Andrew Leigh

Inequality: still a fair way to go, The Australian, 29 May

If you returned from work one day and found your home flooded by a gushing faucet, the first thing you’d do is turn off the tap. But once you’d stopped the water rising, could you then go about your evening as though nothing else was amiss? Only if you’re willing to overlook the rather pressing problem of everything you own being underwater.

This is the misguided approach we’ve seen recommended by some commentators recently in response to a new OECD report on inequality. The report shows that the gap between the rich and the rest has been relatively stable in Australia in the period 2006 to 2012, even as it has continued to rise in other countries like America.

Importantly though, the report also shows that Australia remains a very unequal place. On the OECD’s figures, the richest tenth of Australians now own 45 per cent of this country’s wealth. The top twentieth have nearly ten times the wealth of the typical household. There are 50 people living amongst us who together have more wealth than the poorest 2 million Australians.

Australian Bureau of Statistics figures tell a similar story. Since the mid-1970s, earnings have grown three times as fast for the top tenth than the bottom tenth. If cleaners and checkout workers had enjoyed the same percentage wage gains as surgeons and financial dealers, they would be $16,000 a year better off.

Inequality may not have risen in the six years between 2006 and 2012, but it remains a pressing problem that should concern anyone who is interested in maintaining Australia’s strong traditions of opportunity and fairness.

We need to keep inequality on the national agenda because the policy choices we make as politicians have a real impact on whether the wealth gap grows or shrinks.

The Rudd Government’s decision in 2009 to boost the single age pension by over $1600 a year reduced relative poverty by one-fifth. For people who have worked on poverty, this is virtually unprecedented – a single government decision that took one in five people out of poverty. 

The Gillard Government’s National School Improvement Plan was also aimed at distributing resources more fairly to improve outcomes for those in disadvantaged areas – ensuring postcodes did not define the destiny or opportunities of Australian schoolkids.

Because of choices like these, the Rudd and Gillard Governments can be proud that inequality did not significantly increase while we were at the helm. It’s been amusing to me to see how this outcome has been interpreted. Only this week, an op-ed in these pages claimed that the flat-lining of inequality since 2006 proved politicians like myself are wrong to make inequality a political issue.

Governments can also make a difference on inequality that runs the other way – as the Abbott Government has proven with its first two budgets. These are full of policies that, if enacted, will lead to Australia becoming a more unequal country. In some respects, this is their stated goal. They express it in guarded terms like ‘incentive’ and ‘entitlement’, but the goal is evident nevertheless.

For instance, the government’s planned changes to family tax benefits and paid parental leave will shrink the disposable income of the poorest fifth of Australians by 7 per cent a year. At the same time, families in the top income band will actually end up slightly better off.

The Coalition is also refusing to support our plan for fairer tax treatment of superannuation earnings. They pretend to have a policy not to make ‘adverse changes’ to Australia’s super rules. But in fact they’ve already done so.

Cutting the Low Income Super Contribution scheme and freezing planned increases to the Super Guarantee has adversely affected the future savings of millions of Australians. It’s just that those affected happen to be middle and low-income earners, instead of those at the top. Super savings add to everyone’s net wealth, so the decision to cut from the bottom while keeping generous tax breaks for the top is another measure that will lead to more inequality.       

The OECD’s new report offers a timely reminder that we can halt the growth of inequality by making the right policy choices as a nation. But turning off the tap is not the same as draining out the water. The stark gap is still there and will continue to undermine opportunity and fairness in Australia unless we work to close it.