Introduction

CONTENTS

Introduction

Section 1:  Wealth Creation as a National Priority

Section 2:  The Nature and Extent of Poverty

Section 3:  The Nature of Justice

Section 4:   Ethical Criteria

Summary and Conclusions

Footnotes

Supporting Documents

The Church, "Social Justice" and "Rights"
John Williams

The Nature of Wealth
Michael Porter

Poverty in Australia
Richard J. Wood

Australia's Heavy Capital Gains and Wealth Taxes
Terry McCrann

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INTRODUCTION

THE 1988 Inquiry by the Catholic Bishops' Committee for Justice, Development and Peace into the distribution of wealth attracted widespread public interest and a large number of submissions.  Wood & Associates presented its submission on 11 August at hearings which were part of consultations held in every capital city.  This Policy Issues is based on that submission and has been reprinted to inform others on the proposals Wood & Associates placed before the bishops.

Debate on the distribution of wealth has an extremely long history. ⁽¹⁾  It is not between those who wish to maintain poverty and those who do not.  It is a debate over the public policies best suited to the common goal of reducing poverty (to the extent, that this is achievable), while retaining a social consensus and respecting individual rights.  An important part of this debate relates to the fact that measures to alleviate poverty in the short term may have longer term consequences which would be counter-productive, both economically and for the total well-being of individuals in lower as well as higher income groups.

In addition, consideration of wealth and poverty should recognise that significant differences exist in the physical and intellectual capacities of individuals, leading inevitably to differences in wealth and income.  Any attempt to achieve absolute equality would thus be doomed to failure, even if it could be justified morally that, to achieve this ideal, individuals should be denied the fruits of their mental and physical labours:  the objective should be not equality of outcome but, rather, equality of opportunity.  Equal liberty for all is, we believe, likely to produce greater equality in the distribution of property and income than is to be found in economies based on centralised power and privilege.

It is relevant that, over the past two decades, there has been a major change in opinion among professional economists, ⁽²⁾ the majority of whom now reject the "big government" approach to solving economic and social problems.  They give greater recognition also to the enhanced role of competitive markets, and to allowing individuals greater freedom to work and contract to fulfil their natural abilities in the creation and wide distribution of wealth.  The role of competitive markets is gaining recognition even in communist countries.

Accordingly, in our view the central issue is not the redistribution of existing wealth;  it is how best to create additional wealth and a society which employs its prosperity wisely and charitably, thereby minimising poverty.  There is a need to reduce dependency and to concentrate government assistance much more on those in real need.

The submission argues that, in the longer term, one of the most effective ways of reducing levels of poverty and dependence, and thereby improving the circumstances of all Australians, would be the return of a "full employment" economy:  as Federal Treasurer Paul Keating has said, "The greatest cause of poverty in this country is undoubtedly unemployment". ⁽³⁾  It further argues that, while there is no moral or economic basis for determining that some particular end distribution of income or wealth is more "just" than another, there is widespread acceptance of the view that Australians genuinely unable to help themselves should have access to a minimum acceptable living standard.

The issue of poverty does raise, however, questions of the moral responsibilities of individuals.  There is a particular issue in regard to the increased poverty (as measured) arising from the considerable diminution of the mutual responsibility of members of families, one for the other, and the role which government has played, through the expansion of the welfare State, in fostering the attitude that government assistance is a right that carries with it little or no countervailing responsibility.

We have welcomed the advice of the Reverend Dr. John Williams, Professor Michael Porter, Professor H W Arndt, John Nurick, Peter McGregor and Hugh Henry.

Richard J.  Wood

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SECTION 1
Wealth Creation as a National Priority

The production of more wealth in Australia will reduce the incidence of real poverty.

1.1 Economic growth is a key requirement for a nation seeking to improve the material welfare of its own people and to assist its neighbours.  Policies which diminish the capacity or potential of the nation to create greater material abundance can only reduce the availability of services and material succour that are part of our Christian heritage.

1.2 This does not mean that wealth should be seen as an end in itself.  The creation of wealth makes possible an increase in the supply of material and intangible goods which may be consumed or enjoyed:  but it also allows the natural initiative, energies and ingenuity of men and women to be expressed in productive work in the arts of nation-building, in the formation of families as the basic units of civilisation, and in the creative pursuits of leisure.

1.3 The creation of wealth by some sections of a society does not involve the diminution of the wealth of other sections.  Indeed, the effect is to benefit all sections of the community quite apart from government-inspired redistributive mechanisms.  The obvious factors are the creation of additional employment and income opportunities, greater capacity for private philanthropy and increased government revenues for provision of welfare.  The very large increase in average living standards, which has spread across all income groups in Western industrialised nations since World War II, bears this out.  In Australia's case, between 1950-51 and 1986-87 the gross domestic product per head about doubled in real terms.  Unless there has been a marked change in the distribution of income -- for which there is no evidence ⁽⁴⁾ -- this indicates a very substantial improvement in the standard of living of all income groups in Australia.

1.4 Living standards rose also in Third World countries during this period.  "In the quarter century from 1950 to 1975 average real income levels in the Third World as a whole more than doubled.  This rate of increase was about the same as that experienced in developed countries, and represented a sustained rise of a magnitude never before experienced in human history within such a period." ⁽⁵⁾  Although since the mid 1970s the overall rate of increase has slowed and average real incomes have actually fallen in a few countries, average real income levels in developing countries have increased further ⁽⁶⁾ -- indeed on average more rapidly in developing than in developed countries.

Wealth creation flourishes best in a private enterprise, free market system where private property rights are protected.

1.5 Humanity's existence on this planet has been a history of desperate and often seemingly fruitless attempts to secure the goods and services needed for survival.  While that struggle continues in many parts of the world, the Western industrialised nations have largely overcome it.  A vital factor in breaking out of this poverty trap has surely been the establishment of a system of equal liberty under law based on government giving substantial protection to private property from the arbitrary intervention of the state, from foreign invasion and from arbitrary intrusion by other individuals and groups.

1.6 The establishment of that system has been basic to the development of the free market economies, which have provided both the incentive to increase wealth and the competition which prevents domination by a particular individual or group.  For example, a free press could only have developed in the context of private property rights, and freedom of religion would be severely restricted in the absence of property rights of religious bodies.

1.7 Legally secure and politically supported property rights have also provided the basis for the massive build-up in the capital stock of Western industrialised nations, and for the development and application of new technology.  These have been the key factors in providing employment and growing living standards for the much increased populations of these nations.  Through international trade and investment they have also made an important contribution to the large increase in living standards in less developed countries.

1.8 It is sometimes said that a free market system promotes self-interest and greed.  But self-interest and greed exist whatever the economic system.  In unfree systems, self interest and greed produce concentrations of privilege and power which would not be acceptable in a system such as ours.  It can indeed reasonably be argued that free enterprise systems based on equal laws are more successful than any other in harnessing self-interest for the collective good.

1.9 None of this is to overlook the role of government in providing the legal framework for the market system, and in providing services (such as welfare) which might otherwise be "under-supplied" by the market.  There is now widespread acceptance, however, that this latter role has been carried too far and that it is government policies, rather than the operation of market forces, that have entrenched, if not created, a dependent class of people with a relatively low standard of living.

It is not sufficiently appreciated that the institutional/legal environment is vital not only for determining a nation's wealth but for determining the capacities of human resources. ⁽⁷⁾

1.10 This is illustrated by considering, say, a given set of factories otherwise identical in Tanzania and the United States.  They may generate massive income streams in the United States but little in Tanzania because of the "human capital" with which they work (which will reflect, inter alia, the history, culture and attitudes of the people) and the political and economic environment.  In other words, equipment used by an effective labour force and operating under conditions conducive to investment may generate prosperity for workers and investors alike but may be virtually worthless in other circumstances.

1.11 The human capacities of Americans to produce wealth did not develop independently of the political and economic system they have established.  These capacities have indeed been stimulated and developed in response to the competitive environment of the USA.

We therefore believe the bishops should conclude that the material condition of all sections of the community is most effectively enhanced by encouraging economic growth through a private enterprise, market-oriented economic system, involving vigorous private enterprise, minimal government interference and protection of private property rights.

