Addressing the National Press Club, I talked about a generation of rising inequality, how the Abbott Government's policies will affect inequality and the importance of maintaining Australia's egalitarian ethos (download audio; iTunes podcast):
ANDREW LEIGH MP
SHADOW ASSISTANT TREASURER
SHADOW MINISTER FOR COMPETITION
MEMBER FOR FRASER
Battlers and Billionaires: Australian Egalitarianism Under Threat*
National Press Club Address
THURSDAY, 27 MARCH 2014
In 2002, two bombs exploded in Bali nightclubs, killing and injuring hundreds of people. At the local hospital, there was a shortage of painkillers. Graeme Southwick, an Australian doctor on duty, asked patients to assess their own pain levels. He kept being told by patients in the ‘Australian’ ward that they were okay – the person next to them was suffering more.
Coming across this account, historian John Hirst was reminded of the description of injured Australians in Gallipoli nearly a century earlier. He quotes the official war historian Charles Bean, who describes the suffering and then says, ‘Yet the men never showed better than in these difficulties. The lightly hurt were full of thought for the severely wounded.’
Even in the midst of their own pain, the first instinct of many Australians was to think of those worse off than themselves.
Even the military, one of our most hierarchical institutions, is infused with the nation’s egalitarian spirit. Indeed, it has been suggested that this is one reason why our forces are such effective peacekeepers. When the United Nations intervened in Somalia in the 1990s, our troops were more inclined to go on foot patrols than the French and American forces, who tended to stay in jeeps and behind sandbags.
As a result, our troops were more likely to listen to local townspeople rather than just hearing the views of tribal leaders. This in turn made them more effective at solving local disputes. It was, as one account put it, ‘an example of the traditional Australian sympathy for the underdog being put to very good use’.
Egalitarianism goes deep in the Australian character. Most of us don’t like tipping. I’d like to think that’s our egalitarianism at work. There aren’t private areas on our beaches. Audiences don’t stand when the prime minister enters the room. We’re a country that happily dispensed with knighthoods a generation ago, and no sensible person would suggest that the land of ‘mate’ should become the kingdom of ‘sir’.
In Australia, it’s quite normal to sit in the front seat of a taxi. If the plumber drops around, we’ll offer a cuppa. One of our billionaires is ‘Twiggy’ and past Australian Reserve Bank governors include ‘Nugget’ and ‘Nobby’.
Egalitarianism is as much a part of Australia’s national identity as vegemite, Uluru and the Big Banana.
And yet that egalitarian ethos is increasingly under threat from a rise in inequality over the past generation.
Let me give you a few numbers.
A Generation of Rising Inequality
Since 1975, real wages for the bottom tenth have risen 15 per cent, while wages for the top tenth have risen 59 per cent.
Put another way, if cleaners and checkout operators had enjoyed the same rate of wage growth as financial dealers and anaesthetists, those low-wage workers would be earning an extra $14,000 a year.
Over the past few decades, there has been a rise in the share of people living on less than half the median household income – a rise in relative poverty.
The income share of the top 1 percent has doubled. The income share of the top 0.1 percent has tripled.
Cumulatively, the increase in the affluent share over the past three decades represents a $365 billion shift from the bottom 99 per cent to the top 1 per cent.
Under the Rudd and Gillard Governments, inequality did not rise. But income inequality today remains significantly higher than it was in the 1970s.
It’s not just income. Wealth inequality has increased too. The top 1 percent wealth share has gone up significantly since the 1970s.
The wealth share of the top 100,000th of the population (approximately the top 200 people) has tripled since the mid-1980s.
Today, the richest 50 people in Australia have more wealth than the bottom 2 million.
The richest 3 people in Australia have more wealth than the bottom 1 million.
Indeed, if you had no earnings figures, no income surveys, no wealth statistics, you’d know there was something going on with inequality just by looking at consumption patterns.
The past decade saw a 70 per cent increase in annual Porsche sales, and a fivefold increase in Maserati sales. The number of helicopters in Australia has more than doubled, and our private jet fleet has almost tripled.
Meanwhile, one in five Australians cannot afford a week’s holiday away from home each year, one in eight cannot afford dental treatment and one in 20 cannot afford Christmas presents for friends and family.
The reason I wrote Battlers and Billionaires is because I wanted to tell the story of inequality in Australia. We need to talk about the impact of inequality on our social fabric. If we miss this chance, there is a risk that we will sleepwalk into a more unequal Australia without realising what is being lost.
