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Australians shouldn't have to choose between growth and fairness Australians shouldn't have to choose between growth and fairness
(4 months later)
In recent months Pope Francis, In recent months Pope Francis, president Barack Obama, and the head of the International Monetary Fund, Christine Lagarde, have all nominated inequality as one of the key challenges of our time.
president Barack Obama, and the head of the International Monetary Fund, That is an impressive triumvirate, and I think it shows that this is a debate which needs to become more prominent in Australia.
Christine Lagarde, have all nominated inequality as one of the key challenges For despite Australia’s strong economic performance over the last two decades, more than two million people still live below the poverty line – including 575,000 children. Yet, at the other end of the scale, the top 1% of income earners in Australia receive around 9% of all income and own 11% of all wealth.
of our time. We know that equality is a hot-button issue when a 700-page treatise by a French economist on income and wealth distribution became an international bestseller. Thomas Piketty’s new book, Capital in the Twenty-First Century, assembles vast quantities of empirical evidence on inequality, postulates a single economic relationship which explains inequality, and makes some radical policy proposals.
That is an impressive For those looking for a more concise analysis, I recommend my Labor colleague Andrew Leigh’s book, Battlers and Billionaires: The Story of Inequality in Australia. Leigh’s research shows the main drivers of rising inequality are globalisation and technology, declining union representation and changes in taxation policy.
triumvirate, and I think it shows that this is Globalisation and technology have contributed to exponential growth in pay for CEOs and other top income earners. At the other end of the labour market, declining union membership has put pressure on wages of vulnerable employees who lack bargaining power. And cuts in top income marginal tax rates have contributed to greater inequality in take-home pay – although this has been offset by a progressive welfare system which targets benefits at those on low and middle incomes.
a debate which needs to become more prominent in Australia. It is true that in a market economy, there will always be a degree of inequality. No one on the progressive side of politics insists that everyone must be on an identical income, or that there should not be incentives and rewards for risk-taking, innovation and hard work. But we also recognise that extreme disparities of income and wealth are not justified in a fair society – and that excessive levels of inequality have damaging economic impacts.
For despite Australia’s strong Economists are rethinking the notion that there is a one-way trade-off between equality and prosperity. They are increasingly recognising that excessive inequality – call it “inefficient inequality” – can lead to slower economic growth.
economic performance over the last two decades, more than two million people Squeezing the spending power of those on low and middle incomes will mean lower demand, which is bad for growth. Unequal access to education shuts people out of the labour market and stops them from reaching their potential, which is bad for economic efficiency.
still live below the poverty Extreme disparities between rich and poor can undermine social cohesion and erode cooperation and trust, with negative consequences for productivity.
line – including 575,000 children. Yet, at the other end of the Recent research has shown that countries with more equality experience faster, longer and more durable economic growth. Here is how Christine Lagarde summed up the new economics of inequality:
scale, the top 1% of income earners in Australia receive around 9% of all income and own 11% of all wealth. Put simply, a severely skewed income distribution harms the pace and sustainability of growth over the longer term. It leads to an economy of exclusion, and a wasteland of discarded potential.
We know that equality is a Labor has never accepted the notion that there is an either-or choice between equality and growth. Pursuit of growth and fairness is central to our values.
hot-button issue when a 700-page treatise by a French economist on income and Growth is one of the most powerful tools for tackling poverty and inequality because it creates new jobs and more opportunities. Higher productivity is also central to tackling inequality, because it is the ultimate source of higher incomes in an economy. And investing in education, skills and healthcare improves both growth and social mobility.
wealth distribution became an international bestseller. Thomas Piketty’s new book, Capital in the Twenty-First Century, assembles The Rudd and Gillard governments tacked inequality through tax cuts and improvements in government benefits. Our 2009 increase to the age pension reduced the share of people living in poverty by an estimated one-fifth.
vast quantities of empirical evidence on inequality, postulates a single Labor trebled the tax-free threshold from $6,000 to $18,200, delivering significant tax cuts for those on low pay like women, young workers and part-timers. And we introduced measures to boost living standards for those on low and middle incomes like increases to Family Tax Benefits, the SchoolKids Bonus and the Income Support Bonus.
economic relationship which explains inequality, and makes some radical policy
proposals.