The existence of substantial differences in the distribution of existing private assets should not be taken to indicate that the private enterprise system is operating to increase such differences or to constrain increases in the standard of living of lower income groups.

1.12 There are no comprehensive measures of the distribution of private assets in Australia and considerable guesswork is required to achieve even an approximation.  One recent study ⁽⁸⁾ concluded that there is considerable concentration of such assets, with the top 1 per cent of adult individuals holding  around 25 per cent, the top 5 per cent about 50 per cent, and the top 10 per cent more than 60 per cent.  The study also concluded, however, that there appears to have been some reduction in the degree of concentration of personal wealth, with the bottom 90 per cent increasing their share of wealth from 22 per cent in 1915 to between 35 and 40 per cent in the late 1960s.  The author noted that "the idea that over the period since World War I there has been a secular decline in the inequality of wealth distribution is one on which there is fairly general agreement across developed countries."  Given the wider spread of education and the associated increase in opportunities for individuals to improve and exploit their capacities, together with the measures taken by governments to redistribute income, this conclusion is scarcely surprising.

1.13 It is, however, quite misleading simply to look at the distribution of estimated private assets.  In fact, as Michael Porter points out in his paper, The Nature of Wealth (p.46), the value of private assets essentially depends on the human capital and the institutional environment in which those assets exist.  As Porter says "there always exists a set of economic policies which can grind the value of such a measured capital stock to zero."

1.14 Porter points out that if we restrict ourselves to looking at assets in personal or group balance sheets, we miss many other components of wealth which determine spending power or command over resources -- the ultimate purpose of wealth.  Consider a person who has, say, $200,000 in cash, who owns a house and a boat, but who for some medical or other reason has an incapacity to generate future income flows.  This person could invest his cash resources and earn, say, around average weekly earnings.  His command over future resources is, thus, just average, though his present measured financial assets may be relatively large.

1.15 On the other hand, his neighbour may have ideas and knowledge likely to generate considerable future income.  Such a person may be a millionaire or a billionaire in prospect, but could be totally excluded from any accounting for wealth -- and would clearly avoid any taxation of observable wealth.  There are many current examples in Australia of wealthy people who started from nothing.

1.16 Against this background, Porter argues that national wealth is best defined by estimating the future flows of income and discounting those by a discount rate to take account of the fact that the present value of a dollar to be received in, say, ten years time is worth much less than a dollar received today.  He points out that any attempted redistribution of measured private assets would necessarily fail to take account of a substantial part of future income streams.  Indeed, attempted redistributions of existing private assets would very likely reduce those future income streams and, hence, national wealth.

1.17 Apart from this, it is particularly important to recognise that a substantial proportion of the wealth of Australia is government "owned".  ABS figures show that, excluding houses, governments "own" about 50 per cent of Australia's total capital stock. ⁽⁹⁾  Over 70 per cent of land and some 30 per cent of buildings, equipment and other construction is "owned" by government.  Some 20 of the top 100 business undertakings in Australia are government "owned".

1.18 The government "owned" capital stock thus supplements private wealth and is potentially available to benefit all sections of the community.  However, it is now acknowledged that narrow interest groups have the capacity to capture for themselves many benefits which flow from state involvement in economic activity.  Such groups use the power of governments to achieve a distribution of income and wealth which would not occur in a competitive market situation.  But that distribution does not necessarily favour the poor and may indeed have detrimental effects on them.

We suggest that any assessment of the present differences in the distribution of wealth in Australia should conclude that, over time, it is unlikely that differences have widened, that in assessing such differences much more needs to be taken into account than personal or group balance sheets at any particular time, and that even to the extent that the distribution of private wealth can be measured it cannot be taken as a reliable indicator of the capacity to command resources.

Distribution of income in Australia, after allowing for government redistribution, appears to be relatively egalitarian.

1.19 Economists tend to focus more on levels and trends in income distribution, mainly because income provides the basic purchasing power for maintaining living standards and, when income from property is included, it reflects holdings of wealth.  In addition, data on incomes are more reliable than data on wealth.  Even so, statistics of income distribution need careful interpretation.

1.20 The Taxation Review (Asprey) Committee 1975 observed that:  "were it possible to ascertain the distribution of Australian income in terms not of annual income but of the probable lifetime income of persons now alive, such a distribution would (after eliminating the effects of general economic progress) be considerably more bunched in the middle ranges than any annual figures.  The great majority of individuals in the low intervals of annual distribution (the sick, unemployed, aged) would move into higher income groups;  equally, many of those towards the top on the basis of annual statistics (persons at the temporary peak of their careers or old enough to have incomes from their own savings and from inheritances) would move into lower groups.  There would be far fewer very rich and far fewer very poor;  the bulk of the population would be even more concentrated in the middle ranges." ⁽¹⁰⁾

1.21 1n fact, if one were to define equality as equal incomes for all families at the same stage of their life cycle, inequality would be much less than the raw data might appear to suggest.  (Both older and younger families would naturally be expected to receive lower incomes than middle aged families with experienced productive workers.)  Partly for this reason, it can be argued that expenditure provides a better indication of average life time income.  Certainly there are less differences between the distribution of household expenditure and the distribution of household income -- and both show smaller differences than the distribution of private wealth.  The 1986 Household Expenditure Survey ⁽¹¹⁾ shows that in 1984 households in the highest 10 per cent income group received 25 per cent of total household income and accounted for 19 per cent of total expenditure.  Those households in the bottom 10 per cent income group received 2 per cent of total income but accounted for 4 per cent of expenditure.  It might be noted that those in the bottom 10 per cent income group allocated over 10 per cent of expenditure for recreation and over 4 per cent for tobacco and alcohol.

1.22 The Household Expenditure Survey also recognises that it is important to adjust income data to take account of the net effects of government redistribution, including indirect benefits derived from education, health, housing and social security benefits not provided directly.  Thus, in 1983-84 the average household income of the bottom 20 per cent was $6,044 per annum before taking account of net government benefits: ⁽¹²⁾  but $8,524 per annum after allowing for net government benefits.  This led economic journalist Ken Davidson to conclude that, when government grants are taken into account, along with the number of persons in each household, the spread of income is "a remarkably egalitarian one" (The Age, 11 March 1985).

1.23 As mentioned, there is no evidence of any marked change in the distribution of before tax income in recent years.  While the latest ABS survey does show an increase in the share of those in the highest 10 per cent income group since 1978/79, that has not been at the expense of the lower income groups, whose shares have remained stable. ⁽¹³⁾  That stability, however, raises a question as to whether government attempts to improve the share of lower income groups have been unsuccessful.

Australia -- Income Distribution ⁽¹⁴⁾
Income Share (%)

Gross Annual Income Decile	1978/79	1981/82	1985/86
Lowest	1.7	1.7	1.8
2nd	2.9	2.9	2.9
3rd	4.2	4.2	4.1
4th	5.8	5.6	5.4
5th	7.6	7.4	7.0
6th	9.3	9.2	8.9
7th	11.3	11.2	11.0
8th	13.8	13.6	13.6
9th	17.0	17.2	17.0
Highest	26.4	27.0	28.4

Income is gross income before tax or any other deduction.  It includes government pensions and benefits (but not indirect benefits).

Data is not available to allow conclusions to be drawn about changes in income distribution over the longer term.  However, we would expect that, with widened educational opportunities and government redistribution, shares of lower income groups will have increased somewhat.

1.24 Internationally, Australia has the reputation for having one of the most egalitarian distributions of income, although the problems associated with international comparisons make it difficult to reach any firm conclusions in this area and provides ample scope for "experts" to vent their differences.

We suggest that the bishops should note that income is the more significant indicator of capacity to command resources, that it appears to be more evenly distributed than private wealth, that the share of lower income groups has been maintained in recent years and that income distribution in Australia appears to be relatively egalitarian.  For all these reasons, more attention should be paid to the distribution of income than that of wealth.  However, differences of income at a point of time are an inadequate refection of differences in life time income.  The latter may be more accurately reflected in differences in expenditure, which are significantly less among income groups than differences in income.

Wealth and power are not synonymous.

