Covid 19 has hit the economy hard; But where is the Recovery going to come from?

Richard Denniss of The Australia Institute thinks the Economy will not simply 'snap back' after the Covid-19 Crisis. A long term government role is required.

Dr Tristan Ewins

Covid 19 has hit the Australian economy hard.   By some estimates the Australian economy will shrink by approximately 7 per cent in 2020.  Maybe more.   That’s a virtually unprecedented recession.

https://www.abc.net.au/news/2020-04-15/how-coronavirus-crisis-compares-to-1990s-recession-australia/12148020

Shutting down workplaces: hospitality and tourism, higher education and some manufacturing: comes at an enormous cost.

We can’t put a price on peoples’ lives and peoples’ health.  But many people will need to sacrifice to ‘spread the burden’ of funding recovery.

Some have suggested a ‘HECS-style loan’ for those unemployed as a consequence of this crisis.  

Because this discriminates, it is unfair.  Richard Denniss – speaking on ABC radio – is correct about this.  Though I think he is wrong about HECS more broadly.   Income contingent loans to pay for government  support of individuals during the crisis would mean a veritable ‘labour market lottery’ as to who was left with debt. Denniss agrees with this much.  But also ‘income contingent loans’ have a longer history of losing their progressivity as governments reduce thresholds to help pay for other endeavours – such as ubiquitous corporate welfare.

Also will the government temporarily increase corporate tax  during the recovery period to service debts incurred supporting the private sector during the crisis?

https://www.abc.net.au/radionational/programs/sundayextra/the-lasting-economic-damage-from-the-covid-19/12223194

The government’s stimulus has provided a lifeline for many.

But one rational assumption is that the economy won’t simply ‘snap back’ at the end of a six month period ; and as a consequence the government cannot afford to ‘step back’ and just let the private sector ‘fill the breach’.  The real economy doesn’t work like this.

In hospitality and tourism the structural effects on the economy could last quite some time. We don’t know whether there will be a ‘second wave’ or whether we will ‘break the back’ of the spread in this country.  But global travel will take years to ‘get back to normal’, and the US and the UK are still deep in crisis.  The ACT and Northern Territory also understandably want to reap the benefits of wiping out the virus, and don’t want it reintroduced from interstate.

On the other hand the crisis provides an opportunity to broaden and deepen the public sector to create the ‘economic infrastructure’ around which recovery will occur.  Make strategic infrastructure investments, as well as structural improvements in public services ; unemployment services ; in Health, Aged care and disability services ; in welfare, transport, communications, arts.  The NDIS needs to be more accessible, with 'consumers' interests protected more vigorously.  The CES (or 'Centrelink' these days) should be refunded as a 'one stop shop' for job-seekers - but without the usual harassment and humiliation.  Homelessness could be addressed 'head on' with a big investment in public housing. Fix the NBN with ‘fibre-to-the-home’.  A big public investment in renewables. And coming out of the crisis: Have an active industry policy which strategically supports and invests in high wage manufacturing.

This is also an ideal opportunity to progressively reform welfare across the board ; and lift job-seekers out of poverty.

On ABC radio high speed rail was inferred as perhaps a ‘dubious investment’.  But it could drive growth in the regions, with a flow on of jobs and affordable housing.  As well as containment of urban sprawl and the transport crises that ensue from that.

The simple truth is that the public sector might have to pick up the slack on the economy for some time to come if there is to be any chance of a recovery.  And if we navigate this in the right way it can present an opportunity.

Modern Monetary Theory (MMT) holds that as the issuer of the currency the government can create money at will to invest and ensure a ‘full employment guarantee’.   Though this is limited by real economic constraints concerning the scale and nature of goods and services actually produced in the economy at the end of the day.  In some instances there might also be inflation ; and you cannot ‘create money’ to fund an infinite influx of imports.

But full employment is in everyone’s interests: so long as there is an ‘efficiency dividend’ which provides benefits for all ; and so long as consultation with unions ensures there is no endless ‘wage-price spiral’.   Higher employment has a ‘multiplier effect’ on the broader economy that also makes debts easier to service. At the same time, the wage share of the economy has been falling for decades ; and long term there is a need for a structural correction which could also create extra demand in the economy.   

As part of this picture there should be reform of the labour market improving compensation in low-paid jobs – either with regulation, or through the social wage. (or both)

Modern Monetary Theory has been somewhat skeptical of the role of taxation, claiming it ‘takes money out of the economy’.  But this need not be the case if all that money is spent ; if indeed there is a stimulus.  Taxation also allows for a much more finely targeted redistribution of wealth: which should be desirable for progressives.

