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Risky to turn a blind eye to inequality   -  SMH  -  Clancy Yeates  -  January 16, 2012

Outrage about the widening gap between rich and poor is gripping much of the developed world, forcing politicians into action. But if you're one of the highest-earning Australians, there's no need to fear a policy backlash here. The global tide of fury has largely passed us by.

In the US, the difference between the haves and the have-nots is at record highs. President Barack Obama has called inequality ''the defining issue of our time''.

The British are also up in arms over how unequal things have become, especially the soaring pay of top executives, despite a weak economy. The Prime Minister, David Cameron, is promising measures on executive pay that go further than the steps taken here, vowing to address "crony capitalism".

In Australia, however, the backlash over inequality has been relatively muted. Sure, shareholders revolted last year over executive pay at -

*        Bonds' owner Pacific Brands, and

*        James Packer's Crown Casino.

More than 100 people also ''occupied'' Martin Place until police broke it up.

Rising inequality is hardly a political hot potato. Our politicians seem much more worried about refugee arrivals, or interest rates.

There are reasons for the lack of mainstream debate in Australia about inequality, especially the fact our society is far more equal than the US. But that does not mean the issue should be ignored, and that the gap should be allowed to expand indefinitely.

As US politicians are discovering, countries that turn a blind eye to rising inequality do so at their peril.

Australia has always thought of itself as egalitarian, but this has not stopped things becoming more unequal in recent decades.

A report last month from the Organisation for Economic Co-operation and Development (OECD) said the recent rise in Australia's income inequality was among the fastest in the rich world. The top 10 per cent of income-earners here made nearly 10 times as much as the bottom 10 per cent in 2008, compared to a eight-to-one ratio in the mid-1990s, the OECD said.

The Occupy Wall Street's movement slogan ''We are the 99 per cent'' is designed to highlight the massive income gains among the richest 1 per cent in America. But Australia's own ''1 per cent'' has also done very nicely indeed.

"The richest 1 per cent of Australians saw their share of total national income almost double, from 4.8 per cent in 1980 to 8.8 per cent in 2008. Moreover, that of the richest 0.1 per cent rose from 1 per cent to 3 per cent," the OECD said.

Different rates of wages growth were the biggest reason for the expanding gap - ballooning executive salaries no doubt played a role - while our government redistributes less income from rich to poor than the OECD average.  VIA INCOME TAX

Lower top tax rates, which have fallen from 60¢ in the dollar in 1981 to 45¢ today, also allow the well-off to keep more of their pay.

Overall, the increase has put Australia at the sharp end of a global trend of rising inequality. Among 22 OECD members surveyed, Australia is the seventh most unequal country - still well behind the United States and a tad more equal than Britain, but more unequal than most of Europe and New Zealand.

So if inequality is getting worse around the world, should we be worried? Most economists agree some inequality is necessary in capitalism, because it reflects the different market value of people doing different types of work. So the debate is over whether it should be allowed to constantly rise.

Until recently, many mainstream economists were unconcerned about expanding inequality, because poorer peoples' incomes were still rising, even if not as fast as those of the rich.

This is especially true of Australia, where incomes in the bottom 10 per cent have risen by about 3 per cent a year since the early 1980s, compared with 4.6 per cent for the top 10 per cent. Growth like this is much healthier than income gains among the lowest-paid 10 per cent in the US, who eked out annual pay rises of just 0.5 per cent over the period.

Instead of worrying about incomes becoming more uneven, most economists said what mattered was equality of opportunity.

This is the idea that government should focus on ensuring everyone had a chance to climb the economic ladder, whatever their background.

Recently, however, this meritocracy argument has been looking increasingly hollow - especially in the US. Despite its reputation as the great land of opportunity, a swag of studies have shown people have far less chance of moving from poor to rich there than most other countries.

The causes are complex, but basically come back to the fact that America has become so uneven that privilege, or disadvantage, are passed on from one generation to the next.

Australia doesn't suffer from these problems nearly as much as the US. A 2010 academic study by Andrew Leigh, now a Labor MP, found Australian society had more ''mobility'' than the US, Britain and Germany. Even so, there are plenty of other reasons to be concerned about the rich getting an ever-growing share of the spoils.

There's a lively debate, for instance, over whether extreme inequality sowed the seeds for the US subprime crisis through the incentives rich and poor faced.

At the top end of the scale, it's argued the growing wealth and influence of the wealthiest prompted bankers and their ilk to promote now-discredited policies they stood to gain from, such as excessive deregulation.

Poorer people, on the other hand, may have taken on more debt than was sensible in a bid to ''catch up'' to the rest.

On a more global level, a survey for this year's World Economic Forum said inequality was the world's top economic risk, as it could result in risky, populist policies.

These concerns may seem far-fetched in Australia, where we've been sheltered by 20 years of near-uninterrupted economic growth and high employment.

But the turmoil overseas underlines the risks of turning a blind eye to inequality.