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INTERVIEWS
WITH ECONOMISTS
DR
DAVID JOHNSON
David Johnson is Deputy Director and Principal Research
Fellow at the Melbourne Institute of Applied Economic and Social
Research at the University of Melbourne.
He is one of Australia's foremost social economists with a keen
interest in matters such as inequality, poverty, tax, education,
health and gambling. He also has extensive experience in economic
modelling. Most recently David has been a coordinator of a major
project on the equity and efficiency effects of tax reform.
David believes that economic research should be relevant and,
to this end, is an active participant in public debate and policy
making. Research in relation to the tax reform project has been
an important influence on the tax reform process currently underway.
In a democracy, the amount of government redistribution of income
is decided by the people and their representatives. What is your
view on the current levels of support for the disadvantaged in
our society?
Before addressing the question it is useful to recall the limitations
of economics in elucidating issues in regard to, broadly, social
economics. Any view in social economics is subjective and economic
knowledge does not change this, so my personal view is shaped
by my own prejudices, beliefs, value judgements and so on and
is no more valid than anyone else's. What economics has to offer
is transparency, a consistent framework for measurement and considering
all relevant aspects.
In contrast with most countries of the world Australian governments
undertake a vigorous program of redistribution and, hence, income
inequality in Australia is low by world standards. However, among
the score or so of the world’s richest countries (often used
as a basis for comparison) Australia along with the US has the
least equal distribution. Nevertheless, Australian policies on
redistribution ensure that very few Australians lack the basic
needs for existence (defined by need for sustenance, housing,
clothing and so on). The average standard of living is such that
even the poorest in Australia are, in absolute terms, better off
than some of the richest groups in many poor countries. But redistribution
is also about opportunity and fairness and, in rich countries,
it is mostly concerned with relative levels of well-being.
There are two aspects to this. First, if opportunities are not
provided for the poor there will be efficiency losses since many
capable citizens will not be achieving their best either for themselves
or for their country. Second, unless the society is perceived
as fair, there will be atrophy of the societal underpinnings of
the economy. Property rights will not be respected, citizens will
not work as hard and not be able to take socially optimal levels
of risk, much productive investment will be diverted towards rent
seeking and there will be efficiency losses.
I think that recent changes to the economy – opening it up
and making Australia more internationally competitive – have
also imposed pressure on the level of equity and fairness. Policies
have to be developed which ensure that these changes are shared
and are not appropriated by the well-to-do. I think this means
that Government should be vigilant and, if anything, err on the
side of over-compensating for change. For instance, I think it
is entirely appropriate that the introduction of a GST should
be accompanied by a more progressive overall distribution of well-being.
What changes to current government policies do you think are
warranted to reduce the inequities in income distribution?
This question presupposes that there are inequities in the distribution
requiring attention. As indicated in the discussion above, it
is not clear that this is the case. However, it is my belief that
the policies aimed at increasing efficiency in the economy (sometimes
characterised in the media as an economic rationalist agenda)
are also likely to increase inequality. Hence, there is a role
for government to both enact efficiency increasing policies and,
at the same time, equity increasing policies which aim to mitigate
any increase in inequality.
What impact will a GST have on the various groups within society?
The overall level of inequality is not much changed by the introduction
of a GST (in place of the wholesale sales tax and other indirect
taxes). Following the Democrat amendments the revised GST is about
as regressive as the indirect taxes it replaces. Perhaps the largest
effects are likely to be within groups rather than between groups.
The GST changes the relative prices of many items of household
expenditure. For instance, the price of basic food, cars and electronic
equipment will fall while the price of housing, clothing, recreational
goods and most other services will rise. Accordingly, households
that have higher than average purchases of the former will benefit
while households with higher than average purchases of the latter
will lose.
However, the income tax cuts and pension increases which accompany
the introduction of the GST will result in a less progressive
over-all distribution. Consequently, the overall package does
provide greater relative benefit for groups with higher incomes
and those with dependants.
Has the composition of the disadvantaged within society changed
over recent times?
There have been changes in the composition of the poor and disadvantaged
over recent years. In general, among the poor, older people are
less represented, young people more represented, families less
represented and single persons more represented. The overall level
of inequality in the distribution of disposable income is likely
to have changed little, mainly because government support has
ameliorated increases in inequality emanating from the market
economy. In addition, increases in the provision of non-cash benefits
in the form mainly of support for health and education also will
have improved equity. Finally, overall increases in the standard
of living mean that all main groups are likely to be better off
in an absolute sense.
What is the role of ACOSS? (That is, how is it funded, who
is it trying to help, what does it do and so on?)
ACOSS (the Australian Council of Social Services) is the national
peak council of the community welfare sector. ACOSS includes State
and Territory councils of social service; peak organisations of
consumer and service providers; national religious and secular
agencies such as the Salvation Army, St Vincent de Paul, the Brotherhood
of St Laurence, the Smith family; and income consumer groups such
as the Council for Single Mothers and the Australian Pensioners
and Superannuants Federation. ACOSS has a secretariat which undertakes
a limited amount of research, develops policies to benefit its
constituency, negotiates with other bodies in the development
of policies; makes representations to government; and prepares
policy statements on all relevant contentious issues and articulates
those policies in public forums. ACOSS is funded by subscriptions
from member organisations and interested individuals. It has been
an effective and influential advocate for the broad welfare lobby.
Of course, member organisations may also act on their own behalf
and in the Senate inquiry into the GST many member organisations
of ACOSS presented separate positions which may not always have
been consistent with the position put by ACOSS.
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