In the following article Tristan Ewins examines the pros and cons of Labor's 2013 Federal Budget. Labor's timidity in key areas of reform (eg: superannuation concessions) is confusing given its willingness to withdraw benefits from some low and middle income demographics. But there are some very good policies here as well - even though Gonski has been 'watered down'. Nonetheless, there are clear divisons between Labor and the Conservatives; and hopefully these will be cast into greate relief as the election draws nearer.
Tristan Ewins
The 2013
Federal Budget was neither what it could have been, nor what it should have
been. Labor faced an unenviable task
with a $60 billion revenue shortfall over four years- linked with the high
dollar, declining terms of trade – and wavering business profits as a
consequence. This impacted on Company Tax receipts
especially. Reduced revenues from the mining and carbon taxes certainly didn’t help
either; though Labor was too timid or too pragmatic to restructure and revivify
either.
Labor had
options – which we will discuss later – to bypass austerity entirely while actually
better containing the deficit. But they chose not to go down that path for fear
of ‘getting on the wrong side’ of vested interests. On the good side, Labor did decide to limit austerity. Cuts have not been so severe as to lead to a
European style scenario of negative growth and mass unemployment. For this (parts of) ‘the business community’
are happy: as increased consumption power is in their interests (or at least
for those focusing on domestic consumer markets), even though business tends to
oppose social welfare as a rule. (in
order to ‘make room’ for further tax cuts that add to their bottom line) The overall dimensions of this Budget include
cuts of $6 billion over four years and increased revenue of $29 billion of the
same period.
First we
will summarise Labor’s cuts in more detail.
Decreases in
Medicare coverage will hurt some on
low incomes and represent a step in the wrong direction. And while changes to superannuation will
reduce concessions for the richest of all and bring in $800 million over four
years – this is not anywhere near what was necessary – or what was possible if
the government had targeted a broader base of genuinely wealthy Australians.
Higher Education
cuts are in the vicinity of $2.3 billion.
The worrisome truth, here, is
that having locked itself in to a policy of small government and low taxes the
Government decided to reprioritise rather
than provide new money in order to fund something anything like what the Gonski
review had recommended. The result of
was the sacrifice of university scholarships valued at $2000 – which were
transformed into ‘loans’, as well as the rescission of options to repay HECS
(Higher Education Contribution Scheme) upfront at a 10 per cent discount. The latter will mainly affect reasonably
secure families – as for the disadvantaged upfront payment could be
unmanageable in any case. But the $900
million ‘efficiency dividend’ will put pressure on the wages of academics and
other education professionals, while perhaps resulting in more course closures. There are already predictions that Sydney
University will be required to slash $44-$55 million, while Wollongong
University has predicted $14 million in cuts and foreshadowed further staff
reductions.
Not just
middle class welfare, but middle income welfare (as Tim Colebatch argues) is
set to go. This is classic Labor policy
–at least since the Hawke years: making do with less through extensive and narrow
targeting of welfare. But some of the
cuts are regressive. Here it is
interesting that Labor has chosen to crack down on welfare for those on average incomes, but shied away
from reducing superannuation concessions for the top 5% or 10% income
demographic – which alone could have taken care of the deficit – bringing in
between $10 billion and $20 billion.
So Labor has
not quarantined ‘middle income Australia’ from its cuts. But by some analyses middle income is not the
same as middle class. Surely more reforms aimed at recouping
revenue from the top 10% income demographic would have been fairer – though the
reality is that we need a broad enough tax base to bring in the necessary
revenue to maintain health, education, welfare, infrastructure etc.
Family Tax
Benefit A – intended to assist in child rearing - has been also targeted. The Costello-erea ‘baby bonus’ has been wound
back. Low income groups who would have
benefited from carbon tax compensation will also find that some of that compensation
– in the form of tax cuts – has been withdrawn. (a
more regressive decision) This is disappointing because regardless of the fact
of a falling carbon price with moves to a ‘market carbon trading system’,
progressive changes to the tax mix would have been of great benefit to workers
and the poor in any case.
Notably the
policy of mandatory detention of asylum seekers – supported by both the major
parties – has itself resulted in a blowout of over $3 billion. But so long as Abbott plays the fear card on
refugees Labor can be expected to emulate Coalition policy in order to
neutralise or minimise any political benefit.
Now for a
range of other policy initiatives – some
of them quite welcome. Although many of
them have not been taken far enough.
An increase
to the amount of money that those deemed unemployed can earn in casual labour
before their benefits are effected has risen by about $20 a week. This is a
good initiative: but not going far enough; and not lifting the unemployed out
of dire poverty. (which in principle is
supported not only by welfare organisations, but even by elements of the
business community.) A $50/week increase
in Newstart remains an urgent priority.
