Abbott might have picked up the cue three months after taking power when Barack Obama described rising inequality as "the defining challenge of our time". Or from Pope Francis, who, around the same time, criticised those who "continue to defend trickle-down theories" of wealth from the 1980s while "the excluded are still waiting". Or the astonishing fact, publicised by Oxfam, that the world's richest 85 billionaires controlled as much wealth as the poorer half of the entire global population, 3.5 billion people. And if he privately dismissed these pronouncements as the mere bleatings of the left, he should have snapped out of it when the chief of the International Monetary Fund, the former conservative politician Christine Lagarde, responded to Oxfam: "With facts like these, it is no wonder that rising inequality has risen to the top of the agenda." A glance at the polls over many years shows that Australians consistently express a preference for a more economically equal society.

Andrew Leigh, Labor's assistant treasury spokesman and author of a book on inequality, says that you can "spot slices of Australian pop culture like The Block or Who Wants to be a Millionaire" that seem to show an appetite for the so-called "aspirational" ethos. "But when you look at the surveys most Australians say they want a more egalitarian system," says Leigh. Two thirds thought that "differences in income are too large" when asked two decades ago. By 2005, that proportion had risen to three-quarters. But Abbott's first budget was a head-on confrontation with the Australian conception of fairness. The budget would have aggravated inequality and the government knew full well. That's why the budget papers omitted the customary table that shows the effects of proposed budget measures on various household types – it spelled out the unfairness in dollars and cents.

And it's why Joe Hockey tried to redefine fairness. He urged us not to consider only the fairness to people in need of support, but fairness to people helping to pay for it. "This year the Australian government will spend on average over $6,000 on welfare for every man, woman and child in the country," he told the Sydney Institute after presenting the 2014 budget. "In other words the average working Australian, be they a cleaner, a plumber or a teacher, is working over one month full time each year just to pay for the welfare of another Australian. Is this fair? "In fact, just two per cent of taxpayers pay more than a quarter of all income tax. Maybe these taxpayers would argue that the tax system is already unfair." Hockey is right that the tax system has to be reasonable and defensible. If the top tax rates become confiscatory, the system breaks down. But Hockey's speech also set up an artificial contest between the low-paid and high-paid. The system is not a simple exchange where the rich hand money to the poor. Federal revenues are drawn from many sources, and pay for many public goods enjoyed by all.

"Taxes are what we pay for a civilised society," as the US Supreme Court judge Oliver Wendell Holmes observed. But Abbott misjudged the Australian concept of fairness. And he failed to see that if he couldn't persuade the Australian electorate, he wouldn't be able to persuade the Senate, either. The harshest measure proposed in the first Abbott budget? That unemployed people under 30 must wait six months before they're eligible to receive the dole. Even the Business Council of Australia recoiled in horror from this idea. The proposal to change the formula for increasing pensions would have been another regressive measure. Instead of indexing pension rises to keep up with wage rises, the government wanted to index them to inflation. Over the long run, this would have consigned many pensioners to incomes below the poverty line. The $7 Medicare co-payment, as first proposed, would also have been regressive. The Opposition screamed "unfair," the public agreed and the Senate, acting as a proxy for Australian public opinion, killed the proposals.

The Abbott government was branded unfair and has not recovered. Even though its new Social Services Minister, Scott Morrison, is taking a new and fairer approach, Labor will trade on the public impression of Abbott's unfairness all the way to election day. Andrew Leigh claims that the Abbott government is uniquely heartless in modern Australian experience, harsher than its Coalition predecessor led by John Howard and treasurer Peter Costello: "I find it hard to imagine Peter Costello smoking a cigar after putting a budget together, or that one of Howard's speakers would take a helicopter from Melbourne to Geelong, or that Howard would have revived knights and dames. "They do seem to have a tin ear" for the Australian sense of fairness, says Leigh. Hockey's comments on house prices and the driving poor have only cemented this impression. The news this week? New research revealed that Australia's tax and welfare systems are effectively keeping inequality in check. Income inequality has surged in Europe and galloped away in the US. For instance, 20 per cent of American schoolkids were poor enough to qualify for free or subsidised school lunch in 1970. When Obama took the presidency in 2008, that had risen to 60 per cent. Last year it hit 71 per cent. This rampant poverty and inequality is a sickening indictment of the US political system.

This is not Australia's experience. The gold standard of empirical evidence in the field, the Household Income and Labor Dynamics in Australia (HILDA) survey for 2001 to 2012 was published by the Melbourne Institute of Applied Economic and Social Research, housed in Melbourne University, this week. It showed that while market forces have indeed widened the gap in income inequality, the tax and transfer system has worked effectively to neutralise this. "Broadly," says the author, Professor Roger Wilkins, "you would say that inequality has been fairly stable in recent years. Certainly, it's nothing like the increases we've seen in the US and UK." So while the pay for all groups grew in the decade, it grew fastest for those at the top. The index of inequality, the Gini co-efficient, increased by 5 per cent for men and 7 for women as a result. But looking beyond pay to take account of all the other influences on household income including government payments, the picture changes. Inequality in average annual household disposable incomes showed no change from 2001 to 2012, according to the HILDA survey of more than 7000 households. So why is there a commonly asserted view that income inequality has been growing in Australia? Wilkins offers two explanations: "If you look at the very top there's been some increase in the income share of the top 1 per cent, so there's a grain of truth to the perception," he says.

"There's been considerable media attention to inequality and a lot of that has come through from the US and UK where there's been a big increase," says Wilkins. "Inequality is a very hard thing to assess personally." There's a further factor. This is all about income, not wealth. Real estate prices, much remarked, affect wealth inequality, a separate matter. So this is the system that Australian public opposition, through the Senate, has been defending against Abbott. It is far from perfect. But it's a system that restrains rampant inequality. This contributes to social cohesion as well as economic performance, as the OECD pointed out in recent study. It's a system that doesn't make Australia the fairest of the 34 countries of the OECD, nor the most unfair, but around the middle of the nations of the developed world. "The government underestimated the value that society puts on the welfare system," in its first budget, Wilkins ventures. At any time, around 16 per cent of working-age Australians receive some sort of income support from the federal government.

But this is a remarkable statistic. Over any five-year span, 50 per cent of Australian households will receive some form of income support from the government. It may be an age pension, a family payment, parenting allowance, an unemployment benefit, a disability pension. These payments are not generous but they put a safety net of basic protection under society. So changes to any system so far-reaching need to be intelligent, incremental and fair. Scott Morrison has learnt the lesson of the government's first budget disaster. Compared with last year's budget, this year's social services portfolio has enjoyed four times as much success in getting measures through the Senate, $4 billion against $1 billion. "There was a real sense of self-awareness about this budget," says Morrison. "We didn't bite off more than we can chew." The pension reforms were designed with fairness in mind: "Those most in need got more, and people who can do more for themselves got less." For the Abbott government, it was a bruising lesson in political reality. Australians value a safety-net system of some basic fairness. They look to the government to sustain it, not to attack it.

Peter Hartcher is the political editor.