As MMT theorists also recognise, state governments in Australia cannot issue currency.

The current public health crisis is going to cause much more pain before it is overcome.  But the right kind of policies on investment, industry policy, welfare and stimulus can minimise that pain, and even help ensure in the end we come out of the crisis stronger.


(nb: I'm wanting to publish this article elsewhere as well ; but I'm interested in feedback from readers on how I can improve the piece before I do that ; looking forward to comments :)  )

Letters on the US Presidential Election and 'Small Government' in Australia

above: Left-wing US Presidential Candidate Bernie Sanders

 

The following are another series of letters to The Age and to the Herald Sun ; addressing topics as diverse as the US Presidential election; to Richard Denniss on economic reform;  a response to Peter Costello on ‘small government’;  on the threat of ‘elder abuse’ by government;  and the case against austerity!  Unfortunately the clear majority were not published.

Dr Tristan Ewins

Richard Denniss on Economic Reform

Richard Denniss (‘The Age’, 15/2) makes a compelling argument regarding the real nature of the social choices we need to make, and the social priorities we need to set.  Are lower corporate and personal income tax rates, as well as other concessions and subsidies for the well-off really a greater priority than quality, accessible state education ; a fair welfare system which is sustainable for those depending on it; social insurance for the disabled and the aged ; and comprehensive public health which is truly responsive to human need?  Peter Martin (15/2) makes the point that the top 10% consider themselves ‘battlers’, whereas in fact they are amidst the truly wealthy and the upper middle class. We cannot afford social services, welfare, social insurance and public infrastructure without a genuinely progressive tax mix.  And we must not be scared to put the arguments for redistribution and higher social spending – without which the minimum human and social needs of a great many Australians would not be met.  This election the progressive parties should be aiming to increase social expenditure by at least 2.5% of GDP (or $40 billion in a $1.6 Trillion economy) rather than parrot conservative mantras on ‘cutting expenditure’.

Responding to Peter Costello on 'Small Government'

Peter Costello (Herald-Sun 16/2) argues  “spending, not tax, is our biggest problem”.   Yet Australia’s public spending is low by OECD comparisons. The problem is that ‘small government’ imposes a ‘false economy’.  Some social needs are non-negotiable.  Health, Education, Aged Care, pensions for the vulnerable and for those who have earned it through a lifetime of work.  Crucially: In these fields ‘collective consumption’ via tax actually gives us a better deal as taxpayers than we would receive as private consumers.  To illustrate – in their book “Governomics  - Can We Afford Small Government?’ Miriam Lyons and Ian McAuley argue that whereas ‘high taxing’ and ‘high spending’ Nordic countries “contain health costs to 9 per cent of GDP”, in the US the figure is 18% despite only 40% coverage.   Australia’s Medicare is somewhere in the middle: It is an effective universal coverage scheme – but neglect and under-funding leave us ahead of the US but behind the Nordics.  So even with progressive tax and higher social expenditure these policies can actually get costs down as a proportion of GDP, and in the process free up a greater portion of the economy for ‘negotiable’ needs (eg: entertainment, holidays) which improve our quality of life. 

Continuing the Argument against 'small government'

Conservatives are arguing Turnbull must “slash government spending”.  But where would that come from?  The unemployed live in such poverty it interferes with their ability to seek work. The Disabled already experience poverty through no fault of their own.  Student poverty forces mainly young people to seek out work that actually prevents them from getting the most out of their study.   The Aged are forced to sell their houses to access sub-standard Aged Care even when they are from a working-class background.  Waiting lists are spiralling out of control in public health ; and we have the threat of a permanently two-tiered Education system which disadvantages those unable to afford private schooling.  Mental health is neglected and many mentally-ill can expect to die 25 years younger on average.   There is insufficient public money for infrastructure and privatisation passes on added costs that hurt the broader economy.  Public housing could increase demand and make housing affordable for more families.  So in fact more public money is needed – not less.  AND the deficit must be brought under control as well.  Only PROGRESSIVE tax reform (not the GST) can tackle all these crises fairly.  Cutting savagely is not the answer.

