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The return of the Australian magnate

Date

Andrew Leigh

Top of the ladder ... Gina Rinehart.

Top of the ladder ... Gina Rinehart. Photo: Dallas Kilponen

Imagine a ladder, in which each rung represents a million dollars of wealth. On this ladder, the typical Australian household is halfway to the first rung. Someone in the top 10 per cent is at least 1½ rungs up. A household in the top 1 per cent is at least 5 rungs up.

There are many things about the 1950s and 1960s that we would not want to keep – but one value worth trying to reclaim about that era was the sense of egalitarianism. 

Gina Rinehart is 5½ kilometres off the ground.

Since 1980, 13 per cent of Australia's income gains have gone to the top 1 per cent.

Since 1980, 13 per cent of Australia's income gains have gone to the top 1 per cent. Photo: Marissa Calligeros

About a decade ago, I teamed up with a British economist, Sir Tony Atkinson, on a project to use taxation statistics to learn more about top income inequality in the past century. We found that for all the legends of egalitarian bushmen, 1920s Australia was a strikingly unequal place. The richest 1 per cent of Australians had 12 per cent of national income – 12 times their proportionate share. By 1980, this was down to 5 per cent.

The collapse of the super-rich is vividly portrayed in William Rubinstein's book The All-Time Australian 200 Rich List. For four decades, from 1940 to 1980, there wasn't a single person wealthy enough to make the all-time rich list. He writes: ''so markedly different were trends among the very rich compared with those for society as a whole that the post-war period seemed to constitute, as it were, an age of affluence for everyone except the very affluent''.

Then, starting around 1980, Australian inequality began to rise. The income share of the richest 1 per cent (those today with incomes over $200,000) has doubled, while the share of the top 0.1 per cent (incomes above $700,000) has tripled. The ratio of CEO pay to the pay of an average worker has quadrupled. After being largely absent from Australian life for four decades, we saw the return of the magnate. Ten people on the latest BRW Rich List would qualify for the all-time Australian rich list.

Since 1980, 13 per cent of Australia's income gains have gone to the top 1 per cent. The rise in inequality is reflected in sales of luxury goods. Prices for waterfront properties and great Australian artworks have soared, reflecting their scarcity. The noughties saw a five-fold increase in Maserati sales. The number of registered helicopters doubled.

Rising inequality had three main causes. Computers, trade and larger firms made 'superstars' at the top of their field more productive. Union membership has collapsed, from half the workforce in the early-1980s to one-fifth of the workforce today. Top tax rates were cut from 69 per cent in 1970 to 45 per cent now.

We should care about the distribution of income because humans have a palpable discomfort with high levels of inequality. If people are competing for 'positional goods', such as a home in a desirable suburb, a place in a top university, or a sought-after job, then inequality may lead to an 'expenditure cascade', as those in the middle have to spend more to stay in the race.

Another reason to care about inequality is that unequal societies tend to be immobile societies. If high inequality entrenches poverty and plutocracy across generations, it will damage something that many of us hold sacred.
As Treasurer Wayne Swan has pointed out, high inequality also has the potential to corrode the polity. In the US, deep-pocket donors now spend millions of dollars apiece on advertisements showing Republican candidates wearing jeans and talking to ordinary voters, while the same Republican candidates support tax plans that are massively skewed to the super-rich.

So, what should we do about rising inequality in Australia? One of the great achievements of the Hawke and Keating governments was to target income support where it is most needed. The Rudd and Gillard government have taken politically tough decisions to means-test the Baby Bonus, Family Tax Benefit Part B, and the Private Health Insurance rebate.Because inequality is a 'race' between education and technology, it is vital to improve early childhood intervention and schools for the most disadvantaged. We also need to recognise that progressive income taxes are the best tool for redistributing income.

Egalitarianism sits deep in the Australian character. Most of us don't like tipping. If the plumber drops around, we'll offer a cuppa. It's normal to sit in the front seat of a taxi. I'll say 'g'day mate' to a bus driver as I would to a cabinet minister.

There are many things about the 1950s and 1960s that we would not want to keep – but one value worth trying to reclaim about that era was the sense of egalitarianism. Too much inequality strains the social fabric, threatening to cleave us one from another. Australia is a stronger nation when we act together than when we pull apart. 

Andrew Leigh is the Labor member for Fraser in the Federal Parliament. This is an edited version of a speech delivered to the Sydney Institute last night.

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31 comments

  • "Australia is a stronger Nation when we act together rather than when we pull apart."
    Nice sentiment there Andrew - shame it'll never be a sentiment realised in your or my lifetime!!

