We can’t fix what we don’t track. That’s why Australia needs an official poverty measure

Following last month’s economic reform roundtable, Treasurer Jim Chalmers said all attendees agreed “higher living standards is the holy grail, and a more productive economy is how we deliver it”.

This signalled the government’s understanding that leaving no one behind can unlock greater prosperity and productivity for everyone.

But for all the discussion about improving living standards, there was little explicit mention of poverty. This is despite evidence that, by some estimates, one in seven Australians is living in poverty.

One reason the issue didn’t get a lot of airtime may be because Australia doesn’t have official measures of poverty.

We’ve researched effective ways of measuring poverty and what they reveal about standards of living. We’ve found if Australia tracked poverty properly, we’d likely find out not only how many Australians are struggling, but also why. This insight can help governments, business and the community to formulate better responses.

Half a century of trying

There have been efforts over the decades to try to track poverty in Australia, starting with the government’s Commission of Inquiry into Poverty in 1975.

Chaired by Ronald Henderson, the so-called “Henderson report” became a landmark piece of research.

The inquiry established the Henderson Poverty Line: an unofficial, income-based poverty line.

Today, the Henderson Poverty Line continues to be updated by the Melbourne Institute, but it no longer reflects contemporary living standards. It’s been largely superseded by the approach of the OECD, which defines poverty as 50% of median household disposable income.

Perhaps most enduring, however, was the inquiry’s recognition that housing costs are central to the household budget and should therefore be factored into poverty measurement. This practice remains an international standard.

Australia left behind

Despite the legacy of the Henderson report, Australia has been leapfrogged by the rest of the world in measuring poverty. In lacking official poverty measures, we’re an international outlier.

Almost 160 countries have official poverty measures. These are either a monetary measure, which is based on income, consumption or expenditure, or it’s a multidimensional measure that captures non-monetary aspects such as health, education and employment. Some countries use both, which is best practice.

Australia has neither. In Australia, unofficial income-based indicators continue to dominate the poverty framework.

This recent paper shows under the OECD measure, around 12% of Australians were in poverty in 2022 before housing costs.

When housing costs, such as rent and mortgage repayments, are included, the rate rises above 13%. This signals the growing role of housing in driving inequality.

However, as Henderson observed and is now internationally recognised, poverty cannot be measured by monetary indicators alone. Wellbeing is about economic factors, but also about freedom, and people having choices and opportunities in their lives.

Addressing poverty now requires more comprehensive measurement tools. Failing to do this places us increasingly out of step with international approaches to poverty measurement.

As recognised earlier this year by the Economic Inclusion Advisory Committee, looking at both monetary and multidimensional measures would make for better policies and services.

What could poverty look like in Australia?

Today, multidimensional approaches are used in 84 countries, including Canada and New Zealand. International organisations such as UNICEF, the European Union and the World Bank also use them.

More than half of these countries apply the Multidimensional Poverty Index (MPI), developed by researchers Sabina Alkire and James Foster in 2011. This measures the incidence and intensity of poverty across multiple areas.

Our team worked alongside Alkire to apply the MPI method to Australia to track deprivations across the following five areas:

• housing

• employment

• health

• education and skills

• and social connection.

Each dimension is weighted equally and represented by two indicators.

In this illustrative example, which uses HILDA Survey data, people are identified as multidimensionally poor if deprived in at least one-third of the weighted indicators.

The chart shows the percentage contribution of each indicator to total multidimensional poverty between 2003 and 2023. The wider the colour, the larger the contribution to poverty.

The chart highlights areas where progress is being made. For instance, it shows improvements in educational attainment and unemployment (the latter likely a result of temporary pandemic supports such as JobKeeper).

But the chart also highlights new risks, including mounting housing stress, increases in poor mental health and deepening social isolation.

These patterns are largely invisible in standard income-based measures which, while essential for showing how many people are in poverty, do not reveal why they are in poverty or the depth of their disadvantage.

The MPI fills this gap and, when coupled with income-based measures and developed using official ABS data, will provide a more complete picture of poverty.

A poverty-free economy, measured in both monetary and non-monetary terms, is one in which all citizens can reach their full capabilities and productivity is maximised.

To achieve this, governments must track poverty comprehensively over time and adopt official poverty measures.

The authors would like to acknowledge the contributions of researchers Nicole Bieske, Cara Nolan and Ismo Rama to this article.