By Nahan, Mike | Review - Institute of Public Affairs, June 1999 | Go to article overview
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Nahan, Mike, Review - Institute of Public Affairs


HARDLY a week goes by without another story of high and escalating rates of poverty in Australia.

Although there are no regular government estimates of poverty in this country, a recent book-with contributions from most Australian poverty experts-concluded that, in 1996, 17 per cent of all Australian households were in poverty and another 13 per cent were on the verge of poverty. This is equivalent to 3.6 million people-or about the population of Melbourne-and represents a 50 per cent increase on the poverty rate found in 1974.(1)

Clearly, if these reports have any connection with reality, they would indicate a scandal of monumental proportions. Australia is a rich country. Beyond an irreducible minimum produced by bad luck or folly, there should be no poverty in Australia.

So, what is really going on? Although we do not know with precision what the poverty rate in Australia is-- because we have avoided measuring it-- there is enough evidence to conclude that poverty, as it has traditionally been understood, is low and close to the irreducible minimum.

Of course, many Australian families struggle to get by on low incomes. That does not mean they are in poverty. Poverty has a clear and accepted meaning to ordinary folk-not being able to of ford the basic necessities of life.

The overstatement of poverty is largely a result of a basic misrepresentation. The Henderson Poverty Line (HPL)-which is the main measurement of poverty in Australia-is a relative index based on a fixed share of average per capita household disposable income. It is not, and never has been, linked in any way to the actual cost of basic necessities.

The HPL is, in fact, a tool for measuring inequality, not poverty. The problem with such measures is that they ensure that poverty is always with us. Some households will always lie at the tail end of the income distribution, and be relatively `poor', no matter how much they earn or consume.

In order to see what is happening with poverty, we need a measure that is related to a basket of life's necessities. Although such a measure does not exist in Australia, a rough and generous estimate can be obtained by indexing the poverty line in 1974 by the consumer price index (CPI). This shows what an acceptable standard of poverty in 1974-when the HPL was first established-would be today. In 1998, the HPL was 35 per cent larger than the 1974 HPL indexed by the CPI. In other words, the lion's share of the reported increase in the HPL since 1974 has been driven by steadily inflating the poverty standard.

The received poverty estimate in Australia suffers from a number of other known flaws.

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