Responding to Simon Crean on ALP unity and Government Policy

above: Victorian Labor MP, Simon Crean

Today veteran Labor MP Simon Crean helped facilitate a spill of the Labor leadership once yet again.  Without the numbers, and with Rudd refusing to contest the spill, Gillard was re-elected unopposed.   But Crean has raised issues that are crucial for the Party as the May Budget approaches.  Unfortunately, the author, Tristan Ewins, finds he cannot agree with Crean when it comes to reform of superannuation concessions and other fiscal reforms which might well be necessary to pay for NDIS and Gonski. 

(initiatives that will ultimately cost over $20 billion a year in the context of a $1.4 Trillion economy)

(nb: Also I have corrected a rather large typo as well!!!; So apologies to anyone who may have been shocked by the apparent argument I supported infrastructure privatisation!  Rest assured that is NOT the case!  I did not catch the typo until after I rushed to publish with the events unfolding rapidly around us...)

By Tristan Ewins

Today in a media interview Simon Crean put a strong argument against the constant destabilisation process going on within the Federal Parliamentary Labor Party.  As he argued, the prospect of an Abbott government is frankly “scary”.   The tens of billions in cuts Abbott would follow through with would result in unprecedented damage to Australia’s welfare state and social wage.   The stratification of our education system would continue apace to the point where constructing a constituency for revivifying the state sector would pose a very difficult challenge.  Punitive labour conscription policies for the unemployed.  would acquire previously unthinkable dimensions.  Finally, Paid Parental Leave under Abbott would be skewed towards the truly wealthy at a time when the entitlements of poorer Australians are under attack.   One way or another the ‘leadership question’ needs to be permanently resolved ahead of the May Budget.  Labor needs a progressive Budget the whole Party can unite around in May.

A few hours, however, it seems are a long time in politics!  Just moments ago there was a spill for the Labor leadership positions. Crean had been instrumental in bringing the spill about – but without Rudd contesting it, Gillard was re-elected party leader unopposed.

From this Labor activist’s position there are two crucial issues.

One – is that the leadership speculation and destabilisation must be ended finally and categorically.

Secondly, Labor must remain on the policy front foot – and not step away from its commitments to Gonski and NDIS. 

IN that context two questions raised by Simon Crean still remain problematic for this Labor Party activist.  Those questions concern infrastructure privatisation and treatment of superannuation concessions.  I am hoping that the options of removing superannuation concessions on the one hand; and of maintaining public infrastructure on the other - have not been sacrificed.  The consequence of forsaking reform of superannuation concessions in particular could potentially mean there would be insufficient funding for NDIS and Gonski….

Infrastructure privatisation?

Beginning with the matter of infrastructure privatisation: Simon Crean raised the issue of employing Superannuation funds to pay for basic infrastructure.  While this is far preferable to the kind of privatisation preferred by the Conservatives, superannuation funds would also seek maximum return for their investors.   Certain union-dominated superannuation funds might benefit, it is true: but potentially at the expense of the public more broadly in their capacity as consumers.

Also even the most robust superannuation funds will not achieve the credit rating of the Federal Government. 

In short, superannuation investment in infrastructure would be great for the superannuation funds, but an inferior deal for consumers and taxpayers. When it comes to infrastructure: roads, public transport, water and energy infrastructure etc – public sector investment still delivers a ‘better deal’.   It can raise funds more efficiently, and it can run on a ‘not for profit’ footing. 

Preferably infrastructure user tolls of any kind should be avoided – as usually tolls take a form approximating regressive flat taxation.   Servicing public debt sustainably over the long term would deliver the fairest outcomes;  but progressively-structured  taxes may have to rise as consequence.

Reforming the tax mix is a better option – and as we will soon argue there are a number of progressive options available.   But if tolls are introduced in any way, they should take the form of tolls on public owned infrastructure – as occurred for a period with the Westgate Bridge in Melbourne and the Sydney Harbour Bridge.   That is: they should comprise temporary measures, without the drawbacks of privatisation.   And if they are applied at all, they can potentially resemble progressive taxation with a ‘tiered system’ for public and commercial use, and for individuals and families in particular income brackets. Indeed, such a system could form part of a ‘quid pro quo’ between the Federal Government and the States. It would assist the Federal Government in freeing funds for Gonski and NDIS while at the same time maintaining a progressively structured model of infrastructure finance.

Superannuation Taxation?

The other potential ‘bogey’ Simon Crean raised was that of "taxes" on superannuation.  (a misnomer because the concessions comprise tax relief rather than taxes in of themselves) 

Admittedly it is true that a fear campaign has already begun on the theme of superannuation concessions.  The upper middle class is concerned their retirement lifestyle may be threatened; and while many struggle to make do on the Aged Pension alone, the upper middle class see an annual retirement income of over $50,000/year as a ‘right.’   A recent segment in the 7:30 Report presented the matter in a most unbalanced fashion. 

