Australia is hosting the G20 this year and showcasing to the world its approach to welfare policy: deny young people income support for up to six months and instead make more food vouchers available. This is a bizarre and certainly remarkable innovation on the traditional role of democratic governments to govern in the public interest.

Since the end of World War Two, when the international community established the public institutions of capitalist prosperity, we have thought that high youth unemployment is a bad thing, that homelessness is to be deplored and that poverty is a social evil to be remedied. Yet Australia has a government designing policies that will increase these, even making budgetary allowances for emergency relief. These are policies to create an underclass.

Where else has a government worked to consciously send its citizens into poverty? This is in stark contrast to the global shift to a policy focus on reducing youth unemployment and inequality – which includes organisations like the International Monetary Fund (IMF) and World Bank.

Why social inequality matters

Consider what having no income for six months might mean in the lives of real people: fear and anxiety; the humiliation and degradation of eviction; partners, children and friends looking on; job searches without money for transport; becoming glum and down at heel.

This route is the reverse of the traditional democratic pursuit of national prosperity and stability, giving citizens and especially “our children and our children’s children” (in the words of US president Barack Obama) confidence to look to the future. It appears this does not apply in Australia – and, besides, life was not meant to be equal.

So what does a bit more social inequality matter? Actually, there is an international research consensus about the destructiveness of social inequality on individual lives and on society broadly.

Comparing OECD market-based democracies, countries with the most social inequality consistently score highest on social dysfunction indicators – mental ill health, violence, incarceration, functional illiteracy, obesity, substance abuse, among others. State policy repertoires of citizen rights to generous public services are associated with more social equality. Conversely, austere market-based approaches to social policy typify the most unequal nations.

The United States is among the world’s most unequal nations. The Abbott government’s welfare policies would take us closer to the US. The budget policy rationale seems to be that a dose of fear and insecurity is good for young people. But what sort of theory stipulates that experiences of destitution or fear of homelessness are conducive to healthy personality development?

Just as Australia’s convict forebears resorted to theft to eat, this policy will push people to take desperate measures. Do I sell my body, become homeless, or just deliver this bit of ice to cover the cost of my rent?

Investments in people pay off

All the evidence points to the efficacy of the reverse policy logic: supported jobs, job creation, accessible and affordable public services for training and education, in order for young people to develop into the resilient and flexible workforce of knowledge economies.

OECD Secretary-General Angel Gurría is worried most of all about “scarring”, the damaging effects of experiences of poverty and unemployment for young people, which severely lessens lifelong earnings and job opportunities. It is not as if our young people are not already at risk; Australia has long had high rates of suicide and mental illness.

AAP/Dan Himbrechts

While federal treasurer Joe Hockey declares “the age of entitlement is over”, the IMF’s head Christine Lagarde argued on a recent visit to Australia that governments have to provide good public education and health and reduce social inequality.

As bastions of global capitalism, the IMF and World Bank championed neoliberal economics from the 1970s. But now they declare that social inequality harms economic prosperity.

Given increasing economics literature linking inequality with fragile growth, the IMF used a multi-country, multi-variate and longitudinal database to research the direct effects of government fiscal redistribution. It reported in February 2014 that income transfers have no negative effects on economic growth. On average, what governments have done to redistribute has narrowed inequality, which helped support faster and more durable growth.

The IMF’s verdict is that to focus on economic growth alone and let inequality take care of itself is wrong policy because the resulting growth may be fragile and unsustainable. Such a strategy should also be abandoned “from ethical, political, or broader social considerations”.

The OECD remains alarmed at the social impacts of the global financial crisis and the evident decline of social trust and stability since the GFC. It advises the global community to rely on good social policies to develop the resilience of populations needing to adjust to unpredictable economic fluctuations.

According to these representatives of the international research community, social policies, welfare or public services entitlements are not undesirable, nor deadweights on society, but necessary. In other words, the Abbott government’s welfare policies are economically, socially and ethically unjustifiable.

The date for Brisbane G20 draws near and I am feeling so embarrassed.