Andrew Leigh

THE POOR BEAR THE BURDEN OF THE CORONAVIRUS DOWNTURN, BUT INEQUALITY IS NOT INEVITABLE IN AUSTRALIA

Over the three-month American summer break, school students diverge. In high-income families, students keep learning, thanks to museum trips, instructional camps, and home tutoring. In low-income families, students slip backwards, losing 1-2 months’ worth of learning by the time they return to school. According to one study, the ‘summer slide’ accounts for two-thirds of the difference between poor and rich students.

The gap between high-performing and low-performing children in Australia is already larger than in most advanced nations. With a large share of families currently homeschooling, this problem is likely to worsen. Speaking with a range of parents, I’m struck by the differences in how children are spending their days - with some being intensively tutored, while others are literally left to their own devices.

Before COVID-19 hit, we already had too much inequality in Australia. And that’s not just a Labor view. In one survey, people were three times more likely to agree than disagree with the statement that ‘income and wealth should be redistributed towards ordinary working people’.

Yet there’s a risk that inequality will worsen. When unemployment is high, employers tend to shun workers with disabilities, those with less education, and people who don’t fit their stereotypes. The best cure for discrimination is a low jobless rate. This means that if the unemployment rate spikes upwards, and then takes some time to recover, then it will be marginalised workers who pay the price.

When it comes to inequality, the this particularly economic slump has some special features we should be concerned about. The effect of the early-1990s recession and the Global Financial Crisis was felt hardest by the manufacturing and construction sectors, which tend to be male-dominated. Indeed, so many men lost their jobs in the 2008 crisis that some countries called it the ‘man-cession’.

This time it’s different. Service industries such as hospitality are dominated by women, who do much of the in-person work that is most affected by the shutdown. This means that the wage hit will be largest for women. The ‘fem-cession’ may have the effect of worsening the gender pay gap.

Another feature of the current economic malaise is that has been worst for those with few assets. Even before the crisis, a sizeable share of Australians were living close to the edge. The Melbourne Institute’s Roger Wilkins tells me that in their most recent HILDA survey, 12 percent of Australian adults said that they couldn’t raise $3000 in a week to cover an emergency, 11 percent had been unable to pay an electricity, gas or phone bill on time, and 4 percent had skipped meals because of a shortage of money.

But asset inequality could make things worse. In past downturns, the share market and housing market have typically bounced back to their pre-crisis levels within a few years. So if you held on to your assets, then they recovered their value. But that didn’t help for those who sold their investments at rock bottom prices. For them, the pain of the downturn was worse than it needed to be.

That’s the risk with the government’s policy of allowing Australians to cash out $20,000 of their superannuation accounts. People with plenty of other assets and high levels of financial literacy will leave their superannuation to ride the roller coaster. But those with fewer savings and less familiarity with investing are more likely to make the withdrawal. Already, the top fifth of Australians have 63% of household wealth, while the bottom fifth have less than 1%. Don’t expect the problem to get better as a result of these superannuation changes.

Is an increase in inequality inevitable? Not at all. To prevent the poor bearing the burden of this downturn, we need to ensure that low-income families are a priority throughout the crisis. This means paying particular attention to the risks that COVID-19 poses to Indigenous and migrant communities, where houses are more crowded. Coronavirus is especially dangerous to people with compromised immune systems and pre-existing health conditions, as well as to homeless Australians and those in prison.

It’s also vital to be thinking about the extra help that will be required to improve mental health. The stress and trauma of the crisis will be significant, and should be a priority for public health.

Across industries, many sectors are already heavily concentrated, which means consumers end up paying excessive prices. Motorists have seen a clear example of this in recent weeks. When the world oil price halved, drivers might have expected to see a fall in petrol prices - but the oligopoly of fuel retailers barely reduced prices in some cities. If we’re not careful, this problem of market concentration could get even worse during the present downturn, as cash-rich behemoths use the opportunity to buy up their rivals. It’s critical that the Australian Competition and Consumer Commission carefully scrutinises merger applications this year.

Australia has accumulated debt at an unprecedented rate in order to respond to this crisis. Before coronavirus hit, Australia’s net debt was more than twice its level when the Coalition came to office in 2013. As a result of the coronavirus response, net debt may end up at three times the level it was in 2013. How we pay back that debt will be a critical question.

Right now, the priority is to save jobs. But next year, the conversation will turn in earnest to how we repair the budget. If the Coalition’s answer is a re-run of their notorious 2014 budget, with its unfair cuts to pension and Medicare, then the burden of recovery will fall disproportionately on the most disadvantaged. It would be a double-burden to ask the most vulnerable Australians - who suffered most in the slump - to bear more than their fair share of the recovery costs. It will be a painful road back to surplus if the Morrison Government continues to defend tax loopholes for landlords and multinationals, and demands that Australia be one of the few advanced countries to spend 2 percent of GDP on defence.

As shadow treasurer Jim Chalmers has noted, it’s not too early to be thinking about the shape of the recovery. If we get it right, Australia could emerge from this crisis a more connected community and a more egalitarian nation. But if we get it wrong, then the legacy of the crisis could be a sharply divided nation. The choice is ours.

Andrew Leigh is the Shadow Assistant Minister for Treasury.

ENDS

Authorised by Paul Erickson, ALP, Canberra.