The difference of view by the Smith Family and the Centre for Independent Studies over how many people in Australia are living in poverty may sound like a sterile, arcane, academic dispute that cuts the fine lines of statistical analysis. But at the basis of the debate are some important questions about the extent and definition of poverty and what should be done about it.
The Smith Family says 13 per cent of people live on or below the poverty line – 14.9 per cent of children and 12.3 per cent of adults. This is up from a decade ago.
But how is the poverty line defined? The Smith Family bases its line on data from the National Centre for Social and Economic Modelling. It defines the line at half the average income of Australians. The average income is the total income of Australians divided by the number of people. The Centre for Independent Studies uses a different line. It is draw at half the MEDIAN income. The median income is the income of the person who sits in the middle – with 10 million Australians getting more than him and 10 million getting less. On this figure, 8 per cent are below the poverty line about the same as a decade ago – perhaps less if temporary “”poverty” is excluded.
The centre argues that the Smith Family’s method pitches to the line too high because when the rich do very much better (as they have in the past decade) the poverty line goes up unnecessarily. All those very big incomes of just a very few people go into the average. If the median is taken a guide, the big wealth increases at the top do not push up the poverty line.
Neither line is an objective test of poverty. Most people in an Afghan refugee camp would leap at the standard of living of most of the people below either of these poverty lines. But poverty must be seen in a context. It is more than just enough food to fend of starvation and enough clothes and shelter to fend off death from exposure.
Both lines contain elements of comparing income of the poor with those of society around them, but the Smith Family’s line gives more emphasis to comparing with the top end – perhaps irrelevantly so.
The centre’s point is that the Smith Family’s argument that more people are living in poverty than a decade ago fails because they have artificially raised the poverty line on the basis of some people doing very well indeed at the high end. If one in eight Australians are, indeed, living in poverty we have a monumental problem requiring a large shift in wealth – not to achieve equality for its own sake, but just to ensure enough basics of life to stop society from breaking down. If we pursued that policy on a false basis, however, we would be doing ourselves a great disservice because government-backed wealth shifts necessitate a lot of inefficiency and overall loss of wealth. We would want a sound base for doing it.
More likely, though, the rich have got richer and the poor have got a bit richer, too, and that continued well-targeted welfare and encouragement for people to get into the workforce is better than wholesale increases in inefficient wealth transfers and their accompanying disincentive to work.
That said, inequality (as distinct from poverty) breeds its own problems of resentment and envy, increased debt through pressure to keep up, break down in social cohesion and even ill-health and crime.