Inequality to worsen unless big changes made to how we govern

Posted 21st October 2014 by Clare O'Neil in News | 0 Comment

IF there is a silver lining to the Abbott budget, it is that for the first time in a long time the nation is talking about equality.

Interesting questions are under debate. Is it equality of outcome that counts, where all Australians end up with equal shares of the pie? Or is it equality of opportunity, where we each have an equal chance of ending up at the top, which really matters?

The truth is, no matter how you define equality, the evidence shows that we are some way off achieving it. The richest 20 per cent of Australians control 60 per cent of all household wealth, while the poorest 20 per cent control just 1 per cent.

Those numbers have grown significantly worse since the 1970s. The evidence indicates that inequality in Australia will continue to worsen unless we make some pretty significant changes to how we govern our nation.

For those interested in equality of outcomes, there is pretty good evidence that this matters a great deal, even in societies where everyone is rich. Studies conducted by economists such as Joseph Stiglitz and academics Richard Wilkinson and Kate Pickett show that equal societies are physically and mentally healthier, have stronger democracies, less drug use, and people are happier living in them.

Some do not believe equality is a virtue in itself, and that equality of opportunity is all that matters. But on this front, too, we have a real problem.

If Australia were a place of equal opportunity, we should see little correlation between the income, educational attainment and social position of Australians and the kind of home they grew up in. But the data shows that Australians who grow up in poor homes and poor areas are less likely to access higher education and much likelier to live in poverty down the line.

Take higher education. Many Australians instinctively believe that higher education is the key to social mobility. But is the system working when young Australians from wealthy homes are about three times likelier to go to university than Australians from poor families?

Studies by people such as Andrew Leigh, who sits with me in the federal Labor caucus, show that the income of Australians is strongly correlated to the income of their fathers. In practice, this means that Australians who grew up in high-income homes are much likelier, as adults, to earn a high income themselves

What makes these findings particularly concerning is that a growing body of research suggests that life chances such as income and educational attainment are set much earlier than anyone realised. For example, a study conducted by American academics Betty Hart and Todd Risley showed that children in higher-income households have heard 30 million more words than those in low-income households by the time they are four. The achievement gap, evident on the first day of school, may persist forever.

If opportunities really aren’t all that equal, then what, if anything, should government do about it?

Australia is a rich country that is getting richer. In the past 20 years, our gross domestic product per capita has roughly doubled in real terms. That means, on average, Australian families are twice as wealthy as they were in 1984.

The fruits of this prosperity have not been shared fairly. Somewhere around 12 per cent to 20 per cent of Australians live in poverty at any point in time. When we look across a longer period (which the Melbourne Institute’s Household, Income and Labour Dynamics in Australia Survey allows us to do), about 35 per cent of Australians spent at least a year living in poverty in the past decade. The numbers are higher for children, who, among all of us, have done nothing to “deserve” poverty or prosperity.

The uncomfortable truth is that this poverty has been caused, to some degree, by the policies that are making the rest of Australia so rich. Economic deregulation (policies such as reduced tariff protections and a less protected labour market) has created a more prosperous but less equal Australia. The new economy is larger but with sharper edges, especially for those without complex skills and higher degrees. And while we may have different views about what equality looks like, when nine individuals control the same amount of wealth as 20 per cent of our population, as reported last week by Oxfam, something is wrong.

The Australians living in that bottom 20 per cent, by and large, rely on government for most of their income. They are recipients of disability pensions, single-parent pensions, aged pensions and unemployment benefits. Welfare, so much derided, is the only way many of these Australians will get a share of our national prosperity. When we cut welfare in the manner being proposed, we are reducing the living standards of the poorest people in our community. And we are making our country less equal. It really is that simple.

Cutting welfare is the centrepiece of the Coalition’s budget strategy. It’s the government’s primary response to a “budget emergency” that has been met with deep scepticism by economists all over the nation. But if the Prime Minister is so concerned with the state of the budget, the place to start making cuts is to his paid parental leave scheme. The scheme is a top-up of maternity leave to the wealthiest women in Australia, which comes at the expense of payments to the very worst off. The more you earn, the more government support you get. No matter how you definite equality, it’s pretty hard to argue that that’s going to help, isn’t it?

First published in The Australian on June 27, 2014. 

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