Economic Growth Our Greatest Tool in the Fight Against Poverty
2 September 2017
This opinion article by Jennifer Westacott appeared in The Weekend Australian on 2 September 2017.
I understand first hand what inequality feels like. For me, growing up in public housing on NSW’s central coast, it was the daily embarrassment of not being able to bring friends home from school out of fear they would see that we had an outdoor toilet and no carpet.
My parents had jobs but never careers. Mum never expected government would rescue us from hardship, so she worked whatever extra shifts and overtime she could scrape together at our local Woolworths. Life was tough, but giving up was not an option.
So I come to the inequality debate as someone who has lived it.
Academics and journalists can spend their time debating whether a technical measure of inequality has marginally increased or diminished over time, but that’s cold comfort to people who are doing it tough. They need hope that they can build a better life for themselves and their children.
Australia has come a long way since then. Successive Labor and Coalition governments have opened our economy and average incomes have doubled during the past 40 years.
However, Australian egalitarianism faces serious challenges, chiefly over housing affordability, stagnant wages, regions with persistently high youth unemployment and pockets of entrenched disadvantage.
The good news is that there already is a wealth of evidence about what can be done to address each of these problems.
We need to remember for whom we are solving the problem of housing affordability; it must be for working families on modest incomes who have the legitimate expectation that they should be able to buy a home and pay it off.
Strong demand for housing, especially in the middle ring of our major cities, coupled with obstacles to new housing supply have driven up house prices. Reducing development and construction costs through more efficient regulation should be a priority.
It’s worthwhile exploring ways to pare back the capital gains tax discount, but I stress this should be done carefully and as part of an overall approach to improving the taxation of savings income, as quick fixes often backfire and create more problems than they help solve.
Australia has a clear problem with wages growth. When I speak to our politicians in Canberra, they invariably accept that wages growth is driven by labour productivity, that labour productivity is driven by innovation and productive investment, and that the level of new investment, relative to the size of our economy, is lower now than at any time since mid-1994. However, when asked what they’ll do about it, too many shrug their shoulders.
The truth is that global investors are not bound to invest in Australia; they will go wherever they can to get an adequate return on their stake. With countries around the world dropping their company tax rates to attract businesses to their shores, we must increase the incentive for investors to risk their dollars by investing in more productive, high-paying Australian jobs.
Following the economic sugar hit of the resources boom, youth unemployment has risen substantially higher than anyone should want. The overall youth unemployment rate is 12.9 per cent and is much higher on our cities’ suburban fringes and some regional communities such as Bundaberg in Queensland.
A stronger economy is also the only way to provide sustainable pathways for our young people to develop a lifetime attachment to employment. Unemployment is demeaning, especially for a young person in their physical prime. By contrast, meaningful work is dignifying. I will never forget the feeling of receiving my first pay cheque as a check-out operator at a supermarket at Wyoming, near Gosford; it was the feeling that I was finally on my way and was taking control of my destiny.
If we’re going to tackle youth unemployment, particularly high unemployment rates in some regions, we need all businesses creating new jobs, from the corner store to the supermarket to the mining development.
We have to open up every opportunity for young people to gain access to work. That includes removing regulatory impediments to major new projects, adding more flexibility around when businesses can open, and making it easier for small businesses to trade.
Where workplace laws count against giving people jobs, government should sit down with industry and unions to examine how we can remodel the law to support job creation while protecting workers’ rights. Tackling youth unemployment also requires a revitalised education system, particularly vocational education and training, and incentives to get more young Australians the chance of a foot in the door and hands-on experience through bona fide internships, such as the Youth Jobs PaTH program.
In my view, the inequality debate of recent months has largely skipped over the most heartbreaking expression of economic injustice in our society: entrenched disadvantage.
There are, in practically every city and town in Australia, families and communities trapped in cycles of poverty that they have been unable to escape. Dependent on welfare, they are bombarded by a patchwork of ever-changing government and non-government interventions, all of which are well intended but collectively appear to make little difference whatsoever.
This isn’t just about poor households but the 105,000 people who last night slept rough, in improvised shelter or in severely crowded or temporary housing. While the rest of us bemoan rising housing costs, homeless people are building their own communities of necessity that make it even harder to reintegrate them into mainstream society and basically impossible if they’re being asked to accept housing on the urban fringe, away from their friends. The recent tent city at Sydney’s Martin Place is one example.
