'Class War' from Labor? Or more Liberal Lies?

It seems like we've heard it all before. (because we have) Liberal cries of 'Class Warfare' at even the mildest redistributive tax reform.  But in fact those with a sense of proportion and history will note that Shorten Labor's current commitments are mild at best. Labor needs stronger action on reforming the tax mix and funding new policies which improve the provision of everything from Aged Care to Health, and Welfare and Infrastructure. 

nb: This post will also appear at the Australian Independent Media Network starting on the morning of Tuesday August 8th.  Your comments and opinions would be very welcome there as well as here!

Dr Tristan Ewins


“Bill’s low-rent class war” is scrawled across the pages of the “Herald-Sun” (6/7/17). Liberal operator and Opinion columnist Peta Credlin in full flight: defending the rights of the very rich against unconscionable calls to contribute to the common good.

Defending the wealthy and corporations against the ungrateful masses – who in the face of a cost of living crisis are feeling inequality more acutely than before ; and who scandalously expect tax evasion loop-holes to be closed ; for affordable housing ; for an end to punitive welfare ; for a modern living wage ; high quality public Health and Education, and so on.

Credlin asserts that “the top one per cent pay nearly 20 per cent of all tax.” And: “there are nearly four million households that pay no net tax after transfer payments.”

Further, Credlin draws on Roger Wilkins to argue “Australia is more equal today than forty years ago.”

And so Credlin infers that any kind of redistribution: whether through welfare or the social wage will drive “businesses and people offshore”; and hence Shorten is “[pushing] a hard left agenda.”

How to respond to this?

To begin, ‘the top 1%’ comprise people on incomes of over $227,000 a year ; and these would still end up with post-income-tax incomes of over $150,000. (calculated according to the income tax scales) They are not ‘battlers’.

Joe Hockey made similar claims in 2015 when he argued that “50% of all income tax in Australia paid [was] by 10% of the working population”.

We will deal with Hockey’s claims as a way of responding obliquely to Credlin’s arguments.

‘The Conversation’ concluded that Hockey’s claims were accurate , but put it down to Australia’s progressive taxation system. Without progressive taxation distributive outcomes would be skewed even further towards the rich, and against everyone else, especially the poor.

Therefore these figures must be considered in the context of rising income and wealth inequality. That is – the rich (including the top one per cent) are paying more tax because they are bringing in much more money. (at other peoples’ expense ; it does not ‘trickle down’ ; exploitation is a reality)

As I have observed elsewhere: Professor Robert Wilkins conceded that the portion of national income going to the top 1 per cent has approximately doubled since the 1970s to over 8 per cent, and that inequality is “high by modern standards” (‘the Australian’ (22/7, pp 1, 8).

And if we include the GST in our calculations we might acknowledge the fact that the wealthy also pay more GST because they can indulge in so much more conspicuous consumption.

The Conservatives in this country have also been concerned at the possibility that Australia may develop a European-style welfare state. But when put in context we see (admittedly according to 2009 and 2013 figures) that in 2009 Australia devoted just over 7 per cent of GDP to cash payments (welfare) ; compared with roughly 17 per cent in France. And in 2013 France devoted roughly 34 per cent of GDP to “social expenditure” compared with roughly 19 per cent in Australia. Even with very significant reforms such as I project in this article – we are nowhere near a “European style welfare state”.

The Conservatives also say nothing with regard the fact the Aged Pension takes the lion’s share of the social security Budget. They take the ‘aged demographic’ for granted ; but ultimately want a retirement age of 70. And when a greater proportion of Australians start retiring on their superannuation savings we might expect a more “frontal assault” on pensioners.

At only about 26 per cent of GDP overall levels of tax in Australia are in fact very low. Australia’s $154 billion social security and welfare bill (2016 figures) is also low by international standards, despite an obvious tactic by the Liberals of cultivating ‘downwards envy’ – intended to create resentment against the vulnerable ; often involving the distortion and misrepresentation of statistics. In fact the cost of social security and welfare in 2016 (approximately $154 billion) was somewhat less than 10% of a total $1.6 trillion dollar economy ; but is larger proportionate to the total tax take only exactly because overall Australian tax levels are comparatively so-very-low.

