Labor Turning Left on Inequality ; Let’s Make Sure the Policies Match the Rhetoric

In a very-welcome move, Bill Shorten (above) is talking about Action on Inequality (specifically progressive tax reform) ; Labor Activists need to support this move, while at the same time appraising the associated Policies, and engaging in such a debate as to ensure the Policies match the Rhetoric. 

Dr Tristan Ewins

Apparently Federal Labor under Bill Shorten is considering significant reform of Australia’s tax system to bring in potentially billions in new annual revenue, and to address the scourges of disadvantage, inequality and poverty.   

Labor had already long since committed to reform on capital gains tax concessions and negative gearing ; with some modest changes on superannuation tax concessions as well. 

But according to ‘Age’ journalist, Peter Martin, additional possible options now being canvassed include:  (‘The Age’ 22/7, p 17)

·         cracking down on the abuse of family trusts by the rich, bringing in maybe over $3.5 billion a year

·         and “ending the diesel fuel rebate” for miners and farmers ; again bringing in perhaps over $4 billion

These would be very-welcome announcements should they eventuate. Though to aspire to an extended social wage and welfare state Labor really needs to be considering ‘in the ballpark’ of 5% of GDP in progressive new annual spending – arrived at over several terms. 

And a figure of increasing Federal Government expenditure by 2% of GDP may be appropriate and realistic under a first term Labor government.  (ie: increase progressive tax and associated expenditure by around $32 billion in a $1.6 trillion economy)

We will consider other possibilities to reach that vicinity later in this article.

The Herald-Sun has responded to this recent positioning on distributive justice by Shorten ,  proclaiming that: “Bill Shorten has ratched up his class warfare rhetoric”. For the Herald-Sun instead Labor must cut “wasteful spending”  and not target “so-called” “rich and big business”.   Here inequality is to be considered not a reality. Rather according to the Herald-Sun it is Shorten who is “dividing us” into a “Have and Have-Not nation”.   (Herald-Sun, 22/7, p 12, 38)  There is talk of rewarding and not punishing “aspiration” ; and a rising cost of living is blamed on renewable energy.  (as opposed, for instance, to abuse of market power and inferior cost structures in the wake of privatisation)

But  ‘the Australian’ (22/7, pp 1, 8)  talks itself into a corner while unwittingly providing ammunition to refute the Herald-Sun’s suggestion that ‘inequality is a mirage’ conjured up by Shorten , and is not real. 

It quotes labour market economist Professor Robert Wilkins to the effect that inequality has not been “ever rising” since the Global Financial Crisis. (2008)  But then has to concede that the portion of national income going to the top 1 per cent has approximately doubled since the 1970s to over 8 per cent.  Wilkins also interestingly concedes that inequality is “high by modern standards”. 

Wilkins also concedes that we do have wage stagnation. And when you add a rising cost of living the reason inequality is becoming a far more urgent and resonant issue is clear.   

Further ; ‘The Australian’ observes that Shorten and Bowen are drawing on pre-tax figures on inequality ;  But if anything taxes have long been becoming lower, more broad-based, and less progressive ; at the same time as we have observed a growth in the application of the ‘user pays principle’ for everything from education to water.

Briefly, arguments about ‘the size of government’ also flounder in the face of statistics.  Whereas Australia enjoyed a general tax rate of 26 per cent of GDP and expenditure levels of 35 per cent of GDP in 2014,  the figures for Finland were at 43 per cent of GDP and 55 per cent of GDP respectively.   Meanwhile Germany enjoyed a total tax take of 37 per cent of GDP, and expenditure levels of 45 per cent of GDP. 

So Australia is lagging behind some of the most successful economies in the world in this respect. Despite Ideological claims to the contrary from the Business Council of Australia (‘The Australian’, 22/7/17) and elsewhere, the reality is that ‘bigger government’ can be good for the economy, and even ‘good for business’.

While Labor has recently only been courageous enough to target the very rich with admittedly very-modest reforms, ACOSS observed in a 2015 report that inequality was marked in our supposedly-egalitarian nation. 

Drawing on ABS (Australian Bureau of Statistics) research, ACOSS depicted the average income and wealth according to five “quintiles” ;  “a statistical value representing 20% of the population, of which the first quintile represents the lowest fifth of the population, 1-20%; the second quintile represents the second fifth, 21-40% and so on”.

Here the bottom 20% of Australian households enjoyed a total averaged income of under $34,000/year ; while the quintile immediately above enjoyed a total averaged income of only $67,113.  The middle or third quintile amounted to $97,570  ; the fourth to $134,127 ; and the final and wealthiest layer $232,175.

