WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
TRICKLEDOWN ECONOMICS and INEQUALITY IN AUSTRALIA
ACTU PLENARY PANEL ON ENDING TRICKLEDOWN ECONOMICS
WEDNESDAY, 18 JULY 2018
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Thanks Nadine and good morning everyone.
In the movie The Wild One, Marlon Brando’s character is famously asked: “What are you rebelling against?” Brando coolly responds – as only Brando can – “What’ve you got?”
You know, the older I get, the more I feel like Brando. We all should.
Because there’s something fundamentally wrong with our economy that calls for rebellion. It’s becoming more and more unequal, unfair and unjust. And the people in charge are colluding in this and justifying it in their self-serving editorials, comment and lobbying efforts.
The cause is trickledown economics. The fraud of trickledown economics.
The Australian people know that it’s a fraud and that the fraud is being perpetrated upon them.
They’re crying out for leadership to end trickledown and deliver some economic justice and fairness to our nation.
That leadership must come from us. I believe our future may very well depend upon it.
So just what is this trickledown economics that we’re rebelling against, which has driven rampant income and wealth inequality around the world over the past 30 years, including in recent times in Australia?
In theory, trickledown economics is fundamentally about redistributing resources to the already-wealthy or advantaged.
Its supporters will use any economic or linguistic doublespeak – say, “aspiration” or “innovation” or “competitiveness” – to claim that redirecting resources to the rich at the top of the income and wealth scale is our best chance of sharing them with everybody else.
A rising tide lifts all boats, they like to say.
Being a surfer, I happen to know a little bit about tides. Tides never rise from the top down. They rise from the bottom up.
That’s why in practice, trickledown economics is a recipe for rampant income and wealth inequality.
Its reality is tax cuts for the rich, deregulation for the powerful, the destruction of social safety nets, the end of universal health and education programs, and wage suppression for working people.
Trickledown gives the most to those who need it least, and the least to those who need it most.
The rich get richer, the middle gets hollowed out, and vast armies of working poor are created.
Right now, the Turnbull Government’s trickledown script is playing out most blatantly in the tax system and in the labour market.
The Coalition is driving a steamroller through Australia’s progressive income tax schedule. More than 60 per cent of the benefits of their new income tax cuts go to the top 20 per cent of earners, as Slide 1 shows.
At the same time, the Turnbull Government is slashing the corporate tax rate for big business – a package that includes a $17 billion handout to the big banks.
All up, it’s a quarter‑of‑a‑trillion‑dollar smash‑and‑grab on our future capacity to fund health, education and vital public services.
Meanwhile in the labour market, the trickledown agenda is seen in penalty rate cuts, the stacking of the Fair Work Commission, the decimation of public sector workforces, and the outrageous behaviour of employers in enterprise bargaining.
All of this is cheered on by a government intent on producing the lowest real wage growth and lowest wage share of income in recorded history – as you can see in Slide 2.
Across the developed world, over the last 30 years, these types of policies have driven a rapid rise in income and wealth inequality.
In the United States, almost half of every dollar earned is now captured by the top 10 per cent, as Slide 3 shows.
In Australia, almost one third of every dollar earned goes to the top 10 per cent – the highest share they’ve captured since the end of the Second World War.
For most of the past twenty years, Australia has managed to avoid the worst of American-style income inequality.
Until about 2013, median households in Australia were 50 per cent better off than they were in the mid-1990s, as Slide 4 shows. It’s a picture we should be proud of.
Over the same period, median households in the US had gone backwards.
But over the past five years, it’s been average Australian households that have started to go backwards, as you can see on Slide 5.
Why has Australia’s working and middle class been squeezed? We need to look no further than the labour market.
Wages are easily the biggest source of income for average households. Despite Turnbull’s claims, working Australians aren’t relying on tax lurks and perks like negatively gearing their fifth investment property. They’re depending on a decent day’s pay for their decent day’s work.
During the financial crisis – and throughout Labor’s period in government – Australia distinguished itself by delivering a real wage increase to working people, as shown on Slide 6.
But since the election of the Abbott and Turnbull Governments, the tide has turned abruptly for workers.
If you work in the private sector in Australia, your real wage has grown by just 1 per cent under Abbott and Turnbull. Not 1 per cent a year – 1 per cent in five years.
Essentially, the Coalition has taken five years to deliver the same wage growth that Labor delivered in just one year of government.
And ordinary Australians are like the frog being boiled slowly in a pot of water – except they’ve now woken up and are demanding a better deal and a fairer go.
It’s no coincidence that wage growth in Australia is so slow when our labour market is enduring a record degree of underutilisation.
Almost one in six people in Australia is either unemployed or can’t get the hours of work they want – more than at the height of the GFC, as Slide 7 shows.
If you add stagnant wages to this level of labour market slack, what do you get?
You get a record-low share of income going to working people, and a record‑high share going to big business.
