Inequality is no accident

Posted: February 23, 2015 in Austerity, Budget 2015, Inequality

How unequal is our economy? How does our gap between rich and poor compare to EU and OECD counterparts? Are we following the global trend towards higher income inequality?

If you listened to some mainstream economic commentators the answer would be; not very; about average; and definitely not.

They would have us believe that income inequality is not a policy matter of great concern. They claim that we are in line with averages in peer countries and there is no trend towards higher income inequality over the decades.

Thankfully this kind of bunkum has been robustly challenged in an important new report by the think tank TASC published this week.

Cherishing All Equally, Economic Inequality in Ireland is a landmark report bringing together the latest Irish, EU and OECD date on income, wealth and public service inequality.

Its 125 pages make for grim reading. It confirms what many of us know from our daily lives, that Ireland is a deeply unequal society and without corrective action will get worse.

Let’s start with income. There are two ways of measuring inequality in earnings. We can look at gross income (before tax and social welfare transfers) and we can look at net income (after tax and social welfare transfers).
Both are important as they provide a picture of the sources of inequality.

The southern Irish economy has the highest level of gross income inequality in the both the EU and OECD. After tax and social welfare payments are taken into account income inequality falls to the EU average.

Some would argue that this indicates the state is going a good job in mitigating income inequality. What it really shows is the deep structural weaknesses in our economy and the huge cost to the state when seeking to correct these.

20% of workers are on low wages, 24% of households are jobless and 27% of adults experience material deprivation. Our economy is failing these families and even with significant intervention by the state their quality of life is substantially lower than those at the other end of the income table.

The TASC report also confirms that southern Ireland is indeed following the global trend of increased income inequality.

From 1990 to 2009 the share of income of the top 1% of earners rose steadily while that of the bottom 90% fell. It is true that during this same period all earnings rose but the increase was dramatic for the top 10% of earners, astronomic for the top 1% but extremely modest for the average earner.

No matter what way you look at it the gap between the top 10% and the rest of us is growing.

Unfortunately our current Government seems hell bent on widening this gap even further.

According to the ESRI Budget 2015 resulted in income losses for the bottom 60% of households and income gains for the top 40%. Worse still the top 10% of earners were the only ones to gain significantly, while the bottom 30% of households lose the most.

This was not the first time Fine Gael and Labour hit the poorest hardest. According to the ESRI Budget 2012 took three and a half times more from the bottom 40% of households than it did from the top 30%. A similar, if less pronounced pattern was found by the ESRI in Budget 2013 and Budget 2014.

That Fine Gael would chose policies that deepen inequality in our society will surprise no one. But for Labour to sign up to this is truly shocking.

Just as Fianna Fáil heaped the burden of the economic crash on low and middle income families, Fine Gael and Labour are failing to distribute the benefits of the emerging recovery fairly.

If we are to reverse the trend of growing inequality we need an urgent change of direction.

The TASC report rightly highlights the need to make reducing economic inequality a core principle of economic policy making. They are call for a shift of focus from economic growth to economic development to ensure that goods and services are provided on the basis of human need. They also call for a greater emphasis on income adequacy.

What is really needed is a new model of social and economic development that invests in jobs and services for all citizens and drives a recovery for all based on principles of solidarity and equality.

Our society doesn’t have to be this unfair. Inequality is not an accident. It is the direct consequence of the policy choices by successive governments. Better choices lead to better outcomes.

If the government won’t make better choices then the only thing left to do is choose a better government.

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