![Picture](/uploads/8/4/1/7/8417532/9166142.jpg)
In Australia the gap between rich and poor has been rising for over 30 years and that has accelerated in the last decade and a half as we have moved away from a progressive tax regime and the means testing of government financial support.
But is this a problem? According to those on the Right it isn’t. Their arguments include: our duty to reward success; that while the rich are getting richer, the poor are also getting richer (although not at the same rate); that income inequality is healthy because it inspires lower income earners to work harder and to work towards higher incomes, and as a result the society prospers (the old 'its how you grow the pie, not how you cut up the pie' argument).
They sound plausible, but is there any evidence to support these ideas.
It has long been accepted, following the Whitehall studies that your position within a large organisation, and within society as a whole has a significant impact on life expectancy. Those higher on ‘the ladder’ do experience much better outcomes. In 2010, the Marmot review in Britain found that people living in poorer areas die on average seven years sooner, but also spend more of their lives with disability - an average total difference of 17 years. These health inequalities are not just limited to life expectancy but also infant mortality, mental health, physical health and so on. This is not a localised effect, the results having been largely replicated in a study which looked across 50 countries.
In their 2009 book The Spirit Level: Why More Equal Societies Almost Always Do Better, Wilkinson and Pickett found a clear relationships between income inequality and health and social outcomes. (click on adjacent graph to enlarge)
![Picture](/uploads/8/4/1/7/8417532/8697019.jpg)
Recent studies have investigated whether income inequality causes health and social problems, independent of other factors and some rigorous studies have provided evidence of a relationship. Kondo, et al (2009) estimated that about 1.5 million deaths (9.6 per cent of total adult mortality in the 15–60 age group) could be averted in 30 OECD countries by reducing income equality below current levels.
Another study suggested that the loss of life from income inequality in the US in 1990 was the equivalent of the combined loss of life due to lung cancer, diabetes, motor-vehicle accidents, HIV-related causes, suicide and homicide.
And significantly, the most (over) used argument by the Right - income inequality may have positive effects on economic growth by providing incentives to work... while it sounds good at an LNP conference, in an election campaign, or during a doorstop interview, the evidence to support this is weak.
The relevant research unambiguously points towards positive and important society wide outcomes being achieved through reducing the rich-poor divide. This in turn suggests that a return to more means testing of government financial support programs, and a return to a more progressive taxation regime. The lifting of the tax free threshold and the funding guidelines in Gonski are important first steps implemented by Labor, but attention now needs to be turned to tax rates for high income earners, Superannuation arrangements for the wealthy, removing the 50% discount for capital gains tax, and more means testing for government programs. The budget surplus is facing great pressure. Now is a good time for our Treasurer to look at these areas.
What are your thoughts?