household members, after tax and government transfers, adjusting for inflation and different household sizes.

As the census data is potentially problematic, and the unpublished calculations on which Mr Morrison relies have not been released for independent scrutiny, Fact Check concludes that Mr Morrison's Gini coefficient calculations for gross household income cannot be independently verified.

What do other measures of income inequality show?

The ABS' biennial Household Income and Wealth survey of around 14,000 households is accepted among experts as a reliable source of data, and shows that income inequality in Australia has risen over the last two decades.

According to the survey, the Gini coefficient for household disposable income dipped to 0.292 in 1996-97.

It then edged up (reflecting greater inequality) to peak at 0.336 in 2007-08, before falling to 0.320 in 2011-12. It then edged back to 0.333 in 2013-14.

Professor Whiteford has augmented the Household Income and Wealth series (which starts in 1994) by adding in data compiled by researchers David Johnson and Roger Wilkins (covering the period 1981-82 to 1996-97) to produce the graph below:

Professor Whiteford told Fact Check that inequality in Australia had "unambiguously gone up" since the early 1980s.

"In the longer run, from the early '80s onwards, there is no question that it has gone up," he said.

"There are periods when it fell and rose so it is not a steady increase … but still much higher than in 1981."

However, as highlighted by Mr Morrison, the HILDA survey tells a different story.

It has been tracking more than 7000 households every year since 2001 (with almost 9000 households currently included, covering more than 23,000 individuals).

Its latest report finds "there has been little net change in income inequality between 2001 and 2015", with the Gini coefficient hovering around 0.3 over the entire 15 years of the survey.

The Melbourne Institute's Professor Wilkins, who oversees the HILDA survey, told Fact Check that independent data suggested inequality in Australia had increased from the early 1980s.

But, he added, "it is unlikely to have increased since 2008".

Independent economist Saul Eslake said inequality had "absolutely" risen since the early 2000s, and had "probably" risen since 2011.

"Since 2011, I think [inequality] probably has [risen], but it is more sensitive to measurement issues than comparisons made over longer periods," Mr Eslake told Fact Check.

"One reason why I think there is more public attention on inequality now is because incomes are stagnant. Most people's incomes are not rising at all, and it sticks in the craw more that there is a small group whose incomes are rising."

Mr Eslake said Australia had the same forces contributing to widening inequality as most other developed nations, although it had not increased to the same extent.

These forces included technological change, globalisation, declining unionism and changes in labour market rules that had limited the scope for big wage increases.

Rising inequality had also been exacerbated by big increases in executive salaries relative to the norm, and cuts to top marginal income tax rates.

The HILDA data versus the ABS results

It is not clear why the HILDA results for income inequality differ from those collated by the ABS.

Professor Whiteford speculated that the ABS survey is about 50 per cent larger than the HILDA survey, potentially reducing sampling errors.

Also, "longitudinal" studies such as the HILDA survey, which track the same group of households over time, can suffer should participants drop out at any point.

In addition, Professor Whiteford noted that the survey also represented a snapshot of people living in Australia in 2001, leaving out immigrants who have since arrived.

This problem was at least partly addressed by adding about 2000 households in 2011.

Sources