If no action is taken to address rising inequality in Australia, then over the next 25 years the cost of the increase will grow to 3 per cent of gross domestic product, according to the Inclusive Prosperity Commission's report 'Inequality: the facts and the future', released on Monday.
That's the equivalent of wiping out the gains of national competition reforms of the 1990s, which boosted the economy by 2.5 per cent of GDP, and more than the claimed benefit of recent free trade agreements with Japan, Korea and China.
The combined benefit of those agreements is just 0.1 per cent of GDP, the report said.
The analysis prepared by Equity Economics and based on OECD research, looks into the "hidden headwind": inequality.
It finds Australia did better than most to distribute the gains of a once-in-a-lifetime commodities boom.
But there is evidence Australia's economy is actually perpetuating inequalities instead of reducing them - and it comes with a price tag.
The paper argues inequality hampers economic growth because overall household consumption is reduced.
By giving lower and middle-income earners a lower share of income they have less to consume in the economy, while investment opportunities in poorer parts of the population are reduced.
In dollar terms, the increase in inequality between 2011-12 and 2013-14 could cost the Australian economy $13.1 billion in forgone output by 2019-20.
"For an individual this means they will be earning around $500 less per person in 2019-20," it says.
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The report proposes measures to increase equity, including:
- Improving access to quality education.
- Increasing job outcomes for women.
- Offering affordable health care for all.
- Changing the tax mix - for example, pursuing changes to negative gearing.
- Former treasurer and commission co-chair Wayne Swan says the evidence shows inequality is now an important intergenerational issue.
- "We need inclusive prosperity where everyone benefits when the economy grows and where economic growth is stronger because everyone is involved in producing it," he said.
Executive director of the Chifley Research Centre, and former speechwriter to Julia Gillard, Michael Cooney called on governments to do more, "through policies which lift wages for middle class and working class Australians and ensure people reliant on government payments have adequate incomes, and with wider health, education,
housing and retirement income policy."