Household wealth was similarly measured ; and here the bottom 20% enjoyed average total household wealth of $31,100, but the top 20% enjoyed average wealth of $2,212,200.

This gives us some idea of the extent of income and wealth inequality.  Though these statistics may also admittedly be influenced in the context of ‘asset rich, income poor’ households ; those who may own a family home for instance, but who may fall into one of the bottom two quintiles for income. 

Also the top 20% wealth and income quintiles may be affected by the weighting of the extremely wealthy.  Again: after all, research quoted by Robert Wilkins in ‘The Australian’ (22/7/17)  has it that the top 1 per cent alone account for over 8 per cent of total wealth in Australia.

Labor needs a nuanced approach: assisting the income poor and the asset poor ; while redistributing from those who are income and asset rich.  Deflating the housing bubble and making home ownership a real prospect for families again is crucial. Labor’s Negative Gearing reforms are essential here.  Expanding public housing is necessary to assist low income families and vulnerable individuals as well: while also boosting supply ; with a ‘flow on effect’ to affordability for everyone.

But that’s not the end of the story.  In short Labor needs to redistribute from a broad enough economic base to fund redistribution via the tax mix, tax-transfer system, social wage and welfare state.  That must mean redistribution from the upper middle class as well as the outrageously wealthy.

Yet tax may need to rise for the ‘middle income’ layers as well. 

The rationale for this is as follows.

Tax comprises not merely a burden as if taxpayers received nothing in return.  It is also the means of funding collective consumption and social insurance.  Despite complaints from the banks,  the recently-implemented Federal tax upon them was a way of paying for an effective ‘government guarantee’ – a form of ‘economic insurance’ which originated with the Rudd Labor Government during the Global Financial Crisis of 2008. (GFC) 

Morally-speaking, the ‘middle income layers’ should also show some solidarity with those who are struggling.  That’s part of the picture. But by ‘collectively consuming’ infrastructure, services and social insurance they also ensure they get a much better deal for their tax dollar than they would as atomised private consumers. Consider communications, transport, water, energy infrastructure, health and education infrastructure - and the costs of the associated services. And taxes also must be levied so citizens are ‘covered’ in the case of accident, illness, disability, job loss and so on.

Also there is a growing crisis of what some would call ‘corporate welfare’.  Ostensibly in order to be ‘competitive’ in attracting capital we have seen an increasing phenomena of tax payers, workers, citizens – effectively subsidising business. Governments ‘look the other way’ on tax evasion, tax havens, abuse of trusts and so on.  Or ‘talk the talk’ while taking only token action.  (Labor could do with some introspection here as well) 

Corporate Taxation falls lower and lower to ‘remain competitive’. A ‘race to the bottom’.  The ultimate consequence of this is that business is no longer paying its fair share for the services and infrastructure it benefits from.  That means workers and other tax  payers have to ‘pick up the tab’. 

But as well as being unfair, ironically this ‘comes back around’ to harm certain businesses as well.  Workers and taxpayers therefore have less disposable income , which means less scope for discretionary consumption.  This is why some businesses are beginning to worry about falling wages. Though others remain narrowly self-interested – looking only at their own sectional interests, and for instance supporting attacks on penalty rates.   

The other possibility is that crucial services and infrastructure will just be neglected.  But much of that infrastructure and services is a ‘drawcard’ for investment as well.  For instance an educated workforce. ‘Social disintegration’ can also mean added costs in the form of crime, ill health and so on.  This is without even considering the question from the viewpoint of striving for ‘The Good Society’ and not just ‘economic goals in abstract’. 

There are other possibilities for tax reform, also, not examined by Martin’s article. Those could be crucial in lifting Australia closer to the examples set by successful economies such as Germany and Finland. We will consider a number of those:

·         further (and genuinely substantial) cuts to superannuation concessions for the unambiguously well-off (the upper middle class and higher); with the potential to save tens of billions a year with that one measure alone

·          Fix the Company Tax rate at 30 per cent and take serious action on corporate tax evasion, use of tax havens etc.

·         Gradually wind back Dividend Imputation (tax credits ostensibly to stop ‘double taxation’ – the rationale of which has weakened with falling Company Tax rates);  That would have the potential to save $5 billion a year from reducing Dividend Imputation to a 75% rate alone in a first term Labor Government ; and much more over time depending on the reaction

·         Seriously restructure the PAYE income tax mix for progressivity ; including indexation of the bottom two or three brackets thereafter – to prevent future unfair bracket creep ;

·         Raise and restructure the Medicare Levy into a more-progressive multi-tier tax; and index to prevent unfair bracket creep ; Also cover Aged Care costs within the Medicare Levy – and raise enough revenue to eliminate unfair user pays costs for lower income, middle income and working class families , while improving services, and hence improving quality of life and happiness for residents , and those remaining at home.