What Drives Inequality?
A significant driver of the rise in inequality over the past generation are advances in technology and globalisation, which have combined to turn those who would once have been mere ‘stars’ into what economists call ‘superstars’.
Take my former profession of law, for example. In the 1980s, many firms were city-based and the fax machine was the hottest technology around. Consequently, the best lawyer in a large Sydney firm would service the most profitable Sydney clients. By the 1990s, national partnerships were common: airfares had fallen and email and mobile phones allowed rapid communication, meaning that the top Sydney partners were increasingly looking after the top Australian clients. Since the 2000s, with the rise of international partnerships and the ubiquity of videoconferencing, a senior Sydney partner is likely to be working for the firm’s top Asia-Pacific clients. So it’s no surprise that a superstar Sydney lawyer is earning more than ever before.
The globalisation of Australia’s CEO market is another example of superstar labour markets at work. One of the first overseas CEOs was Bob Joss, brought in to head Westpac in 1993 on an annual salary nearly as large as those of the other three major bank CEOs combined. Since then, average earnings of ASX 100 CEOs have risen from $1 million (seventeen times average earnings) to $3 million (forty-two times average earnings).
And if you’re wondering why they keep rising, consider that only one in twenty of firms said they would give their CEO a remuneration package below the median. To be clear – only one in twenty firms want to pay their CEO a remuneration package less than half their competitors. In Garrison Keillor’s Lake Wobegon, all the children were above average. It’s a strange world when all the CEOs have to be above average.
Another significant driver of inequality has been the decline of unions. A powerful force for equality in Australia has been the trade union movement. It’s become fashionable lately to deride unions, but no serious economist could doubt their role in reducing earnings inequality.
Unions have typically focused on raising the earnings of the lowest paid, and have worked to reduce pay gaps across industries. Campaigns for equal pay for women, the forty hour work-week and four weeks annual leave have all been spearheaded by unions. If union density had not fallen from half the workforce in the early-1980s to less than one-fifth today, Australia would be a more equal place.
So inequality is rising, driven at least partly by technology, globalisation and deunionisation.
Why Does Inequality Matter?
But some will ask: if all boats are rising, why does it matter if the tugboats are rising more slowly than the ocean liners?
As Prime Minister Tony Abbott once put it, ‘in the end we have to be a productive and competitive society and greater inequality might be inevitable’.
In other words, we have to be less equal if we want to compete with the world.
What’s wrong with that view?
One answer is that Australians just actually don’t want to live like that. In fact, surveys indicate that people have a preference for a much more egalitarian society than we have today.
Here’s one way to think about inequality. Suppose you had an equal chance of being born into any of the five wealth quintiles in Australia. Would you prefer to be born into a society where the bottom fifth had 1 per cent and the top fifth had 62 per cent of the wealth? Or a society where the bottom had 15 per cent and the top had 24 per cent?
The first set of numbers is the actual distribution of wealth in Australia. But when surveyed about their ideal distribution, though, the majority of respondents wanted the nation to be more egalitarian than it is today, not less. Indeed, the second set of figures is the preference of the most affluent.
Mr Abbott is right that productivity matters. But he is wrong to think that more inequality is the only way to achieve it.
Another concern about inequality is that societies with a large gulf separating the haves and have-nots are those in which few people escape the circumstances of their birth. Think of a ladder.
If inequality measures the gaps between the rungs, then intergenerational mobility measures how easy it is to climb up or down. If the rungs move wider apart, the ladder becomes harder for someone to climb. In a very unequal society, you are likely to stay on your birth rung.
In Australia, income mobility across generations is worse than in Scandinavia, but better than in the United States. One way of thinking about the difference is to compare the hereditability of income with the hereditability of height.
In the United States, the hereditability of income is similar to the hereditability of height. In Australia, the effect is only half as strong. But in in countries such as Sweden and Denmark, the hereditability of income is smaller still.
But the more unequal we become, the more that a parent’s income will determine where their child ends up. The idea that your parents have as much effect on your earnings as they do on your height is a prospect which worries even my most conservative friends.
It also worried Adam Smith, the forefather of modern economics, who argued ‘This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition … is … the great and most universal cause of the corruption of our moral sentiments.’
Adam Smith believed it was only fair that everyone should get a share of the national wealth, that schooling be free, and taxation be progressive.