    The reason the period of egalitarianism you speak of stands out so clearly, was the Second World War. Veterans understood survival depended as much on your mates as it did on your own luck, and the capacity to stand up for what was right regardless of how much it hurt the greedy or the pompous or the arrogant.

    Ain't no surprise, that as the veterans of WWII have thinned in the ranks, the decay of Aussie society and the shackles their presence had on the lesser elements of our population who see treading on others as proof of their superiority, has conversely bloated.

    Whilst another global cataclysm of the order of WWII seems somewhat unlikely; the effect of the decay of the finest of Aussie values is just as surely destroying our land as if we had lost that last great conflict.

    Perhaps the next time one looks in the mirror, you'll spot one of the reasons our country is heading down the gurgler looking back out at you...

    Commenter
    Steve_C
    Location
    Blue Mountains
    Date and time
    May 02, 2012, 3:25PM
    • @Steve_c, I think the world is heading that direction, not just Australia.

      Commenter
      Gerson
      Location
      Sydney
      Date and time
      May 02, 2012, 5:14PM
  • Is it a pre-requisite of being a mining magnate to be ruthless, extremely "rotund" and to be a no tax paying, liberal supporting, media manipulating, sell-out-your-own-country-to-China type of person? Or are these just unfortunate side effects..?

    Commenter
    Daniel
    Location
    Sydney
    Date and time
    May 02, 2012, 3:25PM
    • Tall poppy syndrome, or perhaps small poppy syndrome. When you give as much to charity as Gina does, let me know, Millions every year she parts with.

      Commenter
      Annie
      Location
      Hunter NSW
      Date and time
      May 02, 2012, 3:58PM
    • Gina Rinehart didnt even make the BRW top 50 philantropists list, meaning she donated less than $1M in 2005. With her net worth at more than $18B that means she donates less than 1/18,000 of her wealth every year. Do you need me to pull out the calculator to figure out how many 0s that is after the decimal point? 0.0000....% you get the picture. Do you think Gina Rinehart has done $18B worth of work in her life? probably not.

      Commenter
      Jack
      Location
      Erskineville
      Date and time
      May 02, 2012, 4:15PM
    • Oh Annie - she also claims those millions back with every tax return. Poor old generous Gina probably pays less tax than you, or I.

      Commenter
      Rascally
      Location
      Sydney
      Date and time
      May 02, 2012, 4:25PM
    • @Annie.
      Who gives more? the rich man who gives thousands or the poor man who gives his last dollar?

      What does million of dollars mean to her? (if there is evidence of this) what percentage of her income, or her disposable income (that is her income after the aussie average rent, food, energy etc. just because you have a multimillion dollar house that costs you a lot in upkeep doesn't mean you have a low disposable income).

      I think Daniel was probably more referring to the QLD jowel wobbler =p

      Commenter
      Cheshire Cat
      Date and time
      May 02, 2012, 4:29PM
    • Annie,

      I am sure that, like me, most Australians donate a far higher percentage of their disposable income to worthy causes than Gina Reinhart, Twiggy Forrest and Clive Palmer combined. AND, I can guarantee that very few of us claim tax deductions for all of our donations.

      But your comments are largely irrelevant anyway, as the only reason that we need charity in Australia is that a very small number of individuals and corporations rip most of the wealth produced by Australian workers out of the economy before it can do any of us any good. If people like Reinhart simply took from the economy what they actually contributed, they would be considerably thinner, considerably poorer and, I might venture to speculate, considerably happier.

      It is ironic that the beggars I walked past this morning on my way to work contribute roughly the same amount of wealth to our economy as either Reinhart, Forrest or Palmer, and yet place virtually no load on the economy at all. In other words, in net terms, they are much better citizens than their high-flying colleagues, but are never feted by the media or showered with wealth.

      Charity is the necessary result of a failed econmic system. In a proper economic system there is no need for charity. Our economic system fails because it has no mechanisms to prevent the unproductive accumulation of wealth outside the market (ie: in the of your boss et al).

      FUNCTIONAL economic systems provide ALL participants with the opportunities they need to provide for themselves.After all, that is what ecnomic sytems are for. The mere fact that Reinhart has spare money to give away to charities proves that we need a better system.

      Commenter
      v
      Date and time
      May 02, 2012, 4:49PM
    • As I said Tall Poppy Syndrome, or small poppy syndrome, depends on how far to the left you are.

      Commenter
      Annie
      Location
      Hunter NSW
      Date and time
      May 02, 2012, 5:08PM
    • @Annie, and let's not even consider "Doormat Syndrome," because I'm sure you are arguing against the interests and all but a handful of Australians merely out of a great sense of fairness.

      Commenter
      James K
      Location
      Sydney
      Date and time
      May 02, 2012, 5:19PM

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