Inequality, its sources, and how deal with it is one the strongest socio-political forces and economic debates on the planet right now.
Populist movements in Europe, the presidential run of Bernie Sanders, Brexit, growing non-major party votes in Australian elections, and the fact that, despite all his indiscretions, Republican presidential nominee Donald Trump is still likely to get at least 40% of the vote on November 8 all have, at their core, a sense that the deck is stacked in favour of the wealthy.
There is a high level of disaffection with the evolution of personal economic circumstances as globalisation marched steadily forward over recent decades, shifting jobs from the developed to developing world leaving towns to become rusted facsimiles of their former selves.
Sure some of the supporters of this surge in non-traditional voting patterns can be denigrated as non-intellectual, xenophobes or racists.
But the preconditions that have driven this disaffection and feed the anger driving these trends is a sense that globalisation and more recently central bank policies are unfair, that they favour the wealthy and powerful, and that ordinary citizens are being left behind as the rich get richer.
Whether it was the fulcrum for the emergence of these disaffected voters or just a timely reminder that inequality is indeed growing in the developed world the release of Thomas Piketty’s book on global equality – Capital in the Twenty-First Century made the author the pin-up economist for the disaffected.
In Australia for a speaking tour Piketty reprised the topic in an interview with Lateline’s Emma Alberici this week and suggested it was time for Australia to consider the imposition of an inheritance tax to help address rising inequality.
Certainly he said Australia is still doing better than many nations in the inequality stakes but that we were an outlier when it comes to untaxed wealth transfers between generations.
“Australia is a country with a strong egalitarian tradition. Inequality levels in Australia have always been lower than, of course, Brazil or South Africa, but also lower than the United States, for instance. So again in Australia it is still more egalitarian country than the US. But at the same time inequality has been growing” Piketty said.
He said the share of income going to the top 10% is at its highest level since 1951 annd that inequality “has been growing over recent decades and this has come together with structural change for instance in prices of housing and property”.
Effectively the growth in the value of property is entrenching wealth, who has it, and who does not by stratifying the distribution of wealth across the nation.
So this raises issue, we see the same kind of issues in a country like France where you want to buy an apartment in Paris or in major cities. If you don’t have a big family wealth, if you only have your labour income, this will have to be a very high labour income. That is a form of inequality.
That is through the transmission of properties, families who can transmit property and some of the younger generation, part of the young generation who don’t have that kind of family connection and wealth.
This is a big challenge to the kind of democratic ideal that we believed in the past 12 decades where, indeed, it was easier starting from zero to access property yourself.
Piketty’s remedy is a death tax. A tax on the transfer of property between generations.
He said “if you take countries like Britain or Germany or the US or France or Japan, you have inheritance tax on the very high property, very high wealth transmission around 40-45%. Japan just raised its top inheritance tax rate from 45% to 55% last year. This was under a right-wing government”.
He’s not talking about $100,000, but substantial wealth transfers.
The key here – and this is where it gets interesting and why his idea is the right one for Australia – is that (emphasis added):
“The priority is not to raise tax for the pleasure of raising tax. The object is to reduce the tax for others, in particular for middle wages and lower wages,” he argued.
But as we saw in the aborted government push to change the tax-free status of relative few Australian superannuants, Jack Lang’s old adage “in the race of life, always back self-interest” leaves the notion of fairness well back in the pack, despite everyone claiming they’ve got an each-way bet on it.
If we can’t get that change up, then the chances of an inheritance tax getting any traction are as close to zero.
But it’s worth remembering that it’s less than 40 years since Australia abolished death duties. Malcolm Fraser’s government scrapped them in 1978, the first wealthy country in the world to abolish them. Since then the idea has been an election scare campaign generally used against Labor.
Which makes things even more confusing when Turnbull’s assistant minister for cities, Angus Taylor, also appeared on Lateline this week, and said he didn’t agree with Piketty, but then made his exact argument.
“Frankly, one of the biggest sources of inequality in this country is the fact that people who have been in the housing market for many many years have done extremely well out of it. They tend to be higher income and they tend to be wealthier,” Taylor said.
Alberici reminded him that other nations have a tax on this very situation when the generational transfer is made.
But Taylor says he has a better solution: he wants to increase the supply of housing to “prevent excessive capital gains to the people who are already wealthy and we’ll have a fairer country”.
That’s a very carefully worded way of saying he wants to slow down how quickly some people get wealthier as a notion of equality.
But the housing debate, like the superannuation fight before it, tell me this nation is nowhere near as egalitarian as Piketty thinks. We are at risk of becoming a nation happy to help others, as long as it doesn’t have to give up anything to do it.
I understand that – I’m guilty of it myself – but you don’t have to look to hard to see where that road heads by looking around the globe right now.
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