Meanwhile on Elder Abuse by the Federal Government!:

Christine Long (‘the Age’ 24/2/16) provides an exposition on elder abuse, usually at the hands of relatives.  Yet the worst elder abuse and negligence comes as a consequence of the actions (and otherwise negligence) of the Federal Government.   Nursing homes lack staff to resident ratios, and what is more there is no provision for a registered nurse on the premises 24/7.  Indeed nursing homes are often akin to ‘warehouses for old people’. There is little or no mental stimulation or diversity in environment.  Lack of staff means residents do not always eat, and some are left in their own excrement for protracted periods for the same reason.  What is more, onerous user-pays mechanisms are forced upon working class families who may have struggled their entire lives to afford a home.  User pays aged care is akin to regressive tax – but much worse even than the GST.  For quality of life in old age other reforms are also necessary.  A significant increase in the Aged Pension.  Free public transport.  Taxi vouchers, and social gatherings to cater for all interests.  Programs to combat loneliness and the likelihood of suicide.  A National Aged Care Insurance Scheme would be a great place to start.

Responding on the US Presidential Campaign: Bernie Sanders' Prospects

 

Rita Panahi  (Herald-Sun, 15/2) decries US Presidential Candidate Bernie Sanders as “An ageing socialist who wants to raise existing taxes and introduce a bunch of new ones.”   The unspoken assumptions, here, are that small government is un-contestable, and redistribution unthinkable.  The Herald-Sun (15/2) was also concerned that what are probably the top 10 per cent of families live ‘pay-check to pay-check’ on $200,000 a year and more to maintain their lifestyles.  But according to the ABS  the average pre-tax individual wage in November 2013 was $57,980. And many truly battled on close-to-minimum wage: cleaners, skilled child-care workers, aged care workers, retail, hospitality and tourism workers.  In 2015 the minimum full-time wage was barely $650/week.  So redistribution is fair for many reasons.   Arguably everyone should have minimum rights to social inclusion, shelter, nutrition, education, and health care.  Best provided through the social wage, social insurance and various social services which demand progressive tax as ‘the price we pay for civilization’.  But pay is also based on ‘demand and supply’ in the labour market, and some workers’ industrial strength. Those mechanisms do not guarantee fairness.  You don’t get fairness and human decency without redistribution including services, welfare, public infrastructure and progressive tax.

Meanwhile:

Julie Szego (‘The Age’ 25/2) infers that women supporting Bernie Sanders in the US Presidential Election is not the ‘feminist choice’.  Underlying this is the assumption that identity is privileged over broader outcomes and over ideology . But if Sanders succeeded in winning free universal health care women would stand to gain as women – exactly because women are otherwise disadvantaged financially due to the exploitation of feminised professions, and due to women’s interrupted working lives.  Secondly, if Sanders raised the minimum wage this also would help the most exploited women in those same feminised professions.  Whereas Hilary Clinton can be seen as supporting a ‘liberal feminist agenda’ Sanders agenda ought appeal to ‘socialist feminists’  concerned also with class, and with the inequalities even between women themselves.   In this context it would not be ‘a betrayal of feminism’ to support Sanders.  Modern progressive politics needs to be based on reciprocal solidarity between human beings against oppression, exploitation, subordination and domination.  Here gender does not ‘trump’ other issues any more than those issues (eg: class) ‘trump’ gender. The agenda is for us all ‘to see the struggle through to the end’ with nothing less than ‘full human liberation’ as the aim.

 

Recent Observations on the Media ; And Observations on the ALP's Policy Trajectory

above: Bill Shorten needs to focus more on Policy Substance and Depth; 
Very Little is possible without a serious commitment of resources

What follows is some commentary on recent material from ‘The Age’, ‘The Herald-Sun’ and the “Border Mail’, as well as a critique of Labor’s current lack of a strong policy on tax and superannuation concessions reform…. Readers please feel welcome to debate the issues here and share with your friends and networks...

Dr Tristan Ewins

Cash Splash?  How a ‘throwaway line’ offends both our values and our intelligence

 

i)                    ‘The Age’ should have been more careful with its rhetoric in relation to  the Gonski education reforms. (‘The Age’, 29/12/15)  In particular the term ‘cash splash’ is highly questionable.  Of recent years the term has been deployed heavily, with the obvious inference that the public spending associated is ‘frivolous’ or ‘wasteful’.  Indeed the term has consolidated the neo-liberal Ideological assumption that public spending generally tends to be wasteful.  But Gonski is anything but wasteful. The Gonski initiative and its associated funding are crucial in stopping the drift to a highly stratified education system; where the state sector becomes ‘residual’ and ‘second class’.  That is: only for those who cannot afford better.  By contrast Gonski has as its assumption that this drift must be halted, and that all students should have the opportunity to realise their full potential. There are economic reasons for this (training tomorrow’s workforce) – but the social and cultural ramifications are just as important.  Journalists for ‘The Age’ should be more careful in the future.  Gonski is anything but a ‘cash splash’, and ‘The Age’ should from now on be more careful in realising the ramifications of this kind of rhetoric.   (letter to ‘The Age’; edited version published)

 

A Surprising Position on Tax Reform in the Herald-Sun of all Places!