For those looking for a more
concise analysis, I recommend my Labor colleague Andrew Leigh’s book, Battlers and Billionaires: The Story of
Inequality in Australia. Leigh’s research shows the main
drivers of rising inequality are globalisation and technology, declining union
representation and changes in taxation policy.
Globalisation and technology have
contributed to exponential growth in pay for CEOs and other top income earners. At the other end of the labour
market, declining union membership has put pressure on wages of vulnerable
employees who lack bargaining power. And cuts in top income marginal
tax rates have contributed to greater inequality in take-home pay – although
this has been offset by a progressive welfare system which targets benefits at
those on low and middle incomes.
It is true that in a market
economy, there will always be a degree of inequality. No one on the progressive side of
politics insists that everyone must be on an identical income, or that there
should not be incentives and rewards for risk-taking, innovation and hard work. But we also recognise that
extreme disparities of income and wealth are not justified in a fair society –
and that excessive levels of inequality have damaging economic impacts.
Economists are rethinking the
notion that there is a one-way trade-off between equality and prosperity. They are increasingly recognising
that excessive inequality – call it “inefficient inequality” – can lead to
slower economic growth.
Squeezing the spending power of
those on low and middle incomes will mean lower demand, which is bad for
growth. Unequal access to education shuts
people out of the labour market and stops them from reaching their potential,
which is bad for economic efficiency.
Extreme disparities between rich
and poor can undermine social cohesion and erode cooperation and trust, with negative
consequences for productivity.
Recent research has shown that countries with more equality experience faster, longer
and more durable economic growth. Here is how Christine
Lagarde summed up the new economics of
inequality:
Put simply, a severely
skewed income distribution harms the pace and sustainability of growth over the
longer term. It leads to an economy of exclusion, and a wasteland of discarded
potential.
Labor has never accepted the
notion that there is an either-or choice between equality and growth. Pursuit of growth and fairness is central to our values.
Growth is one of the most
powerful tools for tackling poverty and inequality because it creates new jobs
and more opportunities. Higher productivity is also
central to tackling inequality, because it is the ultimate source of higher
incomes in an economy. And investing in education,
skills and healthcare improves both growth and social mobility.
The Rudd and Gillard governments
tacked inequality through tax cuts and improvements in government benefits. Our 2009 increase to the age
pension reduced the share of people living in poverty by an estimated
one-fifth.
Labor trebled the tax-free
threshold from $6,000 to $18,200, delivering significant tax cuts for those on
low pay like women, young workers and part-timers. And we introduced measures to
boost living standards for those on low and middle incomes like increases to
Family Tax Benefits, the SchoolKids Bonus and the Income Support Bonus.
Labor’s initiatives for redistribution to achieve a fairer society are now all under attack by the Abbott government. Its first budget represents a vicious attack on low and middle income earners in Australia.Labor’s initiatives for redistribution to achieve a fairer society are now all under attack by the Abbott government. Its first budget represents a vicious attack on low and middle income earners in Australia.
The budget confirms one of the The budget confirms one of the central points of Piketty’s Capital in the 21st Century – that trends in equality and inequality cannot be understood independently of politics.
central points of Piketty’s Capital in For Piketty, rising inequality is driven by differences in financial capital rather than human capital. Ownership of capital – assets like shares, property, brands and patents – is unequally distributed in economies around the world, and most people get their incomes from wages, which tend to move in line with economic growth. So when income earned from capital rises at a faster pace than the economy’s growth rate, inequality will rise.
the 21st Century Piketty’s analysis boils down to a single relationship: r > g. In other words, inequality rises when r, the rate of return on capital, is greater than g, the economy’s growth rate. Piketty puts forward policy proposals which focus on reducing r – measures like a global wealth tax and very high marginal tax rates on top incomes.