1.25 Some of the most powerful groups in society do not possess significant wealth.  We endorse the analysis of power set out in the submission by the Australian Institute of Public Policy on Wealth and Power.  The widespread assumption that power is synonymous with wealth is simply not sustainable.

1.26 Wealth is but one of the many ways of securing privileged access to the power of the state.  Some trade unions, lobby groups for sectional interests, and particular individuals (including politicians) have much greater access to power relative to others in the community.  Their power is not based on wealth.

1.27 For example, in a survey published in Australian Business on 22 June it was revealed that some 78 per cent of Australians felt that trade unions had too much power.  (The comparative response for business was 36 per cent.)  The exercise of such power has significant implications for the distribution of income.

1.28 Geoffrey Brennan ⁽¹⁵⁾ has noted that the more the state takes on the role of wealth-redistributor the more it concentrates power in the hands of those who have gained privileged access.  When a state attempts to redistribute wealth one of the first effects is inequality of access to state power.  It can be argued, indeed, that few societies are more unequal than that of the USSR, where there is little private wealth and relatively little inequality of cash income.

1.29 Attempts by the state to significantly redistribute wealth are likely to be only partly governed by the needs of the genuinely poor.  The main factor will be the specific concerns of whatever sections of society happen to have the greater access to power.  Enhancing the role of the state in the redistribution of wealth, moreover, spurs competition for access to power among special-interest groups, thereby creating envy, intolerance and social fragmentation.

1.30 Public choice theory argues that politicians naturally seek to develop strategies and policies which will gain them election by fostering sectional interest groups at the expense of the more diverse interests of the wider community and of groups with less capacity to push sectional interests.  The beneficiaries of state largesse then become the benefactors of politicians.  Any idealistic policy of redistribution is liable to succumb to this process.

1.31 As a result of such political processes, even in Australia there are significant inequalities in legal rights and liberties.  Porter demonstrates the consequences for wealth in Australia of policies which make it difficult for people to gain jobs and acquire skills.

1.32 Taxes on observable forms of wealth, even more than high marginal tax rates on income, are likely to suppress income streams, reduce employment opportunities and frustrate the training and education of individuals, all with the effect of lowering our real national and individual wealth.

Account needs to be taken of the fact that access to state power may influence the distribution of income in ways that are not necessarily helpful to lower income groups.

Attempts by governments to substantially redistribute income and property would have major adverse economic and social consequences, and would be unlikely to reduce the incidence of poverty.

1.33 Western democracies have accepted, as part of the political and social consensus, that governments have the right and the duty to ensure that those who are genuinely unable to help themselves should have access to a minimally acceptable standard of living.  This necessitates some income redistribution, although the extent of the government's direct role is a matter for consideration.

1.34 However, to carry government intervention beyond a certain point is likely to lead to a breakdown in political and social consensus and/or to major adverse economic consequences.  It is also likely to have adverse psychological and social consequences in encouraging a dependent, "no obligation to work" approach to life but without necessarily reducing the incidence of poverty as measured.

1.35 In the last two decades the Australian economy has been marked by relatively poor growth rates, high inflation and high unemployment.  The average real growth rate of the Australian economy went from over 5 per cent per annum in the 1960s to about 3 per cent in the 1980s (so far).  This is below the average for the major industrial countries and a long way below the performance of the high growth economies of Hong Kong, Singapore, South Korea and Taiwan.

1.36 It is probable that those who have suffered most from this are the poor and disadvantaged.  In the sixteen years 1970-71 to 1986-87 real GDP per head increased by 30 per cent compared to the increase of 50 per cent over the sixteen years 1953-54 to 1969-70, i.e. almost 1 per cent per annum slower in recent years.  Although we do not have comparable income distribution statistics covering the whole of this period, figures for the period 1978-79 to 1985-86 show no increase in shares of lower income groups i.e. people remaining in those groups would have had a constant share of a slower growing cake in recent years.

1.37 The attempt in the early 1970s by governments to "stimulate" economic growth by Keynesian pump-priming failed dismally and resulted in high inflation which, as the Henderson Poverty Inquiry of April 1975 pointed out, "favours the active and the powerful;  the position of poor people deteriorates.  Those who own real assets such as houses, land and some shares gain from inflation, as these assets rise in value.  The poor renters are faced either with increases in rents they cannot afford to pay or with eviction to make way for more profitable commercial development" (page 10).  Many so-called reform measures which purported to help the poor have been of little or no benefit to them.  For example, "free" tertiary education and "free" or subsidised health care for all have transferred resources to better-off sections of society.  Some of these policies are now being reversed.

1.38 The expansion of government outlays and taxation since the early 1970s has contributed to inadequate growth of capital stock and insufficient investment, and to disincentives to save and to work.  These factors, together with a highly regulated labour market, have been the major cause of the large increase in unemployment since the mid 1970s.  Overall, measured poverty has increased, as has social welfare dependency.  Charles Murray showed that the incidence of measured poverty in the United States was falling before the Great Society measures introduced by President Johnson.  Since then poverty has increased. ⁽¹⁶⁾

1.39 An important effect of the expansion in the role of government since the early 1970s has also been to encourage an excessive growth in national spending relative to income.  Australians have been living beyond their means, particularly since the early 1980s.  (Contrary to popular belief, average living standards have not been falling:  although real earnings fell by about 7 per cent between 1982-83 and 1986-87, real household disposable income per capita rose by over 7 per cent and total consumption expenditure per capita by over 5.5 per cent.  This reflects increased borrowing.)  As a consequence, Australia has accumulated a massive external debt without commensurately increasing the productive assets needed to service that debt.  This means that it will now be necessary, for a period, to strictly limit the growth in living standards while, at the same time, doing everything possible to encourage private sector creation of wealth. ⁽¹⁷⁾

We suggest that on the evidence of the 1970s the bishops should conclude that measured poverty is unlikely to be reduced through further government attempts to redistribute income.  And that any such attempts may well be counterproductive in helping the poor, as they appear to have been in recent years.

A lesser burden of taxation in Australia would help stimulate economic growth and creation of wealth.

1.40 It should be noted that, notwithstanding the "cuts" made in personal income taxation in recent years, the overall burden of taxation has continued to increase.  Indeed, even the burden of personal income taxation has increased because the "cuts" have been outweighed by the effects of inflation in shifting taxpayers into higher income brackets.  In 1987/88 the overall burden of taxation was almost certainly the highest on record -- about 32 per cent of GDP compared with 24 per cent in the early 1970s.

1.41 Notwithstanding this huge increase in taxation, governments have until very recently been running record deficits during most of the period since the early 1970s.  In other words, their spending propensities have far outstripped their fund-raising capacities.  The resultant borrowings have imposed a burden on future generations.

1.42 Increasing government deficits and the resultant growth of debt have both economic and moral dimensions, according to Nobel Laureate James Buchanan.  Economically they threaten an upsurge in inflation and economic crisis;  morally they constitute a totally unjustified passing of the cost to future generations.  In 1986 Buchanan noted that "the observed fiscal profligacy of the US federal government is only one symptom of a more inclusive and pervasive characteristic of our age which is reflected, also, in the large and growing private debt, in the low rate of domestic savings and in many, many other aspects of modern life." ⁽¹⁸⁾

1.43 We support the government's recent moves to reduce net borrowings by the public sector and to move the Commonwealth budget into surplus.  More needs to be done to reduce the burden of taxation by reducing government outlays.

1.44 We say this notwithstanding that, as is often pointed out, Australia has a relatively low proportion of tax to GDP by comparison with other OECD countries.  Australia's tax revenues total about 32 per cent of GDP which compares with an overall OECD average of about 37 per cent. ⁽¹⁹⁾

1.45 For one thing, such comparisons can be misleading.  For example, the centralised wage system in Australia is forcing the business sector to provide superannuation benefits which in some other countries would be financed from taxation.  Also, in Australia workers' compensation is funded on the basis of government legislation which requires compulsory payments similar to taxation whereas in many other countries such compensation is funded by tax receipts.

1.46 More importantly, it is increasingly recognised that the rising burden of taxation in many OECD countries has been a major contributing factor to the slow-down in economic growth in those countries since the 1960s (see also 2.24 below).  In short, the burden of taxation in OECD countries is almost certainly too high. ⁽²⁰⁾

1.47 This contrasts sharply with the situation in those countries in East Asia which have experienced very strong growth.  These countries have lower burdens of taxation than Australia.