 

ii)                  It is good to see the Herald-Sun considering options for fair tax reform as opposed to austerity.  Capital Gains Tax discounts and Negative Gearing provisions are already set to cost around $20 billion year as Kara Vickery’s article (14/1/16, p 15) indicates.  But there are other options for government in containing the $40 billion/year deficit.  Dividend Imputation (rarely applied outside of Australia) could also be wound back for another $20 billion a year.  And a more rigorous winding back of unfair Superannuation Concessions for the wealthy and upper middle class could bring in well over $20 billion a year. Finally there are other options to actually expand investment in infrastructure, education  and health, fair welfare, and more.  Company Tax could be held steady. (already at 30% is lower than the Amercian rate) The Medicare Levy could also be increased and restructured – and channelled into Aged Care and Mental Health. And for the sake of fairness bracket creep for low and average income Australians could be contained by indexing the bottom thresholds.  Austerity is not the answer to the deficit – and would only hurt the economy , and at the same time some of our most vulnerable Australians.  (letter to ‘The Herald-Sun’ ; not published)

 

 

iii)   Interesting Position from NSW Labor Leader Luke Foley on the GST

The ‘Border Mail’ recently observed that:  “Opposition Leader Luke Foley [said] he would consider supporting an increase in the GST from 10 to 15 per cent as long as the funds were used solely for health and education and to compensate low-income earners.  NSW Conservative Premier Mike Baird seems to agree.  But the ‘Border-Mail’ also observed that:

“federal treasurer Scott Morrison insists any potential GST increase must also be used to fund income and company tax cuts”

In response I would argue the following:

A package including but not limited to the GST and other measures can be made 'progressive' depending on the compensation. If the compensation is strong enough the poor could even end up better off. (ie: if an increase in the GST pays for big improvements in welfare, targeted tax concessions etc) The problem, though, is that taxpayers tend to focus on INCOME TAX.   And if we cut the income tax of people on low incomes, for instance (in order to compensate), later down the track that will come under pressure as a consequence of high income (and potentially even some middle income) resentment.  Any increase to welfare could also come under pressure in such a way.  The focus will be on the simple rates of welfare (without considering the place of compensation in the total package), as well as the cost to the Budget and so on.  AND before you know it that compensation is whittled away! That is: both tax credits, income tax restructure, increases in welfare.... So in the end – over many years - we have a reversion to the full impact of the increased GST re: its distributive effects. Those on low incomes especially will be hit hard. Which is why we need to communicate this fact to Foley and others who think raising the GST could be a good idea.

This is not to suggest, however, that we should not try and raise welfare and lift people out of poverty.  But a big restructure of income tax as compensation for an increased GST would definitely face a significant threat of being wound back over time.  Possibly through another restructure later down the track.  And possibly because of bracket creep. (if there is not indexation of the lower thresholds)

There are alternatives, however: Tackle negative gearing; reduce dividend imputation, wind back capital gains tax concessions; maintain company tax; raise and restructure the Medicare Levy; introduce a financial transactions tax; withdraw superannuation concessions for the wealthy and the upper middle class; impose a super profits tax on the banks; introduce new progressive property taxes, modest inheritance taxes for large inheritances...

Indeed the measures listed above could potentially bring in $60 billion or more.

I can see how if the specific model of change pondered by Foley was implemented it could have good outcomes short term. But I'm just saying the progressive distributive changes would be whittled away over time. And eventually the effect would be regressive.

 

iv)                But isn’t Bill Shorten promoting strong reform on superannuation concessions?

 

Well, No.  The superannuation concessions reforms currently proposed by Bill Shorten currently are VERY modest.  The suggested reforms could even be dismissed as being ‘cosmetic’ in ‘the big picture’.  Shorten proposes cutbacks in concessions only for the wealthiest of all: "$14 billion OVER TEN YEARS" (that is: $1.4 billion a year by today's reckoning)  By contrast Richard Denniss of the Australia Institute believes the cost of Superannuation Concessions will soon balloon to OVER $50 BILLION EVERY YEAR.  (ie: by 2019)   And the deficit is currently in the vicinity of $40 billion a year.  To get a sense of proportion the economy is valued at approximately $1.6 Trillion.  So Bill Shorten's proposed superannuation concessions reform amounts to about 0.01% of GDP – and probably proportionately less when you factor in economic growth.  That is: it is so modest as to be considered trivial.

All this means that a Labor government will be under enormous pressure to introduce austerity. At this rate there could be cuts in pensions, an increase the retirement age, and so on.  Or they will ‘sit on the deficit’ and attract massive flak from the Conservatives.