There have
also been boosts for cancer research and treatment, and a scheme to assist
seniors to ‘downsize’ their home -
moving into smaller and more “manageable’ residences is very welcome. This
is welcome; but further progressive action could involve the removal of taxes
such as stamp duty from low-income Australians also wanting to move in to
cheaper accommodation. Stamp duty is a
state tax; but the states could be encouraged to implement such a policy in return
for compensation from the Commonwealth.
Labor is
promising public money for transport infrastructure – but probably much of this
will be in the form of Public Private Partnerships. It is likely, therefore, that some new
projects will take the form of toll roads and the like. This is likely to have a regressive distributive effect.
Though
hopefully the decision to invest $4.6
million in “an institute for ageing” could lead to more robust and fair aged
care policies into the future.
And
importantly – Labor is recouping $4.2 billion over four years by closing
business tax loopholes – certainly a more welcome initiative than further
austerity.
But Labor’s big policies remain disability insurance
and the so-called Gonski reforms.
According to
‘The Age’ (May 15th 2013) -
when fully implemented by 2019-20 disability insurance will have a price-tag of about $22 billion – covering
over 450,000 disabled Australians. In
order to provide funding there will be a 0.5% increase in the Medicare Levy –
though arguably more robust action is necessary on the tax reform front to fund
the program over the long term. These increases to the Medicare Levy are
welcome, though further progressive tax mechanisms to provide funding would
have been more welcome.
The
government is set to provide 50% of the funding for the NDIS (renamed Disability
Care Australia) – though when combined with the education reforms it is
doubtful that the states can afford this without further federal grants – or
further state-level ‘reforms’ – with user pays infrastructure, or increased
state taxes. Disability insurance is a
massive and overdue reform – providing support, amenities and services to some
of those who are in the most need. But
even the Liberal states had been arguing for tax reform in order to consolidate
their fiscal position. (though of course
they were Ideologically driven to demand a regressive increase in the scope and
coverage of the GST, rather than fair reforms elsewhere in the tax mix)
The Gonski
reforms have also been dramatically watered down. Though nonetheless they remain substantial. While originally the Gonski Review called for
an increase in funding of $6 billion a year, the government is promising only
$9.8 billion over six years. Some money
will be redirected from other schemes, and again there is the expectation that
the states will ‘come to the party’. When combined with projected State funding the
Commonwealth expects total funding of $14.9 billion over six years – compared
with the initial vision to expand education funding by more than twice that
amount. The changes to the funding mix
are apparently more progressive, however, with loadings targeting the inclusion of students from
disadvantaged backgrounds –whether the consequence of poverty or disability.
The Abbott response
In response
to the Labor Budget Abbott talked of a “Budget Crisis’ created by ‘Labor
mismanagement.’ This might go down well
with some people who don’t want to scratch far beneath the surface. But the reality is that the high dollar has
been central to the Budget’s deteriorating position. And for Abbott’s part he shared the position of
not intervening to lower the dollar in order to mitigate poor terms of trade, and
the disaster for manufacturing. Arguably
intervention is warranted in exceptional circumstances. And furthermore, Abbott’s opposition to a
more robust mining tax deprived the government of the funds that may have been
employed to effectively subsidise affected industries in manufacturing and
tourism especially – keeping them viable until the end of the mining boom, and
a drop in the dollar. This was important
to prevent skills and capacities being lost over the long term.
Abbott and
the Conservatives have also been complaining about Labor’s ‘out of control
spending’. And they are talking about a ‘simpler’ tax
system – which almost certainly translates into more regressive flat taxes –(eg:
an expansion of the GST, and its extension to food) with a redistribution of
wealth from the real ‘battlers’ to the affluent. Here, the Australian Conservatives are taking
a leaf out of the extreme US Tea Party’s book.
And for Abbott it is a betrayal
of his Democratic Labor Party past. While
the DLP sabotaged Labor for years, and were not a friend of Labor, they were not neo-liberals and believed in
social welfare. But Abbott will say and do anything to get the ‘top job’. The Americanisation of Australian politics is
a real threat: and the Liberals seem to
see the US ‘ideal’ of harsh social stratification as something to aspire to and
emulate.
Also,
Abbott’s rhetoric proves to be hollow when subjected to scrutiny. As Tim Colebatch points out (The Age, May
15th 2013) “Revenue this year is forecast to be 23 per cent of GDP,
compared with the Howard Government’s post-GST average of25.4 per cent. And
spending levels are pretty much identical.
And amazingly - in Melbourne’s ‘Herald Sun’ Jessica Irvine was allowed to make the observation that Labor
“inherited a structurally flabby Budget from the Howard Government, with too
many cash handouts and unsustainable tax cuts.” And:
“The Budget would be in surplus today if personal income tax rates had
not been cut [under the Howard Government) eight years in a row.” (Herald-Sun, May 15th, 2013)
Why is
Costello’s record therefore not examined more rigorously? On the Howard/Costello watch the housing
bubble rendered home ownership an impossible dream for many. The privatisation of Telstra left subsequent
Labor governments in a position of having to ‘pick up the pieces’ and pay a
high price for access to Telstra infrastructure for the NBN. The benefits of
the mining boom were squandered with unnecessary middle class welfare and
unsustainable tax cuts.