1.48 Moreover, contrary to popular belief, Australia does have taxes on capital and property and, even before the introduction of the comprehensive capital gains tax, the burden of those taxes was at least equal to the average burden in OECD countries. ⁽²¹⁾  Indeed, economic journalist Terry McCrann has argued that certain forms of Australia's wealth taxes are among the most punitive in the world.  His article on this subject appeared in Review, Spring 1986, and is reprinted on page 55.

1.49 While introducing a capital gains tax, the Government itself has recognised the adverse effects of high marginal rates of tax and Prime Minister Hawke and Treasurer Keating have recently foreshadowed a reduction in the top marginal rate to 39 per cent.  We support such moves and would want to see such reductions carried further, to a single flat rate of tax, in order to increase incentives and to reduce poverty traps and tax avoidance.  It should be noted that such a flattening of the tax scales would still involve a substantial redistribution of income when account is also taken of government transfer payments.

1.50 It is pertinent in this context to emphasise that concern should not be directed at the gap between higher and lower income levels.  If real incomes can be raised at all levels of income there should be no sense of injustice or inequity that the absolute gap has widened, as it inevitably must if there is an equal proportional increase at all levels.

We believe that every effort should be made to reduce the overall burden of taxation and to flatten the tax scales so as to encourage enterprise and initiative, to stimulate the creation of wealth and to reduce tax avoidance.  A flatter taxation scale would still allow ample scope for redistribution.

A wealth creation "package" of policy changes could substantially increase national wealth.

1.51 If government policies were changed in the ways outlined above -- and in other ways -- there seems little doubt that the overall rate of economic growth could be increased substantially, with potential benefits for all income groups.  In his paper The Nature of Wealth, Michael Porter sets out a hypothetical '"package" of policy changes that could lift Australia's growth rate from 2.5 per cent per annum to 4 per cent per annum, thereby increasing national wealth (estimated by the discounted income flows method) from $7.7 billion to $9.7 billion -- an increase of over 25 per cent.  It is easy to see the potential such a package would have in reducing poverty.

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SECTION 2
The Nature and Extent of Poverty

Poverty is a relative concept and nowadays in the West relates more to a minimum acceptable living standard than to survival.

2.1 Welfare groups frequently suggest that a substantial proportion of the population is living in poverty.  One incredible 1982 study, for instance, suggested that 2,830,000 Australians (nearly 20 per cent of the population) were living in poverty. ⁽²²⁾  Such estimates, and the Henderson poverty line on which they are based, essentially involve a subjective judgement as to what constitutes "poverty".  The Institute of Applied Economic and Social Research at the University of Melbourne regularly updates the Henderson poverty line (which was derived from New York based studies of the consumption patterns of American poor persons living in cities).  The Institute's explanatory notes point out that "the poverty lines must be interpreted as allowing a standard of living defined relative to the average community standard rather than a fixed absolute standard." ⁽²³⁾  Moreover, as our research paper Poverty in Australia (p.62) points out in commenting on the Henderson poverty line, "a summary measure (particularly one based on experience in another country in an earlier decade) cannot accurately assess the widely differing financial and economic needs of individuals."

2.2 P.P. McGuinness in the Financial Review of 24 June 1988, pointed out that all this produces the paradoxical consequence that it is impossible to eliminate poverty since those at the bottom end of the income scale will always be deemed to be "poor".  McGuinness also points out that "when average household income is growing, unless the wages of the lowest-paid workers and the benefits to unemployed and others are rising as fast, they will by definition be getting poorer, even though in fact they might be in absolute terms enjoying a rising living standard."  McGuinness notes that "The real purchasing power of the poverty line increased by 16.6 per cent in the period 1973-74 to 1986-87."

2.3 The latest survey of income distribution by the ABS suggests that, over recent years, there have been increases in the real incomes of those in the bottom income groups.  In the following table income is gross income before tax or any other deductions.  It includes government pensions and benefits (but not indirect benefits).  Real increases have been calculated by deflating the nominal increases with the CPI.

AUSTRALIA -- INCOME DISTRIBUTION ⁽²⁴⁾

Gross Annual Income Decile	Mean Income $ 1978/79 to 1985/86			% Real Income
	1978/79	1981/82	1985/86
Lowest	1970	2650	3930	11.35
2nd	3250	4510	6130	5.28
3rd	4780	6530	8790	2.65
4th	6570	8680	11460	-2.64
5th	8630	11510	15030	-2.79
6th	10530	14230	18950	0.45
7th	12740	17260	23500	2.96
8th	15560	21080	29050	4.21
9th	19270	26590	36410	5.47
Highest	29790	41730	60740	13.81

2.4 The reality is that poverty -- in the sense of being in a position where one's survival is consistently at risk -- scarcely exists in Australia.  The debate is now essentially about the extent of redistribution to those judged in need relative to the rest of the community -- a concept that is necessarily highly subjective.  At best, poverty lines are merely guides to estimating numbers of those judged to be in need because their incomes are below a level deemed at any given time by welfare groups and/or governments to be below a minimum acceptable standard of living.

The bishops should recognise that those in "poverty", as defined by some welfare groups and governments, include a high proportion of people who have a material standard of living that is well above subsistence, that continues to rise and that is indeed higher than average incomes in countries such as India or Indonesia.

The greatly increased proportion of Australians who have become dependent on government welfare for the bulk of their income since the mid 1970s has created economic and social problems.

2.5 The much higher proportion of Australians who became dependent on government assistance in the last decade and a half has added significantly to government outlays, taxation and borrowing, thus detracting from economic growth.  However, as pointed out in Poverty in Australia, this increase in dependency is importantly due to changes in government policies on eligibility for benefits and does not necessarily indicate a deterioration in the economic position of those in real need.  In fact, it can reasonably be argued that this extension of welfare assistance to a bigger proportion of the population has meant that those in real need have received less assistance than they otherwise would have.  The continuing pressure on non-government welfare agencies in recent years is certainly an indication that government welfare has not dealt with the problem of the genuinely needy.

2.6 By 1987 there were 3,282,096 people receiving social security and veterans' pensions, compared with 1,071,514 in 1969.  In 1987 income support recipients represented 42.5 per cent of the labour force compared with 20.3 per cent of the labour force in 1969.  Outlays on social security increased from 4 to 8 per cent of GDP between the early 1970s and 1986/87.  Between 1969 and 1987 the tax required from each member of the workforce to pay for increased welfare payments virtually doubled.

2.7 The demoralising effect on individuals of prolonged dependency needs to be stressed.  For young people in particular, work and the economic independence which results are the main paths to the sense of competence, responsibility and dignity which are integral to adulthood.

2.8 Many new dependants on welfare have come from those of work-force age, thereby detracting from the supply of labour and from potential output.  In 1969, 27 per cent of income-support recipients came from this working-age group.  By 1987 that figure had increased to 47 per cent.

2.9 A major factor in this increase has been the large rise in unemployment from around the mid 1970s to the present.  Important contributors to this rise have been the increased real value of the unemployment benefit and the exercise of monopoly power by trade unions, especially in 1974 and 1981/82.

2.10 The ageing of the population has not been a major factor in the growth of dependency.  Numbers of dependants increase as benefits extend.  A particularly large growth in numbers of sole parent and widow pensions followed the introduction of supporting parent benefits in 1973 -- a fourfold rise from 80,000 to 331,000 during a period when total population increased by only 22 per cent.

2.11 Poverty in Australia charts the general anatomy of welfare today, and concludes that "a social security system which provides a comprehensive safety net, as in Australia, presents major problems for ensuring that pensioners and beneficiaries are encouraged to seek employment and/or make best use of their available financial resources."

2.12 Other measures intended to help the poor often have the unintended consequence of hurting the poorest.  Typical of such measures are occupational licensing laws, minimum wage laws and rent control.  Two black, ghetto-born US economists, concerned for the well-being of their own and other oppressed minorities, Walter Williams and Thomas Sowell, in numerous books argue this point, which is now widely accepted. ⁽²⁵⁾  Undoubtedly the current system of welfare provision in Australia has similar problems.

