Australia is fast becoming a land of unequal opportunity

Domestic policies have a role to play in combating the rise in inequality. But as Joseph Stiglitz reminds us, the Coalition's pursuit of the American model for healthcare and higher education is sure to make matters worse.

A brief trip from Nobel Prize-winning economist Joseph Stiglitz has once again established inequality as a central issue for Australians and the Australian economy. Nevertheless, our politicians remain blasé on the topic and in the process have fundamentally misread the public mood.

Stiglitz has been in fine form during his Australian stay and his warnings regarding the recent federal budget are well worth consideration. Australia would do well to avoid following in the US’ footsteps, at least in regards to university fees and healthcare spending.

“Countries that imitate the American model are kidding themselves,” Stiglitz said. “It seems that some people here would like to emulate the American model. I don’t fully understand the logic.”

The changes to university fees and Medicare were central pieces in what was ultimately a highly regressive budget. It was a budget that left most of the heavy lifting to those least able to bear it. Welfare -- which mainly benefits lower income earners -- was slashed. But tax concessions -- which mainly accrue to the already wealthy -- were largely untouched.

Despite two decades of unprecedented economic prosperity, measures of inequality and poverty have deteriorated in Australia. A greater share of our income and wealth has been captured by the top of the income distribution, and inequality and poverty is set to rise further unless these measures are blocked in the Senate.

According to the Organisation for Economic Co-operation and Development, Australia’s gini coefficient -- a common measure of inequality -- is the 11th highest among OECD countries and has increased noticeably over the past 15 years.

Meanwhile, poverty in Australia has increased from 11.4 per cent in 1995 to 14.4 per cent in 2010. Australia tracks above the OECD average and well above the likes of New Zealand and the UK.

Part of the reason for this has been globalisation and trade liberalisation, which has opened our markets to a range of low cost alternatives and reduced the bargaining power of low income employees. Technological change has benefited those most able to take advantage of that technology, putting a premium on high-skilled employees.  

We shouldn’t underestimate how disruptive globalisation has been to a number of Australian industries. Even if the economy as a whole has benefited -- the economic pie is undeniably bigger -- pockets of the population, typically those holding blue collar jobs, have become worse off.

But while globalisation is largely out of our hands, domestic policy can still play a role in whether inequality rises further.

I have written in favour of the Medicare co-payment, though not with great enthusiasm. It remains a regressive policy that places most of its burden on lower-income earners. It also remains unclear whether co-payments will reduce superfluous demand or simply increase the cost of care.

Health care spending needs reform -- it is set  to rise sharply as a share of GDP -- but co-payments or greater use of private insurance are not the best nor most equitable methods to keep spending down. Private health insurance by virtue of being less efficient than the public health system would actually increase the cost of health care for many Australians (A more expensive healthcare cop-out, May 2).

Rather than shifting the responsibility of health to the private sector, healthcare reform should place greater emphasis on service efficiency. According to the Productivity Commission there were around 200 procedures in Australian hospitals where the cost varied from half to around one-and-a-half times the average cost, depending on the hospital undertaking the procedure.

Greater collaboration between hospitals is needed to determine best practice and identify the most effective procedures. With the Australian health system primarily a public affair (at least for now), greater collaboration across health providers should not be difficult. Health care reform need not require an increase in inequality.

From the perspective of rising inequality, the more troubling policy proposal is the deregulation of university fees, which will see the cost of degrees and the repayment of student loans rise sharply for new university students. This, along with climate change policies, gives rise to greater intergenerational inequality.

Fee deregulation will be particularly burdensome for women since they tend to repay their student loans over a longer period. That is true of the current HELP system, although the effect is largely negligible in most cases. In the absence of lower fees, some women will be discouraged from entering university (Tinkering with education will tear through Australia’s social fabric, June 26).

Intergenerational inequality could very well cripple Australia’s economic future but it’s an issue that will be largely ignored by our federal government. One only had to witness the irrational joy by Coalition ministers when they repealed the carbon tax to realise that our politicians place very little importance on Australia’s future.

Stiglitz’s comments bring with it the authority that can only come from being an expert in your field. But the Australian public is quickly realising that something is not quite right in Australian politics or the policies that are apparently going to save them from lasting despair. The Coalition would be negligent if it ignored the recent shift in public sentiment.

There are many areas in which the US excels. It is a highly innovative and dynamic economy, but it remains an increasingly unequal one as well. Following its lead and pursuing the American model on healthcare and university fees is not in the best interests of the Australian economy or the welfare of its citizens.

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