So again ; when you factor in a dramatically rising cost of living – as well as levels of personal indebtedness for those on lower and average incomes, or with lower to average wealth – the problem of inequality is becoming far more urgent.

This personal indebtedness includes mortgage stress. Indeed while some banks have behaved in an irresponsible and predatory way, there is the danger that the unsustainable personal debt which fuelled the housing boom (and perhaps consumption levels more generally) may finally give way to bust ; flowing into overall consumer confidence as well.

Factoring the housing affordability crisis in, that makes a strong difference to those on average or lower incomes attempting to pay off a mortgage, or even to afford the rent in an established suburb with decent amenities and infrastructure. Indeed home ownership is down to 31% from 41% in 1991, reflecting the concentration of housing in the hands of investors – to the detriment of first home buyers. The plight of those forced to the urban margins ; or to forsake the ‘Australian Dream’ of their own home also cannot be grasped by mere considerations of income inequality. Again, because of a broader cost-of-living crisis inequality is more urgent than any time in decades.

So Wilkins talks at length about income, but not so much about wealth ; this in a context where home ownership (or the lack thereof) is becoming a crucial socio-economic fault line.

And yet the Sydney Morning Herald’s Paul Maloney observes research from ‘Credit Swisse’ to the effect “the top 1 per cent of Australians own more wealth than the bottom 70 per cent combined.” And that according to ACOSS research “someone in the highest wealth group had 70 times as much wealth as someone in the lowest.” Maloney further observes the selective nature of the statistics Wilkins draws upon. Had Wilkins began by observing inequality from 2004 onwards that would have revealed a radical increase in inequality during the 2003 to 2008 period. This applies to income as well. According to the OECD, for instance, “Real incomes for the top quintile of households [in Australia] grew by more than 40 per cent between 2004 and 2014 while those for the lowest quintile only grew by about 25 per cent.”

Also since the 1970s profit-share has risen from 16.5 per cent to 26.5 per cent ; but the wage share of the economy has fallen from 62.7% to 52.3 per cent. (2016 figures) It had been assumed that increasing the profit share was necessary to spur investment ; while a falling wage share (and a largely neutralised trade union movement) would prevent a ‘wage-price spiral’. But in fact workers have less capacity to consume ; have turned to private debt to maintain lifestyles ; and the whole arrangement is beginning to look very precarious.

Neither pre-tax or after-tax income is enough to grasp the growth of inequality. While taxes have grown ‘flatter’ (less progressive) but nonetheless lower, the ‘user pays principle’ has been applied less and less discriminately , to the point where it applies now to everything from education and energy to communications, transport infrastructure and water. This intensifies the impact of inequality. Appallingly, ‘user pays’ for residential Aged Care especially has become akin to a ’death tax’ . But unlike progressive inheritance taxes or ‘death duties’, this impacts disproportionately upon families with lower to middle incomes, including those for whom the family home is the only significant asset they have.

As opposed to the earlier post-war mixed economy, the user-pays element has been increasing proportionately, and privatised entities are no longer providing cross-subsidies for ‘battlers’. Also: arguably privatised entities are abusing their market power to reinforce their bottom line. Hence the cost of “essential items such as food, electricity and insurance” is rising at almost double the rate at which wages are rising. And the position of the poor and welfare-dependant is even more precarious. A look at Medibank Private’s increasing premiums is enough to hammer these points home ; along with soaring profits.

Meanwhile policies such as capital gains tax discounts, superannuation tax concessions, and negative gearing – overwhelmingly benefit the well off – to the detriment of social programs which may otherwise further social solidarity and the common good. According to Treasury in 2015 $10 billion out of $30 billion in superannuation tax concessions alone are lining the pockets of the wealthy. (the top 10%) With time the problem could worsen markedly.

Bill Shorten’s agenda is not ‘hard left’by any reckoning. Michael Pascoe of the Sydney Morning Herald has observed that Shorten’s reforms to family trusts only scratch the surface (saving less than a third of what may have been possible). And that Shorten is even using 10 year projections to make his reforms look more substantial.  Pascoe concludes that if this is ‘class war’ Shorten is “firing blanks”!