At the ALP Socialist Left Forum Facebook Group one contributor inferred I should just get behind Labor’s costed policies, and that criticism was simply succor to the Liberals.

But the ALP Left is more than a 'cheer squad' for opportunistic policies that are about appearance and not substance.  I am saying that once we step back from the heat of the rhetorical policy battle - there is not enough SUBSTANTIAL difference between us and the Libs on policy yet. (though there are notable differences on Penalty Rates for example)

NOW if you want to talk about ALP Policy - I understand the PLATFORM does NOT lock us in to 'small government'. But understand that as things stand - without a change of direction - we won't have the fiscal ‘room to move’ to fully introduce Gonski and NDIS - let alone other absolutely critical reforms like:

·         National Aged Care Social Insurance on a similar scale to NDIS

·         reform of welfare to lift the most vulnerable out of poverty

·         full integration of dental, optical, physio, psychology, hearing aids, speech therapy, urgent cosmetic surgery -  into Medicare

·         increase proportionate and absolute funding for mental health

·         Begin a fully-funded program to ‘close the gap’ on mental health related  life expectancy - just as critical a priority as ‘closing the gap’ re: indigenous lifespan

·         A big investment in public and social housing

·         Maintain a retirement age of 65

·         Restructure HECS to approximate something like a genuinely progressive tax

·         Big public investments into infrastructure: transport, energy, water, communications, hospitals, schools, ports and more

·         Bolster Legal Aid

·         Kickstart a process leading to a negotiated Treaty with indigenous Australia

·         Big public investment into renewable energy research and infrastructure

Without root and branch reform of tax and superannuation concessions pursuing even a modest selection of said policies (above) would mean either extensive austerity elsewhere, or a ‘sit on our hands’ attitude to government. (neither of which are acceptable)  ‘One step forward, two steps back’ is not enough , and the prize of government is not sufficient if there is so little progress on the policy front.

I want a REFORMING LABOR GOVERNMENT. I want 'the forward march of labour' to get moving again.  A trajectory of progress.  Is that too much to ask?

Wasted Opportunity on Superannuation Concessions needs to be ‘Put Right’ at ALP National Conference in July!

 

above: Where to for Labor in July?

Wasted Opportunity on Superannuation Concessions needs to be ‘Put Right’ at ALP National Conference in July!  Australia Institute Data shows a stronger line on reform is needed.

Tristan Ewins

Recently Bill Shorten announced projected reform of superannuation concessions affecting around 180,000 Australians.  ‘The Age’ in particular observed that the two key reforms concerned

 

“would see retirees lose tax-free status on annual superannuation earnings above $75,000, and more people paying 30 per cent tax on contributions.”

 

Certainly Bill Shorten’s announcement is “a step in the right direction”, bringing in $14 billion over ten years. 

But it is a very  modest intake when considered in perspective.

The problem is that Shorten appears to be ruling out further action on top of this on superannuation concessions AHEAD of the ALP's 2015 July National Conference. 

And more alarmingly:  arguably $15 billion out of a total of $50 billion will soon be going to 'the top 10 per cent' income demographic. 

Former Australian Tax Office public servant, John Passant has explained that this means  “the top ten percent of income earners get 30% of the tax concessions on super.”  (discussion with John Passant, 22/4/15)

And ACOSS has argued that the top 20% income demographic receives half of all superannuation concessions. (ie: that will soon be over $25 billion annually!)

To get that in perspective, the Australia Institute observed in 2014 that: “The [entire] age pension currently costs [only] $39 billion”.

Is this really the best possible use of taxpayers’ money? Does it fulfil the ‘distributive justice’ test?  And given the scale of the gain to only the top 10 per cent income demographic is it even politically wise when we consider what else might be done with the money?

A more decisive policy here could fund a suite of progressive reforms: National Aged Care Insurance; NDIS and Gonski; build the National Broadband Network Fiber-To-The-Premises; Medicare Dental; address life expectancy crisis for indigenous and mentally ill; expand mental health services; crisis accommodation for cases of domestic violence; welfare reform; build transport infrastructure publicly; invest in public housing to put downwards pressure on property prices and rental costs...   Many of these policies have been suggested in the ‘For an Equal and Democratic Australia’ document which points the way to the kind of policy a reforming Labor government could potentially introduce.

