As Inequality Worsens, Millionaires Are Pulling Up the Drawbridge Behind Them
When I became a partner in a law firm, something strange happened at the bank. Our relationship deepened. I became a premium client with premium needs.
I was introduced to my customer relationship manager. Soon after I realised I didn’t have to queue in a bank branch again. If I had a problem, he could sort it out. I received a discount on the bank’s advertised variable interest rate. Other bank employees contacted me to discuss "wealth management", "exciting investment opportunities" and "great insurance deals".
Then a financial advisor came to see me armed with a voluminous folder containing an investment strategy for my super fund. He said I should aim for a $10,000,000 nest egg for retirement. With apologies to The Graduate, the strategy could be boiled down to one word: "timber". Actually, four words: "tax deductible timber plantations". I passed it up.
I was referred to an accountant who suggested that paying tax for someone in my position was a life choice. My skin crawled. I passed on that too.
I am not sure exactly when it happened, but at some point I realised life had increasingly come to resemble a long-haul flight. Goods and services began to be increasingly tiered to target the well-off and sold at different prices, like seats on a plane. First class travellers sit up the pointy end of aeroplanes with plenty of space, comfort and fine food and are able to avoid long queues, including those that develop outside in-flight toilets. Towards the back, people are moulded into unsuitably confined spaces.
This isn't limited to plane journeys, of course. Take a universal constituent part of the human condition: our distaste for waiting in a queue. In the US, a market has emerged for the services of homeless people who are paid to wait in lines on behalf of lobbyists seeking access to congressional hearings. The time-poor wealthy pay the time-rich poor to wait in queues.
And remember when luxury cinema viewing, such as Gold Class, first appeared? Instead of sitting in the democracy of a cinema, this too was a premium service offering space, comfort and exclusivity – even if trying to eat a choc top washed down by a glass of Merlot while reclining in a furry chaise longue was not as special as it may have seemed at first blush. Likewise, in recent years, premium transport services have emerged offering luxury cars and personalised relationships to transport clientele. Even psychologists have got into the act, metamorphosing into "executive coaches" and in the process tripling their hourly rate.
In Australia, the economic transformation wrought by 22 consecutive years of economic growth and an unprecedented mining boom has played a crucial part in these changes, generating enormous prosperity. Entrepreneurs have increasingly tiered their business offerings to target this wealth.
Australia is now one of the wealthiest countries in the world, vying with Switzerland and Norway to head the league table on various measures of wealth and wellbeing. But all this prosperity has been rather unevenly distributed. The incomes of our top 1% have far outperformed the rest of the population, just as they have done in other economies like Canada and the US. Between 1994-2008, the wealthiest 10% of Australian households enjoyed the highest increase in incomes of any advanced economy.
The profit share of economic growth rests at a record high. This means that the share apportioned to the wages of the labour force sits at a record low. It has not always been like this. Between 1900 and the 1970s, income inequality actually reduced. Since then, it has made a rapid about-face. According to the Australian Council Of Social Services, over 2m of Australians live below the poverty line. Half of all Australian families live on a pre-tax income of $77,000 or less.
You can drown in data measuring inequality, but just as much can be revealed by examining our culture and politics and increasingly our interactions with each other.
The US has a peculiar obsession with the right to bear increasingly lethal weapons. In Australia, the obsession is with private schools. 35% percent of our students now attend them. This compares with class-riddled Britain (10%) and the average across OECD countries (17%). Some 60 years after then prime minister, Robert Menzies, first decided to equally fund students in both government and non-government schools, educational inequality has become entrenched.
When the head of an exclusive Melbourne private school for girlschallenged her sacking in September 2012, we got a rare insight into the transformation of Australian education and the passions of the contemporary middle class. Rosa Storelli, the principal of Methodist Ladies College, was fired after questions were raised about “over payments” said to have been made to her. Explosive details of the school’s finances became public.
At the time of her sacking, Storelli enjoyed a $560,000 remuneration package. Not only was Storelli paid more than the prime minister, her taxpayer subsidised salary exceeded that of state school principals by a multiple of between three and four. As for the school itself, it had an operating budget of $55m. In the three years prior to the sacking, MLC had received $25m in government funding. You can count the number of public schools who received equivalent funding in the same period by ignoring the fingers on one hand, and instead gazing intently at your navel.
A ridiculous amount of media space was devoted to the ins and outs of the Storelli sacking. For Melbourne newspapers, particularly The Age, it was a sacking like no other and merited weeks of saturation coverage. The school’s parents, the wealthy burghers of Melbourne’s comfortable eastern suburbs, took direct action, forming a picket line at the school. Unprecedented.
Of course growing inequality is not unique to Australia; it has become an increasingly prominent issue globally. The issue resonates in advanced economies, a by-product of the dominant neo-liberal economics of the last 40 years.
In the US, minimum wage employees do not earn enough to survive and are forced to take a second or even a third job to make ends meet. All attempts to reduce inequality – including through taxation and other redistributive policy – are countered with a conservative cacophony of “class warfare” as the wealthy seek to aggressively maintain their advantage. In 2005, multi- billionaire Warren Buffett claimed that the rich was winning. By 2011, he declared that the 20 year war was over. “We won”, he exclaimed. Buffett has argued for tax reform to change a system in which he pays less tax than his administrative assistant.