We need much stronger policies from Labor: reforms of the tax mix, and new progressive taxes to provide for significant new social policies. End inequitable superannuation tax concessions. Wind back user pays in Aged Care and Education for equity and fairness ; and improve the quality of service. Reform welfare to further ameliorate poverty (raise all full pensions by $1000/year). A big investment over time in public housing to increase supply, deflate the bubble, provide for the vulnerable. Consolidate and extend Medicare. Provide the necessary resources and apply the political will to maintain transport, communications and other infrastructure as natural public monopolies. Consider strategic re-socialisations ; maybe re-establish a public-owned savings bank. Properly fund mental health.

The lower end of the labour market needs re-regulation as well ; though this is not necessarily linked with tax.

Arguably decades of privatisation and austerity have resulted in inferior cost structures for areas of the economy properly the domain of natural public monopolies. Meanwhile in Australia a limited welfare state has restricted ‘collective consumption via tax’. That also has impacted upon cost structures ; and has given consumers worse value for money in the end analysis.

The consequence has been less consumer demand for the remainder of the economy. Capitalism is desperately striving to expand existing and new markets to stave off its contradictions. But ironically perhaps the best way it can do this is to transition to a ‘hybrid economy’ which cedes ground to socialisation (public and other democratic ownership). Efficiencies via socialisation (natural public monopolies, collective consumption, enforcement of competition in specific sectors, eg: banking, insurance – by government business enterprises with competitive charters) would mean more income left over for consumers to spend elsewhere (ie: in non-socialised sectors). Many capitalists would resist such a transition for political and Ideological reasons ; but many others still could stand to gain from such a compromise. As could the public at large.

Public investments in services and infrastructure can also comprise a ‘pull factor’ for investment (for instance an educated workforce). This gets forgotten in the constant push for more austerity and lower taxes. And it is one reason why the Nordics are so successful with their welfare states, mixed economies, industry policies and active labour market programs. The opposite of the catastrophe scenario suggested by Credlin in response to Labor’s modest policy agenda.

As things stand a Shorten government could ameliorate social injustices including economic inequality. But Labor’s existing policies are very mild. Shorten has time to develop a stronger policy profile ; though the modesty of past ALP policy is such that Labor’s recent announcements appear ‘radical’ to some.

Token reforms are not enough to deliver, even though they may convince those without a sense of proportion and history. Rather than reforms bringing in $1 billion Labor needs to think bigger ; perhaps in the vicinity of 2 per cent of GDP in a first term. (approximately $32 billion in a $1.6 trillion economy)  And gradually more in subsequent terms. Not because that is just some ‘silly’ arbitrary figure ; but because Labor needs to think of what is necessary for its policy ambitions ; but also what is politically ‘do-able’ – and over what timeframe.

Meanwhile those claiming a $1 billion tax reform (one sixteenth of 1% of GDP) is ‘class warfare’ are frankly kidding themselves.

References:

http://www.smh.com.au/business/the-economy/labors-war-on-the-rich-is-firing-blanks-20170730-gxlz6r.html

http://www.abc.net.au/news/factcheck/2015-10-14/do-eight-of-ten-taxpayers-fund-welfare-bill/6822840

http://theconversation.com/what-income-inequality-looks-like-across-australia-80069

http://www.smh.com.au/federal-politics/political-opinion/roger-wilkins-claims-about-inequality-at-economic-conference-should-be-tested-20170727-gxk9m6.html

http://www.abc.net.au/news/2015-07-07/denniss-abbotts-promise-not-to-solve-our-super-tax-problem/6601112

http://www.smh.com.au/federal-politics/political-news/private-health-insurance-premiums-to-rise-by-nearly-5-per-cent-20170209-gu9p8t.html

http://evatt.org.au/papers/northern-lights.html

Dr Tristan Ewins is a Social Sciences PhD, qualified teacher and social commentator based in Melbourne.  He also blogs at ‘ALP Socialist Left Forum’, ‘Left Focus’ and ‘The Movement for a Democratic Mixed Economy’.  He has been a member of the Socialist Left of the Labor Party for over 20 years.  The opinions he expresses here are his own only.

