The Rich and The Rest

20 January 2015 Alan Attwood

The Rich and The Rest

Oxfam has released a report stating that by 2016, the top 1% will have more wealth than the rest of the world combined. We ran this piece last year, before the G20 summit in Brisbane, but it is (sadly) only becoming more and more relevant.

 

Amanda Vanstone won’t be happy. The former Howard Government minister wrote a column in Fairfax papers last month that began: “I wish I received a parcel of shares…every time I saw or heard a story about the rich/poor divide in Australia… How often have you been told that the gap between the rich and poor is growing, and directly or indirectly invited to believe that something is therefore radically wrong?”

Sorry, Amanda, but here we go again. Another story about the widening gulf between the very rich and very poor. But we’re not the only ones banging on about this rich/poor divide in Australia and much of the developed world. Richard Denniss, head of the Australia Institute, responded to Vanstone’s column with a piece warning about the costs of income inequality that was published under the headline ‘Australia needs to be fairer if it wants to be richer’.

This won’t have surprised Vanstone: the institute is regarded as a left-leaning think tank. Nor would she have blinked at comments made by former Labor Finance Minister Penny Wong in May, when she said: “Extreme disparities of income and wealth are not justified in a fair society.” Inequality, she argued, damages the economy by stopping people reaching their potential. Also, “Extreme disparities between rich and poor can undermine social cohesion and erode cooperation and trust, with negative consequences for productivity.”

And did Vanstone note that in April, Pope Francis tweeted (yes, tweeted!): “Inequality is the root of social evil.”

So what? Aren’t there mutterings about the Pope being a closet Marxist? But that is never said of Janet Yellen, Chair of the US Federal Reserve. In what was described as ‘an unprecedented speech’ last month, Yellen warned about inequality in the US. The past few decades, she said, “have seen the most sustained rise in inequality since the 19th century… The extent of, and continuing increase in, inequality in the United States greatly concerns me.” Yellen reported that the average income for the top 5% of US households increased by 38% from 1989 to 2013. In that same period, average incomes for the rest of US households grew by less than 10%.

Yellen, if not Vanstone, is likely to have paid heed to comments made by another high-profile woman, International Monetary Fund head Christine Lagarde, who in London in May noted that the 85 richest people in the world control as much wealth as the poorest half of the globe’s population – 3.5 billion people. “It is no wonder that rising inequality has risen to the top of the agenda,” Lagarde said, “not only among groups normally focused on social justice, but also increasingly among politicians, central bankers and business leaders.”

One of those politicians is Barack Obama. In his State of the Union address in January, the US President said he wanted to tackle the “relentless, decades-long trend” of income inequality: “Corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged. Inequality has deepened. Upward mobility has stalled. Our job is to reverse these trends.”

Obama will be a key participant when Australia hosts the G20 summit in Brisbane this month. His host, Australian PM Tony Abbott, has indicated he would like the focus of the summit – a talkfest for the most influential nations – to be on economic growth (not ‘distractions’ like climate change). The summit itself is certainly an economic boost for some, with reports suggesting expenditure of $150,000 on a conference table, $10 million on accommodation, three times that on security and even $1 million on signage.

Coinciding with an advance meeting of G20 finance ministers in Cairns in September, Oxfam Australia’s Policy Manager, Jo Pride, urged delegates to support global tax reforms. Widening inequality could be tackled, she suggested, by a crackdown on tax avoidance by multinational companies. Some high-profile companies, she said, “have been exposed for dodging their taxes and cheating the system, but this is just the tip of the iceberg”. Pride said the widening gap between rich and poor was evident in all but four G20 countries: “The G20 ignores this trend at its peril. If the global community fails to curb widening inequality, we can expect more economic and social problems.” Lagarde had already said that, because of inequality, “too many people in too many countries have only the most basic access” to crucial things like education and healthcare.

The figures on inequality are startling. A survey of global wealth by investment bank Credit Suisse found that in Russia – likely to be represented at the G20 by President Vladimir Putin – just 110 people own 35% of the country’s wealth. An Australian Institute report has suggested that the Australia’s seven richest individuals hold more wealth than the bottom 1.73 million households. In the US, economist Joseph Stiglitz has said that the top 1% of Americans took home 22% of the nation’s income last year.

This has profound implications. Commenting on Russia, American journalist Christian Caryl wrote: “The problem isn’t just that some people are now fabulously rich. It’s that disproportionate wealth increasingly goes along with disproportionate power.” Recent student-led unrest in Hong Kong had its roots in inequality. In The New Yorker last month, Evan Osnos wrote: “The dispute isn’t only about politics. The population of seven million has one of the highest levels of income inequality in the world, a gap that has widened since China regained sovereignty [in July 1997]. University graduates, unable to afford apartments, sleep on their parents’ couches.”

