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While the pandemic raged, the country’s richest people became vastly richer – due to booming commodity prices, policy failures and sheer luck.

By Mike Seccombe.

Australian billionaires doubled their wealth during Covid-19

Gina Rinehart on Melbourne Cup Day 2019.
Credit: AAP / Erik Anderson

The year of Covid-19 was a very good one for Gina Rinehart.

According to the most recent survey of Australia’s richest people, Rinehart’s fortune more than doubled in the year to February 2021, from $16.25 billion to $36.28 billion.

To put that in some context, her net worth is now about the same as that of 82,000 median Australians. Put another way, the increase in Rinehart’s fortune, some $20 billion over the Covid-19 year, would have paid the salaries of about 250,000 emergency care nurses.

There’s no real mystery about the reason for the extraordinary increase in Rinehart’s wealth. There was no great genius behind it, no stunning technological innovation or productivity gain. The sharp rise in her net worth almost perfectly matches the sharp rise in the price of iron ore over the same period. And digging up red rock for export to the steel mills of the world is the primary business of Rinehart’s company, Hancock Prospecting.

It came down to the luck of the markets. In fact, on the long view, Rinehart’s wealth can be sourced largely to luck, notwithstanding the fact she might be a savvy businessperson. She had the luck to be born, 67 years ago, to a father, Lang Hancock, who had the luck to hold a pastoral lease that proved to have vast quantities of iron ore under it. Hancock Prospecting then had the luck of the Chinese economic miracle, which required huge amounts of steel. More recently, Rinehart had the luck of a couple of mining disasters in Brazil, which affected exports from the world’s second-largest iron ore producing nation. And then the luck that while Brazil’s Covid-19 response was disastrous, the Chinese economy recovered quickly from the virus-induced economic shock.

Rinehart was not the only lucky billionaire. The list of Australia’s 250 richest people, published last weekend in The Australian, also recorded massive increases in the wealth of other mining tycoons. Andrew Forrest, chair of Fortescue Metals Group, came in second. He also more than doubled his wealth, from $13.06 billion to $29.61 billion.

Third and fourth spots on the list were the co-founders of the software company Atlassian. Unlike the miners, they are innovators, but their company also benefited from the pandemic, as lockdowns forced the world to remote interactions, a boon to tech companies everywhere.

Atlassian’s Mike Cannon-Brookes’ wealth grew from $12.73 billion to $21.99 billion. His co-chief executive, Scott Farquhar, went from $12.54 to $21.95 billion.

Just behind them was Anthony Pratt, whose family interests in packaging saw his wealth jump about 25 per cent, to $21.27 billion. Innovation and expansion were a big part of that story, too: Pratt’s business increasingly is engaged in recycling.

In sixth place was property developer Harry Triguboff, whose wealth jumped from $15.5 to $17.2 billion. Seventh was another property developer, Hui Wing Mau, who went from $9.07 to $10.15 billion.

Then came Clive Palmer, whose company Mineralogy is big in iron ore. The miner’s net worth increased in similar proportion to that of Rinehart and Forrest, from $4.5 billion to $9.76 billion.

That’s about 60 times what Palmer spent on the 2019 election. After that election Palmer claimed – credibly – that his intervention ensured the return of the Morrison government, and he pronounced his $83 million investment in the political process money well spent. It was, after all, less than a week’s income for him.

Palmer was followed by Sir Frank Lowy, co-founder and former chairman of the shopping centre developer Westfield. Lowy fortunately sold his interest in 2018, before the shift to online shopping hit the profitability of bricks and mortar retail outlets. He was the underperformer of the top 10; his wealth increased only about $100 million to $8.7 billion.

Rounding out the list was Kerry Stokes, executive chairman of Seven Group Holdings, best known for his media interests, but whose diverse holdings also run to mining and mining equipment. His wealth jumped from $6.56 to $7.26 billion.

And these billionaires are just the tip of the wealth iceberg. The Australian’s list ran to 250 names, whose average worth is $1.88 billion. Their total wealth is $470 billion, up $93 billion, or almost 25 per cent, in just 12 months.

This Covid-19 wealth explosion isn’t limited to Australia. Last year was a particularly lucrative one for billionaires everywhere, it appears. And in some places, the growth in their riches was even more pronounced.

A report published in November in the United States by a group of progressive think tanks collated the data in that country and found that last March, at the start of the pandemic, America had 614 billionaires, with a combined wealth of some $US2.95 trillion. Eight months later, the number of billionaires had grown to 650, and their collective wealth had grown by about a third, or $950 billion.

The US comparison not only shows the international nature of the phenomenal growth in wealth at the top, but also that Australia’s billionaires hold about as much wealth, relative to the size of our population and economy, as those in America.

While America is, no doubt, a more unequal society, that is not because it has relatively more extremely rich people than we do – it’s because it has more extremely poor people. Australia is heading in a similar direction. Inequality is now significantly greater here than it was a generation or two ago.