How Will the Abbott Government Affect Inequality?
It is a mistake to think that government policies are the only thing affecting inequality. Forces such as technological change and globalisation powerfully affect the income gap in Australia.
Indeed, inequality fell under Menzies, and rose under Hawke.
But government is not a life-raft in a storm-tossed sea.
Decisions that governments makes – for better or for worse – can affect the distribution of income.
For example, the Rudd government’s decision in 2009 to boost the single age pension by over $1600 a year reduced relative poverty by one-fifth.
In the case of the Abbott Government, there are already strong signs that its policies may leave us a more unequal country.
The government has announced that it will abolish three payments that are targeted at low-income and middle-income families: the income support bonus, the SchoolKids bonus, and the Low-Income Superannuation Contribution.
It will no longer require states to contribute 50 cents of new school funding for every Commonwealth dollar. There is too little equity funding in our public school system, and it is hard to see how we can redress this if states like Western Australia take money out as the federal government puts more in.
Defunding Trade Training Centres risks increasing the high school dropout rate, at a time when we know that finishing high school is fundamental to avoiding poverty.
At the same time, the government will cut taxes on the most affluent. For example, it wants to repeal the mining tax, which would benefit some of the richest people on the planet. Mining companies have high deductions today, but Joe Hockey’s budget update tells me that he estimates the mining tax to be raising $1.8 billion per year in 2016-17. (Of course, tax projections are difficult, but I think it’s only fair to take Mr Hockey at his word.)
Another tax cut that will benefit the most advantaged is the government’s decision to maintain extremely generous tax concessions to people with more than $2 million in superannuation.
These retirees receive more government assistance than someone on the full pension. Indeed, someone with $20 million in superannuation is receiving nearly half a million dollars a year in government support.
Politicians over the years have gotten into trouble defining ‘rich’ and ‘poor’. Whether or not you think $20 million makes you rich – and I personally think it makes you rich even in Sydney – I hope we can agree that it means you don’t need too much government support.
Last year, the government said that it would scrap 55 tax measures that Labor was pursuing. I can’t find one of these decisions that would benefit residents of Blacktown more than residents of Balmoral. In the end, every extra loophole you leave open in the tax system just means that others have to pay higher rates of tax. Perhaps Milton Friedman had loopholes like this in mind when he pointed out that ‘to spend is to tax’.
As though it wasn’t enough to cut benefits for the most disadvantaged and cut taxes for the most affluent, the Abbott Government has gone one step further, by proposing to transform Australia’s flat-rate paid parental leave scheme into a wage replacement scheme.
The effect of this is that a high-wage family will get $75,000 when they have a child, while a low-wage family will get $16,000.
Whoever has will be given more – and they will have an abundance.
Trust Mr Abbott’s government to be guided by the one verse in the Gospel that supports giving to the rich, not the poor.
On any possible view, could it really be fair that when a baby arrives in a high-earning household, they get nearly five times as much government support as a baby in a low-earning household?
And the reason? As the Coalition’s policy document last year stated, ‘paid parental leave is an economic driver and should be a workforce entitlement’.
In other words, for the most affluent Australian families, welcome to your new age of entitlement.
In the workplace, the government’s top business adviser is concerned that Australian wages are ‘very high by international standards’. And no, he’s not referring to that tripling of CEO pay from $1 million to $3 million.
While disavowing WorkChoices, the Abbott Government is proposing regulatory changes that will cut the pay of the men and women who clean the Prime Minister’s suite.
Meanwhile, the government’s industrial focus is on making life hard for unions.
No wonder. As I’ve noted, there is no stronger force for egalitarianism in the workplace than unions. Making collective bargaining harder will likely widen the earnings gaps in Australia.
Just as unions help redress power imbalances in the workplace, consumer protection laws help protect people in the marketplace. When it comes to financial advice, we know that low-income Australians have lower levels of financial literacy. Removing consumer protections from the financial advice market will boost remuneration in the financial sector – but at the expense of jeopardising the life savings of pensioners and low-wage workers.
A blind faith in trickle-down economics will make it harder for the Abbott Government to achieve other goals.
That’s because women, people with disabilities and Indigenous Australians are overrepresented at the bottom of the income distribution.
One of the reasons the gender pay gap has widened in recent years is that overall earnings inequality has risen. Attacking unions will make it harder to close the gender pay gap.
A more egalitarian Australia is more likely to create jobs for people with disabilities.