·         Introduce a progressively-scaled ‘infrastructure levy’ to provide for all manner of infrastructure (transport, communications, energy, water etc) ; and to stem the trend towards privatisation – which is worsening cost structures and arguably fuelling nepotism.

·         Introduce a modest inheritance tax on inheritances valued over $2 million ; again indexed for progressivity ; perhaps excluding the family home

·         Introduce a ‘Buffett rule’ – or ‘minimum income tax’ affecting the wealthy

Importantly, though, Labor’s consideration of increasing the top income tax rate by 2 per cent is not substantial enough to make serious inroads into the deficit , provide for social wage and welfare expansion , or to render indexation of the income tax mix sustainable thereafter.  Compared with other taxes, income tax has great progressive and redistributive potential ; and its significant reform must be prioritised to achieve the best outcomes.

It’s encouraging that Labor is considering serious reform of the tax system for fairness.  We need such reform to promote distributive justice, and provide the means for social wage and social security expansion.  But Labor activists need to hold their politicians to a high standard as well.  There is a history of rhetoric on these issues, combined with a failure to match that rhetoric with the necessary action in the 'end analysis'.   Not every measure considered here will be implemented by a first term Shorten government.  But extension of progressive tax and associated social expenditure by 2 per cent of GDP, or $32 billion in a $1.6 Trillion economy, is a very good place to start.

Unpublished Letters from a Labor Activist ; March-July 2017

The following are a series of unpublished letters to ‘The Age’ and ‘The Herald-Sun’ from Labor activist Dr Tristan Ewins from March to July 2017.

They are presented chronologically.

Increasingly I'm finding it impossible to get any of these letters published ; I hope at least they may spur some discussion here at this blog.

Please feel welcome to link to this page via Facebook.

The position of modern Christianity is complex

(Herald-Sun, March 2017) As a democratic socialist I am loathe to concede anything to Andrew Bolt.  But regarding his recent op-ed on Christianity I had to concede there is a growing ‘cultural assault’ against the faith.  In some quarters there seems to be a double standard in how Christianity is treated in comparison with other faiths.  During the French Revolution – which Bolt alludes to – Catholic clergy enjoyed entrenched privileges as the so-called ‘First Estate’.  More recently (from the 1930s) the Roman Catholic Church was involved in fascist regimes in Spain (Franco) and Austria (Dolfuss)   The Papal Encyclical “Rerum Novarum” also alienated many Catholics from the Left.  But there is more to Christianity than this.  Churches – including wings of Catholicism – have been vehicles for progress also.   Consider Martin Luther King Junior,  Desmond Tutu, Oscar Romero ; and even consider Francis’s attempts to reform Catholicism.  And across the country various churches and various denominations have embraced causes like indigenous rights, the environment, civil rights, peace, the fight against poverty and homelessness, queer rights and so on.  Today’s diverse Christian church is not uniformly the bastion of privilege and conservatism it once was.  That said, Christians must enjoy the same dignity and liberal rights as everyone.

What’s wrong with the Swedish Model?

J.Muir (Herald-Sun ,Letters 18/4) suggests those who look to the Swedish (democratic socialist) model have let go of all “logical thinking”.  Yet for decades Sweden’s famous welfare state has been the source of greater happiness, equality and security compared with the US, Australia and Britain.  At its height the ‘Swedish model’ also achieved close-to genuine full employment (hence ‘running the economy at full bore’) ; and that was comprised largely of high wage jobs thanks to Sweden’s interventionist industry policies.  The Swedish welfare state and industry policies also meant Sweden could revolutionise its industries without displacing and impoverishing workers in the process.  The Swedish welfare state’s universality also meant there was little in the way of resentment from the well-off.  All this was not a disincentive to work ; but nonetheless Swedes have enjoyed very high quality public health, education, and social security systems.  What is ‘illogical’ about all that?

What does Peta Credlin know about ‘Australian values’?