– that trends in equality and inequality cannot For Labor, I believe, the focus should instead be on increasing g – the economy’s growth rate – rather than reducing returns on savings and investment.
be understood independently of politics. This is what Labor did during the global financial crisis. As a result, Australia is one of only two countries where the incomes of the bottom 10% grew faster than the top 10% from 2007 to 2010.
For Piketty, rising inequality is Labor should not only increase growth, we should also increase people’s opportunities to gain the benefits of growth. The traditional social democratic approach to fairness has focussed on redistribution through the tax and benefits system. But social democratic parties also need to focus on what has been called “predistribution” – helping people to earn better incomes from the market economy in the first place, before the tax and benefits system kicks in.
driven by differences in financial capital rather than human capital. Ownership of capital – assets As my parliamentary colleague Jim Chalmers has put it, Labor needs not only to redistribute wealth, but also to redistribute opportunity by giving people the tools they need to participate in the market economy.
like shares, property, brands and patents – is unequally distributed in In the economics jargon, these tools are known as human capital. They include a quality education, mastery of workplace skills, an understanding of technology and the ability to adapt to change and learn new skills.
economies around the world, and most people get their incomes from wages, which A fundamental challenge for those of us who care about fairness is to equip people to participate in the economy, so they can access the benefits of growth and globalisation. This will require investment, reinvestment and renewal of human capital, just as the economy requires constant retooling and upgrading of physical capital.
tend to move in line with economic growth. So when income earned from capital Labor seeks to reduce inequality by increasing growth, increasing productivity, increasing opportunity, and increasing economic participation and social inclusion. Equality of opportunity must remain an Australian value. In this principle, we bring together the tradition of the fair go and our aspirations for the future.
rises at a faster pace than the economy’s growth rate, inequality will rise. That is why this government and this budget must be contested. At the heart of both is a harsher and meaner nation.
Piketty’s analysis boils down to
a single relationship: r > g. In other words, inequality rises
when r, the rate of return on
capital, is greater than g, the
economy’s growth rate. Piketty puts forward policy
proposals which focus on reducing r –
measures like a global wealth tax and very high marginal tax rates on top
incomes.
For Labor, I believe, the focus
should instead be on increasing g –
the economy’s growth rate – rather than reducing returns on savings and
investment.
This is what Labor did during the
global financial crisis. As a result, Australia is one of
only two countries where the incomes of the bottom 10% grew faster than
the top 10% from 2007 to 2010.
Labor should not only increase
growth, we should also increase people’s opportunities to gain the benefits of
growth. The traditional social democratic
approach to fairness has focussed on redistribution through the tax and
benefits system. But social democratic parties
also need to focus on what has been called “predistribution” – helping people
to earn better incomes from the market economy in the first place, before the
tax and benefits system kicks in.
As my parliamentary colleague Jim
Chalmers has put it, Labor needs not only to redistribute wealth, but also to
redistribute opportunity by giving people the tools they need to participate in
the market economy.
In the economics jargon, these
tools are known as human capital. They include a quality education,
mastery of workplace skills, an understanding of technology and the ability to
adapt to change and learn new skills.
A fundamental challenge for those
of us who care about fairness is to equip people to participate in the economy,
so they can access the benefits of growth and globalisation. This will require investment,
reinvestment and renewal of human capital, just as the economy requires
constant retooling and upgrading of physical capital.
Labor seeks to reduce inequality
by increasing growth, increasing productivity, increasing opportunity, and
increasing economic participation and social inclusion. Equality of opportunity must
remain an Australian value. In this principle, we bring
together the tradition of the fair go and our aspirations for the future.
That is why this government and
this budget must be contested. At the heart of both is a harsher and meaner
nation.
• This is an edited extract of Penny Wong's speech to the Australian Fabian Society• This is an edited extract of Penny Wong's speech to the Australian Fabian Society