And while the Abbott Government may claim to have a Closing the Gap Indigenous policy, it’ll be harder to achieve if they have a Widen the Gap economic policy.
If you care about closing gender and racial gaps, you should care about the overall level of economic inequality.
And while my focus today is mostly domestic, I can’t pass by the fact that cutting foreign aid by one-fifth and cutting the refugee intake by one-third will hurt some of the world’s most vulnerable people.
Climate change threatens the homes of some of the world’s poorest people, living in the Pacific region.
Likewise, scrapping the emissions trading scheme and moving to command-and-control will prevent Australia from meeting its carbon reduction targets. Unchecked climate change will hit the most disadvantaged hardest. One reason for this is that the poor are least able to insure against droughts, floods and bushfires.
I say to Mr Abbott: enough with the tribalism. It’s time to govern in the interests of all Australians.
Labor and Inequality
But I don’t just want to speak today about the Coalition.
Because a deeper conversation about inequality is vital for my party too.
For many years, it looked like talking about inequality was taboo for parliamentarians on the progressive side.
Thankfully, recent years have seen this beginning to change.
Where Bill Clinton rarely mentioned inequality, Barack Obama has given several important speeches on the theme.
In Australia, Wayne Swan began to open the conversation about inequality, even using the words of Bruce ‘The Boss’ Springsteen to talk about the widening gap between bosses and workers.
One reason the earlier cohort of Labor leaders did not talk much about inequality was that it was comparatively low.
When the Hawke Government was elected, inequality was not one of Australia’s significant problems.
But as the level of inequality rises, it demands more attention.
The gap between the powerful and the powerless has grown. So more than ever, Labor must be the voice of the vulnerable. If we do not speak out for those on the margins of our society, who will?
When Labor is given the chance to govern again, we should assess policy proposals based on how they will affect the gap.
With Australian inequality higher than it has been for three-quarters of a century, we must not ignore the distributional consequences of policy.
Labor Governments must ask themselves about every proposal: how will this benefit the most disadvantaged?
In welfare policy, this means maintaining our targeted social safety net, and rejecting policies like Work for the Dole, which have been shown by an independent evaluation to increase joblessness.
In education policy, it means targeting resources at the most disadvantaged. There is nothing fair about a system where poor children get rookie teachers, while rich children get experienced teachers. ‘Welcome Back Kotter’ is not the ideal role model for our school system.
In economic policy, it means a commitment to strong economic growth and low unemployment – themes that you’ve heard Bill Shorten and Chris Bowen speak about from this platform recently. Recessions hit the poor hardest, and creating jobs for the truly disadvantaged is always easier in a booming economy.
Maintaining the Egalitarian Ethos
As a nation, we should be optimistic about our ability to tackle inequality.
There is nothing inevitable about inequality going up. My grandfather, Roly Stebbins, was born in 1922. He celebrates his 92nd birthday this year. For most of his life, inequality in Australia has been falling, with the last few decades an aberration.
As Roly entered the workforce, our nation was undergoing a ‘great compression’. From the early 1940s to the late 1970s, my research shows that Australia experienced a significant drop in inequality.
To put the size of the equalisation in perspective, the reduction in inequality over these three decades was as large as the modern-day difference in inequality between Australia and the much more equal countries of Scandinavia. Falling inequality among men was accompanied by a steady narrowing of the gender pay gap during this period, with the equal pay cases of 1969 and 1972 being key milestones.
For Australia to make such a shift in a single generation was radical, and the change was keenly felt by those at the top of the heap. Craig McGregor, writing in the 1960s, said that the wealthy ‘feel under some pressure to be accepted by ordinary working Australians rather than the other way round’. Visiting in 1963, Dame Edith Sitwell said, ‘I am struck by something indisputably gentle about Australia.’
Inequality fell markedly in the 1950s and 1960s. Growth was broadly shared. And yes, it happened under a Coalition Government.
There is much about this era that I would not want to replicate today, but I do think the egalitarian success of the post-war decades should give us optimism about our ability to reduce inequality today.
Central to tackling inequality will be maintaining a sense of pride in our egalitarian ethos. In the 1850s, an English gold-digger wrote home that ‘Rank and title have no charms in the Antipodes’. In the 1880s, an essayist summed it up by saying: ‘In England the average man feels that he is an inferior, in America that he is a superior; in Australia he feels that he is an equal. That is indeed delightful’
Peter FitzSimons recounts the tale of a conversation with Bob Hawke, in which an insistent waitress twice interrupted the then prime minister in mid-sentence to take his coffee order. There is something that makes my heart swell with pride to live in a place where a waitress feels no qualms about interrupting the most politically powerful person in the nation.
