Labor needs to “Take the High Ground” on the Economy

above: Australian Labor Treasurer Wayne Swan made the right call on the surplus

The Federal Labor Government's reversal on the Federal Budget Surplus was considered a failure by some, but grassroots Labor activist, Tristan Ewins argues that Wayne Swan has made the right call on this one: Although unfair attacks on sole parents, the disabled and others need to be re-thought in the new context.  Labor needs a bold social wage reform package, fundeded broadly by progressively extracting a fairer contribution from the top 15 per cent.

nb: our Facebook group can be found here:  http://www.facebook.com/#!/groups/102658893193637/

 

Tristan Ewins

December 27th 2012

The headlines of the Melbourne Herald-Sun on December 21^st proclaimed “Julia Clean Bowled – Third Broken Promise as $1 billion surplus axed.”  Other headlines further into the paper announced: “Swan comes clean on deficit” and  “Budget blows credibility of Gillard, Swan.” 

To be fair, within the pages of the Herald-Sun there was some deeper and more balanced analysis – admitting the objective necessity of abandoning the surplus at this particular conjuncture.  But clearly the editors of the publication were aiming to influence via first impressions: via the power of headlines; and the likelihood that many readers would not actually read through all the material.

So what of the reality, then? 

With a world economy in crisis, even affecting Chinese growth – Australia has been hit; and so too have Australian tax revenues – including the GST and Company tax.   Notably business is actually supporting Labor with regard postponing the surplus – well aware of the “multiplier effect” stimulus has upon the economy, and thus upon consumer and investor confidence.  Tony Abbott is decrying Labor as “spending like a drunken sailor” – but this is nothing more than a play upon people’s misassumptions and prejudices.  In reality Labor has held tax revenues down as a proportion of GDP, and has ‘robbed Peter to pay Paul’ – hitting Single mothers and many disability pensioners to provide some ‘fiscal room’ for Gonski and the National Disability Insurance Scheme. (NDIS)   

For his part, also, Abbott has to explain how he will deliver his Paid Parental Leave for the upper middle class, while withdrawing  the minerals resource rent tax, as well as the carbon tax, and restoring upper middle-class welfare in the form of a broad-based Private Health Insurance Rebate.  And Liberal support for the NDIS is compromised by hysterical and deceptive panic-mongering about its price-tag; projecting into the future – without explaining the context of inflation – to provide a distorted impression of its ultimate cost. Lastly: Abbott’s agenda of cutting expenditure at this particular conjuncture would be deflationary and contractionary – a criticism of him which Labor and the corporates seem to have in common.

 At the same time Liberal State governments are imposing austerity in their irrational drive for a ‘surplus at any cost’.  Again, this is about retaining the political advantage on “perceived economic competence”.   Having consistently distorted the question of economic management as approximating the management of a household budget, at all levels the Conservatives cannot confess the truth without undermining their political position.   Thus in Victoria Ballieu has gutted TAFE expenditure to achieve a surplus: when in fact stimulus is required; as is investment on infrastructure, education and training to overcome capacity constraints.  User pays mechanisms – for instance increased public transport charges and increased costs for license renewal – are also being imposed to bridge ‘the fiscal gap’ from falling GST revenue.   While the Liberals like to avoid the word ‘tax’ – the effect of these measures approximate regressive, flat taxation.

But what should be done? 

Budgets need to be balanced – but not always: only over the course of the economic cycle. And this need not imply ‘small government’ during periods of growth either: so long as the ‘inflation genie’ is contained some way or another – preferably progressively via taxation on the wealthy and upon conspicuous consumption.  (also inflation shouldn't be raised as an excuse for distributive injustice and exploitation) During times of relative stagnation (ie: right now!)  – and in some parts of the world outright Depression – the time is still right to bring forward big infrastructure programs for quality of life and to overcome capacity constraints.  Again: this has a ‘multiplier effect’ on growth and confidence. 

At a state level the Liberal State Governments also need to face reality.  Without investment in education, health and infrastructure the economy will wither – and human beings will suffer.  The Conservative State Governments have argued meekly for an increased GST to overcome the ‘fiscal gap’ – but surely they perceive the bind Labor is in: restrained by the same ‘small government and surplus at any cost’ mentality which the Conservatives themselves have nurtured.  If the State Governments are to acquire the funds they need it is imperative that they come out consistently, openly, clearly and loudly in favour of increased taxes, and against the lie that surpluses are always appropriate.  No matter how politically unpalatable it may seem, a bipartisan consensus is necessary right now, here - in the national interest. 

And in other words the Conservative State Governments need to publicly refute the position taken so far on this theme by the Abbott Federal Opposition.  Only by doing can they provide Federal Labor the “political breathing room” to do what is necessary to restore State Government finances.  To avoid embarrassment, Abbott himself could finally be responsible: taking the lead in conceding that we still live in precarious economic times; and hence action on the tax/stimulus/services/infrastructure front is necessary.

Finally: both Labor and the States need agree to progressive taxation reform – which is fair both to most working class families and to the disadvantaged.  Increasing a flat, regressive GST is not acceptable.   Yet if these conditions are met – then ‘the ball will be in Federal Labor’s court’ – to reform tax, maintain and expand infrastructure and services, and provide economic stimulus in uncertain times.