Tony Abbott playing "Robin Hood in Reverse"

Tony Abbott:  Is this what Australians Voted For?

Tristan Ewins

During the 2013 Federal Election Campaign the Liberal camp attempted to play down Labor suggestions of their ‘cutting to the bone’ on attaining government as ‘fear mongering’.  But now – with the Abbott government ‘settling in’ it is becoming clear that austerity will follow – even amidst the most gratuitous middle class and corporate welfare.  The Abbott government is playing at ‘Robin Hood in Reverse’ – as a number of observations demonstrate.

On November 6^th ‘The Age’ and the ‘Herald-Sun’ reported that the Abbott Coalition government was going ahead in its restoration of Superannuation tax concessions for those very few (16,000) who make over $100,000 a year from superannuation investments.   The cost of this largesse is no less that $300 million in public money – which will largely be made up from attacks on vulnerable Australians, and 3.6 million of the most lowly paid workers.  This includes removal of superannuation concessions for those low-paid workers.   The Liberals say this is necessary to pay for shelving the Minerals Resource Rent Tax. But they have prioritised tax concessions for the wealthy over tax concessions for the working poor. 

Other Liberal measures include the restoration of Private Health Insurance Rebates for those on high incomes – with the removal of Labor’s means test.  According to their own figures, restoring the Private Health Insurance rebate for wealthy Australians will cost the Liberal government over $3.8 billion. Even given the Liberals’ preferred framework of private health insurance rebates, an alternative could have been higher subsidies for those on lower incomes, and the removal of penalties for welfare dependent and low income Australians whose private health insurance lapses.  But again: the Liberals are in the business of taken from the poor and giving to the wealthy.

Further, the Liberals have not committed to the full implementation of the Gonski education reforms, with no commitment to the final two years of the program. (ie: when most of the funding was to be concentrated; hence depriving state schools of billions in funding)   Labor’s ‘schoolkids bonus’ – which delivered $820 per child a year for families - will also be cut.  The result is that the government must be seen as accepting (or promoting!) the trend towards a tiered education system: where an under-resourced state system is increasingly seen as the inferior option.  The ongoing leakage of students to the private system will only exacerbate this tendency – with its consequences for the life chances of opportunities of hundreds of thousands of disadvantaged students.  This will cost the country over the long run. 

Importantly, the government is also moving to save $4.5 billion by slashing our foreign aid budget – with a callous disregard for the most desperately vulnerable people on the planet.   In the same spirit the Liberals are poised to slash the country’s humanitarian refugee intake by 6,250 places a year to 13,750.

On the environmental front, the Coalition’s ‘Direct Action ‘ emissions reduction policy will ‘rob Peter to pay Paul’ – in the sense that money returned to taxpayers from dropping the Carbon Tax will be taken back by the government through other taxes to pay for the new policy.  Rebates for micro-renewables are to be cut; as well as billions in funding for the Clean Energy Finance Corporation, and for other renewables research.   Specifically the program – including investment in ‘soil carbon’ and ‘positive incentives’ (ie: subsidies - but with no guarantees!) for business is estimated by the government to be costing tax payers just under $2.9 billion. But independent research shows the program will need a minimum $4 billion extra to meet its (already modest) targets. 

Labor must pressure the government not only to adopt a cap on pollution via an Emissions Trading Scheme (ETS), but to pursue more genuine and robust ‘direct action’ – funded progressively. The abolition of the Clean Energy Finance Corporation is short-sighted; and generous feed in tariffs for energy, and public investment in renewables research and infrastructure could make a real difference.  The Carbon Tax was good policy – producing results on emissions reduction.  But it has been rendered politically impossible given Gillard’s 2010 pre-election promises; and Abbott’s ruthless disinformation campaign.

The government blames the carbon tax for cost-of-living pressure in energy – but like Labor and even the Greens - will not face up to the role of privatisation. (ie: duplicated administration and marketing costs, profit margins, higher cost for finance etc)

Meanwhile Abbott’s Paid Parental Leave scheme aims to provide six months leave at full pay for some of the country’s richest women:  those on $150,000 a year.  Though amendments by the Greens could see a ceiling for women on $100,000/year – with the consequence of a $50,000 maximum payment over six months.   ‘The Australian’ argues that  “the new flagship paid parental leave scheme will cost $5.5 billion a year” – as opposed to $6.1 billion as originally intended.   A fairer cap on the scheme would be $35,000 – or six months full pay for working women up to $70,000/year. (close to the average wage)  Perhaps Labor should support such a policy.

