James Paterson (Victoria, Liberal Party) Share this | Hansard source

I listened with great interest to the contribution from Senator McAllister, my valued colleague on the Finance and Public Administration Committee. It was thoughtful and measured, as her contributions typically are. But I was listening very carefully for one particular point in her speech, which did not come, and it is an important one in the debate about inequality. The particular question that advocates of action on inequality must answer is: how much inequality is too much inequality and how much inequality is an acceptable level of inequality? That might sound like a strange thing to ask. One might assume, if one agrees that inequality is a terrible thing, which most people do, that there should be no inequality. But if there were no inequality then that would mean complete equality of outcomes, and I do not think anyone in this chamber advocates that. I do not think Senator McAllister advocates that. I do not think Senator Whish-Wilson, who I understand is speaking next, advocates that; although perhaps his colleague Senator Rhiannon would advocate that. I do not know how much her thinking has evolved on these issues.

It is an important question to answer, because if we agree that complete equality is not a good idea and that complete inequality is not a good idea, where do we draw the line between complete equality and complete inequality as to an acceptable level of inequality? I have not yet heard in this debate, nor in dozens of debates on this issue by economists, academics and others who take an interest, anyone nominate an acceptable or tolerable level of inequality. I think that is an important thing to nominate, because if we are seeking to address a problem then we have to know how to define it in an empirical way, know when we are making progress on it and know when we are falling behind. I look forward to later contributions in this debate and seeing whether anyone will rise to that challenge.

Inequality is a problem and is something which government has a role to tackle in some ways, but it is a much less serious problem than poverty. Poverty is something which demands much greater attention from all of us than inequality. I make that point very deliberately and will expand on it. Many of the measures of inequality and poverty sometimes are deliberately or perhaps accidentally confused. Senator McAllister in her contribution referred to a number of facts and figures about how the top 10 people in Australia have more wealth than the bottom 50 per cent. All these sorts of figures get thrown around in this debate in Australia and also internationally. They typically come from reports which are deeply flawed and which overlook the much more important human imperative, which is to abolish poverty and to lift people out of poverty. Sometimes lifting people out of poverty and reducing inequality are in fact competing and contrasting imperatives that do not always move in the same direction at the same time. There is a specific example I will come to later.

One of the reports that purports to be about poverty is an annual report produced by ACOSS, the Australian Council of Social Service. It purports to measure of poverty in Australia, but what it in fact measures is inequality. It defines poverty as anyone being below 50 per cent of the average wage. If you define poverty as a proportion of the average wage then it does not matter how much the average wage increases: you will never eradicate poverty. That is a disturbing thing, because we know that poverty has been largely or substantially eradicated in the wealthy Western world and we have made great gains towards eradicating it around the world, particularly in the latter half of the 20th century.

Oxfam International annually publishes another report on inequality, which advocates often rely upon. It sometimes has seemingly alarming statistics about the top five wealthiest people in the world and their share of global wealth compared to the bottom half of the population, but it has some fundamental flaws. One of the flaws is that it accepts as a premise that capturing someone's wealth at a single point in time is a good proxy or a good measure for their standard of living. But we know that that is not the case. It is often a very bad measure of their standard of living and within the Oxfam report we have a very good example of why that is the case. When measuring someone's wealth, for the purposes of comparing them for inequality, they of course take into account, as may be appropriate, any debts that a person may hold. Obviously, a person who has debts—particularly a young person who is perhaps a university student—has the potential to have negative wealth. So a young Australian university student or a university student at Harvard will be measured by Oxfam as having negative wealth.

In many parts of the world you cannot get a loan. In the developing world it is sometimes very difficult to get a loan. So a subsistence farmer in Africa may not have any debts, they may even have a few assets to their name. Maybe, for the purposes of Oxfam's inequality report, they may be listed as having small net positive assets, even if only a few hundred dollars. If you listen to Oxfam and you take them at their word, a privileged student in the Western world studying at university who has a HECS debt is poorer than a subsistence farmer in sub-Saharan Africa. That highlights I think very powerfully the lack of quality research in this area and the way in which statistics can be abused to give you a very misleading impression. If you took Oxfam at their word, you would believe that a substantial number of those people who are suffering severe inequality are in fact in the Western world when clearly the reverse is the case—by any standard we are the wealthiest people in the world.