The relentless emphasis over the last 40 years in public policy on economic growth and material gain is now being challenged with an increasing urgency. Some of the critiques of neo-liberalism are coming from unlikely sources, most notably the head of the Catholic Church, Pope Francis who argues:
While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by the happy few. This imbalance is the result of ideologies that defend the absolute autonomy of the marketplace and financial speculation.
His analysis, contained in the apostolic exhortation Evangilii Gaudium, has resulted in the Vatican being described as the modern “spearhead of radical economic thinking.”
The unprecedented aggregation of wealth in Australia has not engendered a more generous or altruistic era. Those who have amassed significant wealth or advantage now aggressively assert their right to enjoy it unencumbered by any interference in the form of taxation or redistributive policy. They find succour in the ardent support of the Liberal and National party, large parts of the media and peak business bodies.
Booming mining companies earning super profits declare war against any moderate taxation measures proposed by Treasury bureaucrats. Wealthy private schools and their customers decry the notion that taxpayer funding should be moderated in favour of poor or disadvantaged students and their schools. The wealthiest Australian superannuants fight for the right not to pay any tax on earnings from their large superannuation assets. Millionaire property investors threaten to rise up at any suggestion that negative gearing, a tax deduction ruse, be scrapped. As a result, younger and less wealthy people remain excluded from the property market.
A few decades ago, a bipartisan political consensus would have developed to challenge these rorts. Not so now.
We are increasingly producing a nation of millionaires who have pulled up the drawbridge behind them. The prosperous are easily angered and more inclined to share their anger than their wealth. Goaded on by a bipartisan political consensus, they rail against a "cost of living crisis". Itdoesn’t exist in an era of low inflation and hasn’t done so for years. In reality, the affluent rail against a cost of living-really-well-crisis: the cost of owning a house, a negatively geared investment property and funding three kids in private schools. Take for example politician Joel Fitzgibbon, who last year issued an impassioned cri de coeur on behalf of the “battlers” of his electorate earning $250,000 per annum. Oh, and he is a Labor politician.Companies earning super profits have declared war against mining taxes. Photograph: Jack Atley/Bloomberg
Although the word has infrequently passed an Australian politician’s lips in the past decade, many of the most contentious political issues in recent years have been contested through the prism of inequality. Institutions that moderate income inequality – including a much diminished trade union movement, the federal industrial relations tribunal and social welfare safety net – are relentlessly attacked by the right. A divided, weakened left grimly and intermittently defends. On occasion it is the offender, as the Gillard government did in relegating to single parents onto Newstart.
The US Republican political strategy, evidently used to great effect, is to challenge any policy measures to alleviate its eye-watering levels of inequality as “class war”. That tactic has been imported into Australia. Bernard Keane has documented how the cry of “class war” has been deployed to describe variously Gonski’s more equitable education funding policy (Christopher Pyne, Kevin Donnelly), the super profits mining tax (Andrew Forrest), the proposal for our most wealthy superannuants to pay 15% tax (Matthias Cormann) and just about everything else (Tony Abbott, Joe Hockey).
Whenever 'class warfare’ is invoked ... disproportionate or unjustified benefits for high-income earners or large corporations are under threat.
It is a measure of how far politics has shifted that David Gonski, successful businessman and a member of blue chip boards includingANZ and Coca-Cola Amatil, is charged with “class war” by conservative politicians and their shouty media echoes in our national newspapers. His crime? Painstaking public service to restore falling educational standards and repair grossly inequitable allocations of resources to schools.
Celebrated Australian novelist Tim Winton is bemused by the cultural transformation that is revealed by responses to expressions of concern about growing inequality: invariably, a retaliatory accusation of a “nostalgia for Stalin”. In 21st century Australia, he laments that the language of class warfare is not invoked by the “vanquished working class”, but by the middle class.
In the history of the existential crisis that is the federal ALP over the last 18 years, there have been many low lights. The Tampa crisis, the PNG Solution, the Rudd/Gillard schism, Craig Thomson and corruption within the HSU. Arguably, the most devastating low-light of them all was the meek capitulation by some Labor “icons” to this Tea party politics during the life of the previous government. Like lemmings hurtling over a cliff, Simon Crean, Martin Ferguson and Kevin Rudd all called for an end to the ALP’s “class warfare”. Their pleas came just two years after Warren Buffett’s declaration of victory by the rich.
Within three months of being elected, the surprisingly brazen Abbott government has trumpeted an unambiguous message: now is not the time to be unemployed, disabled or a low wage employee in Australia. A series of government decisions has inflicted further disadvantage on the low paid including aged care and child care workers. The superannuation balances of employees earning less than $37,000 per annum have been reduced. The Gonski education reforms have been sabotaged. An increase in the GST is inevitable, further hitting the poor.
As I write, Abbott’s government is fiercely resisting a law suit which seeks to restore the pay of 10,000 disabled employees after it was illegally halved. Some of my clients in that case currently earn less than $1 per hour.
If inequality is going to get better in this country, first it’s going to get worse.