Economic Inequality in Australia - Essay Example

Economic Inequality in Australia Name Institution Course Date Inequality in Australia Question 4 Increasing economic inequality poses a threat to many countries. Australia is one of the countries that is faced with long-term economic inequality with regard to income and wealth of people (Atkinson and Leigh, 2007). Generally, the economic inequality in Australia is above the set OECD average. Economic inequality can be defined as the unequal access to both wealth and income. Over the past thirty years, Australia has gone through a period of economic growth which has led to an increase in income and wealth among people. In this period, Australia was considered the fifth highest country in terms of income growth. This income growth has set the country apart from other countries. However, while Australia recorded an increase in economic growth over the decades, the overall economic inequality in the country has increased significantly. Economic inequality in Australia has resulted due to a number of factors. Such inequality has brought about some negative effects on the quality of life among Australians (Atkinson and Leigh, 2007). Nevertheless, increasing inequality in Australia is not perceived as a huge problem, but is viewed as an unavoidable circumstance brought about by globalization and capitalism. This essay will clearly establish the reasons for the increased inequality in Australia since the 1970s. It will also establish the consequences of such an increase to the well-being of the people and the stability of the economy. Australia’s rich are becoming richer while the poor are becoming poorer. Australians income earners in the higher level receive five times as much as those earning low incomes (Atkinson and Leigh, 2007). The increasing inequality in Australia over the years can be attributed to less welfare support and social protection. The inadequate taxation in the country is not enough to provide welfare support for the people living in poverty (Australian Tax Office, 2013). Globalization is another cause of inequality in Australia. Although the extent to which globalization causes inequality is unknown, there are some evidences that suggest that globalization impairs deindustrialization that results to a weak labor bargaining power and creates a divide between the skilled and unskilled labor (Stiglitz, 2012). Globalization in terms of FDI outflow and trade in Australia has increased economic inequality to some extent. The economic inequality in Australia has been increasing in the past four decades. This rise in equality has been fueled by factors like political, economic as well as social forces (Atkinson and Leigh, 2007). This increase in equality has been due to factors such as education inequalities, and alteration of compensation practices for topmost administrators as well as huge tax exemptions and cuts. Also, another cause for such inequality includes the practice of ‘rent-seeking’ which involves wealthy people and firms utilizing their resources in order to find economic growth overhead others without making their influences in terms of productivity (Atkinson and Leigh, 2007). The relationship that exists between economic growth and inequality is very fundamental in explaining why there is a rise in inequality within people living in Australia. This also directly affects the economic growth of the country. Some people debate that when the revenue of the less privileged is low, it results in a drop in aggregate demand (Stiglitz, 2012). This also leads to the reduction in the social flexibility which influences the economy of the country by pushing it towards a smaller talent pool. All these consequently result to the limitation in the size the economy as well as its productivity and growth. In addition, both inequitable and inadequate taxation has also been a huge contributor to the rise in economic inequality in Australia (Atkinson and Leigh, 2007). Currently, the Australian government has altered the structure in which the taxation process operates in. This has yielded some advantages to those who are privileged in various ways. For example, it has established tax loopholes, reduced tax of retirement pension and also cut taxes imposed on wealthy persons and firms. These changes performed by the Australian government have caused 42% of the total $169 billion going to the top 10% earners whereas the rest of the tax cuts are allocated to the remaining 58% of the lower class income earners (Australian Tax Office, 2013). This clearly indicates how economic inequality is being promoted through inadequate taxation since the top 10% get better and much more in tax cuts than the lower 80%. This division has cumulatively resulted to a considerable fall in the government’s income and a consequent increase in cases of inequality within the country. For instance, an individual who has attained an age greater than 65 years can get a limitless amount of revenue from his or her retirement benefit and at the same time unqualified to pay any taxes on that income (Australian Tax Office, 2013). Therefore, a clear tax system that is unbiased can help reduce the gap that exists between the wealthy and the less privileged therefore reducing cases of economic inequality. Furthermore, education is also another fundamental reason why there is a gap in the economic inequalities in Australia (Stiglitz, 2012). Education is critical in determining ones economic success and comfort. In Australia, having more education is directly affiliated with better options in the labor market. For instance, individuals who possess post-graduate qualifications like masters or degrees tend to receive up to twice the amount of salary an individual with lower qualification receive. This has vividly showed how economic inequality in the country is directly affected by the level of education an individual has. In addition, in Australia, about 30% of secondary education is private (Stiglitz, 2012). Therefore, most students undertaking education in these private schools tend to be exposed to more opportunities and better networking whereas those undertaking the same in public schools receive less opportunity. This in turn results to a rise in inequality in the society in general. There are various consequences of increasing inequality in Australia. To start with, income is considered a fundamental determinant of the living conditions of people as it determines the conditions in which people are born, work and live in. Income security is very significant for economic, self-worth, health and general well-being of population (Denniss and Ingles, 2014). Economic inequality on the basis of income inequality has shown to increase status barrier, it has reduced empathy within societies