If we really care about poverty and poverty is what we seek to alleviate then economic growth is the best way to do that. Sometimes economic growth does come at the cost of inequality. The best example of this is the economic growth that China has experienced over the last 40 years. It has been, in my view, one of the most positive developments of the second half of the 20th century and the first decade of the 21st century. Over 600 million people have been lifted above the poverty line—the absolute measure of poverty. Their lives have been transformed in a fundamental and wonderful way. People who did not have access to electricity now have access to electricity. People who did not have access to refrigeration now have access to refrigeration. People who did not have access to education now have access to education. The standard of their food, clothing and technology has improved in a profound way. While this magnificent reduction in poverty has taken place within China in the span of 40 years—one of the greatest reductions in human poverty in history—inequality has increased.

If you listen to those opposite and their concerns about inequality, and if you read Thomas Piketty, then you would think that inequality must be fought at all costs. I understand where they are coming from and it is a good place to come from—inequality on its own, as a premise, sounds like a bad thing. But what do you think the people in China who have been lifted out of poverty would have rathered? Would they have rather been lifted out of poverty as they have been while, at the same time, some people in China have accumulated great wealth—billions of dollars of wealth—or would they have rather stayed, as they were for most of their history, in real poverty? I think, if I was someone living in China and I could choose to remain in my station in life, in relative poverty, in order to keep others in poverty at the same time so that we could be relatively equal, or I could choose that my wealth would increase modestly and my living standards would increase modestly while others' standards of living increased spectacularly—far more than mine—I would accept the latter. I would accept an increase in inequality for me and for my society in order to have a decrease in poverty. Poverty is a far more important thing to fight than inequality.

I think we had a really wonderful contribution to this debate, in a general way, in the maiden speech last night by Senator Gichuhi from South Australia. She spoke very powerfully of her own journey from Kenya to Australia and about her experience of the welfare state in Australia and the effect it had on her and her family. The observations she made were very powerful. I think we should always bear in mind, as Senator Gichuhi said, that the best path out of poverty is employment and jobs. That has been and always will be a priority of my side politics and of this government.

Finally I want to turn to the Productivity Commission Amendment (Addressing Inequality) Bill 2017 itself, which was proposed by Senator McAllister. While I, like her, respect the Productivity Commission as an important institution and, I like her, respect its work, it is for that reason that I am concerned about this specific proposal. I think it seeks to politicise the Productivity Commission in an inappropriate way. As Senator McAllister admitted, she is the person of the Left and she wants to see the Productivity Commission produce reports that align with, and address, her political priorities.

I do not think that is an appropriate thing to do with an independent economic agency like the Productivity Commission, which has provided such important reports and advice to government. I think it is best that, as far as possible, it be kept at arm's length from government and not dictated to by the politics of the day, so that it has the greatest potential to provide independent, dispassionate advice to the government. I think it is unwise to try and seek to direct the Productivity Commission to address the political priorities or philosophy of any party in this place. There are certainly changes we could make to the Productivity Commission's charter to address the priorities and concerns that I might have and ensure that the Productivity Commission's reports in the future more closely match the political priorities I have; but I recognise that I am a member of a political party and that I have my own views and preconceptions, and it would not be a good idea to ask the Productivity Commission to take those on and reflect those.

I appreciate the concern of Senator McAllister and all senators in this place about inequality. But I would finish on the note that, while inequality can be and is important, poverty is far more important. If we ever have to choose between the two, as some people have, including in China, the best one to choose is to alleviate poverty. The best way to alleviate poverty is through free markets and economic freedom. Every country that has gone from relative poverty to relative prosperity has gone through a period of inequality as a result. It is the advanced capitalist countries of the world, like Australia, that are relatively equal by world standards, and it is through a state of far reaching and complete capitalism that inequality is best tackled, rather than through government intervention.