OECD WARNS ON RISING INEQUALITIES / THE FINANCIAL TIMES

May 15, 2013 12:01 am

OECD warns of rising inequality as austerity intensifies

By Sarah O’Connor in London

Developed countries face the risk of a sharp rise in inequality and poverty as governments try to repair their finances in the wake of the economic crisis, the OECD has warned.

Income inequality in OECD countries – excluding the mitigating effect of the welfare state – increased more in the first three years of the financial crisis to the end of 2010 than in the previous 12, according to the Paris-based international organisation of mostly rich nations.

Yet the data show governments cushioned the blow fairly effectively in this first stage of the crisis, thanks to higher welfare spending and fiscal stimulus programmes. After taking account of taxes and social transfers, the levels of “take home” income inequality and relative poverty in OECD countries were only slightly higher in 2010 than in 2007.

With many OECD countries now focused on reducing their borrowing and debt levels, the organisation warned there was a “growing risk” that inequality and poverty would increase.

“These worrying findings underline the need to protect the most vulnerable in society, especially as governments pursue the necessary task of bringing public spending under control,” said Angel Gurría, the OECD’s secretary-general.

“Policies to boost jobs and growth must be designed to ensure fairness, efficiency and inclusiveness. Among these policies, reforming tax systems is essential to ensure that everyone pays their fair share and also benefits and receives the support they need.”

The report comes amid rising concern that some economies are reaching the political limits of austerity. José Manuel Barroso, European Commission president, said last month that while he still believed in the need for sweeping structural reforms and sharp budget cuts, such policies needed to have “acceptance, politically and socially”.

The OECD’s data also underline that the fallout from the crisis has fallen disproportionately on the young. Average relative income poverty – the share of people who have less than half the median national income – increased from 12.2 per cent to 13.8 per cent among young people. Meanwhile, the same measure of poverty fell from 15.1 per cent to 12.5 per cent for the elderly.

“This pattern confirms the trends described in previous OECD studies, with youth and children replacing the elderly as the group at greater risk of poverty,” the OECD report said.
Although overall “take home” inequality did not rise sharply between 2007 and 2010, the richest 10 per cent of the population still did better than the poorest 10 per cent over this period in 21 of the 33 countries analysed by the OECD.

The differences were most acute in those countries where household incomes dropped the most. In Spain and Italy, the income of the top 10 per cent was fairly stable while the income of the bottom 10 per cent fell about 14 and six per cent respectively.

In Iceland, the opposite was the case: the 13 per cent fall in income for those at the top was larger than the eight per cent fall for those at the bottom.

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