Our 45th parliament is now under way, and both major parties have called for a spirit of bipartisanship to prevail, so that important budgetary reform measures can be implemented. With its omnibus savings Bill yet to be released, the Government is seeking a $6b saving, while Labor has announced an $8b savings package of its own.
Despite the agreement on reduced spending, bipartisanship may prove highly elusive, because the manner in which savings are to be achieved differs considerably between the two alternative packages. Australians are understandably cynical – if not indeed disengaged – from this dispute, regarding it simply as “more political wrangling”, as opposed to sound government. However, can we afford to be disengaged in this manner?
In a democracy such as ours, it is inevitable that vested groups make their case for where cuts should (and more often should not) be made: cuts to negative gearing will reduce much-needed investment in housing stocks; reducing family allowances to high-income households is discriminatory; proposed changes to superannuation are unfairly retrospective; reducing company taxes will not produce the sought-after increases in private investment, but will simply benefit shareholders. The litany goes on!
How should we decide what is equitable and structurally sound reform of taxation and social payments?
Inequality growing in Australia
With a mix of economic fortune and good economic management, Australia has enjoyed a quarter of a century of uninterrupted growth, and living standards have risen to levels which place us clearly among the wealthiest nations. Yet underneath that positive observation is a trend which causes concern. Inequality of income has been increasing. The Gini coefficient, the most widely used measure for international comparisons, has grown from 0.27 in the early 80’s to 0.33 at latest measure.
This now places us at the average of OECD countries, worse than Scandinavia, the Netherlands, and Germany (all below 0.30), while still better than the UK (0.35) and the USA (0.40). The most worrying feature for Australia is the upward trend in the measure.
Why should any of this matter? After all, the economy is in relatively good shape, and most of us are certainly better off than a decade ago? From an economic perspective, the issue of concern relates to the size and impact of economic growth.
A recent ACOSS report found that, over the last 25 years, real wages have increased by 50% on average, but for the bottom 10% the increase was only 14%, while for the top 10% the increase was 72%. The top 10% of households own 45% of all wealth, while the bottom 40% of households own just 5%.
The economic implications are serious. Many economic and financial authorities, such as the IMF and the World Bank, are warning that an increasing proportion of income going to the highest group of earners has an adverse effect on rates of overall economic growth. If a high proportion of income continues to accrue to the top earners, and overall economic growth is reduced, then the inequality can only but grow.
Significantly, the same authorities indicate that this tendency to increasing inequality is a structural issue, arising from the policies implemented by governments.
By implication, then, reversal of this undesirable trend requires a new approach to policy setting.
Serious consequences of inequality
The consequences are of course more than economic in nature. There is the real ethical and political consideration of the sort of society we want to be.
Do we want to be the Australia which is communitarian and enacts policies underwriting the notion of the ‘fair go for all’?
Alternatively, do we want to be a society, as in the USA, in which individualistic ideals result in gross and progressively-worsening inequity, all in the name of an idealised unregulated market-driven economy?
There is no doubt about how Pope Francis answers this question. In his apostolic exhortation Evangelii Gaudium (#202) he writes:
The need to resolve the structural causes of poverty cannot be delayed… As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, for any problems. Inequality is the root of social ills.
In Australia, there are many sound aspects in which we should rejoice. Inequality is not yet at a severe level. Economic growth has been continuous for more than 20 years, and we are a wealthy country. Society is generally cohesive and welcoming. These are things which we should not only cherish, but which we should also be actively setting out to protect.
Bipartisan effort needed
The trend to increasing inequity in income and wealth in Australia is not somehow an accident of history. It is as a result of a mix of policies, in large embraced by both major parties. So if, as we commence this new parliamentary period, the major parties are speaking of a bipartisan spirit to budgetary reform, let us first see a bipartisan recognition that a major threat to our economic future and our social cohesion lies in a passive acceptance of growing inequality in Australia.
The fruits of such useful bipartisan dialogue would be not only to shine a light on appropriate economic and financial policy settings, but also to speak volumes to the policy mix needed in areas like incomes, education, health, housing, and environment.
By all means, let us have some bipartisanship, but let it be informed by clear appreciation that the current policy settings are exacerbating an adverse trend in equality, and that new settings to reverse this trend need to be adopted.
As concerned Australians, we cannot afford to become cynical about and disengaged from the political process. The Australia of ‘a fair go for all’ is being undermined, and we need to be vocal in encouraging our leaders to adopt structural change in the policy mix by seeking explicitly to address this inequality. Failure to do so will be to the detriment both of our society and of our economy.