A Chifley Research Centre report released November 10 adds further impetus to the concept of inclusive prosperity as a fundamental tenet of any new policy direction to achieve economic growth with fairness.
Addressing rising income inequality in Australia is an urgent imperative if governments believe in longterm inclusive prosperity, according to a report released today by the Chifley Research Centre‘s Inclusive Prosperity Commission.
Co-chair of the commission and executive director of the centre, Michael Cooney said today Australia needed a new set of policies to spread the benefits of growth, charting the path to a high-pay, high-productivity economy.
“The report we’ve launched today by Stephen Koukoulas acknowledges from the outset that Australia’s trend rate of GDP has fallen with annual growth a touch under 3 per cent,” Cooney said.
“Australia needs a new set of policies to spread the benefits of growth.”
“Our report addresses five key elements which we believe should inform future policy lifting demand, education/skills, productivity growth, innovation and health/workforce participation.
“Greater equality can lift overall demand.
“Stephen’s paper for the Commission shows that low (and even middle) income earners will spend a wage increase, rather than save it; the significance of this is that the impact on economic growth would be greater if the gains from higher incomes accrued to a only a small handful of individuals.
Higher rate of economic growth
“Improving equality also leads to a lift in education and skills because we know from OECD research, the more numerate a society, the greater is the equality in that society: greater educational opportunities for young people will derive higher incomes, on average, over the course of their life.
“Stronger productivity growth is another benefit of inclusive prosperity because we know that maximising a society’s well-being, lowering unemployment and securing higher wages in a ‘steady state’ or at full employment will combine to underpin a higher rate of potential economic growth.
“Innovation is another linkage with this concept because productivity growth, according to IMF research, is enhanced through greater investment in research and development, and of course those undertaking the R&D need to be highly skilled and educated workers which feeds back into educational institutions devoting more resources to its students.
“And finally, inclusive prosperity improves health and workforce participation. The US National Bureau of Economic Research found that ‘healthier workers are physically and mentally more energetic and robust’, which is no surprise but the association of reduced inequality with improved access to health services is a welcome link,” Cooney said.
Policies that tackle inequality
The report, Inclusive Prosperity: how reducing income inequality can enhance productivity and growth, concludes that a stronger expansion of the Australian economy is a challenging policy crossroad for politicians.
”Near-zero interest rates from central banks are not leading to a robust or lasting pick-up in economic activity,” Cooney said.
“This report and the Chifley Research Centre say that rather than solely relying on monetary and fiscal stimulus as the drivers for a stronger economy, the better solution is policies that tackle inequality.
“There is a trade-off between income equality and economic growth: we can have either high inequality in society and weaker economic growth, or we can have high equality and faster growth.”
Finally, the report finds there is an unambiguous correlation between income and happiness. Findings from the Univeristy of Michigan for the 25 most populous countries showed that as annual incomes rose, life satisfaction also increased.
The challenge Australia currently faces is that in a political environment which embraces an agenda of deregulation, slashing wages, and cutting up the social safety net, the government is in fact encouraging an increase in wealth and income concentration, and a reduction into the high degrees of social mobility among Australians today.
The task ahead is to deliver a balanced set of policies which promote growth with fairness.
Note: The Chifley Research Centre is the think tank of the Australian Labor Party. The Inclusive Prosperity Commission is a major Chifley project exploringthe threat to Australia’s future economic growth presented by growing inequality – and new policies to respond. The Inclusive Prosperity Commission is co-chaired by Hon. Wayne Swan MP (Federal Member for Lilley, former Deputy Prime Minister and Treasurer of Australia) and Michael Cooney (Executive Director of the Chifley Research Centre). The Commission’s membership is broad with high profile and credentialed policy makers from across the spectrum. The commissioners are Cameron Clyne, David Hetherington, Dave Oliver, Peter Whiteford, Rebecca Huntley, Stephen Koukoulas and Tony Nicholson. Amanda Robbins of Equity Economics leads the Commission’s staff. (Biographical details for Commissioners can be found here).