Senate debates

Monday, 2 December 2019


Productivity Commission Amendment (Addressing Inequality) Bill 2017; Second Reading

11:15 am

Photo of Jenny McAllisterJenny McAllister (NSW, Australian Labor Party, Shadow Cabinet Secretary) Share this | Hansard source

I rise to speak on the Productivity Commission Amendment (Addressing Inequality) Bill 2017. I note that this is not the first time that I've introduced this bill into this chamber and, indeed, I encourage senators to consider the debate that took place on the last occasion that this bill was introduced, because it was a quite fruitful debate and one I think worthy of this chamber.

This bill seeks to place inequality firmly on the agenda of our country's most influential economic policy institution, the Productivity Commission, and it comes at a time when inequality in Australia is at a record high and when global leaders have been warning that inequality threatens the global economy. The Productivity Commission, as everybody understands, is tasked with providing research and policy advice on industry, industry development and productivity, and its scope is broad; it encompasses both specific industries and the productivity performance of the economy as a whole. It has significant influence, and most people could easily identify economic debates over the last 30 years where the commission's intervention has been decisive. It hasn't always been to people's liking, but it is a very influential institution.

We can no longer afford to allow this advice to be developed insensible to the significance of economic inequality. The commission actually has quite a long list of things that it is required to consider, and it's worth reviewing. In the performance of its functions, the commission must have regard to the need to improve the overall economic performance of the economy through higher productivity in the public and the private sectors. It should have regard to reducing regulation of industry, including regulation by the states, territories and local government, where that is consistent with the social and economic goals of the Commonwealth government. It's supposed to encourage the development and growth of Australian industries that are efficient in their use of resources, enterprising, innovative and internationally competitive. It's tasked with facilitating adjustment to structural changes in the economy and the avoidance of social and economic hardships arising from those changes. It's supposed to recognise the interests of industries, employees, consumers and the community likely to be affected by measures proposed by the commission. It's tasked with increasing employment in regional areas. It's tasked with promoting regional development. It's supposed to recognise the progress made by Australia's trading partners in reducing both tariff and non-tariff barriers, to ensure that industry develops in a way that is ecologically sustainable and also to ensure that Australia meets its international obligations and commitments.

That's a big long list, and it's a good list. I don't object to anything on that list. But it is a problem that one of the key things, one of the key public debates of the last decade, is not mentioned, and that is whether the distribution of wealth and income in contemporary Australia is fair and whether it is economically efficient. We can't afford to starve our government of credible, focused research on inequality. The Productivity Commission is, in fact, well-placed to apply substantial resources to generating this kind of analysis, and the bill would require the commission to do that. It would ask them to table an inequality report every five years, and it suggests that this report would be aligned with the Intergenerational Report. So, at the same time as we receive an important piece of policy advice as a parliament and as a public about how we are dealing with generational changes and the ageing population, we would also receive a report about how we are going with equality and inequality. Doing that would bring, I assert, valuable analysis to a debate that in fact is already raging.

This weekend, The Australian republished an article originally published in The Economist, and it's a very interesting article. It observes—I think uncontroversially—that, during the debate over the last few years, a growing consensus has emerged that, over the last four or five decades, the income of the top one per cent of income earners has soared relative to the rest of the population; middle incomes have stagnated; wages have remained broadly stagnant—that's certainly true in the Australian case—and the ability of the wealthy to invest their income in assets which have in turn appreciated in value and generated additional sources of income for those wealthy individuals; is exacerbating these concerns. The Economist doesn't actually reproduce these assertions uncritically. In fact, they go through each of those points and they reproduce arguments that are being made by economists around the world to contest those points. I don't agree with all of the information that's in that article. And I imagine that, later on in the debate, there'll be senators from the other side of the chamber who stand up and approvingly cite the rebuttals that are printed in The Australian. It's a good piece of writing. It's good to have a debate about these things. But wouldn't it be helpful if the Productivity Commission—one of the premier economic institutions in this country, a public sector institution tasked with supporting the parliament, the government and the Australian people to make good decisions about the future—regularly engaged with that debate. That would be useful, and that, indeed, is the purpose of this bill.