The Great Divide is a global phenomenon. And it is not new. In 2001, the St Vincent de Paul Society produced a report called Two Australias – Addressing Inequality and Poverty. It began with a quote: “Two nations; between whom there is no discourse and no sympathy; who are as ignorant of each other’s habits, thoughts and feelings, as if they were dwellers in different zones… I speak of the rich and the poor.” This came from Benjamin Disraeli, later to be British PM, in 1845. Nothing much has changed.

In 2001, St Vinnies’ head John Moore warned: “If the growing disparities between groups of Australians continue unabated, Australia will divide into two nations – one for the rich and one for the rest.” It has. There is the battlers’ Australia and the Australia where sales of luxury cars are booming (a Porsche dealership on Sydney’s North Shore has recently been upgraded), where there is feverish interest in high-end real estate, and where customers at foodie god Heston Blumenthal’s soon-to-open Melbourne restaurant will fork out $525 per head – before drinks. (A ballot for bookings had to be instituted to cope with feverish demand.)

In October last year, St Vinnies again surveyed the divide. This time its report was called Two Australias: A Report on Poverty in the Land of Plenty. Reflecting on 2001, CEO John Falzon commented: “Sadly, all of the things that angered us then still anger us now. Our members continue to witness the daily struggle of the people in our midst who have been left out or pushed out. We continue to see the denial of fundamental human rights such as the right to appropriate housing, employment and education.” He also conceded, “many of us feel worn down by the unremitting resistance to our project of building a more just and compassionate Australia”.

Yet Falzon fights on. In The Australian in April he argued: “A government humiliates people when it proclaims that it must cut red tape and get out the way, which is often code for getting out of the way of those people who wish to make profits with no concern for Australia’s growing inequality.”

Last month, writing about poverty in Australia, Australian Council of Social Service (ACOSS) CEO Cassandra Goldie commented: “It is unacceptable that after 20 years of economic growth our wealthy nation is going backwards in the numbers of people falling into poverty.” In Australia in 2012, ACOSS believes, “one in seven people, including one in six children, lived below the most austere poverty line widely used in international research (50% of median income)”. The Australian Institute of Health and Welfare, meanwhile, has suggested that 13% of the population is living in relative poverty. Yet Credit Suisse has claimed that Australia has more than 1.2 million millionaires.

Last year, Andrew Leigh, a former professor of economics at the Australian National University and now a federal Labor MP, published a book called Battlers & Billionaires – The Story of Inequality in Australia. In it he made the point that Australia’s first billionaires, Robert Holmes à Court and Kerry Packer, achieved that status in 1987. Yet by 2012 there were more than 30 billionaires. Leigh wrote: “As rich and poor stretch further apart, the social fabric threatens to tear.”

People find money fascinating, hence all the attention paid to the BRW Rich 200 list. This always receives more media coverage than, say, the Salvation Army’s National Homelessness Report, which last December noted that more than 20,500 people had sought help from the Salvos in the second half of 2012. Almost half of them said their main issue, as they battled poverty, was a lack of affordable housing.

This is not a problem for those on BRW’s list, which this year suggested total wealth had risen from $176.8 billion in 2013 to $193.6 billion. Australia’s richest person, again, was WA’s Gina Rinehart, who actually had a bad year – her wealth slipping from $22.02 billion in 2013 to $20.01 billion (reflecting the slump in iron-ore prices).

WA has supposedly enjoyed a mining boom. But an economics centre at Curtin Universty in WA studied the ‘boom’ and found a rise in both income and wealth inequality. “The gap between the richest and poorest households in WA rose consistently since the acceleration of the WA boom in 2003–04 to its peak in 2009–10,” said Professor Alan Duncan in May. “The highest income households are getting richer…but the lowest income households in the state are falling further behind.”

Forbes magazine’s annual list of the world’s billionaires named 1645 men and women, with an average wealth of US$4.5 billion. Rinehart was number 51 on the list, again headed by Bill Gates. At the top end, it seems, things are getting better – though not, by one measure, for Australian CEOs. A survey of CEOs’ pay last year found that, relatively speaking, they could even be said to have dropped a bit. In 2008, the average CEO compensation was 84 times the average wage; last year’s figure of $4.8 million was just 63 times the average.

