09 June 2017

I acknowledge the traditional owners of the land on which we meet, the Eora people and acknowledge elders past, present and emerging.

We thank them for the stewardship of our land over 40,000 years.

As alternative Treasurer, I commit myself to the task of eradicating the scourge of indigenous disadvantage in our country.

Id like to thank Per Capita as well as Maurice Blackburn for hosting us today.

Per Capita has become an important progressive contributor to the public policy debate and Australia and Maurice Blackburn Fights for Fair, so they are both very suitable hosts for this speech on inequality.

Throughout the developed world, the twentieth century was a period of great advance for a better, fairer society.

It was not inevitably the case.

The aftermath of the industrial revolution saw ordinary people thrown into horrible workplaces for a pittance of a wage while a small number of owners of capital amassed great wealth. Not for nothing was it known as the gilded age: gilded for a few.

But then, governments acted.

Unions were formed.

Workplace laws were introduced.

Taxes were made progressive.

A welfare safety net was introduced.

The emergence of strong labour and social democratic parties were essential drivers of this change.

But now, after a century of progress, it is no exaggeration or hyperbole to say many of those gains are at risk in developed countries.

In the United States, in 1915 the richest 1% of the population received 18% of the national income.

Government action and union organisation saw this figure reduce over the 20th century.

But the late 20th century and early 21st century saw an attack on organised unionism and a retreat from active government.

And, a new industrial revolution saw a massive rise in automation and hollowing out of middle income jobs.

And now, in the United States, the richest 1% receive 24% of the national income. Now every country is different. And Australia has got a lot of things right.

But even here in Australia we have seen wealth grow more quickly at the top.

Andrew Leigh has shown that since the late 1970s, the wealth share of the top 1 percent has risen from 7 percent in 1978 to 11 percent in 2010.

While we can talk about the varying degrees everywhere, the trend is the same.

This matters.

If we care about the advancement of the greater good, the maximisation of happiness and dignity for as many as possible, this matters.

If we care about a sense of society, of the majority benefiting from progress, this matters.

And if we care about avoiding a sense of disillusion, of disenfranchisement which sees people who are missing out turning to the simplistic solutions of populism and closed borders, this matters.

Over the course of the last twelve months, Ive made a series of speeches about matters important to me as alternative Treasurer, as I go about thinking about and laying out the economic plans of the next Labor Government.

Things that will be important to me as Treasurer.

The Case for Opportunity, The Case for Openness, The Case for The Middle Class, The Case for Innovation, The Case for Australia and Indonesia.

And today I want to build on the themes of some of these earlier speeches and make The Case for Action on Inequality.

I dont just want to talk about the problem.

I want to make the case for an activist policy to counter rising inequality.

This isnt easy. It will be controversial.

But hand-wringing and glib one liners about all Australians being in it together wont cut it when Australians know that the current situation isnt working and is getting worse.

I also want to outline some principles which should underpin policy action on countering inequality.

Action should be bold but carefully designed.

We dont face a choice between growth and equality. Properly designed policies which promote fairness also can engender growth.

As the IMF has said: We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growththat is, when the rich get richer, benefits do not trickle down.

However poorly designed policies can inhibit growth and be counterproductive to enhancing growth. They can have unintended consequences. And, when policies which promote fairness backfire with unintended consequences, it puts the progressive cause backwards, not forwards.

Let me deal with four principles do deal with policy action to tackle inequality.

First: Do no harm.

Secondly: Make tax more progressive

Thirdly: Care about geographic disadvantage.

And Finally: Education, education, education.

Let me deal with each of these in turn.

First, do no harm.

With inequality on the rise, the first duty of Government is not to make inequality worse. This might appear to be given, a motherhood statement which doesnt need to be made.

I wish it was so.

Because policies that are being pursued by the Government as we speak will make inequality worse.

Of course, it was only until very recently that the Government was pursuing harsh cuts to family payments, stripping unemployed people of any living allowance and cuts the aged pension.

Its hard to think of other policies that would just further entrench poverty and disadvantage in areas around the country.