You can’t have a prosperous economy while there’s a declining share of income going to working people. This slide, which I showed earlier, is the culmination of the trickledown project in Australia.
And this slide is why economic radicals – like the Governor of the Reserve Bank – now say that the most substantial threat to economic growth isn’t militant unions or the urgent need for big corporate tax cuts.
It’s our stagnant wages and our growing levels of income inequality.
The reason why economic inequality is a handbrake on economic growth is very simple.
If you give a tax cut to big business, they’re not going to invest in extra capacity, or expand their workforces, or raise wages if demand is weak.
As we’ve seen in the United States, Donald Trump’s corporate tax cuts aren’t going towards higher wages.
Overwhelmingly, big companies are using the extra cash to buy back their own shares, boost boardroom bonuses, and increase dividends for investors.
It’s similar story for individuals.
If you give a tax cut to the top 1 per cent or the top 10 per cent, they’ll save a large part of it, rather than spend it back into the economy. Slide 9 shows the high saving rates of these high-income earners.
Now, it looks like there’s a bar missing on this chart – what about the bottom 90 per cent? How much do they save?
The bar isn’t missing – it’s actually zero.
If you give a tax cut to the bottom 90 per cent of income earners, next to none of it is saved. Almost all of it is spent back into the economy.
Cut working people’s penalty rates and you’re only penalising yourself, through lower spending and lower sales.
This is why the trickledown agenda kills growth and grows inequality.
The trickledown claim is that if you give the most to those who need it least – the so‑called ‘wealth creators’ in their mahogany‑lined boardrooms – then a grateful and prosperous working and middle class will follow.
But they’ve got it exactly backwards. A prosperous working and middle class is a source of growth, not a consequence of it.
When we go into workplaces, we need to explain that nurses, builders, truckies, teachers, hairdressers and shop assistants are just as much wealth creators as bankers, investors and multinational companies are.
Because one worker’s spending is another worker’s income, we can create a virtuous cycle – from decent wages, to more spending, to more jobs, to decent wages, and so on.
Clearly, this alternative to trickledown isn’t an “anti-business” agenda. It’s an anti-plutocrat agenda.
It’s not an anti-wealth agenda. It’s anti-wealth concentration agenda.
The trickledowners respect wealth for its own sake. We respect – and reward – the hard work involved in creating that wealth.
The trickledowners like to tell us “there is no alternative” to their scorched-earth agenda – or more accurately, their flat-earth agenda. But of course, there are many alternatives.
And our alternative is one of inclusive prosperity.
Our sustained response must be to lift demand in the economy and raise the bargaining power of the Australian worker.
We need to invest in our human and physical infrastructure to lift productivity, to build a more progressive and growth-friendly tax system which provides incentives for work and investment. And finally, reduce the political clout of the wealthy elite.
Our response must firstly, embrace fiscal policy to eliminate labour underutilisation and achieve true full employment.
Full employment is a non-negotiable objective for the labour movement. There should be no higher goal for the Labor Party and the trade union movement in a time of high inequality than obtaining and sustaining full employment.
Second, we must elevate and amplify the voice of working people – rewriting the Fair Work Act, rebalancing the Fair Work Commission, and restoring workers to the boards of public and major private companies.
We need broader representation of Australians on our major company boards, which are dominated largely by an old boys’ club.
The board nomination process needs to be far more open, where leading shareholders propose a shortlist for alternative candidates for open positions.
Third, we must rein in corporate excess, from obscene oligopoly power to indefensible levels of executive pay.
Just yesterday, it was reported that the pay of ASX100 CEOs has hit record highs. Slide 12 shows some of these pay packets. The highest-paid CEO took home as much as 600 average Australian workers.
If company boards can’t impose pay restraint on these exorbitant executive salaries, it’s time for shareholders to take matters into their own hands and agitate for a binding vote to cap CEO pay.
Even the most enterprising CEO will never generate as much economic growth as 600 workers. And that makes this sort of wage inequality toxic for economic growth.
This is why we need, as a fourth pillar, to defend and advance our progressive tax system, so we can better recognise and reward the wealth creators throughout our economy – not just those at the top end of town.
The regressive tax agenda which slashes headline corporate and top personal tax rates, which sees tax evasion and avoidance by multinationals go unpunished, and which allows massive loopholes to persist, robs us all of the resources we need for a fair and productive society.
It gives the green light to a society in which inequality isn’t just tolerated, but encouraged.
Friends, trickledown policies which lead us down the American road are not only stupid and immoral, they are unpopular.
The ACTU’s Change the Rules campaign has tapped into that unpopularity.
Importantly, trickledown isn’t inevitable – we have alternatives.
We need to change the way the Australian people think about what sort of economy and what sort of society they want to live in.
We need to turn people’s frustration with trickledown into a movement and put ourselves at the head of it.
Just as millionaires and billionaires have changed the rules to suit themselves, well-organised working people armed with the right set of policies, and who are unapologetic about whose side we’re on, can change them back.