Column in The Australian - Nothing Fantastic About Chronic Inequality

Published in The Weekend Australian on 8.02.14

When anti-poverty advocacy group Oxfam released a report last month estimating the world’s 85 richest people possess more wealth than the poorest 3.5 billion people, a wealthy business commentator responded that such inequality was “fantastic,” for it gave the masses the inspiration to look up to the top 1 per cent.

Maybe he’s right. Maybe the almost one billion people who go to bed hungry each night, inspired by the world’s richest 85, will pull themselves up by their boot straps – if only they had bootstraps, or boots.

There’s an alternative view. Ahead of the recent World Economic Forum at Davos, the organisers released a global risk assessment that identified the chronic gap between the incomes of the richest and poorest citizens as the risk most likely to cause serious damage globally in the coming decade. The report drew special attention to the effects of the 2008-2010 global recession in squeezing the incomes of the middle and the bottom, while the rich have continued to accumulate wealth.

The shonks who caused the global financial crisis have prospered while the vulnerable have borne its brunt. To working people it seems the modern capitalist system guarantees the mega-wealthy just can’t lose no matter how badly they perform.

While the Davos report nominates the United States as the classic case of chronic inequality, it identifies Australia as a place where the top 1 per cent has gained an even greater share of wealth since the global recession.

In his State of the Union Address, President Obama identified widening inequality and the stalling of upward mobility as the most serious problem facing the nation, ranking the “deficit of opportunity” ahead of the budget deficit.

Analysts such as chief economics commentator at the Financial Times, Martin Wolf, and economics Nobel Laureate, Professor Paul Krugman, have questioned whether the capitalist system and society can withstand the pressures of ever-widening inequality. Working people in western democracies had entered an unwritten contract which provided those at the top could be very rich as long as the system delivered to the workers jobs and reasonable income growth. But workers are concluding that the contract has been broken: the rich are getting astonishingly richer while they are struggling or even going backwards.

In raising these concerns, Oxfam, the World Economic Forum, Obama, Wolf and Krugman will be condemned by the hard right as leftists afflicted by class envy. Indeed, anyone who questions widening equality is immediately found guilty of waging a class war.

In truth, these progressives would share Oxfam’s view that “some economic inequality is essential to drive growth and progress, rewarding those with talent, hard earned skills, and the ambition to innovate and take entrepreneurial risks.”

As the Abbott government begins the process of preparing its first budget based on a report of the National Commission of Audit, it will have an opportunity to address community concerns about widening inequality. The government can legitimately make the case that budget restraint is essential to ensure the smoothest possible transition following the end of the mining boom. But if the Australian public is to accept savings decisions they must be fair.

Yet one of the first decisions of the Abbott government was to abandon more than 50 measures announced by previous governments to crack down on tax avoidance, including profit shifting by multinational corporations. The cost of scrapping these integrity measures is estimated at $3.1 billion over the four-year budget period. Judging by the sharply rising proceeds they would have collected, the revenue foregone appears to increase exponentially in the years beyond the budget period. Hopefully, Assistant Treasurer Arthur Sinodinis will replace them in the May budget with other integrity measures.

Last week Treasurer Joe Hockey declared an end to the Age of Entitlement. He’s done that before, in a speech in London in April 2012. Just six months later, Hockey likened the Labor government’s decision to reduce the Baby Bonus for second and subsequent children to China’s one child policy. In fact, the Coalition opposed virtually every Labor measure to cut back on middle-class welfare, including the eventual scrapping of the Baby Bonus.

Opposition spokesman on families, Kevin Andrews, successfully led the charge in Shadow Cabinet against Labor’s crackdown on middle-class welfare. Now, as the responsible minister, Andrews has announced the government will be going after the disability support pension, despite a major tightening of eligibility by the previous Labor government. Yet Andrews supports the Prime Minister’s parental leave policy of handing $75,000 to wealthy women to have a baby.

It is these warped priorities that threaten to worsen inequality in Australia. In its submission to the Commission of Audit, the Business Council of Australia supports a strong safety net for the most disadvantaged and sensibly asks whether it is fair that families with a combined annual income of around $170,000 should receive family payments.

Having re-announced the end of the Age of Entitlement, Hockey has given an assurance that the government has a duty to “help those people who are most vulnerable in our community.” Here’s hoping he prevails in Cabinet. Attacking the vulnerable while sending hefty cheques to the well off would confirm that Australia is heading down the American path of chronic inequality with all the risks to social cohesion and stability it entails.