Labor needs to think of policies in terms of tens of billions – not just ‘token policies’ which attempt to win over voters on appearances only. Further reform of Superannuation Concessions is essential. As is reform of the broader tax mix – ideally to bring in new revenue in the vicinity of $40-$50 billion. (about 2.5%-3% of GDP) (modest in the context of an economy valued at $1.6 Trillion)

Right now,  with the mining boom over – Labor is 'on track' to capitalize politically from the Abbott government’s austerity .  And yet Labor is also ‘on track’ to again introduce austerity of its own in government should it maintain its inflexible commitment in its National Platform to ‘small government’. (though probably less severe, and less cynically targeted - you would hope!)

Specifically the problem is Labor’s commitment to holding down tax as a proportion of GDP.

 Labor must  ‘think bigger’ (and better!) than this!!!

These issues MUST be addressed at Labor’s National Conference in July.

From conversations and research I have become aware that there are some within the Labor Party who are resigned to (or even in favour of) the National Conference being reduced to a merely token affair.  Shadow Treasurer Chris Bowen, for instance, is in favour of a more robust and inclusive discussion of policy at Conference; but on condition that Conference  (and the Platform itself) have no binding influence on policy. (Bowen,  pp 122-124)  In a conversation with one colleague  specifically (and probably there are more),  this colleague was resigned to the notion that Gonski and NDIS are ‘dead’  in their original form – presumably because they think the money cannot be sourced for reforms on a large scale. (the assumption seems that ‘small government’ cannot successfully be refuted; that we should not even try)   Even mild redistributive policies are apparently viewed by some as an ‘ideological anachronism’ – belonging to an apparently ‘defunct’ tradition of social democracy.  

Just how widespread these views are I cannot tell.  But there is a now-long history of Labor governments (dominated by the Party’s Right)  cutting and regressively restructuring tax, capitulating to the ideology of small government, and pursuing cynical policies such as assaults on the welfare rights of sole parents.  Top income tax rates, for instance, have been reduced or eliminated.  The tax system has become ‘flatter’.   Again, Chris Bowen has come out in favour of a ‘simpler’ tax system which includes lower Company Tax;  which probably translates as a less progressive tax system. (Bowen, pp 60-67)  Though there have been some efforts in the opposite direction from Labor governments as well; for instance raising the tax free threshold.  (Though Ross Gittins argued in the Sydney Morning Herald that these measures were not really as strong as Labor had claimed once reductions in the low-income tax offset were considered)

 More generally an outlook of pragmatism appears to make policy often a matter of tactical expedience.

To summarize, this kind of pragmatism is highly questionable.  Bill Shorten was elected to reform the Party; and part of what people wanted was fidelity to Conference decisions. Shorten also has to offer his supporters on the Left something - after they were pivotal in his success.  If Labor fails to deliver on progressive tax, new social programs – and end up implementing only more austerity – just not as severe  as the Libs - that would show  a lack of conviction and principle.  For instance Gonski and NDIS were immensely popular policies!   Dropping or otherwise avoiding strong policies as a matter of tactical expedience  could  simply mean Labor continues hemorrhaging support to the Greens.  That would not be 'realism'.  It would be both ideological and practical self-destruction.  Surely the ALP Right itself must recognize this and commit to more robust policies!

We are yet to see an outcome, here, however.  I hope these views I have encountered are not as widespread within Labor as I fear.  But it is a debate Labor has to have with itself between now on the National Conference in July this year.   There is talk to the effect that the ALP Right will not hold the numbers on its own at Conference this year.   Should progressive independents move in support of a more traditionally social democratic policy framework the consequences could be favourable.   And sometimes relative progressives break ranks from within the National Right as well.

I look at the Rudd/Gillard years as involving wasted opportunity.   The same might be said of the Hawke/Keating years.  For example, the  "Australia Reconstructed"  document suggested something 'Nordic' - but we got very little of the kind.  We need a Labor Party which pursues an agenda of steady, gradual reform - but appreciable reform nonetheless.   Real (steady) Progress is needed  - not 'one step forward, two steps back'.  So If Labor increases progressive tax and associated social expenditure and investment by 5% of GDP over three terms (roughly a decade) - that's a legitimate medium term agenda.

Another thing that really struck me in one discussion with a Labor colleague was his notion of the rise of a  'wants not needs generation'.  In contrast I would hold that the masses are still concerned with issues of non-negotiable need.  That is,  cost of living;  housing affordability; costs and quality of education; threat of illness or need of aged care for family members.  I think my Labor colleague overstates peoples disengagement from 'non-negotiable-needs'. A lot of people really are still 'doing it tough'.  And they are inclined to vote on that basis!  This needs to find reflection in the ALP’s National Platform.

