The return of the Australian magnate
Top of the ladder ... Gina Rinehart. Photo: Dallas Kilponen
- We've never had it so good, study finds
- New generation of mega-rich
- Blue collar wages put graduates in shade
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. 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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