July 3 (Bloomberg) -- At Victor Churchill’s butchery in Sydney’s eastern suburb of Woollahra, where sausages cost A$32 ($30) a kilogram, business is good and the company is hiring.
About 40 kilometers (25 miles) west at Liverpool Quality Meats, 1 kilo (2.2 pounds) of sausages is A$6.99 and the company has cut staff from six to four after a 30 percent sales drop.
“It’s started getting really quiet and, ask every shop, they’re all struggling,” said 22-year-old manager Steven Luong who blamed in part budget cuts announced May 13. “People are spending less. Look at the plaza, there’s no one around.”
The butchers’ diverging fortunes underscore a divide being exacerbated by the two drivers of economic policy. The quest to return the budget to surplus will hit the worst off with new fees for doctor visits and welfare restrictions, while record-low interest rates are driving up asset prices for the well off yet doing little for people without access to capital.
“Egalitarianism in Australia is at risk,” said Patricia Apps, professor of public economics at the University of Sydney who cites a disproportional rise in income among the top 10 percent of earners compared with the rest of the scale. “The budget cuts have fallen on middle income earners and the poor.”
A March 2014 report by the Organization for Economic Cooperation and Development found 14.4 percent of Australians live in “relative poverty,” compared with an 11.3 percent average for member states. While annual disposable income in Australia is “considerably higher” than the OECD average, income inequality -- as measured by the Gini coefficient -- is also higher, the report showed.
In the area around Woollahra, where Victor Churchill sits in a tree-lined street dotted with boutique galleries and high-end fashion stores, unemployment is 1.8 percent and the average house costs A$2.2 million. In working class Liverpool, a house costs a quarter of that, while the jobless rate is over 7 percent and on the rise.
French economist Thomas Piketty, author of the best-selling book “Capital in the Twenty-First Century,” has urged global policy makers to boost growth with fiscal stimulus and rely less on monetary accommodation. In Australia, the reverse is happening as Prime Minister Tony Abbott’s center-right Liberal-National Coalition government cuts outlays, tightens welfare access and proposes to raise the retirement age to 70.
Mark Latu, a 53-year-old concreter and father of six, said he felt “betrayed” after voting for Abbott in September.
“I can’t work as a concreter until I’m 70, but who will employ me when I need to change jobs at 65 or 67. No one. That’s the only job I know,” he said. “The rich are getting richer, the poor are getting poorer.”
At the top end of town, wealth has been fueled by surging property prices and a rallying stock market that’s gone backwards for just one quarter in the past eight. Australia has the world’s highest proportion of households with disposable income exceeding $200,000, according to Bloomberg data.
Real estate accounts for 59 percent of gross household assets in Australia, the highest in the world after Norway, according to Credit Suisse Group AG’s global wealth report, published in October. Home prices across the nation’s eight capital cities gained 10.1 percent in the 12 months through June, according to RP Data-Rismark Home Value Index.
Sales of sports cars costing more than A$80,000 such as the Mercedes E-Class and Porsche Boxster rose 29 percent in the five months through May from a year earlier, according to figures from the Federal Chamber of Automotive Industries. That contrasts with a 14 percent drop in small cars such as the Hyundai i20 and Ford Fiesta that cost less than A$25,000.
“Low rates provide little benefit to people who aren’t in the property market, while at the other end those who are paying down their mortgage or are able to access capital are making hay, which widens the gulf,” said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “It’s basically impossible to lift all boats evenly, and while lower interest rates eventually help everyone, it takes time.”
The Reserve Bank of Australia cut its benchmark rate to a record-low 2.5 percent in an almost two-year easing cycle through August 2013 to foster a transition from mining investment and encourage hiring in industries like residential construction, where concreter Latu works. It held the benchmark unchanged July 1 and signaled a period of steady rates.
Australia’s highest income earners won’t totally escape the government’s austerity drive. A temporary deficit tax of 2 percent on incomes over A$180,000 started this month.
Jessica Usnik, a 28-year-old school teacher and mother of two in Liverpool, supports some of the budget decisions.
“It’s fair to tighten welfare because I think it’s too easy to access -- I’ve seen people live off it for years,” she said as she watched over her children at the playground. “There’s no incentive to get work, even though it’s not much to live off, but it’s enough to keep you at home if you want.”
The equivalent of about 7 percent of the workforce claims a disability pension, more than the jobless rate of 5.8 percent.
Australians have traditionally resisted a widening of the income gap, even at the cost of higher taxes and costlier services. This stems in part from the power of the trade union movement, which has kept minimum wages elevated and eschewed the employment of housekeepers, drivers and cooks on low wages.
Joseph Stiglitz, the Nobel laureate and former World Bank chief economist, said the Abbott government’s budget cuts could lead to increased inequality.
“Australia is not the worst, but it’s not the best,” he said in an interview with Australian Broadcasting Corp. television’s Lateline program broadcast on June 30. “Your inequality in the standard measure Gini is twice that of the best-performing countries. So you’re not really, as I say, performing well. And these cuts are going to make Australia even worse.”
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