Peta Credlin (Herald-Sun, 23/4) argues we must “Stand Up for our Values”. (that is, ‘Australian Values’) But who determines what Australian Values are?  Traditionally we have thought of ourselves as an egalitarian nation.  Historically that was confirmed with our labour market regulation (with a fairer go for the low paid) ; through the rights enjoyed by workers and their trade unions ; and through our progressive welfare state (including Medicare), and our mixed economy. ( which involved cross-subsidies for the poor)  Further ; Australian POWs in Changi survived through human solidarity ; which is the opposite of the ‘survival of the fittest’ Ideology preached by today’s Right-wing. Those egalitarian values have been under siege for a long time now ; including from Peta Credlin’s Liberal Party. Just remember when you hear Conservatives speaking of ‘Australian values’ that we don’t all agree on what those values actually are.

Bolt wrong on Education Again

Andrew Bolt (4/5/17) argues there is at best little connection between levels of funding for schools and actual results.  And yet there has been a trend to a growing defection of parents to the private school sector on account of better infrastructure (eg: libraries, computers and so on), as well as better student to teacher ratios. Some private schools also offer better wages and conditions which enables them to ‘take their pick’ when hiring staff.  Clearly the emphasis on ‘teacher quality’ is a means of distracting from the question of funding ; providing an excuse for education austerity which is destroying ‘equality of educational opportunity’ in this country.  Here Malcolm Turnbull’s ‘Gonski 2.0’ needs to be considered in its context of an actual multi-billion dollar  annual cut compared with the original Gonski agreements. Further: If we are to attract the best teaching staff arguably we need to hold the profession in higher esteem. And more could be done, here, with reductions in course fees and improvements in wages, conditions and career paths for teachers. Instead the government is putting tertiary education fees and repayment schedules through the roof : even for those on roughly HALF the average yearly salary.  (ie: approx. $40,000/year)

Is Turnbull really ‘Turning Left’?  Ask Abbott: ‘What happened to Catholic Economic Centrism?”

Andrew Bolt (11/5) claims Turnbull and the nation are ‘turning Left’ on the basis of insufficient austerity and new tax measures intended to ameliorate the deficit. In reality, however, Turnbull is hitting students and the unemployed hard – with policies which target students on half the minimum wage for thousands ; and which could force low income earners to exhaust their meagre savings before receiving Newstart only after 6 months should they lose their job.  Despite this the Budget does move the Government closer to the relative economic centre in the sense that overall cuts are ameliorated by comparison with the disastrous Hockey Budget of 2014.  And there is finally acceptance that there was ‘a revenue problem’.  Ironically,  the “Abbott Purists” will likely claim the austerity has not gone far enough. Though they may be upset by the attacks on Catholic education.  But it is THEY who have abandoned ‘traditional Catholic Centrism’ on welfare, labour and the economy.  (a tradition which interestingly had parallels with other ‘Christian Democratic’ parties in Europe)  By comparison Abbott, Bolt and others would have us drift into a US style scenario with a class of utterly destitute, and a class of working poor.

Robert Menzies was a Social Conservative ; But might appear ‘leftish’ on the Economy by Today’s Standards ; Bolt wrong again

In the Herald-Sun (May 22nd) Andrew Bolt compares today's Liberals with Robert Menzies - and finds them wanting. Specifically he infers that Menzies would have nothing to do with narratives of fairness. (narratives Bolt rejects)  But in reality Menzies presided over a much more steeply progressive income tax system than we have today - with a top rate around 67 per cent.  Both Labor and the Liberals have moved way-Right on the economy since then.  In reality 'market forces' do not guarantee just economic outcomes. And as against narratives of meritocracy, most of the very rich inherit rather than earn their wealth.  Inequality is not 'natural' or 'inevitable'.  But a degree of redistribution can ensure equal opportunity in education, equal outcomes in health, and 'baseline' living standards that no citizen should be allowed to fall beneath. It is a matter of compassion ; but also of decency and justice. Australia's egalitarian traditions and culture are worth saving. Bolt is wrong.

Slashing the HECS Repayment Thresholds is Unjust by any Reasonable Measure

Ross Gittins (‘The Age’ , 24/5) rightly condemns the Federal Government’s assault on job seekers, including requirements that those people exhaust much of their personal savings before receiving a cent. It received very little coverage in Budget analyses.  Perhaps there is a cold calculation that ‘no one has sympathy for job seekers’ given the constant resentment and callousness whipped up in much of the monopoly mass media.  There wasn’t a word from Labor that I saw. But I don’t understand Gittins’ attitude towards students.  Someone on $42,000 a year is better off than a person struggling to feed themselves on Newstart.  But the Government is abrogating basic principles of progressivity by reducing the repayment threshold to $42,000/year ; or approximately only half the average wage.  Those on half the average wage are not receiving a significant financial benefit compared with workers and tradespeople who had not attended university.  And given other pressures – including housing unaffordability and a rising cost of living – surely HECS repayment thresholds and rates need to be fairer.  Just because you can make ends meet doesn’t mean principles of progressivity and fairness should not apply.  The minimum repayment threshold should be raised to at least $60,000/year ; then indexed.

