Across the world we are seeing increasing levels of inequality – between developed and under-developed economies, and within national boundaries. In Australia the gap between rich and poor has been rising for over 30 years, and that has accelerated in the last decade and a half as we have moved away from a progressive tax regime and the means-testing of government financial support.
But is this a problem? According to those on the Right it isn’t. Their arguments include: our duty is to reward success and ‘lifters’ rather than ‘leaners’; that wealth accruing to the rich ‘trickles down’ to the poor; that income inequality is healthy because it inspires lower income earners to work
The arguments may, at first hearing sound plausible, but do they really stack up?
It has long been accepted, following the Whitehall studies, that your position within a large organisation, and within society as a whole, has a significant impact on your life expectancy and other health outcomes. Those higher on ‘the ladder’ clearly experience much better outcomes. In 2010, the Marmot review in Britain found that people living in poorer areas die on average seven years sooner, but also spend more of their lives with disability – an average total difference of 17 years.
These health inequalities are not just limited to life expectancy but also include infant mortality, mental health, physical health and so on. This is not a localised effect, the results having been largely replicated in a study that looked across 50 countries. In their 2009 book The Spirit Level: Why More Equal Societies Almost Always Do Better, Wilkinson and Pickett found a clear relationship between income inequality and health and social outcomes. See below.
Looking at all these indicators separately, the effect of income inequality is quite stark. (Note, a score of zero means no correlation, and a score of 1 or -1 means a perfect positive or perfect negative correlation.)
So we can see that income inequality has a significant impact on increased teenage births, higher imprisonment levels, mental illness, reduced levels of social trust and higher levels of obesity. There is also a notable effect on increased rates of homicide, reduced educational performance, and increased infant mortality.
Recent studies have investigated whether or not income inequality causes health and social problems, independent of other factors, and some rigorous studies have provided evidence of a relationship. Kondo, et al (2009) estimated that about 1.5 million deaths (9.6 per cent of total adult mortality in the 15–60 age group) could be averted in 30 OECD countries by reducing income equality below current levels.
Another study suggested that the loss of life from income inequality in the US in 1990 was the equivalent of the combined loss of life due to lung cancer, diabetes, motor-vehicle accidents, HIV-related causes, suicide and homicide.
As an indication of where Australia sits in relation to the rest of the world, see the chart below.
We're being outperformed by both Spain and Italy who both have much bigger domestic financial headwinds than us.
Significantly, the most (over) used argument by the Right –that income inequality may have positive effects on economic growth by providing incentives to work – while it may sound good at an LNP conference, in an IPA position paper, during budget speeches (that launch an election campaign), or during a doorstop interview, the evidence to support this is weak.
The relevant research unambiguously points towards positive and important society-wide outcomes being achieved through reducing the rich-poor divide. Even from a purely economic perspective, the very thorough work of Thomas Piketty has demonstrated that significant income inequality damages economic growth – the one strategy the government is relying on to return the economy to surplus.
Given that inequality is a major problem for us all, both economically and socially, this suggests that a return to more means-testing of government financial support programs, and a return to a more progressive taxation regime and a crack down on tax minimization by the wealthy, is needed .
If the government were serious about fiscal repair they would commit to the funding guidelines in Gonski, they would properly fund health, they would address the excesses of superannuation and cut back aggressively on negative gearing concessions, they would build a proper and effective social safety net, and they would make big business pay the appropriate amount of tax.
Whether or not the government is representing the interests of all Australians, present and future, will be partly revealed on budget night
by Wendy Tubman
The Townsville Greens will publish blogs considered to be of merit. The opinions expressed are those of the Author.