World Economy

Inequality Rising in Australia

Inequality in wealth has become more pronounced in the past few years because of the rise in assets prices
Australia’s jobs market has strengthened in recent months recording the largest  back-to-back gain in full-time jobs in almost three decades.Australia’s jobs market has strengthened in recent months recording the largest  back-to-back gain in full-time jobs in almost three decades.

Reserve Bank Governor Philip Lowe has waded into the highly charged debate over inequality in Australia, contradicting Treasurer Scott Morrison's insistence that the differences between the haves and have-nots are diminishing.

Opposition Leader Bill Shorten claimed recently that inequality had reached a 75-year high prompting Morrison to accuse him of pedaling a "lie", news outlets reported.

Morrison rejected the suggestion that inequality is getting worse and attacked Shorten for giving up on economic growth. Shorten is set to announce a Labor policy to crack down on trusts and other forms of tax minimization, declaring inequality would be Labor’s defining mission in government.

The treasurer warned sectors that use trusts including small business, charities and farmers, Labor was “coming after you”, and rejected Shorten’s central premise that inequality was increasing.

Lowe told a charity lunch in Sydney organized by Australian Business Economists that income inequality "grew quite a lot in the 1980s and the 1990s, and it has risen a little bit just recently".  

Inequality in wealth had "become more pronounced in the past few years because of the rise in asset prices—people that own those assets have seen their wealth go up," he said. The trend could present challenges for government, he added. "If you have rising inequality it may be harder to get policies off the middle ground, so that is a political aspect."

Labor assistant treasury spokesman Andrew Leigh said Lowe had confirmed what many Australians already knew—that inequality was indeed increasing.

"Anyone trying to buy a house or scrape by in a low paying job knows how hard it can be," he said. "Labor is looking to tackle the problem by addressing the unfair elements of our tax system and ensure that schools are correctly funded. Let's just hope Morrison finally acknowledges there is a problem."

Reluctant to Cut Rates

Lowe made his comments in a Q&A session following his speech in which he attempted to hose down talk of a hike in interest rates, saying Australia wouldn't be blindly following central banks overseas.

"Some central banks are now starting to increase interest rates, and others are considering when to withdraw some of the monetary stimulus that has been put in place," he told the lunch. "This has no automatic implications for monetary policy in Australia."

"Just as we did not move in lockstep with other central banks when the monetary stimulus was being delivered, we don't need to move in lockstep as some of this stimulus is removed." However he said the bank would be reluctant to cut rates, even if weak wage growth and weak inflation made it appear necessary.

Wage growth had slipped to a record low of 1.9%, and the June quarter inflation result, released just before he spoke, had the annual rate falling from 2.1 to 1.8%. "We are intent on delivering Australians an average rate of inflation over time of between 2 and 3%," he said, Radio Australia reported.

"For a central bank with a single objective of inflation, the answer is relatively straightforward. You need more monetary stimulus."

"This approach does carry risks, though. The monetary stimulus is likely to push asset prices higher and encourage more borrowing. Household debt is high and rising faster than the unusually slow growth in incomes." Lowe said that the most help would be an exchange rate "a bit lower than it currently is".

He would welcome a gradual pickup in wage growth. The best outcome for workers and firms is for a pick-up underpinned by a lift in productivity growth.

But even the current rate of productivity growth could sustain some more wages growth. Indeed, a pick-up was incorporated into the bank's forecasts.

Australia’s jobs market has strengthened in recent months—recording the largest back-to-back gain in full-time jobs in almost three decades; yet underemployment and under-utilization remain elevated, suggesting continued slack and little likelihood of large wage increases in the near-term to fuel faster inflation, Bloomberg reported.

Last Thursday's data from the Australia Bureau of Statistics showed the unemployment rate steadied at 5.6% as 14,000 new jobs were added.

Add new comment

Read our comment policy before posting your viewpoints