Senate debates

Wednesday, 24 February 2016

Statements by Senators

Economy

1:26 pm

Photo of Chris KetterChris Ketter (Queensland, Australian Labor Party) Share this | | Hansard source

There has been much discussion and debate in the parliament and the media in recent times about the state of the economy. This is something that people in Australia are rightly concerned about: in which direction us our country heading in this regard? Australians are worried about the increasing gap between the rich and the poor, housing affordability, the cost of living and the inequities of our taxation system. And they are right to be worried. For the past 25 years, rising living standards in middle Australia strengthened our economy at a time when many countries saw a slow but steady erosion of real income among the middle and lower classes. But now we are seeing clear signs of rising inequality in our own country, and it would be folly for us to ignore them. Indeed, it is a matter of utmost urgency that the government take firm steps to maintain a robust and viable middle class because we know that inequality actually weakens the economy.

A discussion paper issued by the Chifley Research Centre last year, entitled Inclusive prosperity: Australia's record and the road ahead, looked at the challenges to our markets and institutions that arises when productivity growth is not matched by increases in real wages. The paper raises the question: why does inequality matter? It went on to explain that a major shift in the global political and economic debate has made it increasingly clear that inequality is an economic problem as much as a social one. The OECD has found that high wealth concentration both limits investment opportunities and weakens potential growth. Christine Lagarde, the head of the IMF, recently said that the fact that the world's 85 richest people control more wealth than the world's 3.5 billion poorest people casts a dark shadow over the global economy.

The term commonly used in discussion of this issue is 'inclusive prosperity'. It is a phrase that keeps cropping up. Just over a year ago the Center for American Progress published the Report of the Commission on Inclusive Prosperity. This was a report issued by the Commission on Inclusive Prosperity, which is co-chaired by Professor Lawrence Summers and the UK Shadow Chancellor of the Exchequer, Ed Balls. In that report Summer asserted that:

No industrial democracy will succeed unless its middle class enjoys sustained growth in living standards. This depends not only on strong economic growth but also on assuring that its benefits are widely shared.

Because rising inequality squeezes living standards in middle classes, exacerbates disadvantage and limits social mobility, it has enormous implications for Australia's future economic growth. So it is important that we understand what is happening and that we forge an assertive plan to help reverse the trend.

There are four significant changes in recent decades that have fundamentally altered the global economic landscape, squeezing middle-class workers and their families. These are: increasing global economic integration, resulting in more efficient and less costly business and trade relations; profound technological advancements, resulting in lowered cost for goods and services and the erosion or replacement of traditional middle-class jobs; changes in the structure of labour markets, with unions under pressure and many corporations subcontracting for basic functions; and, finally, increased pressure on corporations by shareholders who favour profits over loyalty to workforces and local communities.

We cannot stand idly by and allow these changes to continue their adverse effects on our way of life. As Professor Summer put it:

Left to their own devices, unfettered markets and trickle-down economics will lead to increasing levels of inequality, stagnating wages, and a hallowing out of decent, middle-income jobs.

Closer to home, Mr Wayne Swan has also argued that we need to actively pursue policies designed to limit inequality if we are to achieve wealth creation, job growth and economic growth in a globalised economy characterised by profound technological change. Reversing this trend towards greater inequality must be our goal not just because inequality is undemocratic and, I believe, morally wrong but because doing so is in our long-term interests. We can start by identifying the areas where we need to develop strong and progressive responses to these changes.

Firstly, we need to work towards a return to wage growth for everyone in a full-employment economy. Wage growth is an incentive for growth in productivity, and in Australia we see that wages have failed to keep pace with productivity improvements. Women in particular are paid less and have inferior employment agreements; in fact, the gender gap is widening. Australians with disadvantage are also being left behind. Workers and business alike are pushing for economic growth, and we have only to look to the USA to see the consequences of thinking this can happen by keeping wages low and profits high. So a strong industrial relations policy is essential. Industrial relations, as that phrase implies, is a two-way process. Workers need to be able to bargain with their employers, not just take what is given to them, whether they like it or not.

Secondly, to counter inequality we must increase educational opportunities for all ages, because in a world of technological change raising skill levels is critical to increasing growth in the long term. Good early childhood education, increasing the quality of our schools and reducing financial barriers to higher education are all important here, but I am thinking particularly of skills education and the urgent need to revive our once healthy but now seriously ailing TAFE system. Providing support for apprenticeship programs is critical to driving higher skill levels.

Thirdly, we must devise additional measures to support innovation and regional clusters. We know that innovation drives productivity and economic growth, and fostering a supportive environment for investment and innovation is central to having a dynamic and productive economy. As market failures in innovation are quite common, government also has a role in providing incentives for research and development and creating wider policies to support innovation, such as clusters.

The most innovative cities and regions tend to have higher social mobility and higher wages in lower skilled service sectors, so this is a key way to help promote inclusive prosperity. It is increasingly recognised that agglomeration effects tend to cluster industries and people with similar skills in particular locations, so it is important to support cities and regions in making their own local decisions to help drive growth.

A fourth point to bear in mind is that, whenever developing policies to reduce inequality, we must keep our focus on long-term economic growth rather than only on short-term returns. For example, investment in infrastructure can increase wages by creating jobs and enhancing productivity. By contrast, failure to invest leads to deteriorating facilities, unpredictable service disruptions, congestion and higher costs to businesses and households. So looking ahead and investing in infrastructure is a way to provide strong and well-paid jobs and productive assets that will serve as the foundation for long-term economic competitiveness, increased prosperity and a high quality of life.

Finally, as the increasing inequality that is happening in Australia is part of a global trend, our work towards inclusive prosperity must also focus on international cooperation, global demand, trade, financial stability and corporate tax avoidance. Let me reiterate: the emerging inequality in this country is a serious threat to our future economic growth, and it is imperative that we take steps now to ensure inclusive prosperity for Australia in the years ahead.