Where's my fair go?
The gap between the rich and the poor is only growing, with low earners and young Australians experiencing the worst of it. How did we get here?
The land of the fair go – that’s how Australians have been told to view their country for decades. The land where dreams come true, and all people have the same opportunities. Yet recently, Australians have felt the so- called Australian Dream fading away – homes are less affordable and jobs are more competitive, and less reliable. But one area where Australia has always had an advantage over other nations – financial equality – is slowly slipping away from us too.
There are two aspects to financial equality: income and wealth. According to Stephen Bell (2018), income is essentially “wages and salaries” post-tax, and wealth is the “accumulation of pre-earned income being stored off as property, [and] various forms of capital” and so on, but a new report by the Australian Council of Social Service and UNSW (2018) has found that our financial equality isn’t what is used to be.
The top one per cent of earners take home in a fortnight as much as the bottom five per cent in a year. Since rising during the early 2000s and reaching its peak during the global financial crisis, income inequality has actually plateaued in Australia over recent years. The same cannot be said for wealth inequality, however; between 2003 and 2015, the top 20 per cent saw their total wealth increase by an average of 20 per cent, while the poorest 20 per cent actually saw their wealth drop by nine per cent. That means the richest households have an average wealth of almost $3 million, and the least-wealthy have around $30,000. Meanwhile, young Australians – 35 and under – have experienced the worst rate of wealth inequality than any other age group, and at the heart of that is housing prices. We had two property booms almost in a row – one from the early 1990s to the early 2000s and one that’s been building since 2013 – which have left an entire generation with little hope of owning a home, considering the average house national house price is around seven times the average individual’s income.
So what is the government doing to alleviate this growing burden from the public? In terms of income inequality specifically, neither the Morrison government nor the previous Turnbull government have made policies addressing the problem directly. Instead, the Liberal governments from 2015 onwards have embraced the age-old theory of trickle- down economics. Simply put, trickle-down economics is the idea of giving tax cuts to big businesses and high earners, with the hope that their extra money will “trickle down” to the bottom in the form of more spending and the creation of more jobs.
The reality is that this theory rarely works – a study by the Tax Justice Network (2012) found that wealth does not trickle-down to improve the economy, but actually tends to be stored in tax havens or trusts. Yet, then- Treasurer Scott Morrison was insistent that this is the way forward, offering tax cuts in the 2018 Federal Budget for people earning up to $200,000 a year, alongside a five per cent tax cut for all businesses, big or small, under the 2017 Enterprise Tax Plan No. 2 Bill. Even though the latter policy failed in the Senate in August 2018, the personal income tax cuts made it through. However, hiding behind the numbers is the fact that 60 per cent of the tax cuts go to the top 20 per cent, a move which former Treasurer Wayne Swan dubs as “designed to drive higher inequality”. Aside from these tax cuts, the government has no other policies in place to improve financial equality. In fact, you could argue that they are only exacerbating the problem. The decision to cut penalty rates for certain industries and their reluctance to combat negative gearing is only making it harder for Australians to believe that this government actually wants to address this issue.
Despite the government’s reluctance to address income inequality in Australia, there are a number of innovative policies that could be implemented. The favourite among economists and politicians, such as Mr Swan, is the so-called Buffet Rule. Named after US billionaire Warren Buffet when he found out that his assistant was paying a higher percentage of tax than himself, the Buffet Rule is a law that dictates high-income earners must pay a certain minimum percentage of tax. Sounds pretty obvious, right? Well, current loopholes such as negative gearing and trusts allow people to do things like claim losses on their income, or store their money in a non-taxable trust. This means wealthy individuals can essentially avoid paying tax at the rate they’re supposed to, and the Buffet Rule would put an end to that.
The truth is this: wealth and income inequality in Australia is nowhere near as bad as it is in other countries – South Africa has the worst rate of financial equality in the world, and America famously has a massive class and economic divide. But that’s because the inequality in Australia is still fairly young, like the country itself. America and South Africa have had their equality gap widen over several decades, yet for us it’s a relatively recent phenomenon that’s been growing since the 1980s. Aside from their tax cuts, the government has no policies in place to tackle inequality, for our generation or anyone else – and now is the ideal time to strike. But that’s okay, because give it six months and we might be looking at a different generation government all together.
This article appeared in The Comma’s 2018 Annual Edition. Read more here.
Ben Robinson is a first-year student of economics who wants to explain things to people for a living, by making boring stuff sound interesting. He is currently obsessed with obscure psychedelic music from the 1960’s and he enjoys long walks on the beach, sunsets, and long walks on the beach at sunset.