Yet some still receive head-spinning salaries. A report in September listed the head of Macquarie Bank, Nicholas Moore, as Australia’s highest-paid CEO ($13.1 million). In April, a letter-writer to The Age, Andrew Gibson of Abbotsford, responded to a call from the IPA, a right-wing think tank, for the abolition of the minimum wage by advocating the imposition of a maximum wage.

Yet money cannot buy contentment. The New Yorker has identified what it calls ‘Moaning Moguls’, who sense that some are “blaming wealthy people” for their own problems. In her recent column, Vanstone wrote: “The so-called rich get a pretty rough deal in terms of media coverage.” Meanwhile, local charities have indicated they are not hopeful of being able to meet an expected growth in demand over the next 12 months.

That a chasm exists between the rich and the rest is undeniable. But what can be done about it? In St Vinnies’ report last year, Falzon argued: “If we are to reverse the trend towards greater division and discordance we, and the governments that represent us, need to make an important choice. We can either blame the people who live in poverty or we can engage in positive action to eliminate poverty… Investing in a strong economy is not enough to prevent two Australias from emerging – the last three decades have demonstrated that wealth and resources do not trickle down.”

Increased taxation is one solution. But those with money have both the means and motivation to employ professionals to minimise their tax obligations.

Paradoxically, changes to tax rates have tended to favour top earners. In July, Richard Denniss from The Australia Institute argued, after pointing to things like tax breaks on capital gains and superannuation: “Increased inequality has been the objective of subsequent governments in Australia, because everything they’ve done has exacerbated it.”

Corporate tax is an area worth exploring, especially following claims about global giants (such as Apple, Google and IKEA) paying low rates of tax on revenue derived from Australia. Last month, wealthy retailer Gerry Harvey was quoted as saying it was “morally wrong” for a company to avoid paying tax in its home country. But not everyone shares his view. A report in Fairfax media this year suggested almost one-third of Australia’s largest companies were paying less than 10 cents in the dollar in corporate tax, and 84% of the top 200 listed companies paid less than the 30% company tax rate. Corporate Australia does contribute more than $70 billion a year to Federal Government revenues. Terrific. But Mark Zirnsak, a spokesman for Tax Justice Network Australia, maintains: “It is simply not true to assert that all Australian businesses accept their obligations when it comes to paying tax and being transparent.”

Controversial French economist Thomas Piketty argues that capitalism ensures the gulf between rich and the rest will only grow. He has advocated “a global tax on all forms of capital” and also a boost in the top rate of income tax, to as much as 80% on incomes over $500,000 or $1 million. Only a very brave government would try to introduce that or inheritance taxes.

We can always hope that the wealthy simply choose to hand it out. Last November, Westfield figurehead Frank Lowy said that he and his family have given away $350 million over 10 years – a sum that would make him Australia’s top philanthropist. “When you have a little, you give a little,” he said. “When you have a lot, you give a lot.” WA-based Andrew ‘Twiggy’ Forrest has also called on tycoons to share their wealth and personally made a $65 million contribution to higher education in WA.

In the US, businessman and former New York mayor Michael Bloomberg has vowed to give away his US$32 billion fortune before he dies. But another US-based tycoon, Rupert Murdoch, is not obviously active in philanthropic circles – although his backing of the loss-making Australian newspaper perhaps counts as a kind of charity. Meanwhile, members of the Packer family, Murdoch’s traditional business rivals in Australia, have made sizeable donations – especially to the arts.

But it is simplistic to gauge generosity, or impact, by the size of donations. This was made clear in Australia’s Top 50 Philanthropic Gifts, published last year by the Myer Family Company. In his introduction, Myer’s head of philanthropy, Peter Winneke, wrote: “Even a gift of $150 can lead to an amazing, long-lasting outcome.” The Fryer Memorial Library of Australian Literature at the University of Queensland, for example, started in 1927 with an initial gift from the Student Dramatic Society of five pounds, five shillings. To Winneke, the library “is a beautiful metaphor of what can grow from a very small gift”.

But we cannot hold out for gifts; we cannot rely on the rich to help the rest. Governments must take the lead. The G20 summit would be a fine place to start. Bloomberg has said: “One thing I learned from 12 years in government...is that you can effect change, pull people together and face big societal problems.” Similarly, former Blair Government minister David Blunkett recently told The Guardian in the UK: “It is possible to create that tide and then to demand – not just ask – but demand that politicians take the opportunity to bring about positive change.” Now there’s a topic for former politician Amanda Vanstone in a future column.

by Alan Attwood

This article first appeared in Ed#471.

Authors