Root and Branch Reform of Tax and the Social Wage Necessary

“Peter Martin (‘The Age’ 25/5) makes a good case to get rid of poverty traps in the tax and welfare systems which hurt vulnerable groups like single parents and provide little incentive for work.  We have a tax system which needs root and branch reform.  The whole tax mix needs to be restructured for fairness ; as do the PAYE income taxation scales on their own – which thereafter ought be indexed.  Dividend Imputation could be gradually withdrawn to a 50% rate (maybe more over time), saving  $10 billion a year. Superannuation concessions could be withdrawn for the wealthy , but also the upper middle class ; saving over $20 billion.  A ‘Buffet Tax’ (minimum income tax for the wealthy) could bring in over $2 billion.  The Medicare Levy could be reformed on a progressive scale ; where everyone contributes – but by an increasing proportion depending on income.   Finally inheritance taxes ought be reconsidered for those with truly large inheritances ; say over $2 million.  All this could be passed on with a mix of tax cuts for low to middle income earners, improvements in social security , and improvements in the social wage.  (including infrastructure, health and education)”

Terms like ‘Class Warfare’ and ‘Soak the Rich’ Demand Criticism

Peter Hartcher (‘The Age’ June 13^th) seems critical of the recent upsurge in Left-wing politics, with good performances by Sanders and Corbyn , and the return of democratic socialism to ‘respectability’. Terms like ‘class warfare’ and ‘soak the rich’ are thrown around without any real critical consideration of the meaning, assumptions and historical context behind that kind of language.  Progressive taxation hence appears summarily dismissed, despite the fact  that taxes were effectively more steeply progressive under Menzies then they ended up being under any government since Hawke and Keating.   Regressive taxes, ‘small government’ and austerity are today considered ‘natural’ despite impacting negatively against the majority on lower and middle incomes. There is no talk of ‘class warfare’ where it is workers and the vulnerable under attack.  But somehow a fairer spread of taxation is dismissed as ‘redistribution’ – which apparently has been established as a political and economic ‘cardinal sin’.  Australia needs a new culture of social solidarity – where everyone contributes on the basis of their capacity – and where health services, aged care, social security, education, social and public housing – as well as transport, energy and communications infrastructure and services – are made fully available on the basis of need.

Terms like ‘Labor Lite’ to Describe Turnbull Expose Loaded Political Assumptions around the Australian Economy

Andrew Bolt describes Malcolm Turnbull as ‘Labor Lite” - ‘big spending’ and ‘high taxing”.  (3/7)  But in reality taxes and spending have over the long term been falling effectively by tens of billions under both Labor and Liberal Governments.  Compared with the OECD average Turnbull is low spending and low taxing.  Policies that Abbott and Bolt describe as ‘Left’ would be considered ‘neo-liberal right-wing’ in much of Europe and Scandinavia – including by Christian Democrats and Centrists.  Is so-called ‘small government’ really a good thing?  Paying for goods and services: including health, aged-care, education, infrastructure – through progressive taxes – gives citizens in general better value for money than if they paid for these as private consumers.  Look at the outrageously-expensive US private health insurance system for proof of this. This ‘social wage’ also means we don’t have a US-style underclass.  To get an ‘angle’ from which to undermine Turnbull Abbott is also betraying the traditions of Christian Democracy and Catholic economic Centrism which have historically supported welfare and labour market regulation.

What does Bolt know about Socialism?

Andrew Bolt (13/7) writes of Venezuela that it should “be taught in schools” how “socialism ruins countries”.  But surely that kind of official indoctrination would itself be a hallmark of totalitarianism? Instead we need a curriculum that informs students about the interests and value systems of both the Left and the Right , and of different social groups – and encourage them to make their own commitments – in an active and informed democracy. As for socialism: done correctly it has resulted in full employment, high wages, equal educational opportunity, and health care based upon need.  Consider Sweden, Finland, Denmark, Norway. But capitalism increasingly survives on unsustainable private debt ; and ‘corporate welfare’ as big business escapes taxation for the infrastructure and services it benefits from. (the rest of us must pay)  Also there is abuse of market power in the wake of privatisation of natural public monopolies.  (eg: energy) ; and this is why those on lower incomes are suffering.