We ignore growing inequality at our own peril
An important issue that will dominate politics and challenge governments in coming years is inequality, both income and wealth inequality.
Trump’s ascendancy to the US presidency was built on "playing the inequality card", skilfully crafted by adviser Steve Bannon as an appeal to those who "had been left behind" – initially the so-called "angry white males" who hadn’t seen an improvement in their standard of living in a couple of decades.
People on JobSeeker are already being left behind, writes John Hewson.Credit:Rhett Wyman
It was an easy get – to blame this on Washington elites, cheap Chinese and Mexican imports, weak borders and excessive immigration, promising to "drain the Washington swamp", create jobs, restore the glory of the rust belt states, build a wall and impose tariffs.
Of course, none of this was delivered. Inequality continues to worsen in the US, seriously compounded by COVID-19 and its economic and social policy consequences.
The increase in inequality has been, to varying degrees, a global phenomenon. Speaking broadly, COVID-19 has impacted more directly and severely on lower-income groups. While some COVID-19 budgetary assistance from governments did improve incomes for a time, the unemployment consequences – expected to persist for several years – risk entrenching both income and wealth inequality, with disparities between men and women, young and old, majorities and minorities.
While much of the financial assistance extended by governments tends to differentially favour particular industries, activities and income classes, the flood of liquidity from central banks drove a global explosion of asset prices, especially shares and property, to the conspicuous benefit of the wealthy (in terms of both their income and wealth).
As a result, governments and central banks are globally under mounting pressure to recognise and be held accountable for the impacts of their policy initiatives on inequality.
Concerns about inequality extend well beyond their economic and social significance. As Tony Ward argues in a Conversation piece, the less equal we become the less we trust expertise, science and authority – “Inequality is a corrosive solvent”. An epitaph for the Trump era?
I have been advising the ACOSS/UNSW Poverty and Inequality Partnership. The latest report provides a baseline of data against which to assess the impact that both the national disasters of 2019-20 and the pandemic are having on inequality in Australia, by revealing where different groups fit in the income and wealth scale along with the direct causes of inequality. The study also provides a basis to assess the impact of the government policies introduced in response to these events on the living standards of different groups in our community.
Inequality was stark before these events. The highest 20 per cent of households, with average after-tax incomes of $4166 per week, had almost six times the income of the lowest 20 per cent, earning $753 per week. Wealth inequality was even worse – the highest 20 per cent, with an average wealth of $3.3 million, had 90 times the wealth of the lowest 20 per cent, with just $36,000 on average.
More than 50 per cent of benefits go to the top 10 per cent of earners; only 3-4 per cent to the bottom 50 per cent of income earners.
There is little doubt the Morrison government is not consciously aware or concerned about the likely impact on inequality of their various responses to what are the worst economic and social circumstances since the Great Depression. Their motivation is to act quickly and decisively to offer temporary and reversible assistance.
Nevertheless, it is encouraging that JobSeeker and JobKeeper payments actually reduce overall income inequality despite the dramatic rise in inequality of private incomes (especially wages and self-employment) in the recession, although there are significant “losers” who are excluded from JobKeeper, including many casuals, those on various visa arrangements and those in universities.
However, as these payments are being wound back the effects of sustained high unemployment and lower income support payments are beginning to become evident, exacerbating income inequality.
While some 75 per cent of jobs lost at the start of the COVID recession have been restored, about 85 per cent are part-time – that is, while part-time jobs are back to pre-COVID levels, only about a third of full-time positions have been restored.
Clearly, if income supports are not replaced by strong and sustained employment growth and an adequate, permanent, increase in unemployment benefits, we are likely to exit the recession with higher levels of income inequality.
People on JobSeeker, including single parents, are already being left seriously behind, with the government cutting the benefit to $50 a day at year's end, and threatening to cut it further back to the old Newstart level of $40 a day, a level that hadn’t been increased in real terms in about a quarter of a century.
The Reserve Bank has an important role to play as well. If it sustains the recent levels of monetary stimulus, such that financial and property markets continue to grow much stronger than our overall economic growth and wages growth, wealth inequality will also increase further.
As high-income earners tend to save more of their income, they are better able to capitalise on higher investment returns and increases in property prices, to invest rather than spend as the government has assumed.
The government has also given expensive tax cuts to the benefit of higher-income earners. The Australia Institute has estimated that more than 50 per cent of benefits go to the top 10 per cent of earners; 79-91 per cent to the top 20 per cent; and only 3-4 per cent to the bottom 50 per cent of income earners.
It is also significant that, despite recession job losses being more significant for women than men, 60 per cent of the tax cut benefits flow to men.
Our government and the RBA should be explicitly required to take account of the impacts on inequality on their policy initiatives. The government should require an inequality impact statement to be attached to all key cabinet submissions, while the RBA should be required to address the issue in its regular statements on monetary policy.
John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.
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