Grattan / Increasing inequality brings high social cost: report

michelle grattan

By Michelle Grattan, University of Canberra

THE land of the fair go is disappearing, argues former Liberal leader John Hewson, on the release of a new report on wealth inequality.

The report warns inequality is increasing rapidly in Australia, posing dangers to community well-being, health, social stability, sustainable growth and long-term prosperity.

Entitled “Advance Australia Fair?”, the report finds that in the wake of a declining resources boom “there is a growing gulf between those in the top range and those in the lower ranges of wealth and income distributions”.

The wealthiest 20% of households now account for 61% of total household net worth. The poorest 20% account for only 1%.

“In recent decades the income share of the top 1% has doubled, and the wealth share of the top 0.001% has more than tripled. At the same time, poverty is increasing and many of those dependent upon government benefits, including the unemployment benefit, have fallen well below the poverty line,” according the report.

“If we do not pay attention to the problem of financial inequality, current economic circumstances are likely to make it worse.”

Written by Bob Douglas, Sharon Friel, Richard Denniss and David Morawetz, the report from Australia21, in partnership with The Australia Institute and the Australian National University, follows a roundtable earlier this year.

It comes as the Abbott government’s first budget has been widely attacked for being unfair, with the burden falling on lower and middle income earners. It curbs the growth in pensions and family payments, and critics say it will increase inequality.

For most of the last century, Australia was a relatively egalitarian country “and proud of it”, according to the report.

In the half century after World War One, incomes rose faster at the bottom of the income distribution than the top. “By the end of the 1970s Australia was one of the most egalitarian countries in the world.”

But from the mid-1970s, full-time wages for the bottom tenth of the income distribution have grown only 15%, while full-time earnings for the top tenth have increased by 59%.

Australia’s unemployment benefit is the lowest of OECD countries and 20% below the poverty line. Many government benefits “have barely kept place with inflation over recent decades”, the report finds.

Australia is one of the lowest-taxing countries in the industrialised world and its welfare spending as a proportion of GDP is among the lowest in the OECD.

Large tax cuts and tax exemptions introduced by both sides of politics in recent decades that disproportionately favoured the rich is one factor contributing to the growing inequality of incomes and wealth the report identifies.

“Other factors include globalisation, asymmetric access to rapid technological change, changes in compensation practices for top executives (including use of bonuses and stock options) and the neoliberal economic policies that have prevailed since the 1980s.

“Another important contributor has been the increasing practice of ‘rent seeking’, whereby wealthy and powerful companies, organisations or individuals use their resources to obtain economic gain at the expense of others, without contributing to productivity.”

As remedial measures, the authors urge promoting “a national conversation” about inequality, taxation reforms, fairer funding for schools, more investment in early childhood development especially for the disadvantaged, and setting all pensions and benefits no lower than the poverty line and indexing them to average wages.

Other actions should include establishing more job creation programs in priority areas, developing new models of employee management and co-operative ownership of business, implementing the World Health Organisation recommendations on the social determinants of health, encouraging an inquiry by the Productivity Commission into the impact of inequality on economic efficiency and growth, and establishing a national research program to monitor progress of interventions.

The Conversation

Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation.
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