But the most current striking example is penalty rates.

Wages growth in Australia is at record lows.

And living standards or real net disposable income per capita has fallen for four years consecutively through to 2016, the longest prolonged fall since records began in the 1970s.

And the Government thinks the answer to this problem is.cutting wages.

Now, yes, cutting penalty rates was recommended by the Fair Work Commission.

And overturning Commission rulings should not be done lightly. It isnt done lightly by Labor.

But lets be clear.

Governments can and do overturn court and commission decisions when the government of the day feels strongly enough.

This Government is seeking, as we speak, to overturn a Federal Court decision on Native Title, because it doesnt like it.

The same Government overturned a decision of the Road Safety Remuneration Tribunal when it didnt like it.

The problem is, the Government is comfortable with the decision to reduce penalty rates.

Well, we are not.

People who are on penalty rates in the hospitality and retail sectors are low income earners.

This isnt a trade-off, where workers get a higher base rate or some other compensation in return for more flexibility.

It is a pay cut.

A pay cut for low income earners.

It will make inequality worse.

It should be reversed.

A Labor Government will reverse it.

A similar point can be made about the minimum wage.

Some want the minimum wage abolished.

We only have to look back at the Liberal Governments Commission of Audit which recommended indexing the minimum wage at less than CPI.

To put in another way, they want an Australian working poor.

Of course, the minimum wage should be maintained.

If we want to ensure we stave off a complete hollowing out of the middle class like weve seen in the United States, we need to defend Australias minimum wage with passion.

But we also must recognise that people reliant on the minimum wage have been sharing less in in the nations prosperity.

Twenty years ago the minimum wage was 63% of the median wage. Now it is 53%.

The decline in the minimum wage, relative to the wage of a typical worker, has no doubt been a driver of the increase in inequality in Australia.

From 1975 to 2014, real wages increased by 72% for the top 10% of income earners, but by just 23% for the bottom 10% of income earners.

Over the last decade Australia is one of only four OECD nations in which the minimum wage relative to the average wage has declined and our decline is the largest in the OECD.

And while the most recent decision of the Fair Work Commission to increase the minimum wage above inflation is welcome, minimum wage increases have generally not kept pace with productivity increases and penalty rates are being cut.

In fact, new OECD analysis shows that the gap between productivity and worker pay in Australia is one of the widest amongst all advanced economies.

If we want people to work harder, we need to ensure they share in the economic gains.

Recent trends certainly dont inspire optimism when the Government tells people just to trust them, their corporate tax cut for big business will magically trickle down into ordinary peoples pay packets.

Whilst the minimum wage will continue to be set by the Fair Work Commission, having a government that actually believes in a strong minimum wage and is happy to argue for it before the Commission, will I believe be important in protecting and enhancing it.

This brings me to my second point, the progressivity of the tax system.

Of course, Australia has a progressive taxation system.

In the face of the increasing inequality of incomes, making the tax system less progressive would be a backwards step.

And improving the fairness of the tax system should be a key priority.

One of the most important things we can do is carefully and systematically reduce tax concessions in the system which are no longer fit for purpose and are regressive.

Thats exactly the approach weve taken in Opposition and will take in Government.

50% of the benefit of negative gearing goes to the top 10% of income earners.

70% of the benefit of the capital gains tax concession goes to the top 10% of income earners.

30% of the benefit of the superannuation concession goes to the top 10% of income earners.

All have been regressive elements of Australias tax system for some time, in some circumstances allowing people on higher incomes to reduce their taxable incomes to zero.

It is hard to believe that a government faced with a deficit 10 times as large as it forecast in its 2014 budget that it has left many of these concessions largely untouched.

On its own, the capital gains tax discount is expected to grow by 18% over the forward estimates to total $13 billion in annual revenue forgone by 2020-21.

This leaves ordinary PAYG workers to shoulder more of the burden of budget repair.

Which is why all of these will be reformed by a Shorten Labor Government.

And more.

We will continue to work through areas of the tax system that cannot be justified on fairness grounds and left untouched just reduce the integrity of the tax base.