2.13 In Australia the Miller Inquiry into Aboriginal employment, published in August 1985, took a significant step forward in recognising dependence on government as a problem rather than a solution for Aborigines.  It reported that a staggering 71 per cent of total national Aboriginal income derived from government, mainly in the form of social welfare.  Margaret Valadian, the co-director of the Aboriginal Training and Cultural Institute in Sydney, believes that dependence on welfare has contributed significantly to the destabilisation of Aboriginal communities.  "The policies of the 70s and 80s", she argues, "killed ... initiative and self-reliance." ⁽²⁶⁾

The bishops should recognise that the large increase in welfare dependency -- and hence in measured poverty -- since the early 1970s is importantly a reflection of changes in government policies on the eligibility for, and real value of, government benefits.  In examining ways to reduce poverty and to enhance human dignity, the bishops should give appropriate emphasis to policies for reducing dependency, particularly among working age individuals, and concentrating government assistance much more on those genuinely in need,

The destabilisation of the family and the weakening of family obligations are major causes of poverty as measured.

2.14 The fastest growing segment of the poor in the last two decades has been single parents and their children.  Poverty among the elderly and among unemployed teenagers is also closely bound up with the breakdown of family bonds.  The rise in the number of illegitimate children, inevitably over-represented among the poor, is also clearly related to changing attitudes to the moral basis of the family.

2.15 To some extent the enormous expansion of government welfare has been a response to this breakdown of the family and its moral basis:  the state has stepped in to provide benefits and support structures which families have increasingly failed to provide.

2.16 But, while some response along these lines may have been unavoidable, the extent of that response has created economic and moral problems.  Thus the state's absorption of functions and responsibilities once performed by the family -- including child care and support for the elderly, deserted wives, etc -- has itself contributed importantly to the preparedness of individuals to shed their family obligations, on the excuse that "the government will take care of it."  The modern welfare state has indeed fostered a carelessness about responsibilities to family and neighbours, even a carelessness about responsibility for oneself.  For example, as argued by Peter Swan and Mikhail Bernstam in their article, "Brides of the State", (Review, May-July 1987), single parents benefits have been provided on a basis that has made the option of single parenthood more inviting than is good for the long run interests of the child or the mother and that have implied that the general taxpayer should accept responsibility for the material welfare of the mother and child.

To encourage further growth in government welfare or even its maintenance at current levels may well result in the further erosion of the family and the perpetuation of poverty as measured.  The bishops should thus give strong emphasis to the family and its tradition of mutual responsibility both as a key institutional protection mechanism for individuals against poverty and as a more appropriate moral basis for society.

Poverty need not be a consequence of injustice.

2.17 It is important to distinguish between poverty which results from unjust actions and poverty which would remain even if there were no such actions.  Further, not all unjust actions result in poverty.

2.18 Unjust behaviour which may create poverty includes plunder and theft, deceit and fraud, aggression and tyranny, and monopolistic control over production or the supply of labour.  The solution to such poverty exists in creating a regime of just and equally applied laws.

2.19 Even if all act justly, poverty may arise as a result of misfortune related to health, age, opportunity or mental or physical impairment.  Such poverty does not indicate an unjust society.  But a just society will naturally exhibit compassionate efforts to alleviate poverty arising from disability or misfortune.

2.20 Government policies themselves can be a significant source of poverty.  For example, laws which prevent young people from obtaining work have, in our view, caused significant poverty.  Such laws may be regarded as unjust because they deliberately favour old and more experienced workers against younger less experienced ones.

2.21 Poverty may occur as a result of human failings -- moral or otherwise.  For example, greed, unwillingness to work or unwillingness to support one's family can result in poverty whatever the distribution of income may be.  The failure of some parents (often men) to support their offspring is a significant source of poverty.  Churches have a pre-eminent role in establishing morally acceptable norms of individual behaviour and in doing so can make a significant contribution to the avoidance of poverty.

We suggest that the bishops in their report give a strong emphasis to these moral issues, where their expertise is unchallenged.

The tax/welfare system and labour market arrangements are major impediments to reducing dependency and improving economic growth.

2.22 Universal agreement on the need to fully protect those members of society, genuinely unable to fend for themselves does not necessarily mean additional social welfare spending.  "Increasing taxes to finance additional social welfare outlays would certainly involve a large risk with our future" -- Poverty in Australia, page 50.

2.23 The disincentive effects from extended social welfare are twofold.  First, work is directly discouraged.  The combined impact of the pensions income test and the personal income tax, together with other welfare tests in the welfare system, creates major poverty traps. ⁽²⁷⁾  Second, the higher tax rates needed to fund the welfare provisions have negative impacts on work and saving.

2.24 The OECD Report "Structural Adjustment and Economic Performance" (1987) identified as a major factor in the deterioration of economic performance among OECD countries since the 1960s the growth of the public sector and, in particular, the effects on incentives to work or save arising from the direct effects of increased social services and the indirect effects arising from the concomitant rise in taxation.  The Report suggested that the tax effects alone may, at the margin, have reduced national income by at least 10 to 15 cents for every extra dollar raised in taxes.  Other academic studies put the cost of additional taxation even higher.

As it now operates, Australia's regulated labour market is a major cause of unemployment.

2.25 The Australian labour market is one of the "most highly regulated and institutionalised among those of the advanced economies", according to a government report prepared by the Bureau of Labour Market Research, "Youth Wages, Employment and the Labour Force" (1983).

2.26 This system, and the monopoly power accorded to unions, as it has operated over the last decade and a half, has been a major contributor to the increase in unemployment in Australia.  At the 1984 ALP National Conference, Treasurer Keating referred to the large rise in unemployment following the union inspired wages explosion in 1981-82 and accused the leaders of the unions and others of carrying the jobs of 100,000 "dead men around their necks in the manufacturing industry with the $39 a week increase in the metal trades agreement in 1981."  The net effect of Australia's industrial relations arrangements has been to push wage costs to levels that were too high to justify employers (or potential employers) from taking on additional labour.  Individuals have been prevented, either on their own or in association with others, from freely negotiating wage contracts with employers which differ from wage awards made under the centralised system, and which are legally binding even on those who are not parties to negotiations.

2.27 There is no doubt that levels of youth unemployment, in particular, are considerably higher than if a more deregulated labour market existed, or if the arbitration system had taken greater account of "market realities".  We believe that a wage system is needed under which wages and conditions of employment can be negotiated primarily between individual employers and employees, with unions being primarily enterprise based.  This would allow negotiations of measures to increase productivity, and to share in the benefits therefrom, between those most concerned.

Full employment has been dropped as a key objective of the main political parties.

2.28 In the immediate post World War II period, a central, indeed the over-riding, objective of the main political parties was the maintenance of full employment.

2.29 This objective has been effectively dropped.  In the last federal election, for instance, no party was campaigning to restore full employment.  Political parties seem content to accommodate the increase in dependency by providing appropriate unemployment and other relief.

2.30 We believe a major reason for this attitude on the part of political leaders is an unwillingness to tackle the privileged power groups which result from our centralised wage determination system.

2.31 An illustration of the unwillingness to tackle the real issues was the attitude taken to the 1983 report, "Youth Wages, Employment and the Labour Force" by the Bureau of Labour Market Research.  The report pointed out, among other things, that federal and state arbitration tribunals had not considered the effect of their decisions on youth employment.  This report and its findings were ignored by the Government and the Bureau was later abolished.

2.32 It is impossible to significantly reduce welfare dependency and make a real impact on poverty unless high unemployment levels are reduced.  We believe a major effort must be made to break down the barriers to full employment.  These barriers include labour market rigidities, welfare poverty traps, high taxation (reducing incentive) and excess government regulation.  Some of these aspects are touched on in this paper.

2.33 We believe there should be a national inquiry into the prospects of restoring Australia to a full employment economy.  This would help ensure that the full employment goal is restored as a key objective on the national agenda, help build community understanding of the impediments to full employment and encourage policy makers to take the steps this requires.

The bishops should recognise that increased government expenditure and taxation, and the government supported centralised wage system, have been major factors in the slowing economic rise and rising unemployment.  There should be a national inquiry into how best to return Australia to a full employment economy.