One way to see why inequality matters is to compare an unequal sporting contest – English Premier League football – with the more egalitarian Australian Football League. Of the last twenty EPL championships, Manchester United has won twelve. In the same period, no AFL team has won more than three premierships.
There are simple structural reasons for this difference. English football operates much like feudalism. The money from television rights is shared out according to each team’s finishing position, with the top-ranked teams getting the most. Players are signed by scouts, who search the globe for promising players. Manchester United’s salary bill is nearly $300 million.
The AFL is a great deal more egalitarian. Television revenue is shared evenly among the teams. Players enter the game via a draft, in which lower ranked teams get first pick of promising players. And a typical team’s salary bill is capped below $10 million.
Take the Adelaide Crows: in 1996, they came twelfth on the ladder. In 1997 and 1998, they won the premiership. In 1999, they came thirteenth. Such a story of rags to riches to rags is inconceivable in English football. For over twenty years, Manchester United has had a top-three finish (with the result that half of all English fans follow United). As GWS is showing this season, AFL is unpredictable. But English Premier League is one of the most predictable games on the planet.
Ultimately, the choice for Australia is summed up by the differences between two football leagues. Do we want a society that looks like the English Premier League, with a winner-takes-all approach and half the fans supporting a single team? Or do we want to emulate the Australian Football League, with a set of rules that reduces inequality and makes the game more interesting?
The past generation has seen great success for the Australian economy. We are more productive and entrepreneurial; more open to ideas, products and people from overseas. Yet at the same time, we have become more unequal.
We don’t need to recreate the 1960s to reclaim those high levels of equality. But the egalitarianism of that era should remind us of what is possible. Too much inequality strains the social fabric, threatening to cleave us one from another. Australia is a stronger nation when we act together than when we pull apart.
* Sections of this speech draw upon Andrew Leigh, 2013, Battlers and Billionaires: The Story of Inequality in Australia, Black Inc, Melbourne. Interested readers are encouraged to consult the book for sources.
COMPERE: Thanks, Andrew, for that address, that quite wide ranging address. You offered during that address, a critique of a raft of Coalition policies, he also talked about inequality within the taxation system. I'd like to talk to you about one aspect of the taxation system, which has been growing at some would say alarming rates, and that is negative gearing. It does seem like it's an area though that is off limits to both sides of politics, in fact I think it's probably fair to say Mark Latham was the last senior politician to raise the issue of reforming negative gearing. Can you offer an argument now as to why, given your critique of inequality within the economy, within the taxation system, why negative gearing should not be reformed and quite significantly reformed, because surely there are not many battlers who take advantage of negative gearing? Please.
ANDREW LEIGH: Thanks very much Steve, for the question. I'm going to disappoint you by not arriving today to announce a raft of new Labor policies, but we're going to have a range of…
COMPERE: Sorry to hear that.
ANDREW LEIGH: Yeah exactly, exactly. We'll have a range of conversations over the next three years and it's important that we make sure our tax system's fit for purpose. It's an issue that, as you say, arose out of Henry Review and the economics of negative gearing is that it sits within a system which allows people to deduct expenses from income, but in Australia, in many cases, is used to deduct housing expenses against earnings. So that's the context in which we sit, but I'm going to disappoint you by not announcing any policies today, I'm afraid.
COMPERE: Next question's from Eliza Borrello.
QUESTION: Andrew, in the last Parliament I think it's fair to say Wayne Swan seemed obsessed with daily attacks on the wealthy, namely Gina Rinehart and Clive Palmer, who obviously is a colleague of yours now. Given that, as you say, the distribution of wealth in Australia is widening, there are more wealthy people, was that a wise tactic or will we now see Labor focusing on measures to reduce inequality, for example arguing for more equitable access to education?