None of this is likely to change unless progressives in the ALP begin organizing and agitating now – ahead of July’s National Conference.  Superannuation Concessions are ‘the elephant in the room’ – and a lack of decisive reform here will severely limit Labor’s options following the next Federal Election.  (assuming Labor wins)   Labor doesn’t have to ‘lock itself in’.  And it is better for Labor to ‘keep its options open’ rather than lock into minimalist policies which offer very little real progress.   A POLICY of ‘tactical expediency’ is self-destructive;  even though tactical decisions do need to be made during election campaigns.  And for Labor to ‘keep its options open’ there needs to be  a Platform which does not irretrievably commit Labor to small government upon gaining power; a platform which does not ‘lock Labor in’ to merely token reform of superannuation concessions.

 

Bowen, Chris, ‘Hearts and Minds’, Melbourne University Press, Melbourne 2013

ALSO SEE:

http://www.tai.org.au/content/alp-dip-their-toe-30-billion-pool-super-tax-concessions

http://www.tai.org.au/content/sustaining-us-all-retirement

http://www.tai.org.au/research

 

 

Does the ALP have a Social Democratic Vision beyond Austerity and Small Government?

 

above: Treasurer, Chris Bowen and Finance Minister, Penny Wong need to decide between 'Labor Values' or Austerity

 

There is an urgent debate that needs to be had in Labor before any commitments to further austerity writes grassroots Labor activist, Tristan Ewins.  Five-year commitments to 'quarantining' unfair superannuation concessions could prove to be costly to both the 'Budget bottom line' and to broader goals of social welfare and distributive justice.

Tristan Ewins,  July 31^st 2013

For anyone who hadn’t noticed – Buried at the end of a news story on page nine of the Herald-Sun on July 31^st   was an announcement to the effect that Labor was pledging “no changes”  “to superannuation for at least five years”, “locked in” via legislation.  Deceitful as always, the Herald-Sun proclaimed this would prevent “tinkering” via “super taxes”.  (this is deceptive because the issue is with existing TAX BREAKS on superannuation rather than the implementation of any new tax)

And on the same day on page 2 of the Herald-Sun was the proclamation that “households face thousands of dollars in higher bills for fresh food, health and education payments” if the GST is increased and/or expanded in scope – as demanded by the Business Council of Australia. (BCA)

So what’s the connection between these?

As the China boom recedes somewhat – and with the prospect of an ageing population - the government is facing a reduction in tax revenues, including revenue from Company Tax and the GST – at the same time as an ageing population will increase health expenditures in the context of a narrowing tax base. Then there’s the fiscal impact of winding back the Carbon Tax.  And on top of that you can add the fact that the country is suffering a massive infrastructure deficit – with business recognising that crisis – and its impact upon productivity – by demanding that workers, citizens and consumers pay the price.  

According to Grattan  Institute chief executive John Daley extending the GST to education, health and food “would potentially add $3000 a year to average household costs.”   And the BCA is also looking to attack organised labour in order to firm up their profit margins.

Malcolm Maiden at ‘The Age’ puts it this way: that “The BCA wants stronger fiscal discipline and a more flexible industrial relations environment…”  Translated that means: curtail industrial liberties, remove safeguards for wages and conditions; cut the social wage and welfare…  Maiden also observes that other moves are also apparently ‘on the table’; perhaps including massive cuts to Company Tax and a “ceiling on tax revenue as a proportion of GDP.” (The Age, July 31^st)

To put it bluntly: Labor needs to decide WHAT and WHO it stands for.   Does it stand for the traditions of social democracy?  Does it stand for the vulnerable, and for the low and middle income earners of the working class?  Does it stand for social security and social solidarity? Or does it stand for small government, corporate welfare, regressive taxation, ‘survival of the fittest’,  ‘the top end of town’, and a preference for abstract economic goals, and increased private dividends and profits – instead of concrete social goals and needs?.

Richard Denniss of the Australia Institute has pointed out that changes to Australia’s income tax regime from before the GFC hit (ie: 2006 - under Howard)  were costing $40 billion for the year 2013 alone.

And crucially he has made the additional observation that those superannuation concessions the Federal Government seems so eager to quarantine will cost about $50 billion a year by 2016.  And according to Denniss that’s with a dominant percentage of superannuation tax concessions (ie: tax breaks) going  to the top 5% income demographic!   This at the same time as the Federal Labor Government continues austerity against pensioners, and considers further cuts to welfare and services!   (see:   (See: http://www.abc.net.au/pm/content/2013/s3758128.htm )

Of course the BCA will look after its own interests, and the profit margins and dividends of its members.  It will try and push the case for effective corporate welfare: for cuts in the tax business pays at the same time as taxes and user charges go up for workers, tax payers and consumers to provide the infrastructure and services its members benefit from.  This – and also assaults on workers’ wages and conditions – is about shoring up profit-margins and dividends by increasing the intensity and the rate of exploitation.

