Taxes or Wages: What’s the best way to address inequality?

in Medium

Richard Denniss, Waleed Aly and Scott Stephens ask the question: is taxation overvalued as a way of addressing inequality? Full interview on The Minefield.

Australians are some of the richest people in the world, living at the richest point in world history — but we feel poorer than ever, even after 27 years of economic growth.

So how do we explain the fact that we have such radically and consistently low wage growth, and rising levels of inequality, at a time when other aspects of the economy are doing so well?

“Wage growth doesn’t fall like an apple from a tree. There is not some force of gravity pulling wage growth down — wage growth has fallen in Australia after 20 years of policies designed to lower wage growth,” says Richard Denniss, chief economist at The Australia Institute.

“So, for example, cutting penalty rates will obviously lower wage growth. Just like not enforcing the law such that we see this incredible wage theft taking place in Australia. That is lowering wage growth too.

“And until the Commonwealth, for example, offers its own public servants the kind of wage growth that it forecasts in the budget then how can we expect those forecasts to come through?

“If you employ a large sector of the workforce and you’re not offering them the kind of wage growth you’d like to see — it’ll be hard for the economy to deliver that kind of wage growth that is then supposed to trickle down.

So if wages aren’t rising, can we address inequality through taxation?

“We need the ‘re-moralisation’ of taxation, to convince people of the importance of taxation as a form of social care,” says Scott Stephens,

“After World War 2 in the U.K, the country had been devastated. London had been bombed in the blitz, they just had total war with Germany and almost the first thing they did once that was over was create the national health care system.

“They had incredible debt — at the time they were broke — but the first thing they’d agreed to do was to give everybody everybody universal access to to a world world class health system, funded through taxes.

“It’s no accident that public sentiment changed. I’d say Margaret Thatcher, Ronald Reagan and and indeed John Howard here in Australia, were highly successful in having a moral debate about tax and having a moral debate about the public sector — and they won.

“They told people that it was better and fairer and nicer to let individuals prosper than to stifle them with the collective spirit.

So is a cultural shift toward a more collective spirit needed to help reduce inequality, or simply higher wages for our lowest paid workers?

“Of course as an economist, and as a citizen, I’d say there’s a bit of both here,” says Denniss.

“I’m very happy with competition and market forces in the cafe industry, but I’m not so interested in competition and market forces when it comes to emergency wards, rape crisis centres or aged care.

“And as a citizen and as an economist I’m allowed to pick from both. But there’s no doubt that neoliberalism dragged huge areas of the community and economic activity into the market sphere, and it was highly effective. It didn’t just happen — just like taxes and wages don’t just fall. Clever people make it happen.

“Neoliberalism has really destroyed democratic debate about what to do with the incredible prosperity and wealth that so much market activity has generated.

“Australians are some of the richest people in the world, living at the richest point in world history and we feel poorer than we did before we had 27 years of economic growth, because we’re no longer allowed to have a democratic debate about fair.

“You know we’re told that’s a technocratic debate that’s best left to economists. Can’t somebody please do some modelling? Well Sweden, Denmark, Norway, they do exist and they have been there.

“They have high wages and high taxes, and high levels of economic growth, and low levels of unemployment. In Australia we talk as if this is a fantasy land when it’s actually called Scandinavia.”

You can listen to more of this episode of The Minefield by clicking here.

From all of the team at The Australia Institute, thanks for reading. 
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