Research released this week by the National Centre for Social and Economic Modelling (Natsem) on behalf of Anglicare, on living standard trends in Australia, displays a bleak outlook for the decade ahead, with inequality growing and the living standards of the poorest actually declining.

The release of the latest income and wealth figures have highlighted that inequality grew during the mining-boom years and that over the past two years high incomes rose while others stagnated. Such figures, however, only look at the past and don’t provide insight into the future. While Natsem’s report focuses on the changes in living standards over the decade from 2004 to 2014, it also uses its Stinmod model of the Australian tax and transfer system to project forward to 2024.

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The picture is bleak across the board, but especially so for Australia’s poorest.

The Natsem figures echo those of the bureau of statistics, which show that the highest income households saw their standard of living rise by the most from 2004-2014.

During that decade, Natsem estimates households in the top 20% saw their standard of living grow by 28.4% compared with 21.6% for median income households and 15.1% for the poorest 20%:

But looking out to the next 10 years we see a sharp decline in the growth of living standards.



Gone is the supercharged growth that occurred over the past 10 years – a decade which included the global financial crisis. Instead of 28.4% growth, the richest households are projected to see their living standards improve by just 5.9% by 2024.

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But that meagre amount counts as wondrous compared with other households. Median-income households will effectively see their living standards remain flat – they’re projected to rise by 0.2%, a figure so negligible that it might as well be zero.

But just staying flat would be great for the poorer households. Those in the second-poorest 20% of households are expected to see their standard of living fall by 1.3%, while the poorest can expect a 4.5% decline over the next 10 years.

The big drivers of the difference are lower economic growth and weaker wage growth over the next 10 years than was experienced from 2004 and, crucially, the changes to welfare benefits in the 2014 and 2015 budgets.

Among these changes were “the removal of some welfare payments, reductions in other payments, and changes to indexation arrangements that reduce some payment increases over time”.

The difference in the growth of living standards varies as well across types of families.

Natsem noted that over the past decade “couple families with children experienced the strongest gains in their living standards while single parents had the lowest gains”:

As with the breakdown of growth by living standards, all family types on average are expected to see slower improvement in living standards over the next 10 years than they did in the past decade.

But it is when we focus on the poorest 40% of such family types that the big impacts of the past (and last?) two Hockey budgets is revealed.

While the couples with children will see on average a 5.6% growth in living standards over the next 10 years, the living standards of such households within the poorest 40% of households are expected to see a 3.2% decline:

The report notes that most of the falls in living standards are due “mainly” to “cuts to family payments”. It notes as well that for households without children, “the largest cuts will be to some pensioner families – who lose some, or all of their part-pension”.

Where the real impact is seen is in the difference in income growth over the next 10 years by households on welfare benefits.

While, not surprisingly, non-benefit households enjoy a much higher standard of living than those who do rely on benefits such as the aged pension, disability support pension and the sole parenting payment, the forecasts over the next 10 years show the gap increasing:

Natsem estimates in 2004 dollar terms, the disposable income for non-benefit households rose from $781 a week in 2004 to $948 a week in 2014. By comparison, the disposable income for households reliant on the aged pension went from $350 per week in 2004 to $425 in 2014.

The weaker growth for non-benefit households reflects that seen in all other categories – their standard of living will grow by just 2.9% from 2014-224 compared with the 22.0% observed over the past 10 years.

But most households reliant on benefits will either see their living standards stay flat or actually decline.

Among the biggest drop is for those existing on the sole parenting payment. Such households can expect an 8.3% drop in living standards:

As the report notes, “the major welfare change for single parents has been the removal of single parents from the parenting payment once the oldest child turns eight years of age”.

The policy was introduced in 2006 by the Howard government and updated in 2013 by the Gillard government when it ended the grandfathering of existing beneficiaries.

Rather than stay on the parenting payment, once the youngest child turned eight they are now moved on the much less generous Newstart.

Apart from saving money for the government, such a move was sold as being done to boost labour participation of such parents (mostly women). But the report finds that there is no “strong evidence of an increase in their labour force participation”.

Any increase in participation after 2006 was essentially a continuation of that observed prior to the welfare changes. And since 2013, when the Gillad government changes came into effect, Natsem has found no “evidence of gains for single parents in terms of participation” compared with the total female participation rate.

Thus it is unlikely the policy will have any material impact on labour force participation over the next decade, but it will definitely have an impact on living standards.

In 2004, sole parent payment households had a disposable income roughly 42% that of non-benefit households. By 2014 this had declined slightly to 41.5%; but by 2024, under the new arrangements this will see a fall to just 37%:

Worst of all will be households on “allowances” such as Newstart, the partnered parenting payment and the youth allowance. Such households will see their weekly disposable income fall from the current level of 33.5% of non-benefit households to 29.2% by 2024 – well below the 39.3% level that existed in 2004.

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The report shows that the increases in inequality that occurred during the past 10 years were essentially hidden because at least most households on average saw significant increase in standard of living.

But over the next 10 years, with lower overall economic growth expected, the picture is one of inequality growing but with some households – notably the poorest – seeing their living standards actually decline.

The measures contained in the past two budgets and some decisions from previous years have meant that all boats will not be lifted by a rising tide of economic growth. Not only is the tide expected to rise by much less than in the past, the budget decisions have put some sizeable holes into the hulls of the boats carrying the poorest in society.