and people and has led to the rise of feelings concerning social exclusion, insecurity and stress. In generally, these have created a fragmented society. In addition, greater increase in economic inequality has resulted to unequal access to amenities such as housing, education, food and healthcare (Denniss and Baker, 2012). For instance, group of people with low incomes are not able to access conducive housing and reliable transport facilities. They are likely to get jobs that are low paid and tedious thus creating a huge risks when it comes to cardiovascular diseases and depression. Housing problems among low income people is rapidly increasing in Australia. Approximately 36 per cent of males and about 30 per cent of women with low income live in housing stress where more than 30 per cent of their income is spend on rent. Housing costs are increasing at a high rate except for the highest income earners. The country’s tax system influences housing affordability (Stiglitz, 2012). Tax exception and negative gearing has led to the push up of housing prices. Since Australia is a high-income country and has an increasing economic inequality, job insecurity, temporary job arrangement has increased dramatically. Moreover, economic inequality in Australia has a slow effect on the economic growth of the country. An equal income distribution tends to encourage specialization in industries and companies while low income leads to low-value adding industries. In addition, longer economic growth is associated with equality in income distribution (Ostry, 2014). Therefore, even though Australia has recorded a growth in its economy over the years, the increasing inequality has had an effect on its long-term economic growth. Economic inequality in Australia also has affected education sector. When children are not successful at school, they will be less likely to become skilled employees. This is because their productive capacity is diminished (Stiglitz, 2012). Inequality has reduced performance due to its segregating effects. Evidence suggests that children’s success in school highly depends partially on interests of their peers. Since schools in Australia are segregated, children from disadvantaged and low income household mix with their peers from disadvantaged households thus most of them end up not performing well. Therefore, it has led to an overall reduction in educational attainment (Stiglitz, 2012). In Australia, there is a huge gap between different groups of employees, those who experience job stability from regular employment and those with minimal attachment to the workforce. The second group of workers constantly moves in and out in different workforce and sometimes stays for a long time without employment. This has been attributed to economic inequality. As wealth and income inequality in Australia increases, the social stratification also increases (Stiglitz, 2012). Social status influence health outcomes as it is connected closely to personal autonomy. The higher a person climbs the status ladder, the more independent and autonomy they become and the more they participate in social activities. In contrast, the more a person becomes disadvantaged, the more they are stressed. The overall effect of economic inequality in terms of income is that a person becomes stressed with loss of confidence. Generally, economic inequality in Australia has led to unequal distribution of healthcare, education and infrastructure. Another adverse consequence of economic inequality in Australia is intergenerational mobility (Stiglitz, 2012). Inequality in terms of wealth and income is linked to a transfer of economic and social status across generation. The disadvantaged children are more likely to remain at the low rank. Australia is said to be among countries with higher levels of intergenerational mobility (Friel and Dennis, 2013). Also, over the years, Australia has experienced a lower growth rate coupled with shorter growth spells. Due to its low taxing, Australia has high unemployment rates and its taxes are unlikely to fully be invested in education, health and housing projects. In conclusion, before the 1970s, Australia prided itself of its tradition of quality. However, in the recent years, the advantages of its strong economy have been enjoyed by the rich. In the country, there has been a growing gap between the poor and the rich in terms of income and wealth. Generally, equality of opportunities in Australia is under a huge threat. This is problematic to the well-being of people in terms of health issues, education, social stability and long-term prosperity. The causes of the increasing inequality in Australia include tax exemptions, globalization, rapid technological advancement, weakening of union membership, inadequate taxation, among other factors. The major factor causing economic inequality in Australia is inadequate and unequal taxation. Inequality in Australia has led to adverse effects. These consequences include, housing stress among disadvantaged household, and unequal access to healthcare and education. It has also led to increasing unemployment, economic instability with regard to unemployment and reduction in aggregate demand. It also causes high level of intergenerational mobility. With the growing inequality in the country that has threatened the community at large, remedial actions are required to eliminate this problem. References Atkinson, A and Leigh, A 2007, The distribution of top incomes in Australia, Economic Record, vol. 83 no. 262, pp. 247-261 (Figures updated to 2010-11 are available at andrewleigh.org) Australian Tax Office (ATO) 2013, Taxation statistics 2010-11 Canberra: Australian Taxation Office; omis Denniss, R and Baker, D 2012, Are unemployment benefits adequate in Australia? Policy Brief No. 39, Canberra, The Australia Institute. Denniss, R and Ingles, D 2014, Sustaining us all in retirement: The case for a universal age pension, Canberra, The Australia Institute Policy Brief No. 60, Retrieved from http://www.tai.org.au/content/sustaining-us-all-retirement Friel, S and Denniss, R 2013, Unfair economic arrangements make us sick, Retrieved from http://www.australia21.org.au/wp-content/uploads/2013/10/ASInequalityDP1.pdf Gonski, D., Boston, K., Greiner, K., Lawrence, C., Scales, B and Tannock P 2011, Review of Funding for Schooling Final Report, retrieved from http://docs.education.gov.au/system/files/doc/other/review-of-funding-for-schooling-final-report-dec-2011.pdf Ostry, J 2014, Income inequality leads to slower economic growth – IMF economists, Reuters, 26 Feb. http://uk.reuters.com/article/2014/02/26/uk-imf-inequality-id UKBREA1P1PH20140226 Stiglitz, J 2012, The price of inequality: How today’s divided society endangers our future, London, Penguin Books. Read More