It’s not just that the top 0.001 per cent – those on the rich list – are pulling away from the rest of the population. Disparities in income and wealth were growing across Australian society, well before the pandemic.

A detailed analysis conducted last year by the University of New South Wales and Australian Council of Social Service, using Australian Bureau of Statistics data from 2017–18, painted a sobering picture of the state of inequality before the pandemic.

It found the top 20 per cent of households had six times the income of the bottom 20 per cent, and 90 times the wealth.

The difference between income and wealth is the difference between what you are paid and what you accrue. People who are paid less spend most of it, and thus save less.

When wages growth is low – as has been the case in Australia since the election of the Coalition in 2013 – and asset values are increasing rapidly, inequality tends to accelerate. Those who already have assets become wealthier through the compounding value of those assets; those who must rely only on their pay packets fall behind.

The UNSW–ACOSS analysis found the top 10 per cent of households held almost half of all wealth in Australia – 46 per cent. The next 30 per cent of households held 38 per cent, and the bottom 60 per cent shared just 16 per cent of total wealth.

Close to 70 per cent of the value of shares, other financial investments and investment property was held by just 10 per cent of the Australian population.

The share of national income going to wages has been trending gradually down since 1976. It had fallen about 10 percentage points, to 53 per cent, and the share accruing to capital had grown by a similar amount. But this was before Covid-19. The pandemic saw the wages share drop sharply, to just 49 per cent in the middle of last year.

As noted by Andrew Leigh, former economics professor and shadow assistant minister for Treasury and Charities, the ABS data for the June quarter recorded that company profits had jumped by 14.9 per cent while workers’ total wage and salary bill fell by 2.5 per cent.

Typically, recessions hit low-income workers hardest. The picture of the Covid-19 recession was complicated by the Morrison government’s massive spending response. The temporary doubling of unemployment benefits, and particularly the wage subsidies under the JobKeeper scheme, served to maintain, and in some cases increase, the amount of money in some people’s pockets. But many people were left out.

Furthermore, the unique nature of the past year’s recession had greatly varying impacts, even among the already relatively wealthy.

Lockdowns and social distancing meant people did not go to gyms, concerts, theatres, restaurants or spend as much on services in general. This was bad for the providers of those services, which tended to be smaller businesses.

“In general, our billionaires are in mining, retail and property,” Leigh says, “which have all gone well.”

Australians spent more on clothes and household goods during the pandemic, and now, as we come out of recession but still work more remotely, on homes themselves.

The combination of all these factors resulted in huge amounts of government support going to companies and wealthy individuals who did not need it, including, by Leigh’s count, at least 11 billionaires.

Some companies have done the ethical thing and returned the JobKeeper money they did not need. Many others have refused to, and have instead inflated their profits, dividends to shareholders and executive pay packets at taxpayers’ expense.

“Take Gerry Harvey, for example,” says Richard Denniss, chief economist of The Australia Institute. “The government gave him a $22 million gift and he’s been bragging ever since that sales are up and it’s a great time to be in retail.”

And no wonder. Harvey’s company, Harvey Norman, posted a net profit after tax of $462 million for the final six months of 2020 – up 116 per cent on the same period in the previous year.

Harvey himself finished in 28th place on the The Australian’s rich list. His personal fortune tallied to $2.9 billion, an increase of almost $600 million in a year.

“To be clear, I’m not opposed to fiscal stimulus in the slightest,” Denniss says. “I’m not worried about government intervening in a strong Keynesian manner. But the shape of the stimulus matters as much as the size. What we’ve done is transfer an enormous amount of liabilities onto the federal government and transfer a hell of a lot of wealth to the private sector.”

Exactly how much money was wasted in this way, the government won’t say. Furthermore, it has defended the right of companies to keep excess JobKeeper money, a position in stark contrast with its vigorous pursuit of welfare recipients for relatively tiny alleged debts due to overpayment, which many people didn’t actually owe.

We may find out the figure in due course; the National Audit Office has launched an investigation of JobKeeper’s operation.

In the meantime, Andrew Leigh points to data assembled by the small governance advisory business Ownership Matters, which examined the financial reports of companies listed on the Australian Stock Exchange that received JobKeeper wage subsides. Ownership Matters found 20 per cent of payments went to companies whose earnings actually rose during Covid-19.

Not all JobKeeper recipients are listed companies, but, says Leigh, “If that’s true across the whole program, that suggests somewhere between $10 billion and $20 billion was given to firms whose profits were going up.”

Most of which, as we’ve already seen in the UNSW–ACOSS data, would have ended up in the pockets of the wealthiest Australians.

This outcome could’ve easily been avoided, says Professor Warwick McKibbin, director of the Australian National University’s Centre for Applied Macroeconomic Analysis, and a former member of the board of the Reserve Bank.

McKibbin, who is a globally recognised expert on the economics of pandemics, was called in by the government in March last year to consult in the early stages of Covid-19.