But is the theme of social class helpful for Labor?  Or is it a source of division, and hence electoral marginalisation?  And what does class conciliation really mean in a context where employers are opposing minimum wage increases, attempting to wind back penalty rates, and trying to prevent labour organisation?  Does it mean anything in the real world, or is it just an Ideology behind which social democracy has self-liquidated?

Already in another recent article we have noted that superannuation concessions have risen to prominence as a massive instrument for tax avoidance by the very wealthy – at the same time as user-pays mechanisms for the most basic infrastructure are being considered.  Specifically, superannuation concessions are currently around $30 billion, and will cost $45 billion perhaps as early as 2015.  And the top 5% income demographic alone is already receiving over $10 billion of those existing concessions. 

In that same article we also observed that – by comparison – then entire Aged Pension Budget was only $25 billion in 2012. 

This is more than ‘middle class welfare’. It is ‘upper middle class welfare’, and a subsidy for the wealthiest of all – the top 5 per cent – effectively paid for by everyone else. Despite Ideologies of class conciliation, distributive injustice is a glaring reality – which we must choose whether or not to facilitate and excuse – or whether to work for a more socially just alternative.  Tax avoidance and tax minimisation from the wealthy impacts upon the welfare and social services we all depend upon in Health, Aged Care, Transport, Welfare and so on.

In that same article this author demonstrated that by halving Dividend Imputation the government could bring in over $10 billion, and by removing superannuation concessions for the top 10 per cent income demographic Labor might recoup as much as $25 billion altogether. 

And elsewhere the Greens had argued that raising the Minerals Resource Rent Tax (MRRT) rate to 40 per cent, eliminating loopholes and removing “generous accelerate depreciation provisions” could raise $26 billion our four years. 

Finally,  based on statistics used by “Crikey’ last year, increasing Company Tax by one per cent could potentially bring in an additional $1.5 billion a year.  That kind of money could prove very useful come September if ploughed into Aged Care or mental health, for instance. It is about time to draw a line under decades of corporate tax cuts.  For decades now a regime of ‘corporate welfare’ has taken root, with lower taxation for Companies and wealthy private investors – at the same time as government struggles to pay for basic infrastructure and education expenses – which the corporate sector shares the benefits of.

The Bottom Line

The bottom line is as follows. 

Federal and State Governments are facing a ‘legitimation crisis’ stemming from their inability to pay for basic infrastructure, and their plans to revert to user-pays mechanisms on the understanding that real progressive tax reform is ‘unspeakable’.

And Labor is in a bind in so far as it is not yet proposing a concrete, fair and sustainable way of financing Gonski and NDIS -  policies which it is committed to and on which Labor’s credibility rests.

But if Labor implements reforms rapidly following the May Budget; and can establish that tax measures are aimed squarely at the upper middle class and the wealthiest of all – It can demonstrate that state-financed infrastructure, as well as Gonski, NDIS and Aged Care insurance are in the interests of the vast majority.  (Though arguably NDIS should involve a more broadly-based levy in addition – to establish the principle of ‘social insurance’.  A ‘mixed’ funding mechanism could also bring in additional revenue for Aged  Care – where user pays mechanisms and the often poor quality of care are a national disgrace.)

On the other hand, if the media is still speculating on the form of tax reform and superannuation reform by September, the uncertainty and fear mongering could be damaging. It was protracted speculation which left a lasting negative impression with regards the Carbon Tax even after implementation should have put paid to the fear campaign.

But even if superannuation concessions were revoked and that revocation locked in’ for only the top 5% income demographic – It would still yield a pool of over $10 billion.  And the modest measure of implementing 75% dividend imputation would yield over $5 billion.  Taken together, those measures would comprise a very good starting-point from which to fund NDIS and Gonski, even though further initiatives are also desperately necessary to fund far-reaching reform of Aged Care. 

The Greens’ proposals for reform of the Minerals Resource Rent Tax (MRRT) – bringing in about $6.5 billion a year - could be enough to provide for a strong suite of policies for Aged Care reform – including  removal of user-pays mechanisms for poor and working class families, and improvement in areas such as staffing, diversity and quality of environment, privacy, facilitated social interaction and so on.  Another option would be to establish National Aged Care Insurance with a Medicare-style levy – but with progressive tiers.

‘Middle Class welfare’?