There is insufficient emphasis on individual self-reliance and on the adverse psychological and social consequences of prolonged dependence.

2.34 Dependency for some is unavoidable.  Increasing numbers, however, have been lured into the trap of dependency by disincentives to work, and the belief that they are entitled to "a living" as a natural consequence of society's affluence.

2.35 The need for changed attitudes to welfare has been emphasised by Princeton University Professor of Public and International Affairs, Richard P. Nathan.  He notes that "for too long we have been signalling, in the terms of Lyndon Johnson's Great Society programs, that the poor are victims, and that we pity them because they can't make it on their own.  The new signals are positive, but they are hard to send and harder still to convert into results.  We say to heads of families on welfare ... 'We believe in you;  you are as good as the next person;  you should be in the labour force'." ⁽²⁸⁾

2.36 Nathan's observation does not contradict the conviction that "work is a fundamental dimension of man's existence on earth." ⁽²⁹⁾  Nor does it fall into the trap of "materialistic and economistic thought" of which Laborem Exercens warns. ⁽³⁰⁾  Of special importance is the encyclical's discussion of work in relation to poverty. ⁽³¹⁾

2.37 In many cases, notes the Pope, the poor appear "as a result of the violation of the dignity of human work:  either because the opportunities for human work are limited as a result of the scourge of unemployment, or because a low value is put on work and the rights that flow from it ..."  These rights are related to human dignity.  "Work is a good thing for man ... because through work man not only transforms nature, adapting it to his own needs, but he also achieves fulfillment as a human being and indeed, in a sense, becomes "more a human". ⁽³²⁾

There is a need for a change in attitudes, both towards those who are welfare dependent and towards work by those who are in that situation.  The Church has an important role to play in this area.

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SECTION 3
The Nature of Justice

There are at least two distinct meanings of the concept of distributive justice.  The choice of the meaning leads to significantly different policy prescriptions.

3.1 Many church statements which address issues of economic and social concern make extensive use of the term "justice".

3.2 Church documents typically adopt an "end pattern" analysis of distributive justice:  a distribution of wealth or of income is "just" if it complies with a pre-determined ideal distribution.

3.3 But even if agreement could be reached on what constitutes an ideal distribution, an insoluble problem associated with all such "end pattern" "ideal" property distributions is that they imply a never-ending battle by the state, or the church, to achieve a particular distribution of property rights that will inevitably conflict with the operation of natural economic forces.  Further, serious attempts to achieve a permanent fixed "ideal" distribution could well mean that economic activity becomes so inhibited that society returns to a survival mode.

3.4 Beside the "end pattern" concept is the notion of the "procedural" analysis of distributive justice:  the justice or otherwise of a given distribution of wealth or of income can be determined only by reference to the behaviour which gave rise to the distribution.  Specifically, if a person's original possessions and skills were not unjustly acquired, and if such exchanges as subsequently occurred did not involve actual or threatened violence, theft or fraud, or the operation of unequal laws, the resulting distribution of wealth may be considered to be just.

3.5 There is a continuing strain of argument in the history of Western societies which maintains that some existing property rights have been unjustly acquired, and that there is moral justification for reducing or eliminating such rights.  However, unless property can be seen to have been illegally acquired through theft or fraud, it is difficult to see any moral basis for impinging on those rights.  Impingements which do occur in modern society need to be contained through continuing community debate about the proper role of government.

3.6 The "end pattern" and "procedural" concepts of justice are analysed extensively in John Williams' paper, The Church, "Social Justice" and "Rights", page 36.  We agree with his conclusion that the only meaningful concept of distributive justice is one based on a procedural analysis.

3.7 This account of justice may appear to be niggardly and uncompassionate only if "justice" and "compassion" are treated as synonymous.  They are not and there is community acceptance that some redistribution is justified to help those genuinely unable to help themselves.  Keith Campbell ⁽³³⁾ has pointed out that "there are activities which should be practised, which it is a shortcoming for a person or a community to neglect, but for which the occasions, and frequency, and the direction of their exercise are matters of discretion.  The practice of generosity and helpfulness, of volunteering for unpleasant tasks, are classic cases of duties of imperfect obligation.  The beneficiaries of acts of these kinds have no special entitlement to the benefit, which is a piece of good fortune and not a right."

3.8 Campbell's argument concerns the duties of developed nations in relation to developing nations, but it applies with equal force to welfare within a nation.  He notes:  "It often seems to be claimed that the very fact of developing nations' poverty gives them a right to relief, in the same way that they have a right to payment of a debt ... that is the case only to the extent that the poverty is the product of wrongful acts from which prosperous communities are now still benefitting." ⁽³⁴⁾

The Bible endorses the notion of "procedural" distributive justice.

3.9 The US Catholic Bishops in the paper Economic Justice for All:  Catholic Teaching and the US Economy argue that an "end pattern" analysis of economic justice is demanded by the scriptures.

3.10 In his examination of biblical texts, Williams argues that the Bible contains no "single word appropriately translated by 'justice' and its cognates referring to any pattern of wealth or income distribution."

3.11 The biblical writers accept that if behaviour is in accord with general rules of just conduct equally applicable to all, the resulting distribution is just.  If the "rights" of the widows and orphans are trampled upon by the powerful, and different rules apply to the wealthiest and poorest, the distribution is unjust.

3.12 Within the development of Christian thought there are strong arguments for the "procedural" notion of distributive justice.  See Williams, especially footnote 10.

3.13 These propositions are argued in detail in Williams' paper.

We believe the concept of "procedural justice" is the only sustainable understanding of distributive justice for a liberal democratic society:  the best justice available to fallible human beings is the justice of known general rules, equally applicable to all and impartially applied to all.  At the same time, there is community acceptance of redistribution to help those genuinely unable to help themselves.

Some recent policies advocated by Church social justice commissions would have harmed the poor and disadvantaged.

3.14 H.W. Arndt points out that the notion of economic growth has had little place in Church thinking.  This has meant that the Church's concern for social justice naturally predisposed it to redistributive policies.  Alternatively, where economic development has been accepted, the Church's disapproval of many aspects of Western society and the professionally paternalistic viewpoint of many churchmen have inclined church commissions towards the socialist rather than the capitalist model. ⁽³⁵⁾

3.15 Arndt's analysis provides the historical context for the Church's apparent lack of concern about economic growth and for the numerous redistributive recommendations made in recent years by church "social justice" commissions.  If those recommendations had been carried through, the effect would in many cases have been detrimental to the nation and to the disadvantaged.

3.16 Geoffrey Brennan in a reply to the churches' 1983 document Changing Australia identified certain church proposals for wealth distribution as predicated on the fallacious equation between wealth and power.  (See section 1.25 to 1.32 above.)  He demonstrated that the outcome of such proposals would be precisely the opposite of what was intended.

3.17 John Williams in "A Fair Hearing for Justice" ⁽³⁶⁾ explored the consequences of the theory of justice uncritically adopted by the authors of Changing Australia.  He concluded with a warning:  "It would be tragic if Christians following church functionaries filled with the 'zeal of the Lord' but arguably 'not according to knowledge' involved themselves in social actions merely to prove the truth of Oscar Wilde's saddest utterance:  'Each man kills the thing he loves'."

3.18 In "An Excess of Equality" ⁽³⁷⁾ Lachlan Chipman argues that the ideal of equality espoused by church bodies is ultimately inconsistent with a commitment to diminish poverty.

3.19 Paul McGavin ("A Christian Perspective") ⁽³⁸⁾ adds that current policies on unemployment often supported in church circles have resulted in the emergence of a permanent sector of unemployed.

