Australia's boom made billionaires of some but what did it do for the poor?

An analysis of economic and social data shows that Australia's 25-year boom improved the lot of the poorest Australians a little but the gap between richest and poorest widened markedly.

Australia's 25 years of sustained economic growth in a highly unpredictable and volatile global economic environment is truly remarkable and unprecedented at the world stage. The country's outstanding run, however, stands out alongside increased public concern that poverty has remained  high and increasing, particularly for certain population groups. 

The Poverty Report published in 2014 by the Australian Council of Social Service (ACOSS) reports that 2.55 million Australian residents lived below the poverty line in 2012.  This is about 14 per cent of all Australian residents in 2012. 

One widely held view has been that Australia's economic growth does not reach the poor as fully as it does other members of society. This demands the question, "How good has Australia's economic growth been for the poor?"

To set the scene, an overview of significant economic events from that point on is instructive. In 1993, Australia was just coming out of a deep recession, and the Hawke-Keating government led recovery by continuing on with the economic liberalisation reforms that lifted the economy up in the mid-1980s.  

When the Liberals were voted to power in 1996, the Howard government moved swiftly to reduce government expenditure, prioritise a return to budget surplus and instigate industrial relations reforms to further speed up economic recovery. The short-term pains that accompanied these reforms were rationalised as unfortunate but necessary for achieving economic efficiencies critical for the long-term growth performance of the economy. 

It was apparent that equity was less important as a reform goal, despite the political rhetoric. 


In the 1990s, Australia's economic performance was characterised by low inflation targeting and high productivity. The first is a lesson learned from the last recession, and the latter is a result obtained from a long process of labour pro-market reforms dating back from the 1980s and which culminated in a formal shift towards enterprise bargaining early on in the Howard regime. Australia grew strongly under these policies. Towards the end of the decade, the country's economic growth was quite robust so much so that the economy got through the severe Asian financial crises of 1998 virtually unscathed. 

Tax and mining

In the 2000s, the Australian economy continued to grow strongly on the back of a successful tax reform program introduced in the early years, and the Australian mining boom. Experts estimate the boom to have officially started in 2004, when Australian minerals had a surge in commodity prices and a tremendous increase in the trade of terms, particularly with China. 

A second stage is identified to have begun in late 2005, when sustained international demand for our minerals led mining companies to reinvestment their superprofits by opening up new mines, building new infrastructure and acquiring/developing new technologies – all to accommodate growth in demand. It is this capital investment stage that is known to have peaked in 2013, and signalled the end of the mining boom. Through that 2004 to 2013 period, Australia had a change of government.

As well, the global recession of 2008 seriously threatened the stability of the economy.  The Australian economy, however, continued to grow through all these hurdles, albeit at reduced rates. Fact is, the economy did so well that Australia topped the list of countries that were least affected by the global financial crisis, where this included China, Canada, Japan, New Zealand and Sweden among others.

Gap grows wider

So, back to the question: Is Australia's growth good for the poor? Our research investigations show that between 1993 and 2009, mean household incomes steadily increased by 76 per cent or 4.7 per cent per annum. So incomes were growing as the economy was growing.  Our calculations, however, also reveal that economic inequality – the gap between the rich and the poor, as measured by the Gini coefficient – increased by 8.6 per cent over that same period.

A deeper look into this showed that inequality levels worsened relatively slowly between 1993 and 2003, at a total overall rate of just 2.4 per cent for the entire 11-year period (or about 0.22 per cent each year); while inequality levels rose sharply by 8.6 per cent overall between 2003 and 2009 (this translates to a 1.4 per cent increase in inequality level each year in that  six-year period). So, the gap between the rich and the poor increased as the economy grew, and it increased more sharply after the global financial crisis. 

The extent to which growth reduces poverty depends on the degree to which the poor participate in the growth process and share in its proceeds. In this sense, both the pace and pattern of growth matters for reducing poverty.

With regards to poverty, our calculations show that national poverty rates appeared steady at 11 per cent between 1993 and 2010, but in fact, poverty estimates followed a U-curve path during that 17-year period. More specifically, we found that poverty rates decreased by 10 per cent between 1993 and 1998; but from 1998 to 2010, poverty rates increased by about 0.6 per cent per annum or a total of 6.4 per cent. This latter 13-year period can be further divided into 1998-2003 and 2004-09, where the second period incorporates the global recession of 2008.

Our calculations show that poverty rates increased during both four-year periods, but it is curious to find  that the increase in poverty rates during the recession-free period of 1998-2003 was larger than the increase in poverty rates observed in the recession-riddled period of 2003-09. 

Proper econometric analysis needs to be undertaken to determine any causal effects of growth on poverty and inequality, but these results from our initial explorations are telling. Overall, we find that average household incomes increased as the economy grew in the 1990s, but economic inequality also increased through the period.

Poverty rates appeared to have decreased with growth in the early years, but this did not last, presumably because the global crisis dominated outcomes in the economy including an increase in overall poverty levels in the last few years. 

The lessons

What do these tell us about long-run growth and poverty reduction?  First is that economic growth is a powerful instrument for reducing poverty. Empirical evidence supports this statement and the experience of many advanced and emerging countries demonstrate the powerful influence that growth can have on poverty alleviation.   Second is that inequality can worsen as the economy grows.

This is what we find for Australia, and it implies that the income of poor households grew slower than the growth of average income, and/or that the income of the rich grew faster than the average income. Third is that economic growth is not a sufficient condition for poverty reduction. As we can see in Australia, poverty can increase even whilst the economy is growing.


For any government, it is very clear that the aim to reduce poverty levels over a desired period of time must have, at its core, measures to promote rapid and sustained economic growth. Australia has had some success in poverty reduction during its years of economic growth, but the results are not consistent over the long run. In some periods of growth, poverty increased and inequality levels worsened all throughout. 

The challenge for the Australian government now is to combine growth-promoting policies with policies that allow the poor and the disadvantaged to participate more fully in the economy, and so contribute to that growth. Another equally important challenge is to break down the tension between the pursuit of growth and the aim to maintain low levels of inequality across the population.  

For this, I strongly argue for a stronger integration of economic and social policies.  Regardless of how one chooses to do it, I always believe that the pursuit of growth must always be balanced by equity considerations.  Otherwise, any economic gains will be short-lived.  

Dr Rebecca Valenzuela is a senior lecturer in economics at Monash University and the author of Economic Development in Asia.