Finally, there is the prospect of freeing funds through the further curtailment of ‘middle class welfare’.   Adam Creighton over at ‘The Punch’   has argued that “More than 11 per cent of households in the top 20 per cent of the income distribution – with incomes above $115,000 – receive some form of welfare payment from Canberra…”   He argues further that: “Family Tax Benefit B, which is paid to households with incomes up to around $175,000 a year, is the main culprit.” 

To elaborate: According to “The Australian’ “NATSEM's* modeling shows that removing [Family Tax Benefit B] from families with combined taxable incomes of $100,000 onwards would save about $500 million a year. “  That money could be employed to reverse the callous government policies for Sole Parents, with hundreds of millions to spare.

Further means testing could also apply to the Private Health Insurance Rebate, removing it entirely from singles in the $97,001-$130,000/year bracket and for families in the $194,001$-260,000/year bracket.  At an estimate, this could bring in additional hundreds of millions every year.

But it is VERY notable that these measures pale in comparison with what could be saved from more ambitious reforms of superannuation concessions for the wealthy,  and a partial curtailment of Dividend Imputation.” 

And over-targeting of welfare has the potential to narrow the demographic support base of the welfare state over time.  More broadly, there needs to be a balance between means testing of welfare, and the principle of universalism - for instance as embodied in Medicare.

Conclusion

When Labor’s credibility depends on the sustainable funding of Gonski and NDIS it simply doesn’t make sense to rule out two of the most effective and progressive means of paying for those programs. And Labor cannot afford more of the callous austerity that cost the government deeply in terms of a popular backlash against cuts to Sole Parents. Reform of superannuation concessions MUST stand; and reform of Dividend Imputation must also remain an option in providing the necessary funds for those programs. 

·         NATSEM = “the National Centre for Social and Economic Modelling

Australia: The Consequences of Privatised Infrastructure

In this article Tristan Ewins considers the problems associated with privatised infrastructure: especially privatisation of roads. He critiques the abandonment of the mixed economy by Labor, and urges a return to such a model - but also the extension of a more progressive "democratic mixed economy'. Debate welcome!

Readers are also welcome to join our Facebook group which hosts regular debate, and publishes notice of new material at the blog. See: http://www.facebook.com/groups/102658893193637/

Tristan Ewins

In Melbourne’s “The Age” on July 17th the headlines proclaimed “Tolls urged on existing freeways”. Apparently advisory body “Infrastructure Australia” is frustrated with ever worsening infrastructure log-jams. Whether we’re talking about ports, roads, public transport or new utility infrastructure (gas, water, electricity) – the trend for many years now has been towards infrastructure privatisation – usually in the form of Public Private Partnerships. (PPPs)

In fact both Labor and Liberal governments have been guilty of jumping on the “PPP bandwagon” – to the benefit of their friends in the private sector for whom PPPs were often akin to “a license to print money’. Now ‘Infrastructure Australia’ is urging either public finance of new infrastructure – or privatisation of existing infrastructure and imposition of user-pays charges in order to provide the funding for new roads especially.

Tim Colebatch – also of ‘The Age’ has explored the associated issue in depth. Colebatch poses the question as follows: Australia has a choice in how it pays for an estimated $700 billion in socially and economically necessary infrastructure over the coming decades. See: http://www.smh.com.au/opinion/politics/heres-a-way-to-get-700bn-of-infrastructure-we-need-20120716-226gi.html

In fact we have three options.

a) We can continue to allow the infrastructure backlog to accumulate – actually damaging our productivity and quality of life – especially for families in emerging suburbs where transport infrastructure is negligible.

b) We can impose user pays charges upon existing roads or privatise them outright

c) We can actually raise taxes and invest in infrastructure the old way – via public borrowings and infrastructure bonds

In fact the neo-liberal Ideology is so entrenched now that the prospect of public investment in new infrastructure might be viewed by some as kind of radical. This is patently ridiculous - but we have an entire generation who have known little except PPPs and other forms of privatisation. The combination of mixed economy and welfare state – for decades taken for granted during the post-war period – is now thought of as belonging to the ‘political fringe’. Indeed our friends in the hard Right of the NSW branch of the Labor Party might now consider the model of traditional social democracy as “extreme”. Even Anna Bligh’s government in Queensland – Bligh herself hailing from the Left (!) – privatised energy and rail assets – in a move that led to extensive defections from Labor and Queensland unions to the Greens. And now the neo-liberal ideologues are pursuing a new wave of privatisation at a level that once upon a time would have been considered outrageous. Yet the arguments for a return to the mixed economy are clear and they are sound.

Tim Colebatch raises the spectre of Australia and its various state governments losing their AAA credit rating were we to lift our borrowing ceiling. But what if said borrowing was clearly established as being fiscally sustainable by raising taxes to the level necessary to service and repay the debt? And if increasing a nation’s debt ceiling results in a reduced credit rating – regardless of said states’ structural capacity to service the debt – does this make sense? Or is it an Ideological prejudice that ‘locks in privatisation’? Indeed: Can global or regional social credit provide an alternative? Such questions need to be posed now more than ever.

