Social Justice doesn't need to be 'put on hold' to Fight Inflation

 

above:  Albanese doesn't need to 'put social justice on hold' to fight inflation

In Australia the Labor Government is being warned not to spend too much for fear of exacerbating inflation.  At the same time workers are urged to moderate wage demands to avoid a ‘wage/price spiral’.  This is the ‘common sense’ of the day.  But at the same time the labour share of the economy has fallen by over 10 per cent of GDP since the 1970s.

Furthermore, income inequality is marked.  ACOSS observes that:

“People in the highest 20% income group receive 42% of all national income, which is more than the share of the lowest 60% combined. People in the lowest 20% receive only 6% of all household income, while the second lowest 20% receive 12%.”

Here, those in the lowest 20% bracket earn on average $753 a week. While those in the highest 10% bracket take $5230.

Meanwhile, in terms of wealth the bottom 20% average $36,000, while the top 10% average $4,754,000.

Amidst this the Federal Labor Government’s support for an increase of the minimum wage in line with inflation is welcome. But ‘the bigger picture’ is one of increasing inequality, and an increasingly lower share of the economy going towards the needs of working Australians.  At some point Labor needs to confront inequality ; and rectify these imbalances.  But rather than suppressing wages or implementing austerity, the ‘heat’ could be taken out of the economy by raising tax.  Temporary tax increases could target those on middle incomes, while permanent tax increases could target those on high incomes with the goal on funding social wage measures – like Medicare Dental.   Because of the need to moderate demand at this time, the ‘middle’ will be affected either by interest rates, or wage suppression, or tax.  Choosing ‘the tax lever’ achieves this while providing the means to fund infrastructure, welfare and social wage initiatives.   At the same time wages – especially at the lower end – could rise – with the aim of furthering distributive justice.  Overall wages should also rise where the wage share is lower ; and where rectification is necessary. Labor should make representations to Fair Work Australia to achieve this ; and to increase the share going to lower income earners overall. But in the immediate term demand would be moderated through higher tax.  Over the longer term such taxes on ‘the middle’ could be removed to promote an economic recovery. 

The question Labor needs to ask is: ‘can social and distributive justice be furthered while tackling inflation at the same time?’  In this context, pursuing the Stage Three tax cuts makes no sense economically, and from a social and distributive justice perspective.  They will see a flat 30 per cent tax rate for all incomes from $40,000 to $200,000.   This will see an increase in overall demand rather than have a dampening effect.  (though by then the inflation genie may be 'back in the bottle' so to speak)  It will also minimise progressive redistribution and entrench inequality.   It means proportionately those on lower incomes will pay more for the services and infrastructure functions of government, The Stage Three Tax Cats will also cost the Budget billions: almost $250 biillion over nine years.  This money could fund high speed rail, and Medicare Dental, while improving pensions, and winding back user pays in Higher Education.  It could also fund a massive investment in public housing, while improving the wages of Aged Care workers significantly. And probably much more besides.  Some would say such investment would act as a stimulus ; but again it depends on what temporary and permanent tax increases accompany said measures.  Importantly, if such spending kicked in a bit later down the track, the inflation crisis might be over ; and stimulus may in fact be appropriate once more.

The bottom line is that managing inflation does not have to mean social and distributive justice are put on hold. There is scope to improve welfare and social wage while dampening demand overall in the immediate term ; but also rectifying the imbalance between capital’s share of the economy and labour’s share of the economy.  When we have Labor Governments we need to make the most of such opportunities.  We need an Albanese Government that makes the most of the possibilities of government ; and makes long term structural reforms which further the goals of social and distributive justice.

Wage Justice can be Delivered While Also Containing Inflation

above: Anthony Albanese wants Wages to at least Keep Pace with Inflation

Dr Tristan Ewins

Anthony Albanese stands besieged for suggesting a minimum wage increase which keeps pace with inflation.  Specifically, that is 5.1%   This would raise full time wages by just $39.40 a week – less than a dollar an hour.  Businesses are claiming such a move would drive them to the wall and fuel inflation.  But since the 1970s labour’s share of the economy has fallen by over 10 per cent, from 58.4 per cent to 47.1 per cent: or $16,800 a year for the average worker.  Especially ; why is it that the Conservatives believe it is the job of the country’s lowest paid to pay the price for inflation when many businesses are experiencing spiralling profits?  If wages cannot even keep pace with inflation, at what point can the structural inequities in the country’s labour market be addressed?

It is true that higher wages may have some impact on inflation.  There are areas where increased costs will at least in part be passed on to consumers. But this is a false economy based on the exploitation of the poorest workers.  It suggests a policy of drifting towards a US style labour market where there is a large class of working poor who can barely keep their heads above water.  Fear of falling into the working poor disciplines the so-called ‘middle class’.  And threat of homelessness and destitution disciplines the working poor themselves. This is the trajectory the Conservatives would take us down.

But arguably in the name of fairness there must be a ‘structural correction’ for low-paid workers at some time or another.  This may have a small, temporary impact on inflation ; but it is necessary if the most exploited are to survive in dignity and make ends meet.  The prosperity of high and middle income earners cannot be based upon the exploitation of a class of working poor.

Also there are other ways of dealing with inflation.  Raising taxation (for those who can afford it) could take the heat out of the economy without depending on the working poor to pay the price.  This is a better, fairer way of dealing with inflation.  But some inflation is inevitable on account of international factors ; and we should share the burden of dealing with this across society and economy.

At the end of the day an even larger correction is justified. That is: to restore labour’s share of the economy, and the grow the social wage and welfare state to support all Australians.  This is necessary as some problems are best faced collectively ; and also the labour market will never deliver full distributive justice to all workers. All workers deserve support ; including those who find it hard to organise ; or who face structural constraints to wage increases. Because of the way the Australian economy is now structured all this is no easy task.  The process could begin with claims for collective capital share in lieu of greatly increased wage levels.  This is a process that could be led by unions ; who could target areas that are not overly susceptible to capital flight.  Also low-paid workers could be assisted by a recission of secondary boycott bans where secondary boycotts are taken by well-organised workers in support of workers with little bargaining power ; and where such action can be shown to be being taken in good faith.

Albanese has promised action on wages.  But even committing to matching inflation does not compensate for falling wages over the course of the last decade and more.  Though Labor’s housing policy – which involves the government taking up to 40 per cent equity in families’ houses – will put home ownership within reach for many who may otherwise have felt the situation hopeless.   As interest rates increase the price of properties will probably fall – a ‘double edged sword’ that – while perhaps necessary – will leave many Australians looking poorer on paper.

One area where Albanese has been unequivocal has been his support for a 25 per cent rise in the wages of Aged Care workers.  This is one of many areas requiring a ‘structural correction’ ; both to deliver wage justice ; and also to improve care, and retain workers in the industry.  Given the taxing and skilled nature of the work there should be a minimum wage of at least $30/hour here. This is more than the existing claim.

In the final analysis the economy makes so much wealth ; and the question is one of distribution, as well as higher productivity ; and industry policy encouraging high wage industries. Increasing the size of the cake is good – but does not solve all problems. At some point we need to confront the question of who gets what share of the cake ; and this will require redistribution. Sometimes it’s possible to have ‘win-win’ – but not always.  We cannot become a US style economy where workers are disciplined by fear of destitution ; and where the living standards of a so-called ‘middle-class’ depend on the exploitation of the working poor.

Short term relief in Budget ; but No Long Term Plan

 

Dr Tristan Ewins

If Labor delivered a Budget like we’re seeing portrayed from the Coalition Government in Australia the media would proclaim they were ‘irresponsibly’ ‘spending like drunken sailors’.  But when the Conservatives are trying to revive their electoral fortunes the Melbourne Herald-Sun proclaimed “Hip Pocket Rocket” and “Millions Win”. In fact this is a Budget that effectively increases tax over the medium and long term, however. And much of the much-mooted  'generosity' is illusory. More on that later.

Fuel Excise will be cut with an anticipated 22c per litre drop in petrol prices.  Also interestingly the Government points to low unemployment ; which is largely because of stimulus created by Jobkeeper – albeit badly targeted stimulus. Does this mean they’ll admit they’re wrong on contractionary Budgets more broadly?  Probably not.  Wage subsidies, tax offsets and cash payments figure significantly (for instance a  once-off $250 payment for pensioners) ; but over the longer term this will not properly compensate stagnating wages ; and depressed pension and Jobseeker payments.  Indexation of pensions will continue, but this is merely ‘treading water’.   By default pensions increase as a proportion of average wages ; which means if inflation continues to grow it may continue to outstrip pension indexation.

Frydenberg believes low unemployment will drive wages.  This is possible because there is reduced supply relative to demand. But there are no guarantees: without strong labour organisation and leadership form Fair Work Australia stagnation could well continue.  And wage growth will probably not keep pace with inflation.  In any case the Coalition are luke-warm on wages ; and are just trying to weaken Labor’s narrative. There will also be a $10 billion investment in the Australian Signals Directorate over 10 years ; but there is little in the way of new initiatives in Aged Care, Education or child care for instance.  (except for some subsidies for initial study in aged care)  Previously announced improvements to Aged Care funding will continue ; but this is but a fraction of what was demanded by the Royal Commission.

The Conservatives have had their chance to respond to the Aged Care Royal Commission and are doing not nearly enough. We need to know that Labor will commit the necessary resources to implement quotas - which means more time on washing and dressing, more individual attention with feeding, and more time to interact and get to know residents; Also Labor needs to put a registered nurse in every home 24/7 ; improve wages and conditions for all workers (min $30/hour) ; and implement quality of life and happiness benchmarks that go beyond the basics to deliver happiness and quality of life as much as possible. All residents also need access to pleasant surrounds such as gardens ; and more to do than be sat in front of a television in a common room all day. Also prompt at home care for all who have the need and meet requirements with minimal waiting time. And phase out the user pays model by providing for high quality public, and subsidised not-for-profit and community based care. This will require several billions in new funding.

In the Budget there will be over $350 million in subsidies for apprentices and employers will be rewarded with $120 for every $100 spent training their workforce ; and other incentives for investment in technology.

Encouragingly Pensioners will gain on the medicine front ; with the number of scripts necessary before the ‘safety net’ kicks in reduced by twelve.  While a relatively small measure this is perhaps the most progressive announcement made by the government here.

Over $800 million will address “telecommunications blackspots”  ; while there will be a $480 public investment in NBN speed and reliability. This is necessary because the NBN was never done properly by the Conservatives in the first place.  $600 million will support growth in agriculture ; while $3.7 billion will fund faster regional rail.  Subsidies will also support regional manufacturing ; including the development of export markets.

Schemes will continue which enable 50,000 first home buyers to enter the market with a 5 per cent deposit.  But there is little for public, social or affordable housing – which could be crucial in any attempt to make housing more affordable by increasing affordable supply.  The government’s policies do not address the fact that increasing interest rates could provide a massive shock to personal and household budgets, sending mortgage repayments skyrocketing.  This could lead to another financial crisis and recession.

Importantly many of the cash payments benefiting low and middle income Australians will be a short term splurge ; designed to win an election. Improvements for low income earners and pensions will not be sustained over the long term.  Indeed while it will be increased for its final year, the Low and Middle Income Earner Tax Offset will be phased out in the following year and onwards; hitting low and middle income earners hard over the longer term. Long after the short term handouts fade into memory this could cost low income earners $700 a year.  Somehow most of the mainstream media didn't see fit to mention this.  So in fact this is a 'smoke and mirrors' Budget that tries to convince us of its generosity while hitting us hard into the future. It is no accident that low and middle income earners will be hit, while tax cuts for the wealthy will be pushed through. 

Overall this Budget provides a boost over the short term, but does little to address cost of living over the longer term ; and leaves wages ‘to the market’.  Structural improvements are necessary for Jobseeker and Pensions. And the tax system needs to be adjusted to benefit low and middle income earners relative to high income earners and the wealthy more generally.  Means tests could be eased, also, to make it more attractive for Disability Pensioners to enter the workforce ; and more could be done to help those people gain experience to ameliorate gaps in resumes.

Again, the Budget delivers some relief over the short term but does little long term about poverty, wages stagnation, and cost of living pressures.  Labor needs to do much better on Aged Care, Public and Social Housing, progressive tax system restructure, structural increases to pensions, and initiatives to get disabled Australians into fulfilling work –  with an easing of means tests for fairness. Medicare Dental could also feature ; and Labor could begin the process of winding back user pays in education by reducing student debts and significantly increasing debt repayment thresholds.  Victoria is also significantly short-changed on infrastructure ; and the government will have to find money from elsewhere to pay for transport infrastructure, especially roads.  Some problems never seem to go away ; such as state school class sizes and over-worked teachers.  But this seems to have ‘slipped off the radar’ in recent years.

Labor needs a long term plan ; with immediate reforms that are ‘locked in’ and hard to reverse.  This Budget will convince some ; but over the longer term so many questions remain unanswered.