Opinion article

Income inequality costs us all

When some members of society face financial hardship brought about by low income, there are flow-on effects across the whole community, writes WCOSS Chief Executive Officer, Louise Giolitto. 

There is a widening gap between the highest and lowest income earners in our wealthy country, and this gap has widened over the past 30 years.

Inequality is a problem for any society. It means that people have unequal ability to take part in social and economic opportunities, and it undermines the cohesiveness of that society. Inequality is also a problem for our economy. Resources become concentrated in fewer hands, resulting in reduced economic participation for the majority. This in turn leads to fewer new businesses started; fewer house purchases; and fewer goods and services bought. It also leads to increased dependency on government intervention.

Inequality in Australia is linked to the pronounced break that has developed between productivity growth and the income workers receive as compensation for their labour.

This divergence has seen the Reserve Bank of Australia Governor, Philip Lowe, call for a faster rate of wage growth, which he deemed to be possible even if productivity growth did not shift from the average of recent years. According to Mr Lowe, this growth in wages would “boost household incomes and create a stronger sense of shared prosperity.”

The relationship between income and wealth is an important one to consider too, as wealth can act in and of itself as a source of income, and income (where sufficient) can provide a means by which to accumulate wealth – exacerbating inequality further.

For those without work, they are faced by the utter inadequacy of our social security system. There has not been a significant increase to the Newstart Allowance in over 20 years. Its value has eroded in real terms, falling behind the cost of living within our society to the point where it simply does not provide a basic standard of living. A recent study showed that for those reliant on Newstart, it falls short of providing a minimally adequate standard of living by $96 a week for a single person, $58 per week for a couple with one child and $126 per week for per couple with two children.

In addition, we have seen federal governments take an increasingly punitive approach to social security, seeking to blame the unemployed for their plight, rather than to take responsibility for their own failures in managing our economy and jobs market, our education and support systems. It is unjust and inappropriate to seek budget savings by forcing people off income support, or making it as difficult as possible to access the support to which they are entitled as members of our community.

Those in financial hardship are continually finding a higher proportion of their expenditure is subsumed by housing and utility costs. Figures we compiled from WA financial counselling service data has shown that, unsurprisingly, expenditure on potentially avoidable items that relate more directly to the quality of life is significantly lower in households in financial hardship.

Recreation accounts for 11 per cent of spending for the average household according to the Household Expenditure Survey data, but is only around 1.6 per cent of spending for those in trouble.  Health spending for those in hardship is just 3.6 per cent, compared to six per cent for the average household. Spending on education, communication and personal care are also cut back in an effort to make ends meet.

It is important we recognise that it costs us all more as a community when households on low incomes or in financial trouble cut back on their access to primary health care or the quality of their food and nutrition. This leads to higher rates of chronic disease, greater demands on our hospitals and tertiary care systems, reduced productivity and life expectancy.

Lower-income households may turn to payday loans and other fringe financial lending to help resolve short-term financial problems, only to result in increasing levels of longer-term financial stress. These households are least able to secure standard lower-interest rate loans and are to some degree ‘forced’ into borrowing funds from questionable short-term lenders to deal with immediate financial crises, exacerbating their financial hardship.

Households pursuing this type of credit simply to resolve other debts and cover everyday expenses pay a significant premium for access to instant cash and may be vulnerable to misleading and predatory lending practices that can lead to further spiralling debt.

These households are also more susceptible to being burdened with non-mortgage debts accumulated through traffic fines, court fines, rent and bills, Centrelink debt and more.

In the abstract, income inequality can seem like an academic discussion. But for those on the lowest incomes, it is a daily reality. For those of us privileged enough to not be doing it tough, we have to ask ourselves is this the kind of society we think is acceptable? Is it acceptable that 730,000 children in Australia are experiencing the negative impact of poverty?
About the authors

Louise Giolitto

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Louise Giolitto is Chief Executive Office of WACOSS. Louise is widely experienced in the community services sector, having served in numerous executive roles in the sector for more than 23 years. Her experience spans the fields of youth, employment, homelessness, housing, education and training, mentoring, drug education, emergency relief and seniors, across small, medium and large organisations.