I feel as if I’m about to kill God. I’m about to disagree with Paul
Kelly, armed with only a B in Year 11 economics (even if my teacher,
John Griffin, went on to become Jeff Kennett’s chief of staff). Here
goes.

Kelly wrapped last week’s Sustaining Prosperity conference, sponsored by The Australian, with this fascinating article on Saturday:

“The Howard Government suffered a strange fate this week,” it opened.
“Its record on equity and income distribution has been upheld after
years of criticism while its economic management credentials are being
called into doubt.”

“This
complete reversal of orthodoxy,” as Kelly described it, was based on
figures of equity from Ann Harding, director of the National Centre for
Economic and Social Modelling that “may demand a complete re-evaluation
of the Howard Government,” according to Kelly.

Harding told The Australian:
“From our work we believe that the distribution of final income over
the period from the mid 1990s to 2001-02 remained much the same. That
is, we don’t believe that Australia became more unequal and there may
be evidence that it became a little more equal. We were surprised by
this.”

Has it really, though? Kelly wrote “Harding’s research
shows that the prosperity of the Howard years has been spread across
all income deciles.” He quoted Harding again. “The spread of income
growth is very positive and there is strong growth at the bottom – the
bottom hasn’t been left out… Our welfare state has been very successful
at redistributing income from the rich to the poor. The transfers
involved are substantial and when I presented these findings in the US,
there was a lot of surprise. This [Government] has actually been a
high-taxing government and a large share of the revenue has gone in
cash transfers and social services with the net impact being highly
positive in terms of redistribution.”

And The Australian’s
sage concluded: “This is a complete contradiction of the standard
critique of the Howard Government. It suggests that while individual
measures have been attacked as regressive, the overall effect is highly
progressive.”

But isn’t something missing? Housing? It’s good
news that income inequality has not grown significantly – but this does
not mean Australia is a fairer or more egalitarian country. Housing has
become less and less affordable over the life of the Howard Government.
Interest rates may be on hold this month, but housing risks becoming
even less so with the threat of further increases.

Go back and look at Professor Peter Saunder’s brilliant article from last month in the Centre for Independent Studies magazine, Policy.If you don’t have time, these are the only two sentences you need to read:

“The average wealth difference between home owners and renters in
Sydney is now estimated at $436,000. This division is much deeper and
more enduring than the much-debated ‘gap’ between high and low income
groups.”

Home ownership is the only housing option that costs less over time
and, housing advocates point out, generally appreciates. But the
policies of the Howard Government have meant that the benefits of home
ownership have not been shared. Capital gains tax changes and the
maintenance of negative gearing without any conditions has simply meant
that the Government has underwritten the wealth of those able to buy
into the market – while starving public housing funding and merely
indexing a rent assistance system that does nothing to help housing
affordability.

“Housing
comprises nearly 55% of all household assets and almost three-quarters
of the assets of the median household,” Saunders writes. “For most
Australians, housing is a much more important asset than share
ownership, and the doubling of house prices had a major impact on
personal wealth holdings.”

NATSEM may well be right. Australia
may well not have serious income inequality. What we seem to be left
with, though, is serious inequality in capital or wealth.

Peter Fray

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