Inside Story

How to make Australia fairer

We’re doing better than many comparable countries, but that’s not enough

Carmela Chivers 20 March 2019 1079 words

“A fair go for those who have a go”: Scott Morrison with deputy Josh Frydenberg at his first press conference as prime minister on 24 August 2018. Mick Tsikas/AAP Image

Buried under the noise of leadership contests, arguments about the future of coal and high-profile ministers calling it quits from parliament, a quiet debate about the fairness of Australia’s economy and society is growing louder in Canberra.

Both major parties are trying to capture the shift in mood. Prime minister Scott Morrison pitched himself as a defender of the fair go in his first press conference in the role. His government would deliver “a fair go for those who have a go,” he promised, using a phrase that came to dominate his first few months in the job.

Labor, meanwhile, has based its election campaign on a “fair go action plan” that pledges to make the economy and government “work” for ordinary people. According to Labor, a fair go means rolling back penalty rate cuts, taxing the “top end of town” and expanding government services.

But has Australia really become less fair? Are we increasingly a society in which some are born lucky and delivered into power and wealth, while others struggle to find opportunity and live a good life?

If we measure fairness according to whether economic growth is evenly distributed between the rich and poor, Australia is actually doing relatively well: income growth here has been high and (mostly) evenly spread. The disposable income of most households has grown by about 2 per cent every year since the late eighties.

The income gap in Australia has increased much more slowly than in countries we typically compare ourselves to. This is especially thanks to Australia’s very progressive tax and transfer system – which exerts a strong equalising effect on household incomes.

But some of our boats have lifted faster than others. The disposable income of the very richest top 10 per cent of Australian households has risen by 2.5 per cent – somewhat more than the income growth achieved by everyone else since the late 1980s. And the top 1 per cent of income-earners have gained an increasing share of national income over the same period.

With rising housing costs hitting low-income households the hardest, Australia’s housing affordability crisis has made things worse. The growth in house prices is also increasing wealth inequality (although Australia’s level of wealth inequality remains about average for the OECD).

Of course, economic inequality doesn’t mean the distribution of resources is inherently unfair. Unequal incomes will naturally arise when some people have more luck, talent or industry. High incomes can be a reasonable reward for innovation or entrepreneurialism, which make everyone better off.

And it’s not always the case that more-equal incomes would make our society better. Dragging everyone’s income to just above the poverty line, for instance, would eliminate inequality — but it could leave everyone equally miserable.

So should we worry that our economy has become too unequal? Some moral philosophers argue we should focus on equality of outcomes. According to thinkers such as John Rawls, inequality is inherently problematic and is justified only if it is the price of greater wellbeing overall. Others, like Amartya Sen, focus more on equality of opportunity. They are worried about inequality primarily when it leads to entrenched disadvantage that prevents the least well-off from leading fulfilling lives.

Australia tracks well on some of these measures, but less well on others. A recent Productivity Commission analysis shows that Australians enjoy high life-course “mobility” by international standards. That is, Australians tend to move up (and down) the income distribution frequently throughout their working lives. But some people do have more opportunity than others: a son’s position in the income distribution is still materially affected by his father’s.

And while low-income households are better off than they were ten or twenty years ago, some still face entrenched disadvantage. About 12 per cent of households can’t afford essentials. Although most Australians who suffer poverty pull out of it within three years, about 30 per cent of people who make it out of poverty re-enter later on.

Most worryingly, Australia’s social safety net is no longer a safeguard against poverty. The base rate of Newstart is just $40 a day — and hasn’t increased in real terms in nearly two-and-a-half decades.

Many people get stuck on income support: about two-thirds of people on Newstart receive it for a year or more. And reliance on social security can be passed down through generations. Young people are almost twice as likely to need social assistance if their parents have a history of receiving support themselves.

So while we aren’t at panic stations yet, there are economic inequalities that politicians could address to promote a fair go for all Australians.

It’s also important to recognise that fairness is about more than economics. Some moral philosophers make the point that inequality is a problem when it grants wealthy people undue power and influence. Harry Frankfurt says we should pay attention when those who are better off have a serious advantage over people who are less affluent, especially when it translates into inappropriate influence over policy decisions that could further entrench their advantage.

According to this line of thinking, if Australia is to once again become the land of the fair go we should look at structural imbalances of power.

Voters certainly seem to believe these imbalances are a problem. More Australians than ever think that our government is run for a few big interests. Less than a third of people have confidence in business groups, state government, federal government, religious organisations and unions to do the right thing. Perhaps not surprisingly, political parties are the least trusted of all.

The sense that Australian elites have too much power risks opening the door to populist rhetoric that promises to restore power to “ordinary” voters. But slogan-laden solutions won’t be enough to protect the fair go.

Instead, we need evidence-based policy solutions to pressing problems. To name a few, we should tackle housing affordability by increasing housing supply and rolling back distortionary taxes that artificially inflate demand; embrace policies that improve productivity, such as encouraging increased female workforce participation; and alleviate poverty by increasing Newstart.

Parties also need to ensure that voters feel heard by their democratic institutions. A national anti-corruption body and tougher laws on lobbying and political donations would limit the capacity of vested interests such as big business and big unions to wield more power over government policy than regular Australians.

Better policy choices like these would help ensure Australia really does offer a fair go for all. •