Opinion

John Hewson
We are ignoring inequality in the land of the ‘fair-go’

Australians are, on average, the fourth-richest people in the world.

Before we start celebrating our luck or cleverness, we should be sobered by The Smith Family’s statement in its most disturbing TV advertising, that one in six of our children and young people are growing up in poverty.

The distribution of income and wealth – and more broadly opportunities – remains hugely unequal. Before the pandemic it was widely reported that the top 1 per cent of Australians owned more wealth than the bottom 70 per cent combined. Far too little attention has been paid in politics and policy debates to the reality of increasing poverty and inequality in this country. Our political leaders have made many trite commitments that no one will be left behind, lamenting the gender pay gap and the disconnect between full employment and stagnant real wages, while often deliberately pursuing policies that compound these issues.

Economic growth hasn’t “trickled down” as was once assumed, profits have boomed relative to the stagnant wages of workers, asset speculation has mostly benefited the top end, and changes to the tax and transfer system have often further skewed the distribution of income and wealth.

A recent, authoritative report by the Australian Council of Social Service and UNSW Sydney Poverty and Inequality Partnership points out that “our overall household wealth has grown as much in the last 3 years as it did in the previous fifteen, despite the Covid-19 pandemic and the recession in 2020, thanks mainly to the soaring cost of residential properties across the country during that same period”.

The report goes on to say that “rising house prices increase the divide between people who bought their homes when they were more affordable, and younger people and those on low and modest incomes who are shut out of home ownership or struggle with escalating rents and mortgage payments”.

It is important to note that as housing is more evenly distributed across the population than other kinds of wealth, rising house prices have caused wealth inequality to decline slightly during the pandemic. However, those increases have also effectively put homes out of reach for many.

The Morrison government knowingly over-stimulated the housing boom, pouring billions into the sector directly and through the Reserve Bank, while excluding the construction sector from the lockdowns and other medically driven restrictions.

Failing to recognise the significance of the impact on the unemployed, the Coalition reset the JobSeeker allowance at a level below the poverty line, and ignored the desperate need for affordable housing.

The report also offered a longer view of the worsening position during the period from 2003 to 2021. Home ownership among young people dropped markedly, and for those aged 30 to 34 it fell from 57 per cent to just 50 per cent. The proportion of median household disposable income needed to service a typical mortgage rose from 27 per cent to 41 per cent, while the share of median household income required to pay the median rent rose from 26 per cent to 31 per cent.

Moreover, nearly one-third of low-income households are “over-indebted” by OECD standards, meaning their debt is more than three times their annual disposable income.

Anglicare surveyed some 46,000 rental listings for its April 2022 report, finding that only nine were affordable for a single parent on JobSeeker with one child aged over eight, and just one for a person on a youth allowance.

Although income supports and rental assistance early in the pandemic helped to lift some people out of poverty, failing to get the reset right ensures that mortgage increases and higher rents are now putting people on low and modest incomes under incredible financial pressure.

The governor of the Reserve Bank of Australia, as you would expect, has concentrated on the likely impact of rising interest rates on financial stability, with little thought to the impact on inequality.

Philip Lowe takes great comfort from what he and his colleagues consider healthy household balance sheets with significant “buffers”, by way of accumulated savings, enabled by government financial support during the pandemic to households and employers. But the focus is mostly on the “aggregate”, with little attention to distribution.

The most important question is, what can be done to address poverty and inequality?

To begin, perhaps most obviously, we must raise public awareness of the issue of inequality, especially the economic, social and health costs of inequality, and focus our processes of government and business on the urgent need to address it.

There has been no shortage of recommendations about what to do. There was a senate inquiry in 2014 and various think tanks have held roundtables on the subject, such as Australia21 and The Australia Institute, which summarised recommendations in the report “A Fair Go for All Australians”, released in 2018.

How can government increase the focus on inequality, given that it is mostly ignored during cabinet discussions?

One proposal worthy of consideration would be to require cabinet submissions in all areas of public policy to attach an assessment of the likely consequences of the proposed policy on inequality.

In a similar vein, now that the Reserve Bank is subject to review, the central bank could be required to report regularly on inequality in the financial system, in terms of both access and outcomes. So too with the Treasury, which could release an inequality impact statement with each budget.

Perhaps most importantly, the tax and transfer system needs to be reformed to become more equitable. There are many concessions in the tax system that favour the wealthy, including in housing, superannuation and the way the GST is applied and distributed.

Given that tax increases will inevitably be on the table when the government settles down to budget repair, it would be essential to do so in the context of broad-based reform to deal with inequities across the entire system.

In terms of transfer or welfare payments, our system is seen, in the context of the OECD countries, to be fairly egalitarian, given its focus on the means-testing of most benefits. However, there is genuine concern about the inadequacies of child- and aged-care benefits, and particularly about the jump in effective marginal tax rates as some benefits are phased out.

These are more aggregate responses. Action is also required directly in housing for low- to middle-income earners, which has now become a crisis. Over the years governments have offered various schemes to assist first-home buyers and renters, but most of these programs have failed to match promises or expectations. For example, grants to assist with the deposit often have failed to assist the buyers, as home builders and developers have seized the opportunity to raise their prices commensurately.

Moreover, governments both state and federal have been slow to introduce large-scale projects for affordable housing, even though such projects can be an effective avenue for infrastructure spending aimed at stimulating overall economic activity, as we now need in the recovery from the pandemic. The last election saw Labor propose assistance in the form of fractional government ownership, the detail of which is yet to be released. Over the years, seeing housing projects come and go, I have been fascinated that there hasn’t been a proposal along the lines of what was done in the ACT to attract public servants to move to the nation’s capital. The government built housing, which was then made available to rent or buy. Prospective buyers could also rent initially and count their payments towards an ultimate purchase.

To complement the government’s role in addressing inequality, the business sector needs to move on from its predominant focus on maximising shareholder value. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, led by Kenneth Hayne QC, and tabled in 2019, identified a culture of greed”, as evidenced by the banks’ strategies to “clip the ticket” as often as they could on any transaction.

Business needs to consider its role in relation to all stakeholders, especially clients, employees and the community. In terms of the latter, companies need to recognise and accept their broad social responsibilities and to reset strategies accordingly.

Some have considered the challenge of dealing with inequality serious enough to advocate a living wage, even a charter of human rights and broad-based reform of industrial relations to better define workers’ rights. These have all been controversial proposals over the years and potentially divisive in our political system. But the challenge to address inequality is very real and urgent, and simply can’t be left to drift further, given the likely economic and social consequences.

This article was first published in the print edition of The Saturday Paper on July 30, 2022 as "Unequal to the task".

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John Hewson is a professor at the ANU Crawford School of Public Policy and former Liberal opposition leader.

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