Speech in Parliament on the Productivity Commission Amendment (Reducing Inequality) Bill
9.30am | June 22, 2017
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I rise to speak on the Productivity Commission Amendment (Reducing Inequality) Bill 2017.
This Bill places inequality firmly on the agenda of one of our country’s most influential economic policy institutions.
And we consider it at a time when inequality in Australia is at a seventy five year high, and when global leaders are warning that inequality threatens the global economy.
The Productivity Commission is tasked with providing research and policy advice on industry, industry development and productivity. Its scope is broad, encompassing both specific industries and the productivity performance of the economy as a whole.
Its influence is significant. Most people in this chamber could easily identify economic debates in the last 30 years where the Commission’s intervention has been decisive. On many of these occasions its advice has been hotly contested.
What is uncontroversial is that its advice has been central to government.
We can no longer afford to allow this advice to be developed insensible to the significance of economic inequality.
The Commission is already required to consider a range of considerations – everything from ecological sustainability to regional development. Inequality should be on this list.
We can also no longer afford to starve our government of credible, focussed research on inequality.
The Productivity Commission is well placed to apply its substantial resources to generating just this type of analysis. This Bill would require the Commission to do just this – tabling an Inequality Report every five years, aligned with the production of the Intergenerational Report.
Doing so would bring valuable analysis into a debate that is already raging.
There has been growing discussion of economic inequality in the media and in these corridors over the last 12 months, and it is not just because people have read a couple more chapters of Thomas Piketty’s book.
There is a palpable fear that inequality has bred populism in Australia and overseas, and that it threatens the economic consensus that has held sway since the 90s. Just this week we heard the Governor of the Reserve Bank calling on workers to demand higher wages, and the head of the Business Council of Australia writing that “rather than being allowed to pool in certain cities, or among certain citizens, the business community must ensure the benefits are felt by all.”
I am heartened by these sentiments.
In the flurry of sudden interest, however, we cannot forget that inequality is not new, nor is the imperative to address it.
Inequality was important before Brexit and before Trump. Inequality affected ordinary people’s lives well before it affected our political systems. Inequality threatened families’ security and stability before it threatened businesses’ access to global markets.
We shouldn’t have to look to shock election results to find an imperative to address inequality.
The imperative lies in basic fairness – in families who are working harder for less, sandwiched between one generation that fears it may never be able to afford to buy a house, and another generation that fears it will never be able to afford to retire.
This imperative has always been there. I am glad we are starting to get the momentum to address it.
Australians like to think that we are removed from the stark inequality that we see in America and the United Kingdom.
In some ways we are.
Income and asset concentration in Australia is a fraction of what it is in the United States. The GFC didn’t hit us as hard as we entered it with less inequality that others. During the 2000’s Australian middle incomes grew strongly unlike other countries in the OECD that experienced slow growth or falling middle incomes. A Labor government responded to the GFC with strong stimulus that prevented widespread joblessness and the inequality that comes with it. We should be proud of that intervention
But that hasn’t insulated us from the broader trends that have been at play since the 1980s. Over the past four decades, incomes have risen for the top ten percent nearly four times faster than they have for the bottom ten percent.
This isn’t just the result of high income earners being able to negotiate better pay packages. It reflects broad changes in the way our shared prosperity is divided. During the 1990s, wages decoupled from productivity growth. Even though Australian workers are more efficient and productive than ever before, we’re not being rewarded for it in wages.
The labour share of national income in Australia has dropped from 75% in the 1970s to just 53% in 2016. The for business is increasing. To be very clear, it means that investment pays better than work – at least for those who can afford to invest.
These dynamics are starting to weigh on our social structure and our economy.
Wealth is far more unequally distributed than income. In 2003/04 the wealthiest 20 percent were worth 57 times more than the poorest 20 percent. Ten years later, they were worth 71 times more.  The three richest Australians own more than the million poorest put together.
Today inequality is at a seventy five year high. Australia now sits in the bottom half of the OECD’s rankings for economic inequality.
We may live in a time of deepening economic inequality; however for most of our history since federation we actually experienced falling levels of inequality.
At the start of last century we were an unequal nation. When the ANZACs headed to Gallipoli, inequality was at its peak. One percent of Australians owned a third of all wealth and earnt an eighth of all income. For the next sixty odd years, however, inequality steadily fell until reaching a low point in the 1970s.
The point I want to make is this – what happened over those six decades wasn’t an accident of history or a quirk of trickledown economics. It was a direct function of the progressive project to make Australia a fairer place for all.
The labour movement and its parliamentary representatives have fought and won policies that shared Australia’s growing prosperity more fairly. These policies became part of Australia’s social contract. They evolved into institutions that were able to survive changes of government.
