WAYNE SWAN MP
MEMBER FOR LILLEY
2SER ON THE MONEY
THURSDAY, 9 AUGUST 2018
SUBJECTS: inequality; corporate tax cuts; universal basic income; Buffett Rule.
BEN ROBINSON: First, how different is your current income compared to ten years ago? A new report published by the Australian Council of Social Services and the University of New South Wales has shown that income inequality is a growing concern in Australia. Generally speaking, the rich are much richer than they were ten years ago, whereas the lowest earners have seen their wealth drop. But in a country known as “the lucky country”, how could this be the case? I spoke to Stephen Bell and Wayne Swan to find out.
A new report has found that the top 1 per cent of Australian earners take home in a fortnight as much as the lowest 5 per cent take home in a whole year. This means that the top earners are bringing in over $11,000 a week, whereas the lowest earners are bringing in just $500. Since growing in the early 2000s and peaking in the Global Financial Crisis, income inequality has somewhat plateaued in Australia over recent years. However, wealth inequality between households has shot up. Between 2003 and 2015, the top 20 per cent had their wealth increase by 53 per cent, while the bottom 20 per cent’s wealth fell by 9 per cent. That means that the richest households have nearly $3 million, which is almost ten times that of the lowest earners.
PROFESSOR STEPHEN BELL: Income inequality is basically wages and salaries, and wealth inequality is the accumulation of pre-earned income, being stored off as property, various forms of capital, inheritance, whatever.
ROBINSON: So I guess the big question is this: how on earth did income inequality get this bad in Australia? Stephen Bell recently wrote a book on this subject, called Fair Share: Competing Claims and Australia’s Economic Future, along with economist Mike Keating. And they argue that the rise in inequality could align with the rise of machines.
BELL: Income inequality in Australia is kind of middling. We’re certainly not the most equal and we’re miles away from the most unequal. We endorse the mainstream economic analysis, which broadly argues that the key driver is technological change, which is removing a whole raft of lower- and middle-income jobs and hollowing out the labour market and reducing incomes in that manner. It’s machines, computers, artificial intelligence, doing work that people used to do.
ROBINSON: So the robots are rising up and coming for our jobs. But we’ve been anticipating this for years now. So I spoke to Wayne Swan, the former Treasurer and current President of the Australian Labor Party, who believes that the key to prevent income inequality from turning into wealth inequality is progressive social change.
WAYNE SWAN, MEMBER FOR LILLEY: What Australia has done better than any other country in the world is we’ve done better for the lower- and middle-income earners. There have always been inequities, but what’s happening now is the inequities are getting starker by the year. So, governments have to put in place a range of policies to counter that and a whole range of policies from increasing the bargaining power of workers, to making sure you haven’t got great holes in the safety net, to making the tax system more progressive. And lastly strengthening the voice of labour in the economy more generally and its bargaining power.
ROBINSON: One of the ideas that Mr Swan just mentioned was a progressive tax system. Now, over the past two years, the current Liberal government has announced ambitious tax reforms which include tax cuts for big businesses and high-income earners. I put it to Wayne Swan to find out if these plans would help fight growing inequality, but unfortunately he couldn’t reassure me.
SWAN: Personal income tax cuts – 60 per cent goes to the top 2 per cent. They are obscene and are designed to drive higher inequality. That combined with the company tax cuts they’re doing is a quarter of a trillion dollars gift to-high wealth individuals and wealthy and very powerful corporates.
ROBINSON: You might have picked up on Mr Swan saying 60 per cent of the personal income tax cuts will go to the top 20 per cent of earners, which will widen the gap between the richest and the poorest. But Mr Swan believes that not only will these proposed cuts make inequality worse, they’ll also hinder economic growth in the long term.
SWAN: These sort of trickledown policies are bad for growth, just as they lead to higher inequality because the more unfair you make your society, that in itself is a handbrake on growth and lifting living standards. And what we’re seeing around the world is a stagnation in living standards which in itself is not good for the health of the economy.
ROBINSON: Trickledown economics is a term that gets thrown around a lot – especially when the Liberal Party is in power. And this term’s been around for decades. So I asked Stephen Bell what it actually means and whether or not it actually works.
BELL: So you give big business a tax cut – i.e. more income – the idea is that income will be used to boost investment in the real economy, and increased investment will then trickle down into increased employment, hence more wages. There’s very little evidence that a lot of that profitability is being reinvested in the real economy. Most of it is being siphoned off into very high dividend payments for shareholders of companies. And also, companies are using funds to buy back their own shares to boost short-term share prices.
ROBINSON: So the last question, really, is to how to solve inequality. An idea that has had growing popularity amongst economist in recent years is the idea of a universal basic income, which is where everyone in the country receives a basic wage from the government. You don’t have to apply for it; it’s given to everyone regardless. And whilst it wouldn’t be enough to live on, it is meant to ease the burden of living. This idea, however, could do more harm than good for an economy, according to Wayne Swan. This was his response when I asked what he thought of the concept.
SWAN: It’s rubbish. It will make inequality much higher, it will see the destruction of the social safety net. It’s one of those fads that come along and people think it sounds good, but in practice it’s a disaster. Just one of those crazy ideas that from time to time gets airplay. Why would you go and pay a basic level of income to a wealthy individual? Why would you go and pay a basic level of income irrespective of what people do? It’s a crazy idea.
ROBINSON: Another idea to fix inequality is the Buffett rule, named after billionaire US investor Warren Buffett, after he found out that his assistant paid a higher percentage of tax than he did, the Buffett Rule dictates that a wealthy individual must pay a set minimum of tax. Now, as obvious as it sounds, the use of negative gearing and trusts allows high-earners to essentially avoid paying tax. And as President of the Australian Labor Party, this is something Wayne Swan is striving for.
SWAN: The Buffet rule is one which is designed to put a floor under the amount of tax paid by high income individuals so that they pay a given level of tax irrespective of what deductions they might have available to them. The Labor Party has already got a whole host of proposals out there on the personal income tax system to get rid of the loopholes which allow high-income individuals to minimise their tax responsibilities. The action we’re taking against trusts, the actions we’re taking against negative gearing and so on are all designed to ensure that the nominal rate of tax people are supposed to pay is matched by the amount that they do.
ROBINSON: Even though our income equality in Australia is in a much better state than the United States, the challenges of the widening wealth gap are being faced by all advanced economies. Robots in the workforce and the rise of the part-time economy are prevalent issues both here and abroad. And they’re putting more pressure on wages and equality. So instead of celebrating not being as bad as the US, we should take this opportunity to restructure our economy to ensure we never get that bad. Stephen Bell believes we run the risk of becoming like America, but he also has an idea on how we can stop it.
BELL: The best thing you can do, in the long term, is to help employees reskill and re‑educate them. A highly skilled, highly educated workforce is the best mechanism. Inequality has risen much higher in the US and Australia, and we would argue that one of the key reasons is the Australian education system and training system is superior. If policy actions and the correct diagnoses aren’t forthcoming, Australia runs the risk of following the US lead, which would be unfortunate.
ROBINSON: Stephen Bell, Professor of Political Economy at the University of Queensland, ending that report.
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Authorised by Noah Carroll, ALP, Canberra