By Frank Stilwell Thursday 14 August 2014

Photo: The Treasurer's comments about fuel tax reveal his disconnect with ordinary Australians. (AAP: Andrew Sheargold)

Is the pursuit of greater economic and social equality a longstanding concern whose time has come? Maybe so, judging by the response to the federal budget, writes Frank Stilwell.

The federal budget has provoked widespread opposition and the government's efforts to sell it have been failing. The Treasurer's comments about poor people not driving cars are further evidence of the disconnect between ordinary Australians and its leadership on many of the proposals.

The predictable concerns of those most directly affected by the austerity measures that Joe Hockey announced have been swelled by expressions of broad social concern with the unfairness of it all. Even people who emerge relatively unscathed from the tax and spending changes seem to sense that it runs counter to traditional Australian concerns with equity and social cohesion: the 'fair go'.

These concerns have been given sharper bite by the Treasury figures revealed last week through a freedom of information request, showing that the budget, if fully implemented, would hit the poor harder than the rich. Treasury's own modelling estimates that the total effect of the spending cuts and tax changes would leave the richest third of households $517 a year worse off but make the poorest third of households $844 worse off. Another recent report from Choice, released last Friday, reveals the intensity of cost-of-living pressures already being felt by a broad swathe of Australian households, about two thirds of whom say they are having to cut back on their spending. All this is embarrassing for a government that is failing to sell a message about sharing the necessary pain.

Toughing it out is always an option. There are two obstacles though. One is a Senate in which the Government does not have a numerical majority necessary to pass all its legislation. The other is a more subtle because it relates to the prevailing climate of opinion on what is socially acceptable.

That climate seems to be increasingly influenced by concerns about the social problems resulting from the growth of economic inequality.

Inequality has been increasing in many countries during the past three decades, more because of the phenomenal growth in the income share of the ultra wealthy than because of any increase in poverty. The top 10 per cent of households has done spectacularly well in the race for riches. The top 1 per cent has doubled its income share. Some world leaders are evidently thinking that the situation is getting out of proportion. US president Barack Obama, for example, is making an attack on unjustified inequalities a central theme of his policies during his final term, although it remains to be seen whether this has any significant impact in practice.

Thomas Piketty's blockbuster book on inequality clearly feeds on, and contributes to, a climate of public concern about how growing economic inequality impairs social justice, social cohesion and social stability.

These concerns are not new. They are deeply embedded in traditional small-l liberal concerns about creating equality of opportunity. They have pervaded social democratic ambitions for greater equality of outcomes. But they have typically been set aside because of economists' warnings that pursuing greater equality would impair the material incentives necessary for economic growth.

But that conventional warning has recently been killed off. A particularly significant nail in its coffin is a recent report by economists at the IMF that shows there is no general trade-off between equality and growth. In other words, pursuing corrections of inequality does not impair a nation's productivity or progress. Coming from economists at a conservative institution as the IMF, this is indeed a devastating blow to the opponents of equality.

So is the pursuit of greater economic and social equality a longstanding concern whose time has come?

It previously had traction following World War II and led to progressive tax policies and the development of the welfare state during the following quarter century, but the quarter century since then has seen that liberal and social democratic momentum stalled by a neoliberal backlash.

Government policies pursued both by Liberals and Labor have put more emphasis on trying to foster economic growth and have made the tax system less progressive and redistributive.

Now the social costs are evident. Numerous studies by social scientists and epidemiologists have revealed the statistical and causal connections between inequality and a range of social problems, such as mental and physical health, crime and violence. Surveys also show that, in general, nations that are more equal in their distribution of wealth usually have happier people. Australian surveys have consistently shown that most people think society should be more equal.

There are plenty of policies to achieve that goal if there is the political will to use them. The options include cracking down on the abuse of family trusts and other tax rorts, making the tax arrangements for superannuation less generous to high income earners, dropping negative gearing, increasing the capital gains tax to the same level as the tax on other incomes, and extending land and wealth taxes. Better still to try to make the initial distribution of incomes between wages, profits, rent and interest less unequal in the first place.

This indicates the big challenge facing the opponents of the Abbott-Hockey policies. Can an alternative policy agenda that emphasizes greater equality be constructed and implemented? Is the climate right for a renewed drive to redress unjustifiable and socially-costly inequalities?

Perhaps the current furore over the perceived unfairness of the federal budget signals that the time is right for a fundamental change of direction.

Frank Stilwell is Professor Emeritus in the Department of Political Economy at the University of Sydney. View his full profile here.

Inequality: an old concern given new prominence - The Drum (Australian Broadcasting Corporation)