In Praise of Economic Inequality

​“The tax and transfer system in Australia is incredibly important. If you simply look at income inequality in Australia, before taxes and transfers, things are not great, and they got worse,” said Richard Holden at the sold-out Festival of Dangerous Ideas (FODI) on Saturday.

He went on to add that since taxes and transfers were established, we’ve improved. Professor Holden believes Australia’s level of equality has developed through politically mediated choices, although “we shouldn’t be complacent about the degree in which we are doing well”.  

Prof. Holden was speaking as part of a discussion panel titled ‘In Praise of Economic Inequality’ before an audience of almost 250 people in the Sandstone Room on Cockatoo Island.  

The panel included Prof. Holden’s Grand Challenges on Inequality counterpart and UNSW law professor Rosalind Dixon; The Menzies Centre executive director Nick Cater; and The Australian economics editor Judith Sloan.  

Anne Mossop, FODI co-curator and panel chair led the discussion into a definition of inequality. That led to a discussion about the definition of the equality we aspire to as a society, which Professor Dixon summarised as a “dignity and equal basis of social respect,” a material minimum, and equality of opportunity – in essence, an inclusive fair go for all. 

The discussion turned toward what inequality used to look like and whether today’s youth can be supported to achieve the same level of wealth as older generations. This led to a heated exchange between Prof. Holden and Mr Cater regarding government investment in the education system. Although they agreed that smart spending could make a difference, Mr Cater “challenged the bureaucracies of governments to do that”. 

Prof. Dixon stated that more experimentation and research into the Australian education sector was required, and Ms Sloan reminded us that entrenched disadvantaged kids have more immediate concerns such as housing, and that “we can’t just leap to the conclusion that education, skills, training is the solution.”  

As the debate had moved more toward poverty than inequality, Ms Mossop returned the focus the premise of the discussion - what is actually good about economic inequality?  

Overall the panellists agreed that a free market provided incentives and opportunities to lift people out of poverty, with Prof. Dixon likening inequality to an undesirable side-effect of life-saving medication. Prof. Holden added that as an economist, he believes “if you provide incentives, people will do more… we should think of inequality as something that we tolerate”.

A podcast recording of the discussion will be available at a later date.