There are political reasons to tackle inequality, to tangle with it and get a grip on what it means. I think there is a credible argument that a sense of being left behind—a sense of being shut out of the economic benefits of our system—is leading to populism here and overseas. Regularly we hear employers say: 'Couldn't we just get back to evidence based policy? Couldn't we just make it all sensible like it used to be in the good old days in the eighties and nineties?' I hear that from business groups, but I think the reason that it is so difficult to engage in a conversation about reform is that there is not fundamental agreement about whether or not the economic arrangements as presently structured are fair. It gives rise to extremist voices—and I point to that general area of the crossbenches in the chamber—who promise all sorts of magic beans and all sorts of solutions to a disaffected community who feel that they are being left behind. That's not good for our politics, because those arguments and those promises are broadly fraudulent. They can't be delivered, and, if they could be, they wouldn't deliver the benefits that are promised. But it doesn't let everybody else off the hook. This parliament needs to engage with questions of inequality and questions of fairness.

Over the last 12 to 18 months the Reserve Bank has been very consistent. At one point the governor called on workers to demand higher wages. This week we saw the government trying to remove the capacity of workers to demand higher wages through their unions through an extreme industrial relations bill that, happily, was defeated in this place. But the Reserve Bank thinks that we need higher wages. The Reserve Bank has repeatedly pointed to this as a problem in Australia's economy, a reason for the sluggish performance overall of the economy and a challenge to the retail sector, which recently has posted one of its worst results in terms of retail performance in the last couple of decades. The Business Council has helpfully written that, rather than being allowed to pool in certain cities or among certain citizens, the business community must ensure that the benefits are felt by all. That's the right approach, and I am heartened by that sentiment.

We can't forget that inequality is present, is important and is also not new. It was important before Brexit. It was important before Trump. It affected ordinary people's lives long before it affected our political system. It threatened families' security and stability before it threatened access to global markets. We shouldn't have to look to shock election results to find an imperative to address inequality, because the imperative to address inequality lies in basic fairness. It lies in supporting those families working harder for less, those families sandwiched between one generation who fear they may never be able to afford to buy a house and another generation who fear they will never be able to afford to retire. It's important that we deal with these challenges.

Australians, I think, like to think that we are removed from some of the challenges and some of the inequalities that we observe in other comparable countries like the United States 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. Thanks to an activist Labor government, the GFC did not hit us as hard as it did other countries, and that is in part because we entered the GFC with less inequality than other countries. During the 2000s, Australia's middle incomes grew strongly, unlike other countries in the OECD that experienced slow growth or falling middle incomes. As I mentioned, the Labor intervention—the stimulus—made at the beginning of the GFC prevented widespread joblessness and the inequality that came with that. We should be proud as a country of that intervention.

But none of this has insulated us from the broader trends that have been at play since the 1980s. And it's not just the result of high-income earners being able to negotiate better pay packages. These things reflect broader changes in the way our shared prosperity is divided. During the 1990s, wages decoupled from productivity growth, and this is the challenge that the Reserve Bank has been pointing to. How do we bring these things back together? Even though Australian workers are more efficient and productive than ever, we are not being rewarded for it in wages. The labour share of national income in Australia has dropped from 75 per cent in the 1970s to just 53 per cent in 2016. To be very clear, it means that investment pays better than work, at least if you can afford to invest. These dynamics weigh on our social structure and on our economy.

There are some people who sort of say: 'Well, so what? We ought to be focused on prosperity, not inequality.' This is to make a fundamental error about how our economy works. The dichotomy between prosperity and fairness is false. More equal societies grow more quickly. This is not just wishful thinking; it is the considered view of hard-headed economists in like the IMF, the World Bank and the Bank of England. On a microeconomic level, inequality creates barriers to people starting a business, going to university or participating fully in the economy. It also impacts on growth. Increasing the pay of low- and average-income earners boosts growth more than increasing returns to the well-off does. Households in these categories 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 per cent. Whatever excuses there might once have been for ignoring economic equality have dropped away. All the signs demand action: economics, political pragmatism and basic fairness.

This bill doesn't solve inequality. We need concerted action. We need access to education, we need to strengthen workplace rights, we need to make our tax system fairer and our welfare system fairer, and this bill doesn't do those things. It's a modest bill, but it establishes a first step to build the policy infrastructure to take those steps. It seeks to use the public service institutions that we have, the expertise that we have, to look at inequality and properly address it.

We have a proud tradition in Australia of innovative policy mechanisms to deliver on public policy. Medicare remains an extraordinary achievement. Globally, our superannuation system is much admired. Today we need to retool our institutions to address some of the challenges of our times. The growing disparity in wealth and income is surely one of them. The Productivity Commission is an institution that can help us with this challenge, and I commend this bill. 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.


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