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The gap widens

Income and wealth inequality should have the government concerned.

August 2015

In 2014 CHOICE kicked off our quarterly Consumer Pulse Survey, which measures how consumers feel about the economy and what they're doing in response. Now, our report on the first 12 months of this survey shows that with increasing signs of fragility in the global economy, consumer concern has increased. 

While only a quarter of consumers rated the state of the Australian economy as poor in September 2014, that has risen to around a third in June 2015. More people now rate it as poor than good. 

Our research has also revealed where household economic stress is most concentrated. More women are doing it tough than men; renters are more likely to be struggling than homeowners; and people in part-time or casual work report much more difficulty than full-time workers. 

This paints a not-unexpected picture of inequality. People on lower incomes will always experience greater financial stress. But how has this picture changed over time? 

The Australian Council of Social Service examined this in a recent report, Inequality in Australia: a nation divided. It found that over the past 20 years, the amount of income flowing to people at the top has increased, while the share for those at the middle and bottom has decreased. 

The picture of income and wealth inequality in Australia in 2015 is stark. A person in the top 20% in terms of income earns around five times as much as a person in the bottom 20%; a person in the top 20% in terms of wealth has around 70 times more wealth than a person in the bottom 20%.

This is not just a problem for those struggling on lower incomes – it also affects the economy more broadly. The Organisation for Economic Cooperation and Development (OECD) has found that increases in income inequality result in lower rates of economic growth. 

Our Consumer Pulse Survey points to one way in which this may be playing out in Australia. In response to household budget pressure, consumers say they're cutting back on spending. This affects expenditure on essential items but also in non-essential areas like dining out and entertainment, which are important sources of employment. 

Another way that people are responding is by finding ways to scrape by from month to month – including relying on credit cards, deliberately missing rent or mortgage payments, or deliberately missing paying bills on time. 

These findings should sound a warning bell for the government, because this is happening in a period of historically low interest rates. It is inevitable that rates will rise – the only questions are when, and how fast? And when they do rise, people who are just getting by or who are depending on credit now, will be even more vulnerable.

Alan Kirkland, CEO
Twitter: @AlanKirkland