Areas of the tax system that allow people to reduce their average tax bills through means unavailable to those without the resources to do so.

Our latest policy announcement to cap the amount people can claim as a tax deduction for managing their tax affairs will have a smaller impact on the budget as these other reforms, but is the next iteration of our careful plans to make the taxation system fairer.

In 2015, forty-eight Australians with an income of more than one million dollars reduced their taxable incomes to zero.

Nineteen of these people used the deduction of managing their tax affairs as the primary method of reducing their taxable income to zero.

There is something particularly galling about using payments as accountants and lawyers to minimise tax as a deduction in of itself to minimise tax.

And public reaction to these issues is growing stronger. Rightly so.

Of course, using an accountant to do your tax return is perfectly legitimate.

The average tax deduction for managing tax affairs is $378.

Which is why our policy to cap the tax deductibility of managing tax affairs at $3000 will affect less than 1% of taxpayers.

But it will improve the fairness of the tax system.

Of course, high income people can pay as much as they want to accountants and lawyers to manage their tax affairs. But only the first $3000 a year will be subsidised by other tax payers. This is fair.

This brings me to tax rates.

Under the Abbott/Turnbull Government, our tax system is less, not more progressive.

They talk about lower personal tax Lets take a quick look at their record.

Their first act in personal tax was to cancel the plans of the previous Labor Government to lift the tax-free threshold from $18,200 to $19,200.

Then, last year they provided tax relief to Australians earning more than $80,000.

This year, they took this tax cut back with their proposal to increase the Medicare levy.

Last years tax cuts cost the budget $4 billion.

This years tax rise will make $8 billion.

But of course, we are talking about different people.

When the Turnbull Government was delivering tax cuts they targeted people earning more than $80,000.

But when they deliver tax rises they target people earning more than $21,000.

And then there is the deficit levy.

It is striking that all the measures in the 2014 budget that targeted low income earners were permanent.

The cuts to the pension, making unemployed people wait for Newstart, cuts to Family Payments.

All were permanent.

The Government didnt say to low and middle income earners, listen times are tough, but so we need you to make a contribution until we are back in surplus, and then well restore these cuts.

The only temporary measure in the 2014 budget was the only one that impacted on high income earners.

So its not enough for the Government to shrug its shoulders and say the deficit levy is coming off because it was temporary.

The budget deficit now is ten times bigger than it was projected to be when the deficit levy came in.

The deficit levy shouldnt be the only budget consolidation measure that is temporary.

Lifting of the deficit levy will rob the budget of $6 billion over the next four years.

On its own it provides a $16,400 a year tax cut to someone earning a million dollars on the 1 July this year, while up to 700,000 workers have their penalty rates cut the very next day.

And yet the government wants to make someone earning just $60,000 pay $300 more a year.

The contrast is clear.

Both sides of politics will now go to the next election promising increases in personal tax.

But here is the difference: The Governments tax increase will apply to all Australians earning more than $21,000.

Labors will apply to Australians earning more than $87,000.

The Government wants to make the tax system less progressive. Labor wants to make it more progressive.

The Governments plan also has the effect of taking more money off people that typically spend a higher proportion of their post-tax incomes.

This has the potential to act as more of a drag on consumption and the broader macroeconomy.

National Accounts data this week showed that we have an economy growing at the slowest rate in 8 years underpinned by pretty mediocre consumption, something that would only be made worse under the Governments approach.

In the face of falling real wages and increasing inequality, our plan is the superior one. It raises more money, is fairer and better suited for the current economic conditions.

Regional Inequality

I now want to turn to the matter of rural and regional inequality.

Any discussion about inequality in Australia which doesnt deal with geographic inequality is missing a key part of the issue.

Where you live has a big impact on your quality of life.

And just as income inequality is at very elevated levels, there is no evidence that geographic inequality is reducing, quite the contrary.

For example, half of all jobs created in Australia in the last decade have been created within 2 kilometres of either the Sydney or Melbourne GPO. Half of all jobs created in a tiny area compared to the land mass in Australia.

