Australian Economic Trends: GDP Growth, Income Inequality, and Decile Disparities

Bateman Lecture Philip Gaetjens Secretary to the Australian Treasury 1

GDP over the past decade: Australia and G7 140 140 Index of real GDP (Jun-08 = 100) Index of real GDP (Jun-08 = 100) 130 130 Australia United States 120 120 Canada 110 110 Japan 100 100 France Germany United Kingdom 90 90 Italy 80 Jun-08 80 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 2 Source: Thomson Reuters Datastream, national statistical agencies

Contributions to income growth 3 Source: ABS cat. no. 5204.0 and Treasury.

Gini coefficients for equivalised income and consumptiona Gini coefficient Gini coefficient 0.5 0.5 Private income Equalising effect of cash transfers 0.4 0.4 Gross income Disposable income Equalising effect of income tax 0.3 0.3 Private consumption Equalising effect of in-kind transfers Final consumption 0.2 0.2 0.1 0.1 0 0 1988-89 1993-94 1998-99 2003-04 2009-10 2015-16 Year a Gini coefficients for consumption are only available from 1993-94. Sources: Productivity Commission estimates using: ABS (Microdata: Household expenditure, Income and Housing, 2015-16, Cat. No. 6540.0, released 25/10/17) and ABS HES Basic confidentialised unit record files for years 1988-89 through 2009-10 as available at 25/10/17. 4

Average equivalised disposable income by income decile, 1988-89 to 2015-16a (a) Average annual change ($) (b) Average annual percentage growth (%) Dollars Dollars Percent Percent 2500 2500 2.5 2.5 The absolute increase was greatest for the top decile Percentage growth was strong across the distribution Average growth 2000 2000 2.0 2.0 1500 1500 1.5 1.5 1000 1000 1.0 1.0 500 500 0.5 0.5 0 0 0.0 0.0 Lowest income Highest income Lowest income Highest income Income decile Income decile a Both percentage and dollar growth in real terms (2016-17 dollars). Sources: Productivity Commission estimates using: ABS (Microdata: Household expenditure, Income and Housing, 2015-16, Cat. No. 6540.0, released 25/10/17) and ABS HES Basic confidentialised unit record files for years 1988-89 through 2009-10 as available at 25/10/17. 5

Differences between top and bottom income decile, 2000-01 to 2015-16a Percent Percent 20 20 Almost 90 per cent of people spent time in income deciles that were at least three deciles apart 15 15 10 10 5 5 0 0 0 1 2 3 4 5 6 7 8 9 Difference between top and bottom deciles a For people in the HILDA sample in all 16 year. Deciles based on equivalised disposable income. Source: Productivity Commission estimates using Melbourne Institute (Household, Income and Labour Dynamics in Australia (HILDA) Survey, Release 16). 6

1-year and 9-year Gini coefficients of income, and percentage reductiona Gini coefficient Gini coefficient 9% 0.4 0.4 19% 16% 10% 14% 0.3 11% 0.3 18% 13% 0.2 0.2 0.1 0.1 0.0 0.0 Switzerland United Kingdom Germany Australia Canada France South Korea United States 1-year 9-year aNine-year Gini coefficients are calculated from income averaged over nine years. The United Kingdom (2010 2015) and Canada (2005 2010) are for 6 years. France is for 8 years (2007 2014). Switzerland, Germany, Australia and South Korea (all 2005 2013) and the United States (2004 2012) are for 9 years. For working-age population (aged 18 65). Income is person-level equivalised household disposable income (equivalised using square root scale). Using HILDA data, the PC estimates that averaging income over 16 years reduces the Gini coefficient for Australia by 18 per cent from a single year estimate. 7 Source: Productivity Commission estimates based on OECD (2018, p.67).

Mining exports Rapid growth in key mining exports Chinese imports of iron ore 8 Source: ABS, Treasury, Bloomberg (China Customs).

Technology adoption is higher in mining Per cent Per cent 80 80 60 60 40 40 20 20 0 0 Data analytics Intelligent software systems Internet of things Radio-frequency Cyber security Management quality score identification devices Energy and metal mining Non-mining Source: ABS 2016 and Treasury estimates.

Contributions to income growth 10 Source: ABS cat. no. 5204.0 and Treasury.