ANDREW LEIGH: So Eliza, I think it's a great question, because it highlights the fact that inequality is different from poverty and that the gap between rich and poor isn't just an issue that matters for those at the bottom, it's an issue that matters for those at the top. Ultimately Disraeli's notion of two nations occupying fundamentally separate realms is one which hurts both groups. And you see in the United States increasingly, the super rich not only opting out of public education and public health care, but also public roads (through gated estates), also the publicly provided security services with security guards being a rising occupation, and even [opting out of] the public electricity grid. One in 50 American homes has a private generator. I don't think that's a good road to be going down, for much the same reasons that Disraeli outlined. That is not only bad for those at the bottom who end up with residualised public services, but also bad for those at the top who don't get to enjoy the benefits of a shared society.
COMPERE: Next question's from Michael Keating.
QUESTION: Dr Leigh, Michael Keating from Keating Media and Inside Canberra. I want to touch on the point you raised about productivity and inequality and the separation there. When is productivity bad for inequality, for example, a dollar value added by a business providing a good or service then leads to more jobs, the creation for new jobs, so why is productivity bad for inequality? And as my publication is Inside Canberra and we have the Deputy Chief Minister here with us, I was wondering if you'd like to give us your predictions for the Canberra economy over the coming year?
ANDREW LEIGH: Excellent [laughs]. Putting on my old hat. So I'm certainly not arguing against productivity and I'm sorry if you've interpreted anything in my speech to be to that effect. I think productivity growth is fundamental for Australia and the difference in Australian politics is how we get there. One view is that we get there through changes to the industrial relations system in order to free up hiring and firing and take away protections such as penalty rates. Another view is that productivity is fundamentally about more skills and better infrastructure. I think that second view is better supported by the evidence and that's certainly the Australia I want to see. It'll produce more growth, which ultimately is important for the most disadvantaged. Only a booming economy is an economy in which the most disadvantaged will get jobs.
Given the track record of economists in forecasting the trajectory of the economy, certainly around the global financial crisis for example, I'm not sure I would add greatly to the sum total of knowledge for forecasting where the Australian economy would go, but I am concerned that severe cutbacks to the public service would damage Canberra. And in an environment of which the number of public servants per Australian didn't rise under Labor, I think again that would be ideology taking the place of good public policy.
COMPERE: Next question is from Bernard Keane.
QUESTION: Bernard Keane, from Crikey, Dr Leigh. Thank you for your speech today and I'm glad that someone else remembers Welcome Back Kotter. [Laughter]
QUESTION: I want to put a question…
COMPERE: You're showing your age Bernard.
QUESTION: Yeah. I'm not going to make any comment about Horshack so. I want to put a question to you that's directed to you both as an economist and as an ALP MP, and that is that a lot of what you've spoken about today and also in the book, is really being driven by the economic consensus of the last 30 years, the shift to what you might stereotype as a liberal market economy and both sides of politics have been responsible for that. Economists, virtually all economists I know, apart from one or two at The Age, have cheered on that transition over the last 30 years and voters have repeatedly voted for it. I mean they've supported that model over the last 30 years, even though as you correctly point out, they do keep expressing to pollsters reservations about things like inequality and another example is probably the attitudes toward manufacturing assistance, for example. So voters are reluctant to endorse them all and yet they have benefited from it and they keep voting for it. As an economist, as a member of a major political party that's been responsible for that process, is there actually something in Tony Abbott's remark that maybe there is something inevitable about greater inequality if we do embrace this model that has delivered much higher standards of living, but also has caused a lot of the issues that you've spoken about?
ANDREW LEIGH: It's a terrific question Bernard and the technology and globalisation which has driven inequality has also, as you say, driven higher living standards. I'm not arguing for a return to fortress Australia or for all of you to throw away your mobile phones as you leave the room. What I am arguing is that we need a social safety net, which is targeted to the most vulnerable, rather than one that gives the most to those that have the most and an education system which ensures that the most disadvantaged children receive the support that they need.
One of the most troubling graphs in Battlers and Billionaires, to me, is one which - in which I can show that the test score gap in countries matches the earnings gap. That is countries with a big gap - knowledge gap between high school students are also countries where there's a big earnings gap between those in the labour market. So we've got to look at bringing up test scores right across the board, but particularly at the bottom, if we're to redress inequality. And I'm no fan of fortress Australia, that way would lead to a poorer Australia and I don't think would even be a successful way of bringing back egalitarianism.
COMPERE: Next question's from Peter Phillips.
QUESTION: Dr Leigh, Peter Phillips, director of the National Press Club. Thank you for your address and congratulations and welcome on your debut, I hope we'll see you here on many more occasions. It was…
ANDREW LEIGH: Name the date Peter.
