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The Forum > Article Comments > Stats and stones: Vinnies’ report from the trenches on the poverty wars > Comments

Stats and stones: Vinnies’ report from the trenches on the poverty wars : Comments

By John Falzon, published 7/7/2005

John Falzon defends St Vincent de Paul Society's recent report into poverty in Australia

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The article makes a good point when it notes that the $87 billion spent on welfare does not all go to the poor. A lot of it is spent on people of middle and upper income levels. Family Tax benefit is a notable middle class form of welfare. Peter Saunders surely understands this because he has argued the same point previously.

However measures such as the Gini coefficient also have a similar problem. If the upper middle class get a bigger slice of the national pie at the expence of the lower middle class then the coefficient may rise even if the poor get richer.

Maybe we should ignore such relative measures and just look at how the poor are doing.

My guess is that the poor are doing it tough. That the poor have always done it tough. But that its better to be poor in Australia rather than in a socialist, high taxing, redistribution oriented nation like Ethiopia.

A measure that may find support on both sides of the debate is to increase the tax free threshold. That would increase work incentives and benefits for the poorest. Its the only way to make the tax sytem more progressive without increasing the overall tax burden.
Posted by Terje, Thursday, 7 July 2005 11:04:45 AM
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An interesting article on generational wealth within different countries is at
http://www.canada.com/edmonton/edmontonjournal/news/story.html?id=859a24a2-3184-49cf-a95f-b193529cde55

“Among rich countries studied, Corak said, Canada ranked with Denmark, Norway and Finland at the top of the pack in terms of intergenerational mobility. The U.S., the United Kingdom and France are the least mobile.

Corak, who began his work on intergenerational mobility in the mid-1990s, looked at the incomes of adults in their 30s versus the incomes their fathers made. The bottom line, he said, is that one-fifth of the income advantage is inherited across generations in Canada. In the U.S. and the U.K., almost one-half is inherited. Corak also cites U.S. research showing that almost one-half of children born to low-income parents become low-income adults, which means they fall in the bottom 25 per cent of income distribution. In the U.K, the tally is 40 per cent.”

Now assuming that there are similar amounts of government spending and welfare per head of population in each country, then how this money is spent becomes an important factor in eliminating generational poverty. In the case of Canada, there is the belief that government money has been well spent when it has been spent on the children of poor families.

How much welfare goes towards improving the future prospects of poorer children in Australia is not known, but the federal government has talked about Family Impact studies being carried out. Hopefully those Family Impact studies (if they ever see the light of day) will be used to identify the best way of spending welfare money. If the Canadian study is accurate, then in the longer term money should best be spent on improving the prospects of the children of poorer families.
Posted by Timkins, Thursday, 7 July 2005 3:18:34 PM
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There are a number of things that we inherit from our parents that I think are likely to influence personal wealth:-

1. Tolerance towards risk.
2. Work ethic.
3. Emotional managment.
4. Integrity.
5. Self confidence.

I don't know how government spending can be used to boost these for the poorly parented. However I would be interested in ideas
Posted by Terje, Thursday, 7 July 2005 9:39:29 PM
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Terje
Before further discussion on welfare, the following from a US article would be relevant

“Put it this way: Suppose that you actually liked a caste society, and you were seeking ways to use your control of the government to further entrench the advantages of the haves against the have-nots. What would you do?

One thing you would definitely do is get rid of the estate tax, so that large fortunes can be passed on to the next generation. More broadly, you would seek to reduce tax rates both on corporate profits and on unearned income such as dividends and capital gains, so that those with large accumulated or inherited wealth could more easily accumulate even more. You'd also try to create tax shelters mainly useful for the rich. And more broadly still, you'd try to reduce tax rates on people with high incomes, shifting the burden to the payroll tax and other revenue sources that bear most heavily on people with lower incomes.

Meanwhile, on the spending side, you'd cut back on healthcare for the poor, on the quality of public education and on state aid for higher education. This would make it more difficult for people with low incomes to climb out of their difficulties and acquire the education essential to upward mobility in the modern economy.

And just to close off as many routes to upward mobility as possible, you'd do everything possible to break the power of unions, and you'd privatize government functions so that well-paid civil servants could be replaced with poorly paid private employees” http://www.thenation.com/doc.mhtml?i=20040105&s=krugman

The above seems very familiar in Australia, but if our government was serious about removing poverty, then it becomes an issue of how welfare money should be spent, and the argument is that it should be directed towards the children of poorer families as much as possible. Ensuring ready access to quality education for those children would be a high priority, (particularly in a globalised environment), but overall it becomes an exercise in investing in human capital, not just keeping people alive.
Posted by Timkins, Friday, 8 July 2005 12:27:05 AM
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Sorry but the article you cite is by Krugman. I know that we should not shoot the messenger but that guy really depresses me. He is morally and intellectually bankrupt. I really, really, really, really lack respect for his opinion. Maybe somebody else can read it and offer you a response
Posted by Terje, Friday, 8 July 2005 10:01:42 PM
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So Terje, you really think poor parenting is the root cause of poverty?
Posted by strayan, Saturday, 9 July 2005 6:40:14 PM
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Strayan,
I would think the type of family has a very big bearing on poverty rates.

EG
“In Australia, Canada and the United States, over 50% of children in solo-mother families are living below the Luxembourg Income Study poverty line. In Australia, Norway and the US, such children account for over half the children in poverty. In other countries, government policies mitigate the effects. Denmark, Finland, and Sweden also have a high percentage of children in solo-mother families, yet fewer than 10% live below the poverty line”. http://www.unicef.org/pon96/insolo.htm

The vast majority of single parent families occur from divorce, and of course this affects the parents as well as the children. I can remember reading of a study in the US that found that always married couples would have combined assets of about US $400,000 upon retirement, which was enough for a house, a car, some money in the bank etc. However a divorced mother or father would have average assets of about US $160,000 each, which was hardly enough for a house.