Here, the Coalition’s levy on big business is welcome. But it could be far better spent:  on national aged care insurance for instance.  And it makes little sense in the context of larger Company Tax cuts (another 1.5%; costing about $5 billion ‘over the forward estimates’), further entrenching a culture of corporate welfare.  

While Abbott believes this will create some private sector jobs, it will undeniably cost public sector jobs. For instance, big Centrelink cuts will cut deep into the quality of customer service – with the return of ridiculous waiting periods of over an hour for clients seeking assistance.  How can Abbott ‘come down hard’ on poverty-stricken job-seekers at the same time as ‘taking the rug from under them’ in terms of support?

Interestingly also, Australian Company Tax is significantly below US levels, and the forsaken revenue from Company Tax cuts must be made up elsewhere – as otherwise services, welfare and infrastructure cannot be paid for.  Insofar as corporations benefit from services and infrastructure – the consequence is ‘corporate welfare’ – in the sense that ordinary taxpayers are subsidising corporations. That is – they are making up for corporations’ proper share of the tax burden.

At the same time Abbott is on the verge of withdrawing  government support for the car industry – with a projected $500 million in cuts.   Estimates hold that this move could see unemployment rise by 1.5%, costing the economy $21.5bn a year. And while car industry support may also be seen by some as another example of ‘corporate welfare’ itself, it is a special case – because of the multiplier effect with regards jobs, and the fact that core jobs are relatively high-wage compared with manufacturing elsewhere.  The skills and capacities are also of strategic value for the Australian nation. 

Meanwhile, the Liberals have signalled their intention to significantly increase Defence expenditure: at a time when they are claiming a ‘budget emergency’ as a rationale for wide-ranging austerity. And yet previously announced Gillard government subsidies for Aged Care workers will be withdrawn in an attempt to undercut unions: with the probable consequence that the sector will lose more skilled workers; and aged care residents will suffer the consequence.

Abbott has declared that:  "the carbon tax will go, but no-one's personal tax will increase and no-one's fortnightly pension or benefit will reduce.

It is beginning to look unlikely, however, that welfare will remain untouched.

There is a uncomfortable reality that both the Liberals and Labor were reluctant to talk about during the election campaign.  When fully implemented, Disability Care Australia will peak with a price-tag over $22 billion, with roughly half coming from the Federal Government.  What is more, an ageing population and a growing population must mean additional expenses when it comes to health, aged care, and infrastructure.

All this is by no means unmanageable or unfundable with an economy valued at over $1.6 Trillion. And certainly a regressive GST is not the only option. Removing superannuation concessions for the wealthiest 5% would bring in about $10 billion alone. But the looming crisis has consequences for an administration trying to ‘reduce the size of government’ as an Ideological imperative. Those consequences are especially dire in the context of a previously highly-targeted welfare state – under siege from middle class and corporate welfare.  It means some already tight welfare provisions stand to be narrowed even further – with the most vulnerable and disadvantaged of all paying the price.But as this author has argued elsewhere:

“Looking back to the 1950s it is interesting to note that the conservatives and ‘centrists’ of that time were often more ‘radical’ on the economy than today’s avowed social democrats: and even of some avowed members of the Socialist Left.”

 Specifically, a “social market” model was adopted by the German Christian Democrats in the 1950s”. This included providing for a mixed economy, social wage and welfare state. Not a ‘traditional socialist economy’ by any means. But at least the poor and vulnerable were not sacrificed for the sake of corporate and upper middle class interest, and/or ‘Ideological purity’. (Aarons, Routledge, 2009, pp 33-34)

The time has come for Abbott and other self-avowed Christians in the Coalition to search their consciences. The time has come to confront the fact that given the developing social and economic pressures, ‘small government’ at all costs is neither compassionate, rational or just.