QUESTION: … Donald Rumsfeld who made himself famous with his formulisation of known knowns right the way through various categories all the way to unknown unknowns and I just wondered if you might use this occasion with that in the background to look at another phenomenon or another realm of socioeconomic forecasting, which is unforeseens. Where saw a policy unforeseen as recently as only in the last couple of days, when the departing Governor General entered a function room and departed as a Dame and I wondered what other sort of unforeseens might be lurking for us? We have some foreseen foreseens we're blending or sculpting or trimming of Gonski and of NDIS and at some of the other programs which had been anticipated or prepared for under the previous government, but which clearly are not going to survive in their then foreseen form. What do you foresee as the age of entitlement gives way to a rather more Spartan regime, what do you foresee in this realm of unforeseens are things we should be preparing for and more specifically what's the Labor opposition doing to dig pit falls for them?
ANDREW LEIGH: Sorry I missed the last part of your question.
QUESTION: What's the Labor opposition doing at the moment to dig pit falls in preparation for those unforeseens or foreseens? [Laughter]
ANDREW LEIGH: Well if yesterday was anything to go by, the Government is digging its own holes and the - I think the question of known unknowns largely turns on decisions the Prime Minister chooses not to take to Cabinet. I mean this is possibly the most conservative Cabinet we've seen in a generation, yet Tony Abbott was too concerned they might turn down his proposal for knights and dames to even allow them to have a say. And the other proposal he didn't take to Cabinet is parental leave that gives the most to those who have the most. So I think the captain's picks if you like, the choices that the Prime Minister makes may well be some of the most interesting moments of the next few years and all of us, Labor or Liberal, will wait to see what they are. I thought Russell Broadbent's response to knights and dames was priceless.
COMPERE: Dr Leigh, just on paid parental leave. Clearly there's going to have to be negotiation and a compromise through the Parliament. I think Tony Abbott realises that. What do you think is an acceptable upper limit up people to be paid PPL? It's 150,000 now, what do you think is an acceptable level that the Labor Party, given that you're in the shadow ministry would be prepared to accept?
ANDREW LEIGH: Steve, we've got the most targeted social safety net in the OECD. So if you look at people in the bottom fifth of the distribution, in the typical OECD country they get twice as many benefits, in Australia they get 12 times as many benefits. And that has meant we've been able to run a leaner government than most countries. So, if you look at our tax to GDP or spending to GDP ratios, we're right down at the bottom, close to the US and Korea, well away from some of those higher spending countries. If we want to remain a relatively low tax country, I don't think we can afford to be putting systems in place that are wage replacement that give the most to those that have the most.
Fundamentally, that sits outside the way in which the Australian social safety net has been structured. Europe is groaning under the weight of pension payments it will have to make over the next generation. But thanks to Australia means testing the pension in the 1930s and asset testing in the 1980s, we don't have that problem. I think that's a good place to be.
QUESTION: So under no circumstances would you see Tony Abbott's paid parental leave scheme coming in. you don't think there's an upper limit at which point it becomes equitable and a worthy addition to what we've currently got.
ANDREW LEIGH: I don't see a good argument, Steve, for giving more to those that have more. I think that is a profligate use of public finances, particularly at a time when you're cutting income support to those in the bottom.
COMPERE: Next question's from Marcus L'Estrange.
QUESTION: Thank you, chair. Well, Andrew, and I hope everybody here or I hope nobody here believes in the monthly unemployment figure of six per cent or 700,000 because I think if you do, you might as well continue on and join the Flat Earth Society or become anti-Galileo or Copernicus. For the extremely simple reason the monthly unemployment figures are based on a political definition of unemployment, not a real one. Now to be precise or question without focus, comrade, during the last term, well, it was good enough for Gough, it's okay for me. But during the last term, Prime Minister Gillard and Penny Wong both said that they believed the real unemployment figure was two million plus another one million underemployed. But you never supported them and you've never made any comment about the real unemployment figures publicly. So I feel as a humble member of the rank and file of the Labor Party that you are part of the problem…
COMPERE: Marcus, what's your question?
QUESTION: … not the solution.
COMPERE: What's your question please?
QUESTION: Why did you vote against not increasing the Newstart allowances in the last Parliament and then also vote for offloading 110,000 single mums back on to the dole?