The problem is that the alternative to higher taxes and higher public investment is much more worrisome. So public finance of infrastructure is preferable for a number of reasons.

Firstly the Federal and State governments can borrow at a more competitive rate than any private sector operator.

Secondly, the argument that PPPs ‘pass on risk’ is fallacious – as when PPPs fail governments inevitably have to step into the breach and pick up the pieces.

Thirdly, privatised infrastructure involves user-charges that operate like regressive, flat taxes. Not only are the increased cost-structures of private finance passed on to consumers: but low and middle income groups are disproportionately affected.

The following is most crucial: Under privatisation most citizens pay much more in their capacity as consumers than they would in their capacity as tax payers with public finance. Privatised infrastructure is bad for equity purposes – with the increased cost structures flowing on to business as well as consumers. The consequence of this is thatinfrastructure privatisation is bad for capitalism in addition to being bad for equity.

We need only look to the costs of energy infrastructure privatisation in Australia to grasp the consequences of infrastructure and utility privatisation for a spiralling Cost-of-Living. Private investment in new energy infrastructure is being passed on in the form of consumer charges that have largely seen energy prices in Australia rise by 40 per cent over the past five years. http://www.abc.net.au/news/2012-03-21/australians-pay-highest-power-prices-says-study/3904024

Full privatisation of infrastructure is obviously the greatest threat – as compared with imposition of tolls on public-owned infrastructure – as user charges become entrenched permanently, rather than comprising an ‘emergency measure’.

But how and why has the ideology of privatisation taken hold – even within the ALP itself? What are the consequences? What is the alternative?

For decades progressives and social democrats have been on the back foot when it comes to privatisation. It is the author’s opinion that many younger members of the Australian Labor Party cannot imagine what a real mixed economy would look like; or conceive why it would be desirable; or conceive anything outside of the neo-liberal framework. Within the ALP there is even scepticism with regards reform of tax and meaningful extension of the welfare state and social wage.

Even on the ALP Left there is an ‘ideological drift’: a loss of a sense of perspective and purpose as the substance of democratic socialist policy is increasingly seen as ‘unspeakable’ even in internal forums.

Without being regularly reinforced through a vigorous and participatory counter-culture traditional Left ideals are fading. Liberalism is filling the void. By while liberalism is part of the answer, it is not sufficient to meet the ‘social question’ which provided the original source of inspiration for Labor. While worthwhile causes such as the rights of refugees and the right of those of queer sexuality are important, any critique of neo-liberal capitalism is relegated to the far margins. Such a critique could advance to cause of moving back towards a mixed economy - including natural public monopolies, as well as government business enterprises which actually enhance competition while providing cross subsidies for disadvantaged consumers. And more particularly progress could be made towards a democratic mixed economy, which could also be marked by co-operative and mutualist enterprise and co-determination.

The power-brokers do not seem to understand that the firmer the control they exert over the grassroots, and the more grassroots initiative is obstructed, the consequence is the decline of the ALP as a movement, and the loss of democratic socialist ideology, culture and identity. At this rate all that will remain ultimately is a patronage machine – which is how some people seem to like it. The disillusioned flock to the Greens – and yet even amidst the current crisis of support for Labor, the Greens’ mass electoral appeal remains largely confined to inner suburbs. Labor remains a crucial electoral bastion that must be contested by progressive forces.

There has been a steady line of retreat since the 1980s on the Left - from a perspective favouring economic democracy, to a rearguard action in defence of a robust mixed economy, to neo-liberalism and a minimal public sector sustained by some residual ‘natural public monopolies’ – and finally now the almost absolute expunging of the public sector from even those sectors of the economy where it is in capitalism’s own interests to contain its cost-structures via public ownership.

We need, now, to return to the theme of the democratic mixed economy: in a sense to ‘save capitalism from itself’ – not necessarily because all facets of capitalism are worth saving – but to prevent the human suffering that comes in the wake of capitalist contradictions. And over the long term we can still aspire to the extension of political, social and economic citizenship – culminating in a qualitatively better social order.

For now a hybrid system can provide the best mix of socialist efficiency and fairness, and market-facilitated innovation and choice. This is the democratic socialism the Labor Left – and the Centre-Left more broadly – needs to return to. It demands a robust counter-offensive against neo-liberalism – not merely another faltering rearguard action in the face of this latest ideological and public policy assault. It requires pro-active advocacy in favour of a democratic mixed economy. And it requires the implementation of these principles by Labor in the field of public policy.