New approaches needed to tackle entrenched disadvantage

By David Donaldson

Friday April 20, 2018

Pockets of entrenched disadvantage continue despite Australia’s long run of prosperity. A new report calls for regular Productivity Commission reviews of inequality and a boost to Newstart.

Stagnant incomes, geographic disparity in opportunity and emerging technologies all have the potential to worsen inequality, according to a report, How unequal? Insights on inequality, released by the Committee for the Economic Development of Australia on Friday.

And rising inequality is not just a problem for those at the bottom of the pyramid — it threatens the social cohesion democracies are built on.

Although measures of income inequality suggest it has not risen in Australia since the global financial crisis, it hasn’t gotten much better either.

Income Inequality (Gini Coefficient): equivalised disposable household income

Source: ABS, (2017) Household Income and Wealth, Australia, 2015–16. Catalogue No. 6523.0. Figures for missing years have been interpolated applying a constant rate of change. *Estimates presented for 2007–08 onwards are not directly comparable with estimates for previous cycles due to the improvements made to measuring income introduced in the 2007–08 cycle.

The report also highlights education, geography and technology as three potential sources of increasing inequality in future.

‘There is no room for complacency. Given our economic growth in this period, there are areas where we should have made more progress,” says CEDA chief executive Melinda Cilento.

“After several decades of economic growth, we haven’t made inroads on entrenched disadvantage or the number of people living below the poverty line, which sits at around 13%.

“At the same time we are not preparing fast enough to manage emerging risks around technology, which could compound these issues further. For example, gig economy workers do not have superannuation deducted by their employer, potentially exposing them to future retirement income gaps.

“The government should explore the adequacy of superannuation, pension and savings products for contingent workers to ensure this does not become an issue in the future.”

CEDA is concerned about the potential impact on the vulnerable of unregulated artificial intelligence and big data, and highlights so-called “postcode inequality” as an ongoing problem.

“There are entrenched geographical pockets of disadvantage across all states and territories. For example, in NSW 37, or just 6% of postcodes, account for almost 50% of the greatest disadvantage in the state and the other states and territories have similar findings,” says Cilento.

“After 26 years of continuous economic growth, the persistence of this kind of geographical disadvantage is deeply concerning.

“We need to recognise that location plays a role in equality and look at far more targeted place-based initiatives.

“In addition, ensuring the adequacy of Newstart, so that it is not an entry point to deep disadvantage, is an important step.”

Recommendations in CEDA’s report include:

  • That the Commonwealth government request the Productivity Commission undertake periodic independent reviews of inequality in Australia.
  • Adjusting the level of Newstart payments to a more appropriate benchmark and indexation arrangement to ensure adequacy over time.
  • Implementation of place-based initiatives and more targeted assistance for areas of entrenched disadvantage.
  • A comprehensive review of Vocational Education and Training in Australia to underpin future funding arrangements and ensure it can meet the training and reskilling needs of the Australian workforce.
  • The government should explore the adequacy of superannuation, pension and savings products for contingent workers and whether action is necessary to ensure sufficient retirement income for those workers.
  • Measures to address housing affordability, including a larger component of capital gains taxed, moving to annual land tax instead of transactional taxes such as stamp duty and relaxing planning restrictions to allow increased housing density.

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