3.20 Thinking on this subject in some church circles has not shifted since 1983.  The Uniting Church National Social Responsibility and Justice Committee presented a report on Economic Justice -- the Equitable Distribution of Genuine Wealth to the church's May 1988 Assembly.  It recommends reform of the taxation system as "a means of redistributing income and wealth ..." and argues for an increase in power of government over the economy. ⁽³⁹⁾

3.21 A tragic consequence of the idealisms and profligate spending plans of the "social justice" lobby is that recipients of welfare are encouraged to believe in their right to a guaranteed access to the common national wealth. ⁽⁴⁰⁾

3.22 This consequence stands in stark contrast to the social vision of Sollicitudo Rei Socialis which says of economic initiative:  "It is a right which is important not only for the individual but also for the common good ... the denial of this right, or its limitation in the name of an alleged 'equality' of everyone in society, diminishes, or in practice absolutely destroys the spirit of initiative, that is to say the creative subjectivity of the citizen." ⁽⁴¹⁾  The fact that this passage in its context refers to economies elsewhere described as "inspired by Marxist collectivism" ⁽⁴²⁾ does not remove its relevance for Australia.  The main point is the Pope's emphasis on the individual's access to economic initiative.

A just society should make philanthropy a national priority.

3.23 While governments will remain the dominant source of welfare funds, church and community agencies will continue to have a critical role in providing innovative facilities and maintaining face-to-face services which it is neither appropriate nor possible for governments to offer.

3.24 A third area of humanitarian service often overlooked is private philanthropy:  the establishment of trusts or foundations by corporations and individuals with the express aim of supporting individuals or groups with special needs.

3.25 The Social Welfare Research Centre reported in December 1984 that in the early 1980s Australians gave voluntarily some $6 billion a year in money and free labour towards the operation of non-government agencies.  In its 1984 report titled Non-Government Welfare Organisations:  A National Classification the Centre notes that there are 37,000 non government welfare agencies in Australia employing 130,000 full-time staff and relying on the services of some 1.3 million volunteers. ⁽⁴³⁾  This is a very substantial effort and indicates clearly that government redistributive measures alone can not solve the problem.

3.26 In fact, three factors suggest there is a need for more emphasis on private philanthropy in Australia.  One:  the inability of trusts and foundations to satisfy the demands of applicants;  two:  lack of awareness among many community groups that such charitable bodies exist;  three:  private philanthropy is likely to be more effective in many cases.

3.27 Three problems face philanthropy in Australia.  One:  according to the Australian Association of Philanthropy confusion surrounding laws relating to tax deductibility discourages people from engaging in philanthropy;  two:  it is difficult to define "charity" or "charitable purposes" (the statute on which most law relating to charitable trusts is based derives from 1601 -- the reign of Elizabeth I);  three:  Australia lacks a vital tradition of philanthropy.

3.28 Government action -- which must always be inimical to the interests of some groups in society -- cannot be a complete substitute for charity, and its activity can weaken philanthropy through fostering the view that neighbourliness is the government's responsibility.

3.29 No law states that a healthy economy leads automatically to greater philanthropy.  But that has happened in the United Kingdom since the economy recovered in the 1980s.  Increases in real incomes and corporate profits, assisted by lower taxes, have raised voluntary donation levels.  In 1985 Britain's 250,000 registered charities received more than 12.5 billion pounds, equivalent to 4 per cent of GDP.  The general trend of philanthropy is indicated by donations to the nation's top 200 charities, which rose from 500 million pounds in 1980 to 1,300 million pounds in 1986. ⁽⁴⁴⁾  The lesson for those who wish to encourage greater charity is obvious.

The bishops should encourage governments and members of the public to place greater emphasis on private philanthropy in the interests of a more compassionate and caring society and because private philanthropy is likely in many cases to be more effective.

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SECTION 4
Ethical Criteria

Ethical criteria governing the use of wealth in Australia must be appropriate both to a pluralist society and a nation whose institutions are founded in the Christian faith.

4.1 The context of such ethics will be the call to neighbourliness.  For Christians, this call is found in the words of Jesus, for example in the parables of the sheep and goats (Mt 25:31-46) and the rich man and Lazarus (Luke 16:19-31).  These parables refer not only to the issue of charity but to the individual's relation to Christ, and for Christians are unequivocally valid.  They might not provide an acceptable ethical model for followers of other faiths or philosophies.  The parable of the Good Samaritan (Luke 10:25-37) however, does have universal application, since in putting the question of the individual's humanity it implies the ethical responsibility due from all men and women, in the spheres of both individual and social action.  This ethical responsibility does not necessarily imply "coerced compassion".

4.2 Appropriate ethical criteria for formulating and evaluating policy on wealth in Australia should meet certain minimal requirements.  The following policies should be excluded:

4.3 Those which fail to provide basic necessities to people in temporary or special need, or which neglect to guarantee long-term support to people who through disability are prevented from providing for themselves.

4.4 Those which remove from individuals the responsibility for their own welfare or the exercise of neighbourliness towards others.

4.5 Those which carry the risk of long-term harm to individuals or society, notwithstanding some immediate short-term benefits.

4.6 Those which tend to reward family dislocation or diminished responsibility of adults for the support of their families.

4.7 Those which, purporting to uphold the dignity of persons and the partnership of all in the "universal destination of goods", ⁽⁴⁵⁾ place the production of wealth under moral censure or the fruits of such production under coercive control.

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SUMMARY AND CONCLUSIONS

The main findings of our submission are set out below and we suggest that the bishops should base their final report on the following points:

1. In reducing poverty, the focus should be on how to create additional wealth through a competitive private enterprise system based on protection of private property rights from arbitrary intervention, rather than to redistribute existing wealth.  Successful economic policies will reduce poverty and provide additional funds to assist those in need.

2. Over the long haul, differences in the distribution of measured private wealth have probably narrowed.  But such differences do not, in any event, accurately reflect the capacity of individuals to command resources and more attention should be paid to differences in income.

3. Differences of income are significantly less than differences of private wealth;  further, relative shares of lower income groups have probably increased over the longer run.  However, differences of income at a point of time are an inadequate reflection of differences in life time income.  The latter may be more accurately reflected in differences in expenditure, which are significantly less among income groups than differences in income.

4. The relative stability of shares of lower income groups in recent years suggests that government attempts to redistribute income may not have been successful:  and those attempts have had adverse side effects (see 6).

5. Wealth and power are not synonymous and access to state power may influence income distribution in ways unhelpful to the poor.

6. The attempts by governments to increase the shares of lower income groups since the early 1970s have, through the disincentive effects of higher taxation and increased social welfare, had adverse effects on economic growth and employment.  The poor have probably suffered most as a result of this.

7. Poverty is unlikely to be reduced through further government attempts to redistribute income -- indeed, it would be better to reduce taxation and government outlays so as to encourage enterprise and the creation of additional wealth.  Implementation of these and other policy changes, as a "wealth creation" package, could add 25 per cent to National Wealth and make a substantial contribution to reducing poverty.

8. The "poverty line" as used by some welfare groups and governments is not a fixed absolute standard but a standard of living defined relative to the average community standard -- both of which have continued to increase.  Those below the "poverty line" include a high proportion with a standard well above subsistence.

9. The large increase in dependency and measured poverty since the early 1970s importantly reflects changes in government policies on the eligibility for, and real value of, government benefits.  To reduce dependency and to enhance human dignity, government policies should seek to concentrate government assistance much more on those in real need.

10. While some of the increase in government assistance was an unavoidable response to the breakdown of the family and its moral basis, the extent of that response has created moral and economic problems.  Strong emphasis needs to be given to restoring the family and its tradition of mutual responsibility both as a key institutional protection mechanism of individuals against poverty and as a more appropriate moral basis for society.

11. Poverty is caused by many things.  To the extent that it reflects individual human failings and attitudes, the church can play an important ameliorating role.  The Church can remind those who have wealth of the virtue of charity;  it can remind those in poverty through despondency or indolence of the virtues of work and self-reliance.

12. Increased government expenditure and taxation, and the government-supported centralised wage system, have been major factors in the slowing of economic growth and rising unemployment.  Given the major role which increased unemployment has had in adding to those in measured poverty, a national expert inquiry should be held how barriers to full employment can be removed.

13. While there may be unjust acquisitions of wealth and income, there is no end distribution of wealth or income that can be said to be "ideal" or "just", or to which individuals can claim some moral entitlement.  The concept of "procedural justice" is the only sustainable understanding of distributive justice for a liberal democratic society, together with the widespread community acceptance that some redistribution is appropriate on compassionate grounds to help those Australians genuinely unable to help themselves to have access to a minimum acceptable standard of living.

14. Governments and individuals should be encouraged to place greater emphasis on private philanthropy in the interests of a more caring society and because such philanthropy is likely to be more effective in many cases than increased government welfare.