So if someone wants to have a caste society, with many more “have nots” than “haves”, they would advocate wide scale divorce to add to the list mentioned previously (eg no estate tax, reduced tax rates on corporate profits and high income earners, tax shelters for the rich, reduce spending on healthcare and education, reduced power of unions etc)
Posted by Timkins, Sunday, 10 July 2005 1:55:32 AM
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Timkins, I am curious, are you married? All your posts indicate your concern at the rate of divorce being an underlying cause of many of our society's ills. Therefore, I was wondering if you were married yourself. You have revealed in other posts that you have a daughter, yet you never talk about a spouse.

Would appreciate your response. Thank you.
Posted by Trinity, Sunday, 10 July 2005 8:47:58 AM
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Trinity
I would think that “Timkins” has nothing to do with the topic, but I would think that CIS is well aware of how wide-scale divorce adversely affects society, (both economically and socially), because CIS staff such as Bary Maley have researched and written extensively on the subject.

Organisations such as Saint Vincent de Paul would see first hand the adverse affects of divorce and separation, and I have known individuals within St Vincent de Paul speak about it, although I don’t know if St Vincent de Paul have made public announcements on the matter.

Perhaps this is an area that both CIS and St Vinnies can agree on, and work together to reduce the problem. If left only to the government, then I don’t see much change occurring, and the generational affects of divorce and separation will likely continue, together with welfare cycles, child poverty etc.
Posted by Timkins, Sunday, 10 July 2005 11:02:39 AM
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So Timkins, you think if we counteract irresponsible parenting, then bam! No more poverty.
Posted by strayan, Sunday, 10 July 2005 4:48:32 PM
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QUOTE: So Terje, you really think poor parenting is the root cause of poverty?

RESPONSE: No. It is certainly a significant factor however. My comment was made in the context of intergenerational wealth and the factors involved. I think that what people leave for their kids in material terms is significant in only a small percentage of cases. More significant is what people leave their kids in terms of attitude, outlook, work ethic, character etc. However people can't entirely control how their kids turn out
Posted by Terje, Monday, 11 July 2005 12:20:29 PM
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What is more important – equality or actual living standards? And equal with whom? One of the drivers of economic reform since 1983 was an understanding that Australian incomes were going backwards in comparison with many other countries, that productivity here was very low compared to most other industrialised countries, and that if the rigidities in our economy weren’t addressed, we might become the “poor white trash” of the Asia-Pacific..

The Weekend Australian had an article on income equalities (Disputed value of a fair day’s pay, 9-10/7). The article (and the Vinnies) seem to overlook three crucial points in the debate about rising income inequalities.

First, such inequalities are inevitable from economic reforms designed to remove rigidities and encourage enterprise, innovation and higher productivity.

Second, such reform has been, and is, vital to generate rising employment and business opportunities and incomes and to underpin government spending. The success of reforms since the 1980s is well documented.

Without those reforms, real income increases for the poorest in our community would have been far lower than they have been, and government expenditure on health, education and other social services would have grown much more slowly than they have done. We might be more equal, but everyone, including the poorest, would be worse off than they are in terms of income and social services.

Third, The Australian quoted employment income figures relating to the bottom tenth of wage and salary earners. Leaving aside that, of course, people grow up, retire and die, the people in the bottom tenth now will not be the same people as they were 15 or 20 years ago. Many will have moved up from this bracket because of increased opportunities and higher productivity, and with relatively rapid growth in employment, the bottom tenth will include people who under the old regime would not have had jobs. That is, many individuals who were formerly in that bottom tenth or not working will have increased their employment incomes by more than the 5 per cent figure for the group quoted in The Australian article. (More follows)
Posted by Faustino, Monday, 11 July 2005 4:10:43 PM
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(continuation - I'd exceeded the word limit)
In addition, lower income earners now receive much greater income supplements than in the earlier period.

I grew up in a poor, single-parent family in Britain’s post-war austerity years. I think that very few of the Australia poor in 2005 would have a living standard comparable to mine at that time. Most of my adult life, I’ve been fairly comfortably off, except for several years when I did a lot of unpaid charity work. Now, following several years with three concurrent serious illnesses, my income is low (Disability Support Pension), although I am not poor. But while I’ve always helped those in need, I’ve never felt that that income inequalities, which arise from many causes, have been a predominant issue.

Re comments by some posters on early childhood and the home environment, US research has found that many programs of early-childhood intervention have very high rates of return both for the individuals/families concerned and for society. I have argued in Queensland Governemnt policy circles, for example, that such programs have far more merit and empirical support than using the funds to extend compulsory secondary education. The Smith Family concentrates research efforts in this area, their strategy is to enhance such early interventions rather than go on about inequality. I suggest that Vinnies check out The Smith Family work in this area, which seems far more likely to achieve long-term reductions in poverty.
Posted by Faustino, Monday, 11 July 2005 4:11:50 PM
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But still you cannot deny that inequlty of income would lead to inequality of opportunity in a user payes society.

No amount of topping up of income by government payments will empower families to break free of their lack of opportunity.

They need encouragment and actual support. What we need a plan that allows households exit out structural barriers to achieve their potenital. Without the balme, value judgments and myopic views of some.

Would you like to go bowling on you own?

Remeber that economics is only an a theoretical explanation of the social world.
Posted by giddons, Tuesday, 12 July 2005 6:02:34 PM
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