The success of democracy in its original homes is likely to determine its attractions for the majority of the world’s people who are making up their minds .
Melbourne University economist Ross Garnaut
Professor Garnaut told Melbourne Institute economic and social outlook conference that living standards for low-income Americans and Australians were falling, and on some measures overall living standards were falling, while living standards in developing countries were climbing.
Ross Garnaut says stagnant incomes for most people place a great strain on a democracy. Photo: Josh Robenstone
“Does increasing inequality and stagnant or declining real incomes of ordinary people in the developed countries matter if it occurs alongside rising incomes in the developing world?” he said.
“I think it does,” he said. “Stagnant incomes for most people place a great strain on a democracy. Governments tend to be nasty, brutish and short.
“If there was any doubt about this simple reality, it was removed through observation of the fate of the Abbott government. We have no experience of democracy flourishing with stagnant or declining living standards for most people.”
Lobbying or “rent seeking” by corporate interests was hurting living standards, making Australia and the US unattractive models for the rest of the world, he said.
“We need democracy to flourish in its original homes at this time when the entry of China into high income status relegates to a minority the citizens in high-income countries living within democratic systems.
“The success of democracy in its original homes is likely to determine its attractions for the majority of the world’s people who are making up their minds about the merits of alternative systems.”
Professor Garnaut said corporate lobbyists were keener on using the political process to grab income for themselves than on boosting national income.
“This is a time to be rigorously analytic about changes in taxation and public expenditure policy that are pushed by corporate interests,” he told the conference.
“There is currently a great deal of momentum for a general reduction in corporate income tax tates. A bit of theory in treasury papers premised on perfect competitorn in capital, goods and services markets has been used to draw conclusions about the effects of a cut in company tax rates in the real world.”
“It is hard to see how it can be reasonably applied to an economy in which a majority of corporate profit are in sectors in which monopoly, regulatory and resource rents represent a pretty high proportion of the profits.”
“The cautions are there in the fine print of the treasury documents, but the unqualified conclusions sre so attractive that we ae urged to sign up before putting on our glasses to read them,” he said.
Prime Minister Malcolm Turnbull told the conference any changes he proposed for the tax system would have to be fair in order to succeed.
Labor assistant treasury spokesman Andrew Leigh said that for 40 years Australian incomes at the bottom grew faster than those at the top. But from the 1980s, inequality grew, he said.
“Since Neighbours first went to air, the income share of the top 1 per cent has doubled,” he said. “The income share of the top 0.1 per cent has tripled.”