But even this compromise should not be enough for a reforming Labor Government.  Gonski and the NDIS need to be “locked in” (with a price tag of about $14 billion) – and without ‘robbing Peter to Pay Paul’ again with regards critical social programs – or else reducing ourselves to empty, token and distant promises. To ‘deliver the goods’ for 2013 there is a need to raise tax as a proportion of GDP.  

As against the popular assumption any tax reform would comprise ‘electoral poison’ there is the contrary argument that improved infrastructure and services – paid for via the progressive targeting of the top 15% wealth and income demographic – could appeal to a broad class base of support.   Such an emphasis would be electorally viable on the basis of the economic interests of most Australians; but broad-based enough to bring in meaningful revenue.

Specific measures could include removing superannuation concessions for the top 5 per cent income demographic – bringing in over $10 billion.  Meanwhile reverting to 75% dividend imputation (tax concessions of investments) could bring in over $5 billion while affecting mainly the wealthy: and with other (small) investors compensated via tax and social wage reform elsewhere.  Should an incremental approach work, here, Dividend Imputation could later be reduced to 50% - bringing in over $10 billion. (in today’s terms) Company Tax cuts could – and should – be put on hold indefinitely (business needs to contribute to the training and infrastructure it benefits from); and income tax reform could also target the top 15% income demographic.   A minimum Company Tax rate could be imposed; land tax imposed on properties valued over $1 million; and further  taxes imposed upon economic rent in oligopolistic sectors such as mining and banking.  Finally the Medicare Levy could be reformed to broaden its scope, apply a more progressive and graduated structure, and provide a desperately-needed boost to Aged Care – caring for the most vulnerable, and removing regressive user-pays charges that hit working class families hard. 

The aim would be to free about $25 billion of new money for socially necessary programs – including desperately-necessary funding for the States - while at the same time providing economic stimulus.  To put this in perspective, this would comprise about 1.5 per cent of a $1.6 Trillion economy)  Further funds could be freed via even better targeting of programs such as the Private Health Insurance Rebate.

The programs that would emerge from such measures there must strike a balance between providing for the most vulnerable (the aged, the disabled, single parents, the poor); and in providing broad-based improvements of  infrastructure, welfare and services that favour the “mainstream” – ie: the great majority of citizens, workers, families.

But time is running out for Labor. Vague and unrealized promises for the future will not be sufficient for the revival of Labor’s fortunes in 2013.   Labor needs to ‘deliver the goods’ with infrastructure, services and social welfare programs well before the approaching 2013 election.  And in doing so it could also do worse than to nail down the Conservatives’ economic irresponsibility in opposing stimulus and crucial social investment with their deceptive ploys on the theme of economic responsibility. 

 

A Labor government which remains authentically on-message; succinctly explaining such themes as stimulus, economic multiplier effects, capacity constraints, and the economic role of infrastructure, education and training – could outflank the Conservatives with their claims to economic responsibility and competence.  They could break the myth of Conservative economic credentials and competence.

 

Julia Gillard herself proclaimed at one point that Labor is a cause: and not a ‘brand’. Yet if the Labor cause is authentic, constantly “robbing Peter to pay Paul’, with “one step forward, two steps back” should not be acceptable. And neither should incessant mutual attacks upon character be considered a substitute for policy substance.

 Labor needs to reconsider its recent attacks on single parents and disability pensioners. It needs new initiatives provided without unfair austerity elsewhere. We need to overcome infrastructure backlogs progressively; without inefficient, Ideological and perhaps even corrupt Public Private Partnerships.  A public fast-rail line along the east coast could revolutionize transport logistics for business, and provide opportunities for citizens. And we need to implement the NDIS and Gonski; but also provide for other crucial yet less-politically convenient causes such as reform of Newstart.  We need big new initiatives in Aged Care and mental health – because the most vulnerable of all cannot afford to wait.

Crucial to these initiatives could be the concept of ‘collective consumption’.  That is: If we do not pay for health, aged care, infrastructure and education progressively (and relatively cheaply) as taxpayers – we will instead pay more for these regressively as private consumers.

Swan and Gillard have done the right thing – and the responsible thing - in abandoning the surplus for the time being. While it may have seemed politically prudential at one point, to follow through now would undermine the economy, and also Labor’s credentials.  Now Labor needs to turn the economic debate around – so it is possible to conduct that debate on its own terms.  Yet even if Labor does all this, victory in 2013 is not assured.  Best, then, to lock a big reform agenda in: reforms in tax, social services, infrastructure and welfare that will put the Conservatives on the defensive; reforms they will not dare to wind back.

$25 billion in new social expenditure – and more accommodated through socially progressive savings elsewhere – could provide the vital ‘Labor war-chest’ – to provide much ahead of the 2013 election – and to promise even more in its wake.  Yet even this is relatively modest in the big picture of a $1.6 Trillion economy. That sense of perspective is so often missing in Conservative critiques of Labor programs which (just like Conservative initiatives) necessarily go into the hundreds of millions or even billions.  Even on the Labor Left - which is largely acquiescent on the issue of 'small government' these days - learning to think on this scale is necessary in coming to grips with a genuine reform agenda.

The bottom line is that an end be put to Labor’s decades-long retreat: that by appealing to and providing for both the disadvantaged and vulnerable – and to the ‘mainstream’ of working Australia – we can consolidate an electoral bloc, and begin anew ‘the steady march forward of Labor’.