By Lecquia Chang,
Editor in Chief.
It is not often that we are provided an engaging insight into the envied lifestyles of billionaires, and the roles of economic myths and truths that play behind them.
I was fortunate to come across a documentary, The Super Rich and Us, presented by Jacques Peretti, that investigated how the super-rich society of Britain was to transform the lives of the middle and working class. Perhaps you may have heard the term “trickle-down economics”? I, myself, am not an economics expert but this exploration of such a term offered me an explanation into the widening gap between the “super rich” and classes below.
It is known and perhaps you have heard from adults around you that the value of living standards and real wages are lowering as real inflation soars. In Britain, the inequality gap between the 1% wealthy and 99% middle to working class continues to grow where many are still struggling to maintain stable living standards despite mid-range pay of 429 pounds’ weekly income whilst the wealth of the “super rich” have doubled from 2-5 billion pounds.
In the 1960s, Britain became a tax haven for the super-rich, particularly for foreign stakeholders who were encouraged to come to Britain and indulge in lavish pleasures without having to pay tax- this was called the “non-dom” rule. It was supposed that by cutting or eliminating tax overall for the super-rich, the macroeconomic landscape of Britain would flourish i.e. by simply allowing more wealthy investors into the country, more money would flow into the economy and hence benefit all of society. This was the beginning of “trickle-down economics” which became significantly familiar around the Reagan and Thatcher eras.
“Trickle-down economics” would simply save all sectors of society. As confirmed by Margaret Thatcher herself, tax avoidance amongst the wealthy would enable a “more thriving society… out of the wealth they create… talent distributed… and drag up the poor people because there are the resources to do so”. Arthur Laffer, member of Reagan’s Economic Policy Advisory Board, too confidently affirms that by relieving the burden of tax amongst the super-rich, revenues would increase. However, has trickle-down economics actually been successful? Has income for the middle class actually increased by implementing tax avoidance to the super wealthy and large companies or rather, has the income inequality gap broadened?
American entrepreneur and venture capitalist, Nick Hanauer, says that trickle-down economics is not actually working; one millionaire cannot sustain an economy, only a robust middle class can and in fact, this theory threatens capitalism by drowning the middle class.
So how can we see the effects of trickle-down economics today? It’s simple… property.
In the 20th century, the property market flourished as suburbs grew and the average middle class family was fortunate to afford home despite lower wages and higher taxes. My grandparents’ first house in Sydney only cost $280 000 in comparison to today’s average housing price being $900 000. The present-day property market has significantly sky-rocketed and is simply the result of foreign investment.
In Sydney, Melbourne and London, sky scrapers and boxed apartments are inundating the rapidly changing city skylines. But while cities are building, the super-rich are buying. In Newham, London, Jacques Peretti sought to investigate the decline of the middle class where protestors campaigned against the “social cleansing” of single mothers from social housing in their home towns- the result of local councils dispatching land to foreign investors who are driving residential prices away from ordinary home buyers.
Sydney is recorded in the world’s top 10 most expensive rental cities. The average family looking to rent would need an income of $96, 572.28 per annum. A property monopoly giant is China with investors having $15 billion to spend urging more local home owners to rent. Whilst low income earners continue paying tax, foreign investors only need to pay tax for their income received by renters making this only a small percentage of their total earnings outside of Australia.
So why are governments selling property to wealthy foreign investors? The truth is that governments are attracting the super-rich to simply window dress economic figures whilst locals, especially low income earners, are continuing to tackle bills, mortgages and taxes as the cost of living increases.
Have we been sold an economics con? Yes. Criticisms of “trickle-down economics” is nothing new. It was believed that it would be an incentive for higher productivity and for profits to be filtered to various sectors of the economy. The bleak reality is that by cutting tax on the super-rich and large companies, unchecked higher incomes will accumulate amongst the wealthy leading to further re-investments into assets such as property. There is a major assumption and hope for some of that wealth to trickle down to the middle/working class however, that is inefficient and reforms are needed to deter increasing inequalities.