This social contract drove inequality down in the post-war period. To the extent it survived the changes of the 80s and the 90s, it helped Australia avoid the worst excesses of inequality that we see today in the US and the UK. I am proud of the role Labor played in managing this economic transformation. There are a few aspects of it I want to briefly touch on.
First – a targeted welfare net. Between the healthcare provided by Medicare and now the NDIS, and the payments and income support available, we protect our poorest from the worst effects of inequality, and do so very efficiently.
Second – a progressive taxation system – those who earn more can afford to contribute more.
Third – universal education, including our system of public schooling and the wide availability of tertiary education.
Perhaps the most important aspect, however, is our protections for wages and work place conditions. In 1904 we saw the world’s first Labor national government. Those parliamentarians supported a system of conciliation and arbitration. It was a uniquely Australian solution that shaped a dramatically different relationship between the labour movement and the state. It formed the basis for decades of industrial outcomes that lifted the living conditions for millions of Australians.
It, like many of the other bulwarks against inequality, has been eroded.
Earlier this week, for instance, the Reserve Bank Governor, said that he would like to see workers asking for pay increases. It is not timidity or a lack of ambition holding workers back. The reason many aren’t asking for more pay is because our industrial relations system has been reshaped to limit their bargaining power. It is showing in the level of unionisation - today, only around 10 percent of the private sector workforce is unionised, compared to 50 percent after World War Two.
The Australian social contract lifted living conditions and reduced inequality for Australians for much of last century. Since the 70s, it has been under attack from conservatives. Australia is the most unequal it has been in 75 years.
There are some people who might say – so what? That we should be focussed on prosperity, not inequality – that as long as the pie is growing for all it doesn’t matter if some people are taking bigger and bigger pieces. I don’t agree, and neither do most Australians.
When surveyed, almost three-quarters of Australians agree that “differences in income are too high.” Inequality is not just about money. Inequality shuts doors to opportunities. Australians are not happy for wealth to decide the quality of someone’s education or health care. We don’t think that your wage should depend on what your parents earned.
What has become increasingly accepted in recent years, however, is that the dichotomy between prosperity and fairness is a false one.
More equal societies grow more quickly. This is not just wishful thinking from some on the left – it is the considered view of hard headed economists in institutions like the IMF, the World Bank and the Bank of England. On a microeconomic level, inequality creates barriers to people starting a business, or going to university, or being able to participate fully in the economy.
More broadly, however, income inequality itself affects the way an economy operates. Increasing the pay of low and average income earners boosts growth more than increasing the return to the well off. These households spend more of their extra income, stimulating the economy. The OECD estimated that income inequality between 1985 and 2005 reduced economic growth amongst its member states by almost five percent. As the head of the IMF, Christine Lagarde, explained, “the benefits of higher income are trickling up, not down.”
Whatever excuses there may once have been for ignoring economic inequality have dropped away. All signs demand action - economics, political pragmatism, not to mention basic fairness.
I want to be clear. I do not think passing this bill will ‘solve’ inequality. We need concerted action to level access to education, to strengthen workplace rights, to make our tax system more progressive, and our welfare system fairer.
This bill does not do any of those things. Instead it is a first step in building the policy infrastructure to do them. It aims to fire up the public service institutions and expertise that we need to look at inequality and properly address it.
It aims to build wealth of expertise and knowledge within our an eminent public economic policy institution. Throught establishing a requirement for a five yearly Inequality Report, it seeks to use that capability to bring these issues before the parliament for our consideration and response.
I am of the political left. I am conscious that over the years, there have been regular calls from within that tradition to dismantle the Productivity Commission. I understand the hesitation that some may have in tasking it instead to look at economic inequality. My own view is that we are nearly always best off building and transforming the institutions we already have.
Australia has a proud tradition of innovative public mechanisms to deliver on public policy. Medicare remains an extraordinary achievement, and globally our superannuation system is much admired.
WE also proven skilful at recasting older institutions to meet new challenges. In the 1980s and 90s under a Labor Government we transformed Australia’s political and economic institutions to respond to a more open world. To provide just one example, the Reserve Bank’s role changed profoundly in the 1980s; re-orienting its activities to deliver effective monetary policy in a newly opened financial system.
Today, we need to retool our institutions once more to address the challenge of our times - the growing disparity in wealth and income.
The Productivity Commission has changed purpose and direction before, and it will have to again. From the tariff board of the 20s through to the Industry Assistance Commission of the 70s up until its present form – this institution has been repurposed to respond to the policy imperatives.
Institutions have a rhythm of their own. They develop a momentum that survives changes of government.
The great Nugget Coombs, in reflecting on the institutions he played such a role in creating in the post war period, said, there is “only reform – the creation of new institutions, the recasting of those already existing, the revitalisation of the moral and social imperatives which lend them vigour.”
This bill will make sure that the Productivity Commission is alive to one of the most significant moral and social imperatives of today – economic inequality.
 Chifley, p. 18