Abbott has
also attempted to rationalise his Parental Leave for the wealthy scheme by
comparing it to annual leave. There is a
significant difference, however. While
many Australians only get 2 weeks annual leave, Abbott’s scheme will provide
SIX MONTHS leave on FULL PAY for professionals earning $150,000/year. True, Abbott is sourcing the funds from a levy
on big business – But the money could be prioritised for areas of greater need. The ultimate effect is a redistribution from
more vulnerable groups to the wealthy – as Abbott’s largesse with Parental
Leave will be mirrored by austerity elsewhere.
Other
projected Abbott policies include more punitive welfare in the form of Work for
the Dole, and the removal of the Newstart
(threadbare) ‘safety net’ entirely for under 30s. A layer of desperately unemployed – a ’reserve
army of labour’ – will undermine workers’ organisation and bargaining
power. And perhaps for the Conservatives
that is the point!
We can also
expect an inferior version of the National Broadband Network; as well as
assaults on the rights of labour including organisational rights; cuts to
welfare; and the rescission of superannuation co-contributions for low income workers.
Abbott is still maintaining a 'small target' strategy; and most of the media is providing precious little scrutiny. Should he attain government, the austerity could well extend further than even this author supposes!
Lessons for Labor
There are
several areas in which Labor could have taken a proactive stance – minimising
the deficit, preventing austerity and actually expanding the social wage.
A more
rigorous mining tax could have brought in perhaps $6 billion. Reversion to 75%
Dividend Imputation could have recouped perhaps another $6 billion – or perhaps
$12 billion if reverting to 50% as once advocated by renowned Australian
economist John Quiggin. Restructuring
income tax should also be an option; as should a tax on inheritances over $2
million. Cutting superannuation
concessions for the wealthy and the upper middle class could have captured
between $10 billion and $20 billion. Talk of ‘taking pressure off public pensions’,
here, is a furphy – as superannuation concessions alone are now costing more
than the entire Aged Pension Budget.
Again: we have a policy redistributing money from ‘battlers’ to the
wealthy.
Arguably
Labor’s timidity was unnecessary. The
government is withdrawing payments from low to middle income groups – but somehow
thinks it could not have raised further revenue from the top 5% to 10% income
and wealth demographics. Why back away
from such reforms when they would target only a wealthy minority; and when they
would provide the scope for massive expansion of Australia’s social wage and
infrastructure – the benefits of which should be plain to voters?
Also importantly
– Labor could have mimicked Abbott on one crucial point: his 1.5% levy on big
business. Abbott could hardly have
complained given his own policy, and Labor could have directed the money into
areas of much more acute human need – for instance, aged care. It is still not too late to develop
just such a policy and seek a mandate for it at the coming election. Such a policy could well be very popular!
With perhaps
over $30 billion from such initiatives-
that is, were they all implemented to the fullest extent – a surplus may
even have been achieved for the coming year.
Though that would be a political objective; as in reality
the precariousness of the world economy demands a more fiscally expansionist
stance. Gonski could have been
implemented in full. And comprehensive
Aged Care insurance could have been rolled out on similar principles to
Disability Care Australia. Finally,
resources could have been provided for the States – maintaining health funding;
maintaining equity in provision of health services; providing further resources
for public transport and other infrastructure without regressive user pays
mechanisms or even privatisation of roads…
Policies of
‘small government’ will only lead to more Public Private Partnerships, and
perhaps outright infrastructure privatisation for which consumers will pay the
price.
Instead,
Labor should go to the election heralding further action on the social
insurance front. And while following
through with its education and disability reforms, Labor must promise a
multi-billion dollar annual investment (new money) for Aged Care services.
Indeed it is
not too late for Labor to further re-emphasise social insurance as a central
theme for the election. If Abbott could
be pressed to accept disability social insurance, the right kind of
articulatory strategies by Labor could drive him to accept Aged Care insurance
as well. If Labor loses the election –
but manages to dictate the policy agenda in such a manner – then even in
electoral defeat it would comprise a kind of victory. The suffering of our aged
citizens – especially those in high dependency care – is an obscenity to the
extent it could be ameliorated – but is not – because of ‘other priorities’. I have argued for such action in previous
articles here – and for any who have not read this material yet I urge them to
read the following:
Again: There
is relief that (in Julia Gillard’s words) Labor “has not cut to the bone”. But the Budget is not all that is could have
been, nor what it should have been. Failing to extensively reform superannuation
concessions was the key capitulation in the face of vested interests.. Hopefully, though, Labor will press the
themes of tax reform , social insurance and social wage expansion further in
the following months, and seek a mandate for progressive change.