Summarising very briefly:
How do you diagnose a problem? For many things in life, the symptom may be somewhat removed from the problem. For example, if you have mould on your ceiling, you may think that the cause is a leak in your roof, when in fact you may have a source of humidity under your house. The humidity rises with heat, and gets caught in the pores in the ceiling – leading to mould.
Similarly, in our modern society, the cause and the effect are not always connected directly and the links between them may not be visible. Economic downturns are a bit like that. There are many theories, and many suggested causes for the 2007 financial crisis. There is evidence suggesting that wealth and income inequality are dangerous for economic stability and prosperity, and if you get a chance to view this entertaining and informative documentary, you will get plenty of illustrations of how the two are linked. There are other suggestions, such as low interest rates (which Australia is continually lowering, by the way), but it seems that wealth and income inequality is something to watch very carefully. Recently, the OECD published a report exampling how reducing wealth inequality benefits everyone.
Governments can do a lot to tackle inequality. Since the GFC, the US government have been able to prevent further growth in inequality. The government in Australia has tried to do the same, and has had mixed results. On one hand, since the GFC, Australia’s wealth inequality has been reduced a little bit. On the other hand, the share of people in Australia reporting to not afford to buy enough food has risen.
This year, the Australian government is examining the budget and considering tax reforms. Tax reforms are a big deal because they have a huge impact on the economy and nobody wants to mess with that. How do we change the tax system? Well, the International Monetary Fund published a game-changing report about a year ago, saying that increasing the income share of the poor and the middle class actually increases economic growth, and that increasing the income share of the top 20% results in lower growth. While economic growth may not be the best thing anyway, wealth inequality is worth tackling because of its many other negative effects.
The taxation system provides an opportunity to start doing that, for example by revising the tax breaks for negative gearing, of which people who earn more take more advantage of. Another one is revising the superannuation tax concessions, which favours top income earners at the expense of low income earners. There are other suggestions, which can result in a balanced budget and a more equitable and potentially more prosperous system.
But in politics, making changes is not often straightforward. As you’ve seen in the previous chapter, group decisions are complex to make. Making changes in large systems is difficult and planning is something taken very seriously. Let’s check your views on the planning aspect.
Consider the following questions for discussion…
- What types of planning should the government undertaken prior to the changing the tax system?
- What government goals can you identify? Which are the stated goals and which are the real goals? Based on what can you tell them apart?
- What elements of strategic planning are evident in the article? What elements are missing? How would you, as a minister in the Turnbull government, use these missing elements?
- Based on the information provided in this post, how would you address the inequality problem in Australia?