Monday, August 29, 2011

We think the rich are too rich. But they're even richer..

New research

When it comes to wealth even the richest among us think the rich have too much - but we’ve no idea of how skewed the distribution really is.

A study prepared by Empirica Research and the Harvard Business School for the trade union movement as part of its planning for the October tax summit finds Australians of all incomes believe the richest 20 per cent of us have around 40 per cent of the wealth.

We think that’s too high. We would prefer a more egalitarian society in which the top 20 per cent have somewhere around 24 cent of the wealth. We would also like the poorest 20 per cent to have 15 per cent, which is a good deal more than the 10 per cent we think they have.

The survey finds us oblivious to the far more skewed truth that the best-off 20 per cent have 60 per cent of the wealth and the worst-off 20 per cent a mere 1 per cent.

The Australians least in touch with reality were the very richest and the very poorest, each believing the richest 20 per cent had 40 per cent of the wealth and the poorest had 9 per cent. Those most in touch with reality were the second-richest group who believed the best-off 20 per cent had 45 per cent and the worst-off 8 per cent.

Presented with three unlabeled pie charts showing Australia's actual wealth distribution, a distribution a United States survey had found to be ideal and an completely even distribution, and overwhelming two-thirds wanted to live in the completely even society.

Presented with two unlabeled charts showing the actual Australian distribution of wealth and the more unequal distribution in the United States only 22 per cent wanted to live in the US... Among Coalition voters the proportion preferring to live in the US was 24 per cent, among Labor and Greens voters 20 per cent.

“Australians apparently favour a significantly more equal distribution that they believe currently exists and a dramatically more equal distribution than actually does exist,” the researchers conclude.

Asked how much tax Australians on a range incomes actually paid the survey group overestimated every one. Australians on $200,000 were thought to pay an average of 38 per cent instead of 32 per cent. Australians on $79,000 were thought to pay 27 per cent instead of 22 per cent, and Australians on $36,000 were thought to pay 18 per cent instead of 12.9 per cent.

The group wanted all tax rates cut, but curiously wanted them cut from the high rates they imagined to near the actual rates.

Australians on $79,000 were felt to deserve an average tax rate of 21 per cent, close to the actual rate of 22 per cent. Those on $36,000 were felt to deserve 12.1 per cent, close to the actual rate of 12.9 per cent.

The researchers were perplexed by the finding. “While people strongly favour increasing wealth within the lowest 20% of households, they do not spontaneously translate these attitudes into support for policy mechanisms that could realise that goal,” the report concludes.

ACTU secretary Jeff Lawrence said the survey showed tax reform need not mean an unending series of tax cuts.

“Real tax reform is directed towards satisfying Australians’ needs and preferences. It must reflect the type of society the majority of Australians aspire to be,” he said.

Seperately the National Alliance for Action on Alcohol has complained the October 4 tax summit will have no public health representative.

Co-chair Todd Harper said it showed the Government had “taken alcohol tax off the agenda – even as an issue for discussion”.

Published in today's SMH and Age

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Michael R said...

Personally, I think this chart shows more about public innumeracy than socio-economic views.

If the richest 20% owned 24%, and the poorest owned 14%, that would mean that the richest had 50% more in assets than the poorest.

I'm dubious how many people are really making the claim that the richest people should be living in a house worth (say) $450,000, and the poorest in a house worth $300,000.

Even the "way we think" chart doesn't stand up. That would mean the rich would be in a $1.2 million dollar house, and no other assets. This doesn't pass a sanity check (even though I'm ignoring that the poorest have much less assets than even a cheap paid off house).

I'd like to see results of the survey if it was done in some whay that avoided the need to understand numbers. Say, dividing up piles of beans.

That said, the existing inequality is unreasonable.

Peter Martin said...

Click on the link.

Anonymous said...

I thin the report is intentionally misleading. If you use the actual income levels instead of percentages used to signify these income groups - you would realise there's not much of a difference. For e.g. a working couple on approximately $85,000 each would over life accumulate enough to be classified as well above the top 20% mark - and this is the majority of people in this group.

So yes the outcome is unequal (various factors - hard work, luck etc) - but to assume that the majority of these class of workers are the cause of inequality which needs to be addressed without this context is misleading and is trying to instigate class warfare for political brownie points in a situation - where the objective level of difference in living standards is not that great.

Help the real poor rather than trying to redistribute from the legitimately well off in most cases to the less slightly well off.

Australians are smart though - the only ones who would fall for this sort of ideological propaganda are the ignorant or the intentional misleaders.

The surprising part is that you as a journalist are treating this as a legitimate report without the appropriate context.

Anonymous said...

Couple of weird comments there.

I've only time to glance, but I'd be interested to know about the 'next step'.

We as a society would like things to be more even - would be be equally keen to have income redistributed by government? That's the sticking point.

It's fascinating research. As my income has risen, I've realised how far from true wealth I actually am. The idea of driving a luxury car an having an investment portfolio seems lightyears away!


Peter Martin said...

Dear Anonymous,

You say the report is "intentionally misleading".

It has certainly misled you.

It deals with wealth, not income.

Your denigration of the report - and of me - would carry more weight if you had properly read it.

Graeme Henchel said...

It is good to see some analysis of of a signficant issue. It would be interesting to see the voting patterns of the 5 wealth groups and the type of media they consume. It has always struck me as strange that the generally less wealthy people get their opinions from the tabloid press. I wonder what Alan Jones thinks of these figures.

Peter Whiteford said...

It is worth noting that the distribution of wealth can vary quite a lot depending on the measure that you rank households by.

The figures used here for the actual distribution of wealth or net worth (assets minus liabilities)come from ABS figures for 2005-06.

This shows that the least wealthy 20% have about 1% of the wealth and the wealthiest 20% have 61%.

However, the amount of wealth people have is substantially affected by how old you are, since people take a while to save and to pay off their house. Also, people over 65 have high average net worth but low average incomes.

However, the ABS also publish estimates where the net worth of households is ranked by their net disposable income. When you rank households by their equivalent disposable income then the poorest 20% by income have about 12% of total net worth and the richest 20% have 38.4% of net worth – in fact, the results are remarkably similar to what the population estimate the distribution to be – although this may only be a coincidence, of course.

The ABS figures also show for example that the median net worth of the poorest 20% when ranked by wealth is $24,500, but when ranked by disposable income it was $232,000.

I think it can be argued that ranking people by their income is more appropriate, since it gives you a picture of the joint distribution of income and wealth. Another way of thinking about this is that there are a lot of older people with relatively low income and relatively high net worth, whereas there are a lot of younger people who haven’t accumulated much net worth but will in the future.

So it may be that the public are better-informed than we think!

In addition, it appears that prior to the GFC inequality in net worth even when people are ranked by income was increasing quite rapidly, both among the retired and those of working age. This is likely to have been due to the booming stock market and also booming house prices. It is possible that this reversed itself during the GFC.

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