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Legislative Council - Fifty-Third Parliament, Second Session (53-2)
2015-12-09 Daily Xml
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Income Inequality

The Hon. P. MALINAUSKAS (15:33): I would like to talk about an important economic issue that I do not think we currently talk about enough in our economy, particularly at a time when our economy is facing a whole range of changes and challenges, and that is the issue of growing income inequality.

I want to be clear from the outset that there is absolutely nothing wrong with income inequality within itself. As I outlined in my maiden speech last week, I think I, like most Australians, have never questioned the idea that some people should be able to earn more than others. However more than that, and I want to add to that point today, when it comes to the distribution of wealth I actually believe that some inequality is a very good thing. Disparity in income helps incentivise hard work, but also it incentivises risk taking which in turn fuels investment, and this state desperately needs more investment if we want to see our economy continue to grow.

I understand that capital needs a return and that entrepreneurs need to be able to get a return in order to take on the risk and invest and employ people; but, what entrepreneurs understand probably better than anyone is that there has to be a market, there has to be demand within that market for them to be able to cater for before anything else can happen, and that is exactly what concerns me.

Australia is now overwhelmingly a consumer-driven economy. Compared to government expenditure, investment, exports and imports, consumption is probably the largest driver. For people to be able to consume they have to have the capacity to pay, and not everyone, in fact most people, are not in the position to be able to live off the returns of capital. It just does not work that way, as many people in this house would well know. So, I believe it is incredibly prudent for macroeconomic policymakers to keep an eye on what is actually happening to real wages and real wage growth within our economy, but particularly the real wages of working and middle class families.

I am concerned to note that things are not particularly pretty on this front currently within Australia. According to the Australian Bureau of Statistics and what their principal measure of real wage growth is, the Wage Price Index, Australia is now experiencing the lowest real wage growth that has ever been recorded in the history of the Australian Bureau of Statistics recording it, and that goes back a fair way.

No one wants to see a wage price spiral take over the Australian economy, no one wants to see another spike in inflation, but we should note that currently within Australia inflation is already at record lows and we have had a period of sustained low inflation ever since the GFC hit back in 2008-09. It may well be the case that one potentially justifiable reason for such low real wage growth might be if labour is not delivering the level of output that one would reasonably expect, that is, if labour productivity is declining; but let's just look at the facts.

As I understand it, labour productivity has experienced 24 consecutive quarters of growth, which means that currently enterprises are getting more output for every single hour of work than has ever been the case before. I applaud that, I hope it continues. The only problem is that it appears as though increases in labour productivity may be disproportionately benefiting those who are already relatively well off.

The most universally accepted measure of income inequality in our society is the Gini coefficient, which measures the relative distribution of wealth within any given economy. Compared to the United States, Australia has always performed extremely well when it comes to a more reasonably fair distribution of wealth, but I am disappointed to inform the house that within Australia the Gini coefficient has been increasing, which means that income inequality in Australia is on the rise. I think that has some potential problems attached to it for two key reasons: firstly, in our consumer-driven economy, we need people to have the capacity to be able to consume. We need to ensure that there is demand in markets so that entrepreneurs do invest and employ to satisfy those markets.

The second reason is the issue of basic fairness. I am sure the ideals of fairness have been regularly debated in this chamber, and I do not intend to digress into a debate about what actually constitutes fairness; but for those who are concerned about populist policymaking, I would alert them to some of the substantial political risks that are attached to rising income inequality. One only needs to look at the 75 per cent, or the failed 75 per cent, super tax that occurred in France back in 2012-13 to see what sort of extreme policies can be cooked up when working people are not getting a fair return on labour, which has now never been more productive. I would encourage all policymakers at every level to pay attention to the issue of income inequality and more specifically to Gini coefficient when they start contemplating the sort of reforms that might address this scourge on our economy.

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