I use the "Hide Distracting Items" function in Safari a lot but unfortunately its not available as a menu item. I tried to use "Click a button" action as well but seems the action was registering as a right-click and not a regular click.
Any other ideas as to how to create a macro for this?
If you show your macro I might spot if it contains an error. In any case, I like your problem and I created a solution. In this solution, the actions that I coloured yellow are actions that you will have to customize based on your screen resolution, light/dark mode, etc. Since you will need to customize this macro, I won't upload it, I will simply show a screen shot below... (the semaphore is simply to prevent this macro from running twice at the same time)
Unfortunately, Reader view isn't the same thing as "Hide Distracting Items...".
Nope -- but (and colour me surprised!) the widget it's hiding under is seen as a button by KM! So we can hit it with a combo of button press and image detection: