Labor's First Budget pitched as "Modest and Responsible' - But more Ambition needed

 above: Federal Treasurer, Jim Chalmers

Labor’s first Budget has been pitched as ‘modest and responsible’, with limited new spending ; and the intent of not fueling inflationary pressures. That said, there are some welcome measures.   $20 billion will be invested towards upgrading the electricity grid ; preparing for a low-emissions future. Promises on Aged Care will be fulfilled, with tougher regulation and an improvement in the wages and working conditions of Aged Care workers. Over $2 billion will go into Education ; with free TAFE, 20,000 university places for the disadvantaged, and money for more qualified teachers and better-resourced schools.  Money will be provided for ‘urgent care clinics’, and reducing the maximum co-payment for medicines from $42.50 to $30. Finally, there will be more support for parental leave and subsidised childcare ; with a plan to promote an increase in housing supply (and hence affordability), as well as an increase in Defence expenditure to over 2 per cent of GDP.  (Herald-Sun 26/10/22)  Though this housing plan appears over-dependent on private investment.

All that said, there are numerous problems as well. Jim Chalmers has flagged possible intervention into the energy market, with power prices set to rise by 40 to 50 per cent.  This will crush struggling individuals and families. Also, Labor is flagging its intention to go ahead with the Stage Three Tax Cuts which will deliver a  $9000 windfall for those earning $200,000 at a cost to the Budget of around $250 billion over 10 years.  Nothing has been projected in the way of energy subsidies, and the price for reining in inflation seems to be falling upon those least able to pay.  Wages are also flatlining, regardless of pre-election commitments to get wages moving.

So – what *should* Labor do?  Some would oppose improvements for those on low wages and welfare as fuelling inflation.   But those people should not be shouldering the burden.  Already the bulk of their income is going towards non-negotiable necessities ; and increases in power costs will challenge their capacity to make ends meet in the most basic sense.  There will be homelessness, skipped meals, and Winters and Summers without heating or cooling. A temporary increase in tax for those on middle and higher incomes could also have an anti-inflationary effect without impacting on the most disadvantaged.  Specifically, temporary tax increases for those on middle incomes could tighten demand significantly.  Without such tax increases, individuals and families will be left to shoulder the burden with higher interest rates, and hence higher home loan repayments.  Some of this will be passed  on to renters as well. The question is: What is the most efficient way of containing inflation? ; and how can this be achieved while lessening the burden on those least able to pay?   Also ; what other measures need to be taken to sustain an improvement in the social wage longer term?  Including the preservation of a truly needs-based National Disability Insurance Scheme. (NDIS) This may mean some other taxes need to increase progressively and permanently.

Over the longer term Labor needs a rethink on tax reform. Ideally the Stage Three tax cuts should be withdrawn completely.  There are so many priorities which demand funding.  But a compromise strategy could be to deliver the same amount of tax relief ; but skewed towards those on lower and  middle incomes.  Median taxable income is just under $50,000/year.  If tax credits are provided for those on low and middle incomes ; relief could be delivered without delivering an expensive windfall for those on higher incomes. By the time the tax cuts are projected to be phased in we will likely be struggling to recover from an inflation-induced slowdown ; or maybe even a recession.  At this point, it makes sense to support the vulnerable and low-paid – as they spend the highest proportion of their income on ‘getting  by’ compared with others.  That is ; they can be depended upon to spend their incomes.

Unemployment is also set to rise to 4.5% over 2023 to 2025.  This begs the question of whether Labor accepts arguments around a supposed Non Accelerating Inflation Rate of Unemployment. (NAIRU) Again ; recession and ‘spare capacity’ are not the only means of containing inflation.  Taxes can achieve this without depending on social misery and wasted human resources.

Also, record profits in the gas industry should be subjected to taxation ; as has occurred in Norway for instance. Those resources properly belong to all Australians ; and any windfall should be shared substantially with the Australian people. This could be redirected to energy consumers with subsidies – especially those on low incomes – while a legislated gas reserve could ensure Australian consumers don’t miss out because of exports and global demand.

Into the future Labor should be seeking to reduce poverty and inequality by boosting the social wage and driving reform of the labour market ; especially for the working poor.  An important improvement in the social wage would be implementation of Medicare Dental.  Earlier in its first term Labor delivered an increase in the minimum wage.  But others on low wages also need urgent assistance.  This is especially the case in feminised industries like early childhood education. Again, any inflationary impact could be countered with strategic and temporary increases in tax.  While impacting ‘the economic middle’ would be regrettable ; the plight of those on low incomes is more urgent ; and Labor needs to prioritise.  

While Labor needs to deliver on promises to improve the Cost of Living, including energy affordability, it also needs to be looking to boost the wage share of the economy. To some extent this should be delivered as a matter of distributive justice ; and not only in return for improved productivity.  In 2018, Jim Stanford explained how the wage share of the economy had fallen from 58.4 per cent in 1975 to 47.1 per cent in 2018. That translated to over $16,000 a year on average per worker ; and $210 billion per year in total.  Not only does Labor need to agitate for improved Awards at the lower end. It also needs to improve workers’ bargaining power more broadly ; and this must include support for pattern bargaining.  Even Secondary Boycott should be legalised in circumstances where the ‘industrially strong’ support the ‘industrially weak’ ‘in good faith’.

Importantly, though, the wage share is lagging in areas like mining ; where regardless of this wages are significantly higher than average.  Profits are that high.  In this case the social wage needs to be factored in ; and again a windfall profits tax ; and a longer-term super-profits tax – could help.   Welfare also needs to be reformed to respond comprehensively to the Cost-of-Living crisis ; including all pensions and unemployment benefits.

Finally, the required strategic expansion of social and affordable housing demands a greater public investment.  While Labor is correct to promote an increase in housing supply in geographic areas of job growth, it also needs to ‘put its money where its mouth is’.

Labor has come to government at an especially difficult time.  But there is a need to deliver on its mandate ; especially for those most in need.  Inflation can be contained without hitting the most vulnerable overall ; and this needs to be Labor’s priority during its first term.

'Supply Side' Budget Stimulus - Government could have done more for 'Battlers' and Women

above:Anthony Albanese has called for more funds for Child Care and Social Housing

Dr Tristan Ewins

The 2020 Federal Budget projects a deficit of some $213 billion – a far cry from the previously projected surplus.   An already sluggish economy – hit now by Covid-induced economic collapse – left no option but massive stimulus – lest the nation sink into a Depression. 

In a way it is encouraging that the government has thrown away the book on neo-liberal orthodoxy to some extent.  A contractionary budget would have been disastrous.  A notable amount of the stimulus (about $6 billion) comprises wage subsidies aimed at the young – with the aim of supporting some 450,000 jobs. The plight of the older unemployed – thrown onto the Jobseeker scrapheap – is another question.   In the largest  single measure over $26 billion in tax breaks will be delivered to business to write off the value of new investment by June 2022.  There will also be a $4.9 billion “loss carry-back scheme” enabling businesses  “to claim refunds or offsets on taxes in previous years.”  Importantly, the third round of tax cuts – aimed at high income earners – has not been brought forward  - in a win for Labor and the Greens.  But the business sweeteners are not consistently tied to job creation and job retention – so for all that money there are no guarantees for workers.  According to ACTU President, Michelle O’Neil, the government also projects zero wage growth even if there is economic growth in the coming years.

In Aged Care, $1.6 billion will provide 23,000 home care packages. But this is below demand, and there are no big plans to reform residential care.  Perhaps this will come with the final findings of the  Aged Care Royal Commission and the next election: but the need is urgent and ought not be put off.  In fact it is dubious the Conservatives will find the money for comprehensive Aged Care reform: Home Care and Residential packages to meet demand ; with quotas for Aged Care Workers and registered nurses, a winding back of user pays, exercise and GP visits for all residents, and an emphasis on quality of life. It will be up to Labor and the Greens to put up a fight, though disappointingly Labor has known about these problems for over a decade, and is only making the right noises now with the focus provided by the Royal Commission.  We are talking many billions of dollars annually to make a difference over the long term.

‘The Age’ reports that “about 11.5 million workers will get up to $2745 more in their pay packets this financial year”.  Though the raising of the threshold of 32.5 per cent to $120,000 from $90,000 is arguably badly targeted.  And support for pensioners and the unemployed is insufficient, with a total of $500 in payments to Aged Pensioners meant to bring relief and fuel spending.  More for those on  low incomes and welfare would have a greater stimulatory effect, and would contribute to fairness.  On the other hand the low income tax offset will rise from $445 to $700 in a modest but welcome measure.

Importantly, of the new spending measures only $6.7 billion is going to the states for new infrastructure.   Including other infrastructure measures the figure is closer to $10 billlion extra over ten years.  The government’s main emphasis is in providing support and incentives to ‘kickstart’ business as opposed to measures directly supporting consumption at the low and middle ends ; although increased business confidence would support jobs.   The Budget measures emphasise the ‘supply side’ but neglects the ‘demand side’ when it comes to low income earners, the unemployed and pensioners.  The opportunity to permanently raise Jobseeker appears to have been neglected, and many jobs will be lost with the premature withdrawal of Jobkeeper.

Of most concern, stimulus is not a ‘black hole’. Getting people spending and back to work is part of a ‘virtuous cycle’ which can restore growth and rejuvenate the government’s balance sheet.  With record low interest rates the time has never been better for investment, and the Government could have done more here.

The economy’s pre-existing weaknesses have not helped ; but a Labor Government could not have avoided a Covid recession.  As Labor has argued it will be putting the case for ‘better bang for our buck’ in the stimulus. This should mean more emphasis on those on low incomes and welfare, and providing support where it will grow spending and investment in jobs most vigorously.  Too many businesses will be pocketing these 'sweeteners' without necessarily creating jobs.

In response to the Budget, Anthony Albanese has committed to further child care subsidies and half a billion to refurbish public housing.  We need wage subsidies for child care and early education workers as well however. And also subsidies for consumers of child care and early childhood education. Both as a matter of fairness (for child care and early education workers – and women workers more generally) ; to get more women working, and to attract talented educators into the field. Also with housing out of reach for so many people a big investment (into the billions) in public housing now could both stimulate the economy and promote affordability.

Modern Monetary Theory supposes government can issue currency to ensure a ‘full employment guarantee’.  Such stimulus is part of the picture, but can be limited by inflation and currency devaluation.  Though inflation seems unlikely in the current environment.   Redistribution can’t be done properly and fairly without tax ; but MMT has something to contribute to this debate.  The government's projections on unemployment are nowhere near ambitious enough.

If Labor was in government this kind of stimulus would be derided as an ‘irresponsible’ ‘cash splash’.   Consensus that stimulus is part of the way forward in times of economic weakness is at least a good thing in itself.  It sees Conservative arguments against the Rudd stimulus of the Global Financial Crisis (GFC) blown metaphorically out of the water.   Labor governments of the future will be able to point to the current effective consensus on SOME form of stimulus to help justify their own efforts when governing in times of downturn or stagnation.  Which will inevitably come as part of the capitalist cycle. But this government's emphasis on the 'supply side' of the equation is nowhere near discriminatory enough.

Will Labor Stand Up against Small Government and Austerity? And Reflections on Greece, Anti-Semitism and more

 

above:  Shadow Assistant Treasurer Andrew Leigh has been unfortunately equivocal on the issue of tax reform needed to ward off austerity under a future Shorten Labor Government.

 

In the following reflections the blog publisher, Tristan Ewins considers the dilemma faced by Labor on tax reform; as well as the Greek economic crisis, rising anti-Semitism and other issues.  He also calls for readers to register their support for a genuinely progressive Labor Platform at this year's National Conference.  Without such a Platform Labor will lack the flexibility on fiscal reform it needs in order to hold off against austerity - and instead improve the social wage and welfare

 

by Tristan Ewins

Reflecting on this week’s QandA episode raises crucial questions as to whether or not Labor will seriously resist pressures towards austerity and small government amidst a manufactured ‘debt crisis’.  Tony Jones repeatedly pressured Assistant Shadow Treasurer Andrew Leigh to respond on that very question.  And sadly Leigh was largely evasive in response. (probably under pressure from his Shadow Cabinet colleagues)  Statements regarding a crackdown on corporate tax evasion were somewhat encouraging, yes.  But Sydney Morning Herald columnist Michael West is correct to proclaim approximately $2 billion of savings over three years as ‘pocket fluff’.   That tax policy is not going to ‘turn the tide’ on small government, punitive welfare and austerity.  In the context of an economy valued at approximately $1.6 Trillion the effect will be relatively marginal if there is not additional progressive tax reform elsewhere.  Empty rhetoric and tokenistic policies will make little difference for those who need our help.  I believe Leigh is better than this - and am hoping for a less equivocal stand into the future.

Of course Liberal proclamations to the effect that it is ‘cleaning up Labor’s mess’ also need to be met with healthy scepticism.  Current fiscal strains can be traced to repeated tax cuts and ‘middle class welfare’ during the Howard/Costello years.   Rather than capitalising on the China mining boom, investing the proceeds for the future, Costello and Howard implemented a series of tax breaks – largely for the relatively well off – resulting in today’s structural deficit.   Because from the outset it was clear the boom would not last forever, the short-term focus adopted by Howard and Costello condemned Australia to its current fiscal crisis.   (nb: the fiscal crisis is not the same as the ‘manufactured public debt crisis’; debt is serviceable; but there is a need to reform tax to maintain the social wage, welfare, public infrastructure) The situation was further worsened as a consequence of Liberal opportunism over the Mining Super Profits Tax -  which saw a responsible policy destroyed – further locking Australia into a fiscally unsustainable footing.

Labor’s next National Conference will take place mid-year 2015; and it is critical for Labor to reflect on what it stands for; and how it can defend services and social welfare against the Ideological Liberal drive towards austerity.  There is also a need to address an infrastructure crisis – with fiscal pressures locking the country into polices of infrastructure privatisation which pass on inefficient cost structures onto the broader economy. (the consequence of profit margins and inferior costs to finance via the private sector)   

What is most important is for Labor’s 2015 National Conference to endorse a Platform which keeps Labor’s options open!  Locking into a small government, low tax policy will provide Labor with no room to move in response to fiscal pressures; and consequently pressures towards brutal austerity. Without a reformed Platform this year, Labor will lack the mandate to pursue the necessary change after the next Federal election. At the blogs ‘Left Focus’ and “ALP Socialist Left Forum’ last year we initiated a campaign in favour of progressive tax reform, reform of superannuation concessions and more; including an expansion of progressive taxation in a first Labor term by about $40 billion.  (or by 2.5 per cent of GDP in the context of a $1.6 trillion economy)  

Such a policy would see Australia only ‘edging towards’ average OECD levels of government social expenditure – and should not be viewed as being ‘too radical’.   But failure to embrace a reform footing would inevitably mean sustained austerity even under a Labor government.   And a lack of meaningful opposition to the fiscal policies that underscore Liberal austerity would only strengthen the Conservatives’ hand, with policy convergence on austerity, punitive welfare and the like. 

Finally – the fiscal reform we have suggested here would provide scope for other progressive policies.  This could include (but not be limited to)

·         a National Aged Care Insurance Scheme,

·         comprehensive Medicare Dental

·         alleviating poverty for the welfare dependent and for low-wage workers

·         properly implementing Gonski and the National Disability Insurance Scheme without resorting to punitive policies against other vulnerable groups

·         developing a policy with the aim of ‘closing the gap’ on life expectancy for those with mental illness

But without progressive fiscal reform  Labor could only provide the same drift towards austerity; even albeit more reluctantly.  Certainly Labor could not pose as the party of social progress; and would stand to cede further electoral ground to the Greens; while also damaging its attempts to renew and inspire its membership base.

Other issues also arose from the most recent QandA.  For instance the argument was forwarded that childcare subsidies only worsened cost pressures as private providers pocketed the money without passing on the savings.   The obvious response is that greater emphasis on public and not-for-profit childcare would help do away with those pressures. 

Similarly, it was no surprise that while the question of housing affordability was raised – and even the question of negative gearing – there was no consideration of the potential role of a big investment in public housing to promote urban consolidation (helping to address social problems like increasing transit times to work that damage families and communities); and also increase housing supply and drive down prices.

Greek Depression and the Eurozone

All these questions around austerity are also relevant for Europe, and especially for Greece. Unfortunately Germany had tried to tie an EU financial bailout package to austerity and privatisation – to the point of severely impairing the ability of Greece to repay its debts sustainably.  The Social Democrats in Coalition with the Christian Democrats in Germany need to question this; and promote a new policy. With Greek unemployment at over 25 per cent, the consequence is economic Depression, loss of tax revenues, and unnecessary and extraordinary human suffering.  For Greece and other similarly affected economies (eg: Spain), the answer is one of sustainable economic restructuring, and sustainable repayment of debts on the basis of full employment.  The wealthy must also be made to shoulder a fair part of the burden.  This must mean active industry policies around creating new export industries – that improve these nations’ balance of trade.  Hence employment could be kept high, and the improved balance of trade could aid in the repayment of debts without a downwards deflationary and recessionary spiral; or forced privatisations and the like.   By comparison austerity is a ‘double whammy’: hurting the Greek and Spanish people while also destroying their ability to repay debts.

Importantly there remain broader questions of disproportionalities in capitalist economies: the consequence of competitive pressures which drive constant renewal of the means of production.  The Euro-zone economic crisis also provides an opportunity to question neo-liberal Ideology; and indeed to question capitalism as we know it.

Anti-Semitism Resurgent

Finally, this week’s QandA also saw a question in reference to growing anti-Semitism not only in Europe but also in Australia.  Anti-Semites appear to have been emboldened by the military policies of the State of Israel in its conflicts with Hamas particularly.  In Europe Jews increasingly feel unsafe – and are targeted violently ‘simply for being Jews’.  But this turnaround has not resulted in the same degree of public consternation on the Left as has  Islamophobia.   And indeed while there is a great deal of damaging ignorance and fear with regard Islam in Australia, the Left nonetheless needs to be careful and vigilant with regard this emboldening of anti-Semitism.  A new generation is being desensitised to the past sufferings and persecution of the Jewish people; and hence some may be open to historical revisionism on the Holocaust into the future.

The targeting of Orthodox Jewish communities appears to be especially fruitful for the anti-Semites – because significant numbers have always been fearful of what is clearly at variance with the ‘mainstream’ and is ‘different’.   On the Left there are periodic qualifications to the effect that while we condemn the military and other repressive policies of the State of Israel, we do not accept hate crimes and violent attacks against Jews.  But we need to be much more consistent and forthright.  We need to confront where the current tenor of debate on the State of Israel and its policies is leading.  For genuine Leftists certainly it is not in any way our intention to legitimise anti-Semitism.  But we have a responsibility to confront the emerging Anti-Semitic trends just as forthrightly and consistently as we confront bigotry against Islamic communities.  And just as consistently as we criticise human rights abuses by the State of Israel under its current right-wing leadership.

Closing Appeal:

Our Campaign in favour of progressive reform of Labor’s platform is approaching the goal of 500 supporters on Facebook.  See HERE for our ‘model Platform’.  And See HERE to register your support. 

To help us ‘get over the line’ and maybe even go further depends on your support!  Please ‘Like’ our page at Facebook; and let all your friends and networks know about our campaign.  It is crucial to achieve a Labor Platform this year which at the very least keeps our options open on tax reform, progressive welfare reform, and extensions of the social wage.

nb:  independent socialist blogger John Passant has also written a piece on the insufficient nature of Shorten's proposed tax changes.   Readers may be interested in taking a look:

"Labor's tax avoidance crack down statement was the old pea and thimble trick. It wants to give the impression of doing something about big business tax avoidance (always a popular issue among ordinary workers) without really frightening the big business horses"See:  http://enpassant.com.au/2015/03/03/labors-crackdown-on-tax-avoidance-shorten-fiddles-and-revenue-burns/