Some more thoughts on ‘inequality’

Website essay 84:  29 May 2019

A few days ago I had a long and interesting discussion with a friend about inequality. He was exercised about the unfairness of some people’s being extremely rich and others being extremely poor. He thought that inequality was increasing. What could we do about it? He thought that the return of death duties and their equivalent would be a good start. We needed to level the playing-field, he said, so that each child was given an equivalent chance. It was his mission, and he wanted to draw me out on it. My response was not especially supportive, but I didn’t articulate it well. Since that talk I’ve thought more about it all, and what follows makes more sense, I think.

First, it’s hard to know whether or not economic inequality is increasing. Compared to when? My guess is that the 1960s and 1970s were a period in Australia when there was less inequality than now, and certainly less than in the 19^thcentury, let alone in the time of Louis XIV, or the peak years of the Roman Empire for those who lived in those times. There is always economic inequality, for a variety of reasons. Part of it is inheritance: some kids get a much better start than others. Part of it is skill, beauty, cleverness, attitude: these attributes are not at all evenly distributed. Part of it is merit: all societies value people who have what it takes to achieve what is needed in an organisation — the military, government, the church, the school. Those people rise, and are better paid. I can’t really imagine a society that was functional in which everyone was paid the same, no matter their skill or merit. I don’t know of any example outside some primitive tribes, where ‘pay’ was not in question anyway.

Second, if we accept that there is too much inequality and we would like to reduce it, how would we best go about achieving that end? Two devices that have been used before are super taxes and death duties. At one point the Attlee Labour Government in postwar Britain brought in a 95 per cent super tax for those whose income/wealth exceeded a certain amount. This had a severe effect on grandees with great houses in the country, many of whom had to sell up. The super tax was not the only reason. Domestic staff, in the confident mood of the new Elizabethan Britain, went for much higher wages in the towns and cities, or emigrated to the USA, Canada and Australia. And not all of the rich were crippled. The Dukes of Westminster, probably then the richest family in the UK after the Royals, are still in that position, as far as I know. They used other anti-tax devices, like the trust, to bypass these swingeing new taxes.

Third, death duties strike at the heart of a family-based society. It is, after all, one of the great purposes of the family to ensure that the kids are given a good start, get a good education, manage to invest in a house or apartment, and so on. Passing on funds at the end of the parents’ life is one way we do this. Providing funds when needed, if the family can afford to do so, is another. Set your taxes too high, commandeer much of what is left at the end of the parents’ lives, and you take away much of the incentive and capacity of the family to care for its own. Is that what you really want?

Fourth, that strategy also assumes that governments are in a better position to decide what families need than the families themselves. On what basis would we think that is either sensible or practicable?

Fifth, it is unquestionably the case that as societies get wealthier so the degree of economic inequality will seem to rise. The numbers just grow. Today we talk about billions; when I was young, ‘millions’ was a difficult thought to entertain. Some people are offended at the size of the annual salaries and farewell gifts appropriated by the CEOs of banks. It doesn’t thrill me much either, but this matter is in the hands of the banks’ shareholders. If they pay less to their CEOs more money should flow to them in dividends. 

But what about the wealth of top sportspeople, who do to a large degree earn their incomes? My favourite tennis player, Roger Federer, has a net worth of $US450 million. That’s peanuts. Vince McMahon, a wrestler, is worth $US2.2 billion. Ion Tiriac, once highly regarded both as a tennis player and an ice-hockey player, is worth two billion. Michael Jordan’s skill in basketball has provided him with $US1.7 billion. Tiger Woods has about $US800 million. As the world becomes more global, the earnings of such athletes become global too. What can any government do about such wealth, if it wanted to do something? The global issue will be that all countries would have to do the same thing at the same time, otherwise there would be an incentive for each country to play this game so that it benefits disproportionately, no matter what other countries do. It is all somewhat reminiscent of those vain attempts to ‘take action against climate change’, where some Australians think we have to show the way, when China and India pay no attention to the core issue at all, and their emissions dwarf ours.

Sixth, as so often, my approach would be incremental only. Don’t bring death duties back, don’t have a super tax. You’ll only infuriate the electorate, and to what end? Is there a way of giving more children, who don’t have great advantages, a better step forward? Well, we do a lot of that now. The education, health and social welfare sectors in Australia already offer great examples of help where it is needed. We aren’t bad at it at all. You want more done? Then you’ll either have to take money from other sectors, raise taxes or find ways of encouraging the voluntary sector to do more. None of that is easy, but it’s likely to be more effective in the long run than the big, bold visionary top-down decision so well exemplified by Kevin Rudd’s NBN and NDIS visions, still not implemented properly. That is not the way to go. 

Finally, I’m not sure that economic inequality is such a special issue. Yes, to repeat, there are kids and families ‘doing it tough’, lots of ‘little Aussie battlers’ who never seem to be able to buy a house, or get the things they and their kids need. There will always be some of them. But in general, Australia is a lot wealthier than it was, and the poor are a lot wealthier than their counterparts were fifty years ago. If you think that isn’t good enough you might like to join a voluntary organisation that does something to help the less advantaged. Houses are too expensive? Well, for hundreds of years most people have been renters. One current argument is that renting makes more sense financially.

And you’ll hear a lot about the ‘poverty line’. You are rarely told what it is. First, it is a measure that proclaims that if your income is below fifty per cent of the median Australian income, you are living in ‘poverty’. Last year, according to the Australian Council of Social Services, that applied to about three million people, and equated to a weekly income of $433 for a single person, or $909 for a couple with two children. There are other sources that say real poverty in Australia is twice as bad.

Which takes us into another domain. What is poverty, anyway? How does one define it? This essay is already long enough, so what amounts to ‘poverty’ will have to wait for another week. On re-reading I might come across as an old bad-tempered curmudgeon who likes things just as they are. On the contrary, I think, my aim is for incremental change that works and does give people who have disabilities a greater opportunity to lead fuller lives than would otherwise be possible. But a society of equals doesn’t appeal to me at all. I’m happy with diversity in outcomes as well as in other aspects of life.