Is Australia’s ‘luck’ running out?

Describing Australia as “the lucky country” has long been a metaphor for how “well” Australia has been doing economically. Unfortunately, for many Australians, things haven’t been going “well” for quite some time. Australia’s past prosperity had precious little to do with luck.

Years ago, many analysts saw Australia’s luck as a product of its abundant natural resources. But a number of countries around the world have found themselves endowed with plentiful resources yet remained in dire economic straits. Australia’s past wellbeing rested almost entirely on the quality of its political, economic and social institutions, not luck.

“Good” institutions enable greater prosperity. More importantly, these institutions enable the equitable sharing of this prosperity. Defective institutions, in contrast, feed extreme inequality and the monopolies and abuses of power that inequality fosters.

In most capitalist countries, the political struggles of the Great Depression years fostered the institutions of more equal societies and the greater prosperity and wellbeing these institutions encouraged. But since the 1970s powerful elites around the world have weakened these institutions. Australia has been no exception to this trend. Its institutions have deteriorated over recent decades, letting everyday Australians down and leaving the country more unequal.

During this time, unbridled capitalism has made it more difficult for people to get jobs and keep them. And even people with full-time jobs —  and those who work full-time hours via more than one part-time job — have become progressively worse off. Australians today have witnessed the emergence of a “working poor.”

Australia’s increasingly deficient institutions have produced a poverty rate higher than the OECD average, a significant decline in real wages relative to labor productivity, and high rates of unemployment and underemployment. Meanwhile, at Australia’s economic summit, we see ever higher concentrations of income and wealth and considerable reductions in taxes on high incomes.

None of this should come as a surprise. The quality of our institutions primarily determines our economic and social wellbeing. Institutions that encourage excessive inequality will, over time, reduce prosperity for all. “Trickle down” does not work.

Nations with tax systems robust enough to underwrite quality institutions and fair enough to win widespread public support enjoy greater economic and social wellbeing. Australia’s current tax system advances neither of these criteria. Australia’s extremely complicated — and open to abuse — tax system needs an extensive overhaul.

Australia needs, for instance, a new system that helps rein in corporate CEO remuneration by reintroducing higher taxes on high incomes and introducing a new tax on businesses that pay their CEOs more than a certain multiple of their median worker pay. Australia should cease to provide subsidies and award contracts to businesses with high ratios of executive to median pay.

A revamped Australian tax system should also include minimum tax rates applicable to gross incomes above $1 million coupled with an annual wealth tax on high fortunes. Needed as well: moves to bring Australia’s current “goods and services tax” rate and coverage more in line with other OECD countries and a total redesign of Australia’s retirement income system. The current retirement system primarily benefits high-income people with concessions so costly that it would be cheaper for the government to simply pay everyone 67 or older a non-means-tested old age pension.

In Australia — and around the world — we also need to do everything we can to help ensure that measures of wellbeing get at least the same importance as GDP in decision making and policy development. A realignment along these lines could open Australia’s political debate to bold new ideas like a universal basic income and a maximum wage.

True democracy still remains more than every adult having the right to vote, and Australia’s current political system has an increasing number of Australians feeling dissatisfied and alienated. Our political institutions stand in dire need of major reform. In Australia’s Senate, a few individual senators can hold the government of the day to ransom. Instead of maintaining this costly and largely undemocratic Senate, Australia needs a democratic and cost-effective way of providing a review function for the Parliament. A Citizens Engagement Panel could both provide this review and enhance citizen participation.

The upshot of all this: Capitalism with a social conscience enables the development of “good” institutions that foster greater economic and social wellbeing. Unbridled capitalism damages institutions and invites significantly greater inequality and other social maladies.

This being the case, if Australia should ever become an authoritarian state contaminated by high levels of government by and for the rich, it won’t be that capitalism has failed us. It will be that we have failed capitalism by enabling politicians and other people of power to progressively degrade our political, economic and social institutions.