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Budgeting for inequality

Joe Hockey’s speech this week shows the Budget will make Australia less equal, not by accident but by design, argues Jim Chalmers.

Simon Sinek is not a household name in Australia outside of those who watch TED talks on their iPads or pick up self-help books at airports.   Only devotees would recognise his central tenet of life and business – to Start with Why.   But he helps us understand the first Abbott Budget: why it has taken the shape it has; and why Labor joins most Australians in opposing it so vehemently.

The “why” of this Budget is now clear: its political architects see rising inequality not as a challenge to overcome but an objective to be met.  As the rhetoric in Joe Hockey’s speech to the Sydney Institute showed, unfairness is no mistake or side-effect. The attack on low, fixed and middle income earners is not accidental; unavoidable; or inconsequential.

It is a deliberate strategy and particularly out of place given an international policy environment increasingly interested in reducing inequality and promoting social mobility.  This new and welcome focus is founded on what is becoming mainstream economic opinion – from Thomas Piketty to Miles Corak, to even the notoriously dry Economist magazine which has recognised growing inequality as “one of the biggest social, economic and political challenges of our time”.

Australia has not come late to this.  We’ve spent a long time, since Eureka in the 1850s and the birth of the Labor Party in the 1890s, talking about inequality and fairness. So much time, in fact, that egalitarian rhetoric is woven into our national story, and cited by all sides of politics – not just bipartisan, but transpartisan, if you like.  But this has bred a complacency, in which we assume egalitarianism, and practice the social ritual of it, even as one side trashes it.

I say this for two reasons. The first and incontrovertible one is that decisions taken in the first Abbott Budget make Australia less fair and less equal, by asking the poorest and weakest to shoulder the heaviest burden, making it even harder for them to make ends meet.

The NATSEM analysis of the Budget’s full impact on families really speaks to this.  The data reveal that the poorest 20 per cent of households will see their annual incomes fall almost 2.2 per cent, while the richest quintile will see a decline of just 0.2 per cent. A couple with two kids together earning $60,000 suffers a hit of $6,350 per year – more than one tenth of their income.

A budget like this can only lead to a wider gap between the wealthy and the low-paid in our economy; the reason Cassandra Goldie from the Australian Council of Social Service described it as A Budget to Divide the Nation.

But it not only magnifies inequality today, it will ingrain inequality for many years to come. The cuts to health, schools and higher education make it harder for our nation to develop the rich pools of human capital needed to feed productivity and social mobility in the decades ahead.  In this respect, it’s not just cruel, it’s crazy.  And again deliberate; avoidable; consequential.

The second threat to our egalitarianism is the collapse of the political – as opposed to rhetorical – consensus around the “fair go”. As I wrote in my book Glory Daze, the hyperpartisan clique among Tony Abbott’s Liberal Party, fellow-travelling think tanks, sections of business and the media works from radically different premises regarding the proper structure of Australian society.

Until this Budget, I accept that was a contestable observation. Now – with the real economic and distributional consequences there for all to see – it is fact.

So it’s worth going back to first principles. To win the political argument for equality, we need to “start with why”.  We need to re-argue egalitarianism for the simple reason that it does not command a political consensus in this country any more. Continuing to act as if it does condemns us to empty, meaningless politics.

Why does inequality matter? It’s an heretical question, most of all for those of us on the progressive side of politics, but I’ll wager many who call it heresy would struggle to answer it. There’s a huge literature on this, and it is very much worthy of more debate than I will give it here.  But I am a politician, not a philosopher, so let me boil it down to three elements, briefly: (1) it destroys human happiness; (2) it weakens our society; and (3) it weakens our economy.

Inequality destroys human happiness because people cannot help but judge their own personal worth by comparing the resources they have with those of others. In a society like ours with high levels of inequality, the poor are surrounded, bombarded every day with images and living examples of people with advantages – money, status, possessions – they can only dream of.

When these inequalities persist and indeed harden from generation to generation, it can’t help but breed a sense of hopelessness – that no amount of effort will improve their situation.  That social mobility is a relic of the past in an Australia we no longer recognise.

The second point is that large and enduring disparities make people feel that their society and their democracy are loaded against them. That somehow the game is rigged and they can never win. Self-evidently (in Australia, but even more vividly in recent days with the rise of the far right in recession-torn Europe) this breeds mistrust and weakens social institutions and democracy, with terrible consequences if left unaddressed.

Finally, inequality is bad for economic growth. I have listed it last, not because it matters the least, but because it should require the least explanation. In a series of landmark studies, the IMF has clearly demonstrated the damage inequality does to growth in both developing and developed countries. This is not only striking for reaffirming what many of us feel instinctively, but it also argues for different models of economic decision-making, like inclusive capitalism, a concept fleshed out by Mark Carney, the Governor of the Bank of England last week. These models reflect the economic reality that equity and growth are not in conflict, but mutually reinforcing.

All of these are powerful arguments against what you will hear from conservatives with the guts to say it: that what matters is absolute poverty, not relative poverty. You’ll hear this argument trotted out from time to time when they want to argue that there aren’t really poor people here, at least not if you compare us to Asian third world countries, as one hapless Coalition MP did.

I’m using his extreme example because it helps to point out the absurdity such arguments lead you to: we can have third world levels of inequality if we want, but only if we want third world levels of social, political and economic stability. We rightly aspire to better than that in a wealthy country, and that’s why relative prosperity and social mobility are what matters.

We are here in politics – at least I am and my Labor colleagues are – to help our citizens lead fulfilling lives, and to build genuine social mobility that strengthens and grows our economy.  For all these reasons, inequality matters.  That’s a key reason why we are fighting this Budget and making the case for an Australia where fairness is part of the future and not just part of the past.

About Jim Chalmers

Jim Chalmers

Jim Chalmers MP is Shadow Minister for Finance, and the federal Labor Member for Rankin. Prior to his election he was the Executive Director of the Chifley Research Centre and, before that, Chief of Staff to the Deputy Prime Minister and Treasurer. He has a PhD in political science and international relations and a first class honours degree in public policy. His book Glory Daze was published in July 2013 and he tweets as @JEChalmers .

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