When the year's G20 meetings come to a crescendo this weekend with the Leaders Summit in Brisbane, economic growth is the first item on the agenda. But as I discussed with Linda Mottram on ABC Sydney's 702 mornings show, we need to make sure that the benefits of growth are shared throughout our community. Here's the transcript:
ABC 702 SYDNEY
FRIDAY, 14 NOVEMBER 2014
SUBJECT/S: G20 growth target; inclusive growth; inequality; consumer confidence
LINDA MOTTRAM: Dr Andrew Leigh is a former professor of economics at the Australian National University in Canberra, and he's also the Shadow Assistant Treasurer in the federal Labor Opposition. He joins me this morning, Andrew — good morning. What does the evidence say about the gap between rich and poor in Australia and globally?
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good morning, Linda. Certainly both in Australia and many developed countries, we've seen a rise in the gap between rich and poor. Over the last generation, incomes have risen three times as fast for the top 10th as they have for the bottom 10th, while the top one per cent have doubled their share of national income. We now have a situation where the wealthiest three Australians have as much wealth as the poorest one million Australians. That matters, of course, because it speaks to who we are as a society, and to the risk of challenging a really great Australian value which is egalitarianism. But it also matters in terms of consumer confidence, because the rich save about a quarter of their income but the poor spend all of their income – and often then some as well if they're taking on credit card debt. So say you take $10 billion and you move it from the poor to the rich, as some of the Government's recent measures have done, that's not only unfair but it actually detracts from retail trade. You're seeing that come out in various consumer sentiment surveys, whether it's the Westpac survey, the NAB survey, the Roy Morgan one. All of them are speaking to this sluggish consumer sentiment and poor retail trade figures.
MOTTRAM: So not surprising to hear Bernie Brooks from Myer reporting what he is reporting, which is that the hit to their profits is coming in the lower socio-economic areas?
LEIGH: That's absolutely right. It speaks to one of the really important insights from economics, which is that how you get a country going is different from how you get a company going. So you'll occasionally hear CEOs say: 'well, the secret to Australian prosperity is to cut wages at the bottom'. That might be quite successful for their own firm, if they were able to implement it. But when we're in an economy, your wages flow into demand for other people's services and so you can end up in a downward spiral if you keep on cutting away at the bottom. I fear that measures such as the $7 GP co-payment and $100,000 degrees, the income support cuts that see a single parent on $60,000 lose one-tenth of their income, all of those measures are chipping away at consumer confidence as well as at the Aussie fair go.
MOTTRAM: There's a lot of policy issues in there but let's stick with the more general point. Andrew Leigh is my guest, former professor of economics at the ANU and Shadow Assistant Treasurer. Joe Hockey said this morning on AM – of course, the G20 countries are meeting – he says 1,000 measures have been submitted as ideas for boosting economic growth in the G20 areas. He says this includes changes in industrial relations, cuts to trade barriers, infrastructure boosts, greater involvement of the private sector in delivering health and education. The IMF is going to crunch the numbers, there will be an announcement about what those plans will do for global growth. But are they bearing in mind the rich/poor gap, and are they on the right track?
LEIGH: Certainly anything that boosts growth is good for those at the bottom. When we go into recession, Linda, it is low skill workers who lose their jobs first. So my concern isn't with the target, which I think is laudable. My concern is with the strategy for getting there. I don't know what the economic evidence is that the Government is putting forward for claiming that cutting job-seeker payments is going to add to growth. I'm not sure how the Government intends infrastructure to add to growth given that they're not spending anything additional on this compared to what was already budgeted by Labor. And I'm not sure how their 'cutting red tape' agenda is going to add to growth given that it includes things like taking away financial protections from pensioners and vulnerable Australians. So the devil is really in the detail on this stuff. We really need to see strategies that the evidence points to as good growth boosters. The other thing that worries me, and which came up at a business breakfast I was at yesterday in Brisbane, is that we're seeing sluggish consumer confidence at a time when mortgage interest rates are extremely low by historic standards. What's going to happen to consumer confidence if mortgage interest rates go up?
MOTTRAM: Indeed. I was listening yesterday to Sharan Burrow, who of course used to be head of the ACTU but is now Secretary of the International Trade Union Confederation, she's in Australia at the moment as part of those side events to the G20. She had something really interesting to say about a shift in where money is going. Let me just play you a little bit:
SHARAN BURROW, SECRETARY INTERNATIONAL TRADE UNION FEDERATION: We've seen a 30-year decline in wages against profits, and unless we shift some of that distribution back, there's simply no money to participate in an economy. You can't run a business if you don't have customers. So we've done the modelling which shows that if you actually raise wages between one and five per cent in terms of getting back some of that profit share, and indeed, you invest in infrastructure at the rate of 2 per cent that's been committed by the countries, then we could have up to 5.8 per cent growth.
MOTTRAM: That's Sharan Burrow speaking there, and it's an interesting set of figures that she puts. But isn't it the case also that by boosting profits, that also flows back into the economy?
LEIGH: It certainly does – where those profits are going to Australian shareholders. Of course I'm in favour of strong profits. But I do think it's important that this growth is broadly shared. This notion of inclusive growth, which was at the heart of the G20 last year, seems to have just become a notion of growth this year. We need to make sure that all Australians are benefitting from a stronger economy. As we spoke about at the start, we've had this generation in which the gap between rich and poor has widened, and inequality in Australia is now as high as it has been in 75 years. So we don't need more measures which are going to hurt those at the bottom and help those at the top. We need measures that will allow Australians to reclaim that egalitarian ethos which is fundamental to who we are. We sit in the front seat of taxis, we don't much like tipping, we don't stand up when the Prime Minister enters the room, we don't have private areas on our beaches. In so many ways, Australia is a great exemplar of egalitarianism to the world. But we need our economic policies to back that up too.
MOTTRAM: Ok, well we'll see what comes out of the G20. Andrew Leigh, thanks for talking to me today.
MEDIA CONTACT: JENNIFER RAYNER 0428 214 856