ANDREW LEIGH: Marcus, thanks very much for an important question. In terms of the definition of unemployment as you and I have spoken about before, there's a range of definitions one can use. The threshold for how much you have to have been working and how recently you have to have been seeking work, are in some sense arbitrary but provide us with consistency when we're comparing unemployment over time or across countries. But there's a range of measures and we encourage people to do as you have and look up the Bureau of Statistics site for those. In addressing disadvantage, one of the important facts to bear in mind is the high correlation between poverty and joblessness. People in the most affluent households are almost always heading off to work but one of the best predictors of whether a household will be poor is that it's jobless.
So the challenge is to set social support levels that encourage work but also provide an adequate social safety net. My own speech at the time in Parliament said that if the budget was awash in rivers of gold I would've been happy to support it. But in choosing for example between funding a National Disability Insurance Scheme or raising Newstart, I opted for the former among two reasonable priorities.
COMPERE: Another question from the ABC, Eliza Borrello.
QUESTION: Andrew, with your assistant treasurer hat on, there's been a lot of talk in the last week about the FOFA changes, the Coalition's adamant that they're not taking away the best interest duty, they're taking away the catch-all clause, the seventh clause that protects best interest and they say that's because there's legal uncertainty. At the moment advisors are giving almost bland advice because they're trying to be too cautious and they're worried about the legal implications of giving advice that then was for a company that went bust. Do you think that's fair? Is that a fair argument for taking away that clause?
ANDREW LEIGH: Eliza, I think the best way of judging the Coalition's FOFA changes is that before they pressed the pause button, they were opposed by both consumer groups and by the Financial Planning Association. You've got to get in some serious trouble when both the financial planners and the consumers are against you. And they did strip away important protections. I think people are entitled to think that if they go to a lawyer or to a doctor, that that person will be acting in their best interests and that ought to be available too to somebody who goes to a financial planner. The industry is right when it says that it wants more people to seek financial advice but in that process, we don't want people to be put at a disadvantage and as I highlighted in my speech, those who'll be hurt most by that are some of the lowest income Australians.
Now, we're right at the fifth anniversary of the Storm Financial collapse. I don't want to see anything go through Parliament that makes another one of those awful events more likely. There's still people who owned their own homes before Storm Financial are now renting an apartment hoping one day to again own a home.
COMPERE: Next question from Ken Randall from iSentia, we used to be Media Monitors. You've been around the political system now long enough to know the sort of mind games that go on before budgets. But we haven't seen quite the barrage from both sides before this coming budget. What do you think it all means - is the budget not going to be as bad as we were led to expect from the Government and as nasty as your own leader has forecasted to be just in the last couple of days?
ANDREW LEIGH: Ken, I suspect that one of the things that's going on is that the budget process is behind track. And that the loss of Arthur Sinodinos is generating real challenges for the Government preparation. What I hope they're recognising is that with the mining investment boom coming off, that this is a fairly fragile time in the Australian labour market and that savage cuts now would be - could drive up the rate of joblessness but they've refused to - while they've refused to rule out cutting the pension they have ruled out getting rid of the unfair parental leave scheme which makes me wonder about what this budget will do to egalitarianism in Australia.
COMPERE: Final question today is from Maurice Reilly.
QUESTION: Dr Leigh, Ken Henry the respected former secretary - treasury secretary has basically put the view that taxes will have to rise in the coming years including the GST. Do you agree that revenue has to increase over the forward estimates - it's inevitable there has to be tax rises. GST, negative gearing, whatever it is - with your economist hat on, not as a politician, I'd like an honest answer. [Laughter]
ANDREW LEIGH: Maurice, I think I might have just been dis-endorsed by you in that question, is that what I saw there? One of the first priorities is not to be getting rid of important sources of revenue such as the mining tax and the carbon price. Now the treasurer would have you believe that the mining tax is and will be raising no money. But his own budget figures have it raising nearly $2 billion in 2016/17. And the carbon price again a significant source of revenue so I'm not - it's not clear to me why we should be engaging in the discussion over which taxes to increase when the most straightforward thing to say is let's keep the efficient taxes both of which were recommended by the Henry Review which we have in the budget.
And then if you make some sensible decisions around paid parental leave, I think then you're able to give yourself more room to move. Certainly the figures that Chris Bowen has put out recently, have made clear the extent to which the budget has been deteriorated under Joe Hockey. So, there's a lot you can reverse before you start - need to start thinking about which taxes you might be tempted to increase.
COMPERE: Let's conclude on that note.