The worst possible thing for people in entrenched disadvantage would be a politically charged debate on inequality focusing on bridging the gap between the moderately well-off and the extremely well-off. The solutions that would emerge from such a discussion might help politicians to woo middle-class voters in battleground electorates, but it would ignore the plight of those who bear the brunt of inequality.
When people think about the households most affected by inequality, I want them to think of places such as Bidwill, in western Sydney, where median household income is $41,600 and only 4.2 per cent of people have a higher education. How can the system be made to work for a young girl wandering the Bidwill public housing estate today?
The first task is to ensure she doesn’t fall even further into poverty. In Australia, low-paid workers are protected by a decent minimum wage, extensive industrial protections and a strong voice for unions and civil society in public debate. However, we need to clear the roadblocks that are preventing businesses from competing and creating stable, higher paying jobs, including an overly complicated tax system and a burgeoning patchwork of inefficient regulation at every level of government.
For the unemployed, we have a social safety net. Its targeted nature means the bulk of transfer payments will go to families such as that of the girl in Bidwill, but there is still more to be done. I’m proud to have called out the inadequacy of the Newstart unemployment allowance which, at only $38 a day for single people, has itself become a barrier to effective jobseeking. The objective of welfare reform should be to ensure the right incentives and training programs are in place so people can get into the workforce as quickly as possible and stay employed.
Importantly, Australian egalitarianism is underpinned by our universal healthcare and education systems, world-class institutions that must be enhanced if they are to sustainably deliver high-quality care into the future.
Despite recent political scaremongering about privatisation, the greatest threat to Medicare is if parliament fails to close the budget deficit and forces a future government into hasty, panicked cuts that erode services. The essential challenge for the health system is to use new technologies and practices to contain costs and reduce often dangerous over-servicing, all while improving health outcomes.
Australia’s education system is also under strain. For generations, vocational education and training has been the way back into the labour market for people who, often through no fault of their own, find themselves jobless.
Yet today the skills training system has been seriously neglected as politicians, almost all of whom went to university, seemingly obsess over the higher education sector. More than three-fifths of trades and technician occupations are experiencing shortages and the number of apprentices in training has almost halved in the past four years.
Redistributive government programs are necessary to support aspirational Australians who don’t have the same advantages as people born into the “right” circumstances or who stumble during their life journey.
In my case, our public house in Gosford was the difference between me finishing high school and going to university. However, it’s concerning that some in the inequality debate want to shift the focus of government back towards achieving equality of outcome rather than increasing opportunity for the neediest. Economic growth is the greatest poverty alleviation tool we have, but it is underpinned by strong incentives for individuals and businesses to take a risk to create new jobs.
These voices are also often heard claiming that Australia is headed down the path of American inequality. This is simply not true. There are some great things about America, but its big weaknesses — including low minimum wages, poor workers’ rights and prohibitively expensive healthcare — are not and should never be part of Australia’s social fabric.
Voters should be extremely wary of the politicians who offer the panacea of redistribution alone as a solution to inequality. Economic growth cannot be expected to continue if we keep sapping incentive out of the economy. The way to tackle inequality is not to make us all poorer. Tinkering at the edges of our tax system and spending programs to stamp out abuse may be worthwhile — for instance, if there’s an identifiable problem with trusts, let’s fix it — but it won’t deliver the systemic changes needed to reduce inequality in our society.
We need a serious plan with serious, evidence-based solutions. That’s why I’m calling for a comprehensive inquiry into entrenched disadvantage. The Productivity Commission would be ideal to conduct such an inquiry.
At the same time, the Business Council of Australia is willing to facilitate a forum to bring business, unions and civil society groups together with politicians to work towards a consensus about what steps can be taken immediately.
I’ve dedicated my life to fighting poverty, including as deputy director at the NSW Department of Community Services and as the director of housing and secretary of education in Victoria. But I’ve always advocated fighting poverty through lives of dignity and purpose, not dependence.
Every single piece of public policy should be focused on helping individuals and the country to realise their potential. We should identify what’s holding people back and fix it, but we shouldn’t diminish aspiration and hope, which have been our best protection throughout war, depression and hardship.
Political players will always find it easy to prey on people’s grievances about inequality, but it’s incumbent on us all to deliver concrete solutions. The girl in Bidwill is counting on us.
Jennifer Westacott is chief executive of the Business Council of Australia.