I grew up in Sydney, a beautiful city regarded as one of the most liveable in the world. But that amenity is increasingly becoming unattainable for many Sydneysiders. As inequality increases, the opportunities and natural beauty become available to a dwindling minority: according to an Australian Bureau of Statistics report Sydney has become Australia’s least egalitarian city, where 11.4% of all income goes to just 1% of residents.

And now the government is embarking on tax reform that could make it worse everywhere.

The head of the IMF says reducing inequality spurs growth. Scott Morrison says cutting taxes for the rich spurs growth. Somebody’s got it wrong.

The gap between those with the most and those with the least has been rising steadily in Australia for decades and the reality is that changes in government policy have played an important role in driving that trend. The idea to increase the GST to fund a cut to the top tax rate is just the latest instalment in 30 year plan to take less from the rich and give less to the poor.

In 2014 the Australia Institute estimated that the wealth of the seven richest Australians is greater than the poorest 1.73 million citizens. In 2016 Oxfam found that the world’s richest 62 people had a combined wealth greater than that of the poorest 3.7 billion people. No one disputes that the gap between rich and poor is growing, the only argument is whether or not we can, or should, do anything about it.

The theory of trickle-down economics is alive and well in Australia. Ronald Reagan was the first to tell us that cutting taxes for the rich would provide such a boost to the economy that tax collections would actually rise as a result. He was completely wrong and subsequently delivered the biggest budget deficits in US history.

Never mind – he is still lauded as a conservative super hero.

The idea that cutting taxes for the rich was a good way to both raise revenue for the government and create jobs for the unemployed has not just been discredited by the IMF, it was described by that other progressive pin-up, George H W Bush as “voodoo economics” in 1980.

Alas, economic theories never die, they just get renamed. Peter Costello and John Howard took to the task of taking from the poor to give to the rich with Reaganesque gusto. During his time as treasurer, Costello cut the top tax rate and increased the threshold for the top bracket by 300%. He also introduced the “50% discount” on capital gains tax, cut the company tax rate and made multi-million dollar incomes from superannuation entirely tax free.

Unemployment benefits in Australia are now so low that even the Business Council of Australia believe they should rise. Treasurer Costello oversaw unemployment benefits (for a family of four) falling from 3% above the poverty line to 13% below. In none of his 12 budgets did he find a cent to increase their meagre payments by more than the rate of inflation.

When Peter Costello was booted out of the treasurer’ office in 2007 there were 466,000 unemployed people in Australia. Not only hadn’t the man John Howard called “Australia’s greatest treasurer” not solved mass unemployment, he had done nothing to improve the meagre lot of those who were victims of the “structural adjustment” the economy underwent during his reign.

While the enormous wealth of billionaires understandably attracts much attention, it is the incomes of the unemployed, the sick, and the minimum wage that explain much of pain and hardship associated with rising inequality. Put simply, as a direct result of government policy in countries like Australia those who rely on “safety nets” designed by policy makers have fallen far behind not just the billionaires, they are falling further behind those on average wages as well.

Sickness and disability can strike any of us, at any time. It is not just today’s poor that rely on meagre benefits, all of us are only ever a diagnosis of chronic disease away from never working again. Similarly, factory closures in regional towns are not caused by job snobs, but the unemployment that results often destroys individuals, families and sometimes whole communities.

Government policy can play a major role in helping people and communities navigate their way around adversity. Or it can blame them for their circumstance.

Inequality will always be with us. What matters is its extent, its direction, and its causes. While many think it is obvious, economists are increasingly coming to believe that rising unemployment us not just bad for society but bad for the economy as well. When unemployment benefits are so low that recipients can’t afford to invest in new training, let alone new clothes, then the odds of them landing a better job next time around are vanishingly small. Similarly, you can’t expect a population to “embrace change” when they see that those who lose their jobs in the short term might never recover in the long term.



The need to address the low rate of unemployment benefits used to be on the political agenda. Any serious tax reform packaged designed to be “fair” should have it on the table.

Malcolm Turnbull promised a new honesty in our economic debate. He promised to let us into his thinking and make the case for his desired reforms. As his government makes decisions on tax reform, the prime minister might look upon that city with the beautiful harbour and ask: “Who down there needs a tax break most?”