In the inner parts of cities, people see low unemployment rates and high levels of job creation.

Take NSW as one example.

Inner city Sydney the unemployment rate sits at around 4%, with youth unemployment at 8%.

While in regional areas like New England, the unemployment rate sits at around 7%, with youth unemployment closer to 14%.

Its not to say that there is no disadvantage in the cities, there is.

But as you move further away from the cities, theres no denying there are less economic opportunities.

The Government of course, has no answers.

Their regional strategy is to move the AVPMA from Canberra to Armidale. Thats it.

And at a great cost to tax payers, and efficiency.

While considering locating new organisations or government operations in rural and regional areas can play a modest role in regional development, in the absence of a broader strategy, random decentralisations like this are just a boondoggle.

And a boondoggle for just one town, which happens to be in Barnaby Joyces electorate.

Geographic specific policies can and must play a role. Labor created Regional Development Australia, a model which recognises that local communities are well placed to identify the opportunities for growth.

I want to concentrate on two particular elements of the policy response to geographic disadvantage.

Firstly: innovation.

We used to hear a lot about innovation. It used to be an exciting time to be alive. Now, its not apparently.

But innovation remains a key focus of our economic policy development.

And I have a particular focus on innovation as part of a regional development policy.

Many of Australias universities now have a regional presence, following the Dawkins reforms of the 1980s.

And these universities are often working on solutions to challenges and opportunities that exist in their communities.

But we need to do much more.

That is the beauty of the policy that Labor took to the last election for regional innovation hubs.

This included establishing a Regional Innovation Fund to kickstart initiatives to expand the role of Australias regions in contributing to the national innovation effort.

And Labors plan for a Startup Year which would have encouraged the entry of around 2,000 graduate-led enterprises a year supporting ongoing regionally-led innovation.

This plan also included the commitment to establishing 20 new accelerators partnering with a regional university or TAFE, local governments and a local business chamber.

Were seeing the emergence of a sharper regional focus from within the start-up community its evidenced through initiatives like Silicon Paddock through to what were seeing at Runway Geelong.

Its important the private sector and government work closely on these sorts of initiatives.

Just this week I was in Bathurst. There, they are doing the right thing, thinking about how they can transition a simple car race facility into a high technology, job creating precinct called "velocity park.

Ive also been impressed with the Rise of the Rest initiative in the US, entirely private sector led, which actively looks to regional economies, especially those who are doing it tough, and funds new and innovative projects.

To quote their mission: High growth companies can now start and scale anywhere, not just in a few coastal cities.

A determination that innovation wont emerge exclusively out of the laneways of our inner cities but will also call up the talents and smarts of those located in our regions, who want to generate the new jobs and firms that will endure the changes ahead.

And secondly, and closely linked: education. Particularly, in this case vocational education and training.

We have a mismatch in our regional areas.

It has struck me for a long time that we have a problem when areas of high youth unemployment, for example, are areas of good industries with skill shortages.

Cairns has a youth unemployment rate of more than 20% for example. And yet it has a vibrant tourism sector desperate for well trained workers.

As Bill Shorten announced in his budget reply speech, thats why Labor will create a new $100 million Building TAFE for the Future Fund.

To renovate classrooms, workshops, kitchens and ag science centres.

Well deliver world-class facilities, for a world-class training system.

And this rebuilding work will begin where its needed most in areas of high youth unemployment around the country. That means regional areas.

Education, Education, Education.

And this brings me to my final point, about education more broadly.

Lifting our educational achievement is a vital economic imperative for the nation.

And closing the gap of educational disadvantage is a social justice imperative.

The evidence is clear. Educational disadvantage linked to the socio-economic status of the parents is a bigger factor in Australia than is the average in the OECD.

This is unacceptable.

Low income students are, on average, two and a half years behind high income students in terms of attainment.

Indigenous students are also two and a half years behind non-indigenous students.

Remote students are two years behind metropolitan students.

This is also unacceptable.

