Inequality is finally front and centre of our political debate. Many of us have been worried about this for years and politicians are finally catching up.
Australians have a low tolerance for extremes of inequality. We want a fair go and the same deal as everyone else. Yet what we’ve witnessed over the last twenty years is the haves streaking ahead in wealth and income and the have nots falling way behind.
There will always be debates over how to measure inequality and this week has shown how quickly the waters can be muddied.
In reality the picture is clear, and much clearer when we identify who is affected.
I’d like to introduce three Australian families – the ‘comfortable’ family, the ‘just managing’ family and the ‘battler’ family.
The ‘comfortable’ family represent the top 20% of household incomes in Australia. We often confuse them with their distant cousins the ‘wealthy’ family, but surprisingly, families with incomes above $123,000 belong in the top 20% of households.
These ‘comfortable’ families are typically professionals and managers. They generally have more secure housing and jobs than most people. According to the OECD, the after-tax household income of ‘comfortable’ Australian families rose by a hefty 80% from 1996-2014 off the back of high wage growth and no less than eight annual tax cuts. Compared with everyone else, they’re doing seriously ok.
Look inside the ‘comfortable’ family and you will meet the ‘wealthy’. The ‘wealthy’ family represents households in the top 1% of individual income earners, mostly executives and wealthy investors. Their before-tax personal incomes have risen to a stratospheric $400,000 or more a year. Not unexpectedly, the lives of the ‘wealthy’ are very different to most.
We now turn to the ‘just managing’ family, the middle 20% who typically include one full time and one part time wage earner, both on modest incomes, and often with hefty mortgages. Their household income rose by 59% over the same period off the back of more modest wage raises and part-time hours for women and young people. As their name suggests, the ‘just managing’ are just getting by.
Finally, the ‘battler’ family represents the lowest 20%. ‘Battlers’ rely mainly on social security and if lucky, a bit of low pay through casual work. Many are retired. The rest are locked out of paid work due to unemployment, a disability or caring responsibilities. Similar to the ‘just managing’, the ‘battler’ family’s average income rose by 58% gained through more part-time earnings and a measly $33 per week pension increase some eight years ago.
And then hidden within the ‘battler’ family there’s another group – the ‘forgotten’ family.
As you will suspect, the ‘forgotten’ family’s living standards have fallen well behind the rest of the community, often living in poverty. They are single people, sole parents and couples who rely on $38 a day to survive, through Newstart and Youth Allowance, or receive no income at all.
The ‘forgotten’ family would like you to remember that Newstart Allowance hasn’t increased since 1994, and payment cuts and a family payments freeze since 2009 have particularly affected sole parents. The ‘forgotten’ usually rent privately and the $6-10 extra a day in Rent Assistance is a fraction of rent payable in most cities. They have been forced out – of everything.
Over the last two decades, the ‘wealthy’ and ‘comfortable’ high income-earners (especially the top 1%) have streaked ahead. In contrast, the ‘just managing’ and ‘battler’ low and middle income earners have seen their living standards rise, then flat-line. And the ‘forgotten’, relying on Newstart, barely make the family portrait.
This picture is hard to reconcile with the Treasurer’s claim this week that income inequality has decreased in recent years.
A few things have changed, but recent inequality trends are not benign as the Treasurer suggests.
The turning point was the GFC.
The ‘comfortable’ initially took a hit with the share market crash but fell back on their investments and homes which rose in value by at least half on average, and which aren’t counted in income data.
The ‘just managing’ became caught in a vice between stagnating wages, the family payments freeze, and the rising cost of essentials like housing, energy and health.
And the ‘battlers’ have suffered from sluggish jobs growth and not enough paid working hours or jobs to cobble together a decent income.
This rising inequality is a serious problem, and a picture we could change. Governments have a clear role to play.
They could promote jobs growth and fix the imbalance in bargaining power between workers and employers which is holding back wage growth. They could increase Newstart by at least $55pw to give unemployed people the increase pensioners received. They could un-freeze family payments and lift up the amount for the very poorest. They could reform the taxes that help push housing prices higher and invest in affordable housing. They could guarantee universal access to essential health services, education and early childhood education and care, and put this into legislation as well as budget statements.
Governments could also tackle generous loopholes in the tax system that allow people on higher incomes to avoid paying their proper marginal tax rate, including through superannuation, capital gains, negative gearing, and private trusts, avoiding also their contribution to Medicare.
This is not about ‘envy’, it’s about a fair tax system. Surely the government is motivated by that.
ACOSS is no stranger to the inequality debate. It’s significant to see many organisations not previously associated with this issue, from the G20 to the OECD, IMF, business leaders and the Governor of the Reserve Bank, raise their voices to join us. We have a problem which needs to be fixed.
It’s time for all parties to work with us to reduce inequality rather than debating whether there’s a problem at all.
By Dr Cassandra Goldie, ACOSS CEO