Like Leigh and Denniss, McKibbin supported major stimulus, but opposed the way the government went about it, which resulted in “massive amounts of taxpayers’ money [being] pumped into companies that actually didn’t need it”.

Instead of just giving the money to businesses, he says, “It should have been done on an income-contingent loan basis. That way, a lot of those companies that received the income, if they survived, they should have paid it back, as we do with the HECS [student loan] system.

“That was a big mistake.”

Next week, JobKeeper will end, but the billions it gave to the rich will continue to fuel inequality by pumping up asset prices. For evidence, look to the booming real estate market.

But the government’s ill-directed stimulus is not the biggest driver of inequality, says McKibbin. A bigger driver is the massive monetary injection that we’re seeing from major central banks, including the Reserve Bank of Australia, he says.

“That’s going to be much bigger, because it’s continuing. Obviously, when you stick a lot of money into the economy, into the world economy, assets with fixed supply are going to go up in value, a lot. And the people that tend to earn those sorts of assets are the wealthy.”

The rationale behind this “accommodative” monetary policy, as the econocrats call it, is that abundant cheap money will encourage productive investment, which will create jobs, which will eventually bring wage rises, which might make things fairer, economically.

But it isn’t working, says Professor Andrew Stewart, an employment law expert at the University of Adelaide. Covid-19 has exacerbated the problem, but essentially it comes back to “a continuation of forces, which have been at work over much of the last decade”.

“We’ve had governments intensifying their efforts to cap public sector rises. Nothing’s being done to try and prompt wage increases in the private sector either,” he says.

“It’s also not helpful that the central bank refuses to give up on what increasingly seems a problematic link between economic growth and wages.”

Stewart is frustrated that the RBA will not give up, after almost a decade of wage stagnation, on the idea that “the forces of supply and demand will do the trick” and “draw the obvious conclusion that there is a need for active government policy to lift wages”.

Mind you, he says, even if the bank did say that, there is little chance the current government would act. It remains ideologically fixated on the notion that if you give enough money to corporations and the wealthy, if government busted the unions and simply got out of the way of business, the benefits will flow down.

More than 40 years on from the Reagan–Thatcher promulgation of trickle-down theory, says Stewart, “Nothing suggests that’s the case. In fact, there is some clear evidence that countries with higher levels of employment protection, that countries that put more effort into social dialogue between business and organised labour, that these are the countries that are likely to do better in terms of economic growth, and certainly in terms of inequality.”

The same point was made by the French economist Thomas Piketty in a live streamed event organised by the University of NSW on Tuesday to coincide with the release of his new book, Capital and Ideology, a sweeping survey of more than 50 democracies.

Higher levels of taxation on the wealthy, Piketty found, produced better economic outcomes. He pointed to the US.

“Between 1930 and 1980,” he said, “the top income tax rate in the United States was 81 per cent, on average. And, you know, apparently, US capitalism did not disappear … if anything, the rate of productivity growth, which is the best measure of innovation that we have, was much bigger.”

Piketty favours a sweeping redistribution of wealth through the tax system, and he noted with satisfaction that others are thinking along similar if less radical lines.

Before the last US presidential election, two candidates for the Democratic nomination, Elizabeth Warren and Bernie Sanders, proposed a so-called “billionaires tax” – actually a 2 per cent annual tax on wealth over $US50 million, rising to 3 per cent for wealth over $US1 billion.

They were supported by many in the Democrats’ progressive wing. US representative Alexandria Ocasio-Cortez popularised the slogan “every billionaire is a policy failure”.

Neither Warren nor Sanders won, of course, but President Joe Biden has signalled an intention to increase taxes on capital, as has Boris Johnson’s Conservative government in Britain.

“If you look at opinion polls,” Piketty noted, “even Republican voters actually approve the idea of a billionaire tax.”

On Tuesday, in the Australian senate, the Greens’ Nick McKim challenged Treasury officials with a list of various indicators of economic inequality and stagnation during the year of Covid-19. “GDP down, household spending down, business investment down, unemployment and underemployment, both well above where they were 12 months ago,” he said. And the wealth of billionaires massively up.

Why, McKim demanded, did the department not accept that current policies had failed, as Western countries that had “fired up the money printing presses since the GFC have seen asset prices inflating significantly, while wages have stagnated”?

The takeaway for Australia was that at least one political party is laying the groundwork for a billionaires’ tax, in the vein of Warren and Sanders.

Other people have different ideas of how to go about clawing back some of the wealth the super-rich have expropriated from the rest of the population. But clearly, a fast-growing weight of opinion holds that something must be done.

For, as Piketty said: “Ten years ago, the top billionaires had $30 or $40 billion. Now they have $100 or $200. Should we wait for them to have a $1000 or $2000 billion?”

This article was first published in the print edition of The Saturday Paper on Mar 27, 2021 as "Australian billionaires doubled their wealth during Covid-19".

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Mike Seccombe is The Saturday Paper’s national correspondent.