With income inequality at seventy-five year highs, surely we must be more concerned than ever about the fact that that our education system entrenches and re-enforces, instead of ameliorates disadvantage and inequality.

Increasing the quantum of education funding is important, but a proper and genuine needs based system is just as important.

And good quality vocational education and life learning is more important than ever before as well.

Its hard to express it better that Andrew McAfee and Erik Brynjolfsson who said:

Theres never been a better time to be a worker with special skills or the right education because these people can use these skills to create and capture value.

Theres never been a worse time to be a worker with ordinary skills and abilities to offer because computers, robots and other digital technologies are acquiring these skills and abilities at an extraordinary rate

Again, I see our commitment to a properly funded public vocational education as vital in our efforts to reduce inequality.

As Bill Shorten said in his Budget reply speech, Australias future lies in human capital, in skills, education and training.

In this rapidly changing time, we need a government that recognises technology is having huge impact on our economy and an equal one, hollowing out jobs and increasing inequality.

A concerted national effort to produce a better, more efficient and more effective vocational education sector is key.

What not to do: Universal basic income.

I have outlined today some ideas and principles that will underpin my approach to action on inequality as Treasurer.

But it also pays to take a few moments to deal with ideas that have been considered, but dont warrant implementation.

I have already outlined that Labor has developed in the last few years a very progressive tax policy: the most progressive policy from an opposition we have had in generations.

And well continue this work. Carefully and methodically, to avoid unintended consequences.

The debate about inequality is filled with people of good will, trying to think of innovative solutions.

That doesnt mean that every idea is a good one, however.

Take a universal basic income, for example.

Its suggested that with technology on the march, we can no longer expect people to find and retain work and we should provide a universal basic income, from the state, to all, regardless of work.

Whilst I understand the factors which motivate this call, it is very much the wrong answer.

Firstly, we are the Labor Party. We believe in the value of work. As has been said in the UK, the clue is in the name.

We must not give up on our mission of ensuring dignity through work for Australians.

It would also be wrong in detail in the Australian context.

One of the most important elements of Australias policy framework is our highly targeted welfare system. Widespread means testing means that we get greater bang for our poverty alleviation buck for every dollar spent in welfare.

A universal basic income would be just that, universal. Providing payments to millionaires, at a considerable cost to the taxpayer, but payments that would barely be noticed by people of means.

And it would be very impractical.

Peter Whiteford from the Crawford School of Economics has shown that if we abolished all existing payments to pay for a universal basic income and put in place an $8000 universal payment supplemented by an extra payment for those on low incomes it would equate to around $13,000 per year.

For anyone on Government support like the pension or a disability allowance, this would imply a savage cut.

Its hard to think of one single policy idea that would take income inequality backwards this much.

Others have argued that a universal basic income should be paid for by increasing taxes, rather than reducing payments.

This doesnt work either.

Say we wanted the universal basic income to match the pension, at $20,000, as Peter Whiteford says would have to be the starting point.

After abolishing all other welfare payments it would still require an extra $210 billion in taxes - a 50% increase on the current level of taxes collected each year.

A universal basic income would present us with a rare and unattractive policy trade-off: making us even more unequal as a society or delivering us an unsustainable tax system.

There are plenty of good things we can do take action on inequality. None of them easy, but all of them worthwhile.

We have enough worthwhile things to do without contemplating bad ideas.

As I say, I understand the sentiment behind calls for a universal basic income. But it shouldnt be part of a serious policy agenda for Australia.


We pride ourselves on Australia being the land of the fair go.

And with good cause.

But we must defend the hard fought gains of a fairer society over the last century.

We need to continue to grow our economy and expand the pie.

But if an increasing proportion of our economy is being consumed by fewer and fewer people, both our economy and our society suffers.

And we cant just identify the problem.

We need to offer policy solutions.

In the Labor tradition.

And then implement them, as the agenda of a reforming Labor Government.

Weve been developing the policy solutions from Opposition.

And we have more to do between now and the election.

And I look forward to implementing them in Labor budgets, improving the fairness and equity of the Australian society.