15. Ethical standards relevant to the use of wealth should include not only the responsibility to help others but the responsibility to help oneself.  In view of the strong association between family breakdown and poverty, special emphasis should be given to bolstering the integrity and stability of the family and reinforcing its moral basis.  The Church, more than any other institution, has an important role here.

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ENDNOTES

1.  Professor R.M. Hartwell in "The Long Debate on Poverty", CIS Policy Report, June 1987, Centre for Independent Studies, Sydney.

2.  See the survey of changes in economists' views by Steven E. Rhoades in The Economist's View of the World, Cambridge University Press, 1985.

3.  Four Corners, 24 March 1988, Parliamentary Library Transcript.

4.  See Sections 1.12 to 1.24.

5.  Australia and the Third World:  Report of the Committee on Australia's relations with the Third World, Australian Government Publishing Service, Canberra, 1979, page 6.

6.  See World Development Report 1986, published by the World Bank, page 45.

7.  This thesis is developed in works by Professor Peter Bauer, including his Dissent on Development, Weidenfeld and Nicholson 1971 and "Equality, the Third World, and Economic Delusion", Harvard University Press, 1981.

8.  "The Distribution of Wealth in Australia -- A Survey'' by Dr. John Piggott, ANU, published in The Economic Record September 1984.

9.  Australian National Accounts, Estimates of Capital Stock 1986-87, ABS No. 5221.0, May 1988.

10.  Taxation Review Committee, 1987:  28.

11.  1984 Household Expenditure Survey, Australia, ABS No. 6537.0 and No. 6530.0.

12.  Net government benefits are the net amounts transferred to individuals by governments after deducting taxation.  For this purpose they include both direct and indirect benefits such as education, health, housing and welfare allowances and rebates.  See 1984 Household Expenditure Survey, ABS No. 6537.0 and No. 6530.0.

13.  1986 Income Distribution Survey Preliminary Results, ABS No. 6540.0.  Of course, the composition of these income groups will have changed over time and it is possible that somebody in, say, the second or third lowest decile group in 1978-79 has moved down into the lowest decile group in 1985-86, thereby experiencing a decline in real income.  There will also, of course, be new people coming into income groups between the two surveys, as well as upward movements between income groups.

14.  Sources:  1978/79 ABS 4108.0 "Income Distribution, 1978/79" page 15, 1981/82 ABS 4101.0 "Social Indicators No. 4 1984" page 222, 1985/86 ABS 6540.0 "1986 Income Distribution Survey Preliminary Results" pp. 5-6.

15.  Brennan, Geoffrey and John K. Williams (eds) Chaining Australia:  Church Bureaucracies and Political Economy, Centre for Independent Studies, Sydney, 1983, pp. 25-26.

16.  Murray, Charles, Losing Ground, New York, Basic Books, 1984.

17.  These issues are explored in Australia in Hock:  the Way Out, published by Richard J. Wood in May, 1988.

18.  Professor James Buchanan is the 1988 Nobel Prize winner in economics, and is Professor of Economics at George Mason University, Virginia, USA.  An edited version of his speech in Washington D.C. in 1986 appeared in Review, May-July 1987.

19.  Revenue Statistics of OECD Member Countries, 1%5 to 1986

20.  It is relevant also that Australia's government enterprises, whose operations are not generally financed by taxation, employ a higher proportion of capital and labour than do public enterprises in most other countries;  and that these enterprises produce relatively low returns to the community.  See also Business Council Bulletin, No. 43, May 1988.

21.  See ''Taxation of Net Wealth, Capital Transfers and Capital Gains of Individuals", OECD 1988 especially pp. 27-28.

22.  "Living on the Edge" by Ms Philippa Smith, published by ACOSS in June 1982.

23.  See, for example, the Institute's "Poverty Lines:  Australia", December quarter 1987.  In a letter to the Australian Financial Review of 5 July 1988, Mr David Johnson of the Institute, elaborated on the Henderson poverty lines as follows:

"The principal use of the Henderson poverty lines is to set a minimum income standard.  It is assumed that society defines this standard in relation to its income.  Thus, the minimum income standard of the Henderson poverty line is a relative concept.

It recognises that a poor person in Australia in 1988 would be very rich in Ethiopia in 1988, or in Australia in 1888.  Accordingly, the Henderson poverty lines are useful minimum income standards for comparison with, say, social security payments.

The poverty lines should be clearly distinguished from measures of the extent of poverty.  In considering changes in the extent of poverty, over say a period of five years, an absolute concept of poverty is useful.  Poverty would then be measured using poverty lines updated by changes in the cost of living.  In this way, changes in welfare include changes in the general standard of living as well as distributional effects.

In the past, the extent of poverty has been measured by counting the number of families below the poverty line.  This measure is intuitively easy to understand, but has two major defects:  it takes no account of either the extent to which poor incomes fall short of the poverty line or of the distribution of incomes amongst the poor.  However, over the last decade other measures have been developed which can accommodate both of these problems.

The Institute of Applied Economic and Social Research is holding a conference on Poverty and Wealth at the Melbourne Town House on 28 July where I will discuss these matters.

In summary, the problem is not with the Henderson poverty lines, which are useful tools, but with the way they have been used.  The solution to this problem is first to promote an understanding of how the poverty lines are calculated and what their limitations are, and second to devise adequate ways of measuring poverty so that the temptation to use the poverty lines in the wrong context will be eliminated."

24.  Sources:  78/79 ABS 4108.0 "Income Distribution, 1978/79" page l5, 81/82 ABS No. 4101.0 "Social Indicators No. 4 1984 page 222, 85/86 ABS No. 6540.0" 1986 Income Distribution Survey Preliminary" pp 5-6.  See also footnote 13 above.

25.  Williams, W., The State Against Blacks, New York, McGraw-Hill, 1982 and America:  A Minority Viewpoint, Stanford, Hoover Institution Press, 1982;  Sowell, T., The Economics and Politics of Race, New York, William Morrow & Co, 1983 and Race and Economics, New York, Longman, 1975.

26.  Ken Baker, "Can Aborigines Escape the Dependency Trap?", Review, May-July 1987, page 19.

27.  The nature of these poverty traps is outlined in considerable detail in Spending and Taxing:  Australian Reform Options, sponsored by the National Priorities Project (in particular pp. 31 and 32).

28.  Nathan, Richard P., "Workfare in Britain and America:  A Personal View", Economic Affairs, April-May 1988, page 17.

29.  Pope John Paul II, Laborem Exercens, 1981, para 4.

30.  Ibid, 7.

31.  Ibid, 8.

32.  Ibid, 9.

33.  Keith Campbell is Associate Professor of Traditional and Modern Philosophy, University of Sydney.  His paper to the Committee on Australia's Relations with the Third World appears in the Committee's report, cited above.  Campbell contrasts duties of imperfect obligation with those of perfect obligation, which are "definite requirements on one party X to perform specific actions towards another definite party Y."  Debts are the classic example, as are reparations for wrong done provided that the obligation to make reparation rests on the wrongdoer, not anyone else, and that reparations are due to the injured party and no-one else."  Relative prosperity of one party compared with another is irrelevant to the exercise of this duty, "which arises from the wrong done, not from either the want of the victim or the superfluity of the villain."  Page 331.

34.  Ibid, page 333.

35.  "Economic Development:  The History of an Idea" by Professor H.W. Arndt, University of Chicago Press, 1987.

36.  Brennan and Williams, op. cit, page 14.

37.  Ibid, pp. 136 to 138.

38.  Ibid, pp. 55 to 59.

39.  Economic Justice:  The Equitable Distribution of Genuine Wealth, report to Uniting Church Assembly, May 1988, page 14.

40.  It's a Rocky Road:  Young People in Australia, Dove Communications, Blackburn, 1984.

41.  Pope John Paul II, Sollicitudo Rei Socialis 1988, para 15.

42.  Ibid, 20.

43.  Jacob Abrahami, "Are we Mean and Selfish?", Review, Autumn 1986.

44.  "Britain:  The Growth of Giving", The Economist, June 4, 1988, page 53.

45.  Sollicitudo, 42.