Wealthy posties and the challenge of inequality in Australia

There are a few stale takes coming out on the Australian election, invariably written by ruling-class WASPs, arguing that Labor “fundamentally misunderstands the working class” or some such. This is incorrect, which is unsurprising given that these people have never met a working class person let alone spoken to one. The real issue is that there is barely a working class (3 & 4^th income decile) in Australia, but the middle class (5–8th income decile) often thinks it is working class, and the upper class (9^th and 10^th decile) think they are middle class. Howard, with his incisive rhetoric of “Aussie Battlers” who needed tax breaks for private health insurance, knew this better than anybody.

Those “workers” who voted liberal in this past election are not working class. The mining industry, to take one example, supports mostly six figure salaries, even for truck drivers (and very few jobs, I might add). The Labor party is in many ways the victim of its own success here—the reforms of the Hawke–Keating years, combined with high population growth and tight housing supply, has meant that traditionally working class individuals have grown quite wealthy over the past 20 years, but still see themselves as poor and so can’t fathom handing back subsidies to benefit equity. An anecdotal example is a story from the AFR 6 months ago or so about negative gearing. A retired postman (certainly a working class profession – low skills and commensurately low pay) was saying that the government must soak the rich, not people like him. He had only two properties. One of which he lived in, the other of which he rented for income. Certainly his income remained low, but by wealth this man was exceptionally wealthy—a function of property prices going up by an order of magnitude in the past two decades. He couldn’t conceive the idea that perhaps he should liquidate one of those properties and live off the equity, rather than the rental income (this is common—most people want to bequeath their real estate). It’s very hard to convince someone who has never had high income but has grown very wealthy through government largesse in the property market that they need to give back their subsidies so that working class people can have a go.

A critical challenge for fairness in Australia is that the retirement system is designed around the idea that people will own a home, but that they will draw down the value of this home through retirement to zero, potentially moving onto the pension and the public health care system in their final days. Behavioural economists can tell you that people don’t think this way, mostly because of loss aversion. People will never sell their properties. They feel entitled to stay in the large house that they raised their families in while receiving the pension and other transfers, which pay for their living costs. They then bequeath their housing to their children in retirement. Where those children raise their children in the meantime is a mystery.

My sense is that equity arguments of the type we see in the UK and US, and which the ALP tried to draw on in this election, just don’t fly in Australia. They kind of work in the US because things are just so egregiously unequal there, and the health system is barbaric. They kind of work in the UK (though c.f. Corbyn struggling in the polls) because the sentimentality of socialism—collective ownership, looking after each other, and soaking the blue bloods—has much deeper roots in England. In Australia, there has until now been abundant opportunity. As such we have a modest safety net but soaking the rich doesn’t jibe with the “fair go” rhetoric that undergirds our peculiar approach to the welfare state.

What Labor should make the centre of their platform is anti-corruption, and they should focus on its effects on economic growth, with equity as a bonus. All of the principle industries in this nation—energy, banking, higher education, real estate, superannuation, mining—are highly dependent on licensing, land release and other state actions that are open to rent seeking and clearly exploited by the politically connected: see this fantastic article by Professor Fritjers and Foster, and Cameron Murray’s book Game of Mates. The result, as Adam Triggs and Andrew Leigh have documented extensively, is massive market concentration and anti-competitive behaviour. This is results is low growth and large transfers from average Australians to the powerful. This is not a fair go, and it is frankly un-Australian because you are rewarded for your connections not your industriousness.

In this election, the ALP should have beat the Banking Royal Commission like a wardrum and dragged Dutton, Barnaby and Taylor through the streets as their respective corruption scandals broke. They should have made their promised anti-corruption authority the centrepiece of their campaign, promised it permanence, prosecutorial powers and retrospective powers, and guaranteed that it would hunt the ALP as much as the LNP. They could have talked heaps about the misallocation of capital in this country as a function of rent-seeking/corruption, which would have given them cover for the tax and climate policies they want without requiring them to mention those things directly.

The ALP took good policies to this election but the wrong angle. They didn’t count on the depth of greed in this country, and the difficulty people have in appreciating how rich they are. The ALP does know working class people, but it needs to better understand middle class people who think they are working class.