There are points of ‘cross-over’ when it comes to the interests of citizens, workers and business.  Keeping business generally viable means preserving jobs.  But the public interest and business interests should not always be seen as synonymous.  We should seek  BOTH to divide the pie fairly AND to grow it through technological improvements to productivity, and support for high-wage industry.  (ie: NOT by intensifying exploitation through attacks on wages and conditions)

 And we need to retain focus on the social goals that underscore our economy.  That is: not promoting profit as an abstract end in itself – but promoting economic activity which adds to the quality of life of citizens and workers.  This necessarily entails social investment in properly not-for-profit sectors:  health care, aged care, public housing, education for human development – and not just for the labour market.  It might also mean reductions in the working week, and in peoples’ working lives – for concrete human needs that go beyond abstracted goals of growth.

All sides of politics recognise the infrastructure deficit and the need “to do something about it”.  It is hurting our productivity – and in so doing hurting both workers and business. But we have  a CHOICE in the WAY in which we respond to that crisis. 

The Labor government can choose a path of austerity – attacking pensioners, the social wage, the welfare state, and industrial rights and liberties.  Or it can choose to embrace social democracy more than merely rhetorically – returning to questions of distributive justice and ‘the social good’.   And Labor can choose to act on those principles of distributive justice by committing to a gradual expansion of the social wage and welfare state as a proportion of GDP -  instead of embracing socially damaging ‘ceilings’ on tax and social expenditure.  Such ‘ceilings’ would only flow into greater social disadvantage and injustice - and most likely into infrastructure privatisation whose inefficiencies hurt both business and consumers. 

Notions of the social wage, public infrastructure and welfare ‘crowding out’ the private sector also need to be challenged.  A benefit of relative economic abundance is that consumers can potentially have significant room for discretion in their spending priorities at the same time as a decent proportion of peoples’ incomes is diverted into the ‘social infrastructure’ of services, physical infrastructure (eg; transport, communications, schools, libraries) and welfare – without which society itself would collapse, or lapse into barbarism.  It also means that people can potentially enjoy earlier retirement ages and shorter working weeks – as technological improvements to productivity make this possible over time without hurting absolute material living standards.   Though progressive taxes (ie: not the GST) would need to rise in order to maintain that “social infrastructure”.  (a fair ‘trade off’) The Nordic countries, and other European countries such as Denmark and the Netherlands – give us some idea what might be possible.

But in order to pursue such a social democratic vision Labor cannot and should not ‘hem itself in’ with ill-thought-out five year commitments on superannuation concessions which do not even have the authority of a National Conference position behind them! 

Also, another hung parliament cannot be completely ruled out, and the Greens will likely want reform on tax and tax concessions in that event.  ‘Locking itself in’ to such a position simply leaves Labor open to further accusations of promise-breaking should reforms in that area become necessary; or are seen as preferable after a meaningful, inclusive and genuine internal debate.

If removing superannuation concessions, reforming dividend imputation, and restructuring the broader tax mix can bring in tens of billions there is simply no need for the kind of austerity Labor is contemplating in order to return to surplus.  What’s more – Labor can implement such a program WITHOUT harming the low and middle income demographics which it depends upon for its electoral base.   It can aim at a fairer contribution from the wealthy and the upper middle class.  And through reform of tax, welfare and the social wage – Labor can pursue a distinctively social-democratic vision of ‘the good society’ which is much deeper than simply ‘more and more’ private consumption and production – regardless of the social cost.

But by contrast – allowing social and economic infrastructure to ‘wither on the vine’ will hurt everyone – workers and business included.   And turning to privatisation of infrastructure also passes the price of inferior cost-structures on to consumers – including both citizens and businesses.

Standing for the same agenda of austerity and distributive injustice as the Liberals – but ‘not quite as much’ isn’t enough to cut it for Labor; to inspire and mobilise the people we need behind us to win this election. 

ALP activists need to make their voices heard on these issues: regardless of whether they do so through the decision making forums of the Right or the Left; and/or through their local branches; and by writing to their local members.  We need to signal our intention to fight the ‘small government’ template: to stand for social welfare and social justice; and a distinctively social-democratic vision of ‘The Good Society’. 

References: ‘The Age’ and the ‘Herald Sun’, July 31^st 2013; and Richard Denniss at: http://www.abc.net.au/pm/content/2013/s3758128.htm