Matter of Public Importance: Inequality

Tuesday 8 August 2017

Unlike the members of the Liberal partyroom, many Australians may not be familiar with the details of discretionary trusts. Let me give you a simple example of the problems that Labor's reform seeks to address. Right now, there are professionals in Sydney who are taking professional service income into a discretionary trust. They are then paying that out to their parents. The parents then turn around and pay the grandchildren’s private school fees. Private school fees paid out of pre-tax income is the sort of lurk Labor is trying to crack down on. But those on the other side of the House never saw a tax lurk they did not want to defend. They never saw a loophole they did not want to fight for. They never saw a tax haven they did not think was reasonable.

Robert Menzies' party of 'home ownership for all' has become 'celebrating buying an investment property for your one-year-old'. The party of the forgotten people of middle Australia has become the party that will raise taxes on middle Australia rather than crack down on discretionary trusts. The party that once stood for small business has become the party of $65 billion in big business tax cuts. The party of the bottom-of-the-harbour schemes, actually, is still the party of the bottom-of-the-harbour schemes.

We had some nice history set out by Craig Emerson in The Financial Review recently. He pointed out Treasurer Morrison's three Liberal predecessors have all agreed on the need to act on trusts. As the member for McMahon has pointed out, John Howard cracked down on distributions to under-18s. Peter Costello agreed there would be a crackdown on trusts and, indeed, signed a letter in writing in November 2000 saying that Labor would support a cut in the company tax rate from 36 to 30 per cent and a 50 per cent discount in capital gains tax if the government agreed to crack down on trusts and sham contracting. That signed letter from Peter Costello to Simon Crean was reneged upon. We also saw the then member for North Sydney, Joe Hockey, say that trusts needed to be cracked down on. Unfortunately, as Craig Emerson pointed out, it wasn't an idea he could hold from Lateline to lunchtime.

This month we've had the extraordinary spectacle, as the member for Rankin has pointed out, of the Treasurer of Australia saying that inequality isn't getting worse. As the great American professor-turned-senator, Daniel Patrick Moynihan, used to say, 'You're entitled to your own opinion but not your own facts.' Since 1975 real wages have grown 72 per cent for the top tenth and 23 per cent for the bottom tenth. Real wage growth has been three times as high at the top than at the bottom, taking the 90/10 ratio nearly from two to one to three to one. If cleaners and hairdressers had enjoyed the same percentage gains as barristers and surgeons, they'd be $16,000 a year better off. As David Hetherington has pointed out, we've seen the labour income share fall from 75 per cent in 1975 to 60 per cent today.

Treasurer Morrison said his favourite measure of inequality is the Gini coefficient for household income. Let's look at it. According to Peter Whiteford, in 1981-82 it was 0.27 per cent. By 2013-14, the most recently available data, it was either 0.30 or 0.33 per cent, depending on whether you use ABS or HILDA numbers. We can have a look at estimates of top income shares, originally compiled by the late Sir Tony Atkinson and myself and now put together by Roger Wilkins. That shows that since 1980 the top one per cent share has approximately doubled. Putting aside the Korean War wool boom, you have to go back to the 1940s to find a time when top income shares were as high as they have been in recent years. As Roger Wilkins summed up to me in an email recently, 'Inequality is currently high by modern Australian historical standards.'

When Labor increased the single aged pension by more than 10 per cent in 2009, we took more than a million pensioners out of poverty. That helped ensure that inequality at the bottom did not rise. Extraordinarily, we have then had those on the right turn around and say, 'You managed to quell a rise in inequality; therefore, inequality doesn't matter.' Policies can affect inequality. When you cut the pay of the men and women who clean your offices and give a $16,400 tax cut to those on million-dollar incomes, you increase inequality. Bill Gates, Pope Francis and Bono are among the many who care about inequality. The Prime Minister likes citing me. In 2012 he said inequality had risen— (Time expired)

 


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