Opinion article

Economic policy must tackle stubborn inequality

Research shows us that addressing inequality must be central to economic policy in Australia, write Dr Lynne Reeder and Paul Barratt AO.

With a federal election on the horizon there will no doubt be plenty of discussions on policy priorities from all sides of politics over the coming months. 

Tackling lingering issues of inequality in Australia should be central to policy commitments. Recent research tells us why. 

Australia21 and The Australia Institute recently released A fair go for all Australians, a report that shows issues of inequality remain stubbornly on today’s economic and political agenda.

The report concluded that inequality is increasing in Australia, and that the benefits of economic growth are going disproportionately to the already rich, while equality of opportunity is under growing threat. 
Such issues of inequality, and discussions on how to address them, aren’t new. We have been reflecting on the life’s work of Fred Argy, a leading Australian economist, on the first anniversary of his death. 

Throughout his career Fred championed the right of all Australians to the fair go. He challenged Australians to share wealth more fairly by taking the hard decisions in setting our policy priorities. He led the development of CEDA’s 1995 project and publication, A long-term economic strategy for Australia. That  project described an optimal economic scenario for achieving a rise in living standards, full employment and economic stability. 

Some of the concerns Fred identified in the 1990s remain key social, political and economic issues. They include the increasing numbers of working-age people who are ‘inactive’ (the hidden unemployed); the greater unevenness in new job opportunities by skill, age and location; the more unequal distribution of average hours worked; the increased proportion of part-time and casual jobs relative to full-time jobs, the increase in perceived job insecurity; and the explosion in executive salaries.

However, while many of the underlying issues have remained the same, their magnitude certainly has not. For example, in 1983, executive salaries were around 41 times as much as employee salaries; in 1993 that percentage was around 80 times more, and now CEO salaries can be well over 350 times more than employee salaries.

Both A long-term economic strategy for Australia and A fair go for all Australians show that addressing inequality requires action via multiple levers, specifically aimed at restoring fairness for all Australians.

While some level of inequality of wealth, income and opportunity will always be with us, excessive inequality can be a drag on growth as the IMF, the OECD and The Economist  have pointed out. The current level of inequality will go on increasing, unless there is a significant change in policy direction to address the major structural difficulties that people in our society are facing. 

The Australia21/Australia Institute report also notes that there are strong social justice grounds for acting to mitigate inequality, including: the benefit of investing in people through all levels of education; improved access to health care; public housing and a decent living standard for those who find themselves unemployed. 

Elimination of tax benefits like the capital gains tax discount, uncapped negative gearing against personal income, and effective action on multinational tax avoidance could provide the wherewithal to tackle the problem.

Economic policy is a lever to attain a quality of life for all Australians. To quote Fred Argy “... to maintain universal services on equity grounds is a political judgement about values”.  In this election year, we must ask: How will political values drive economic and social policy in Australia in 2019? We hope that any incoming government will focus its policy agenda on taking actions that will ensure a fair go for all Australians. 

This article is based on a piece originally published by Australia21 in January 2019 reflecting on the work of Fred Argy. Mr Argy served as Secretary to the Inquiry on the Australian Financial System (Campbell Inquiry) in 1979-81, was Ambassador to the OECD (1983-85), Deputy Secretary, Labour Economics, of the Department of Employment and Industrial Relations (1985-86) and Director of the Office of the Economic Planning Advisory Commission (1986-91). After retiring he served as a member of the Commonwealth Grants Commission (1991-96) and led CEDA’s project, A long-term economic strategy for Australia. 
About the authors

Lynne Reeder

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Dr Lynne Reeder is a Director of Australia21 and Founder of the Mindful Futures Network. She is an Adjunct Research Fellow at Federation University Australia, where she investigates the science of empathic perspective taking. She assisted Fred Argy on CEDA’s Long-term economic strategy for Australia, and wrote a chapter on Quality of Life in Australia in the published volume CEDA Information Paper No 36, A long-term economic strategy for Australia, Volume three.

Paul Barratt

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Paul Barratt AO is Chair of Australia21 and a Fellow of the Australian Institute of Company Directors.  He is an Adjunct Professor at the University of New England, and is Chair of the UNE Foundation. Paul is a former Secretary of the Federal Departments of Primary Industries and Energy & Defence. As the former Executive Director of the Business Council of Australia, he was closely involved with CEDA and has written for some of its publications. He was a key contributor to Australia21’s report A Fair Go For All Australians.