A Postcode Should Not Shape A Person's Destiny
HuffPost, 9 August 2017
The late historian John Hirst once told me that if you took a time machine back to the 1800s, the streets of Sydney would remind you more of Charles Dickens’ London than modern-day Australia. Landless labourers slept rough on the streets, while affluent landowners wore top hats and were saluted by police officers.
Australia wasn’t just more unequal, it was more static. The child of a labourer expected to be a labourer. The son of a lawyer looked to follow in his father’s footsteps. Going back centuries, surnames like Baker, Smith and Cook are a reminder of how little mobility there used to be among our European ancestors. Your surname was your job, and your parents’ job, and their parents’ job.
As Australia became more equal in the post-war decades, we probably became more mobile. Finishing school and attending university no longer depended on having rich parents. We became a society based more on merit than the luck of birth. In the 1950s and 1960s, economic growth boosted middle incomes more than top incomes – and spread opportunity through society.
But over the past generation, we have seen the opposite trend. Since the mid-1970s, real wages have grown by 72 percent for the top tenth of workers, but by just 23 percent for the bottom tenth. If child care workers and cleaners had received the same wage gains as financiers and solicitors, they would be around $16,000 a year better off.
Rising inequality has direct costs. An economy that benefits only the fortunate few isn’t just unfair – it’s likely to be unhappy and unstable too. But inequality also risks harming social mobility; making it harder for a bright child from modest circumstances to make it to the middle class.
This pattern, dubbed ‘The Great Gatsby Curve’ by economist Alan Krueger, shows up across countries. The most equal nations – such as Denmark and Norway – are also extremely mobile. The most unequal countries – such as Chile and Peru – are scarily immobile. Children are far more likely to move from rags to riches in nations that have a smaller gap between rich and poor. The same pattern shows up across cities in the United States: equality and mobility go together.
One of the reasons that inequality will be the defining mission for the next Labor Government is that we value a society in which a child’s postcode does not shape her destiny. Our policies around needs-based school funding, protecting Medicare and defending penalty rates will create a more equal society. Bill Shorten and Chris Bowen led the debate on closing tax loopholes in superannuation in 2015 and negative gearing in 2016 because we can’t justify a two-class tax system. Our announcements on multinational taxation and tax havens are grounded in basic Aussie egalitarianism.
Labor’s views on fairness are reflected in who we think should bear the burden of reining in Australia’s rising government debt – now above half a trillion dollars in gross terms. Under a Turnbull Government, taxes will go up for people earning between $21,000 and $87,000. Under a Shorten Government, those people will not cop a tax rise. Instead the top 2 percent will be asked to pay tax at the same rates that existed until the end of June this year. After a generation of rising inequality, why should the top end pay less and middle Australia pay more?
Australia's home ownership rate is now at a six-decade low. Over the past generation, the share of young Australians owning their home has fallen, while the share who are renting has risen. As major city house prices push the seven-figure mark, we increasingly risk becoming a nation where the only way of buying a home is to get help from your parents. Again, economic inequality reinforces intergenerational stasis. Labor's changes to negative gearing will not affect existing investors, but after they come into effect, the benefits of negative gearing will only be available for those purchasing newly built homes. And by halving the capital gains tax discount, we will limit a tax concession whose benefits accrue disproportionately to the most affluent Australians.
And then there’s our approach to discretionary trusts, which are overwhelmingly held by the most affluent households. Taxing discretionary trust distributions to mature-aged beneficiaries at 30 percent is a similar approach to what John Howard did as Treasurer in 1980, when he stopped the rort of distributing tax-free trust income to toddlers. Charitable trusts, deceased estates and people who work in or run a small business and receive a salary won’t be affected. But high-income professionals who are splitting their income with their adult children and parents will have to go back to just one tax-free threshold – just like the rest of the workforce.
When inequality rises, it’s like the rungs of the ladder of life get further apart. That makes it harder for a child to climb out of poverty. We become less of a meritocracy, and more of a feudal society. To oppose equality is to oppose mobility. It’s not the Labor way, and it’s not the Australian way. That’s why we have to make Australia more equal again.
Andrew Leigh is the Shadow Assistant Treasurer, and author of Battlers and Billionaires: The Story of Inequality in Australia.