Saturday, May 23, 2009

Conservative opportunism and Labor timidity in the face of economic meltdown

Recent polls suggest an increase of support for the conservatives in Australia under Malcolm Turbull.  In particular, the conservative parties have been putting on the ‘hard sell’:  that Labor is an irresponsible economic manager, and that deficits and debt finance are unsustainable. 

Yet despite this, the conservatives have made little point of differentiation between themselves and Rudd Labor’s 2009-2010 Federal Budget.  Instead, there is an opportunist war of perception - playing upon ingrained prejudices. Turnbull has decided to oppose progressive changes to the Private Health Insurance rebate which would see benefits cut for higher income earners – with some of this redirected towards needy pensioners.


In place of these progressive reforms. Turnbull has instead suggested a 12.5% increase in tobacco taxation: enough to cover the $1.9 billion lost as a consequence of blocking Private Health Insurance Rebate reform.,22049,25484966-5001021,00.html


Importantly: we are not talking about a substantial difference in policy here.  Remember: the economy is now annually valued at over $AUS 1 trillion.

In some senses Turbull’s stance is weak: in other ways it is a clever piece of political footwork.  By focusing on a relatively minor difference in policy, Turnbull makes it difficult for Rudd to justify a double dissolution.  Without such a ‘trigger’ there is a danger that Labor may go to the next Federal election with the economy still struggling with recession.  Further: ‘by getting his way’ Turnbull appears to have had a victory: providing the appearance of credibility he craves.


Of course, in reality the only alternative currently to running a deficit is to submit to a ‘downward deflationary spiral’ of falling tax receipts, economic recession, and unemployment.  Here, Turnbull’s ‘playing upon’ popular prejudices and fears is grossly irresponsible.


Furthermore – Turnbull’s condemnation of Rudd’s earlier stimulus package (comprised of cash handouts) neglects the fact the infrastructure investment will take some time from their announcement – until the benefits flow through the economy in the form of employment.  The so-called “cash splash” in-fact supported the economy – specifically retail – during the interim.   


The strategy, therefore, makes sense.  In fact - there are some who suppose Labor’s stimulus does not – in fact – go far enough.   As noted elsewhere in this blog:


Ken Davidson has argued that “the expenditure is not sufficient to hold unemployment at 6% or lower.”   


To put the deficit in perspective: as Paul Kelly has noted: the 2009 budget deficit is

“caused two-thirds by the revenue collapse (totalling $200 billion over four years) and one-third by the stimulus package.”,25197,25449742-28737,00.html

Furthermore, the figure of
 $22 billion (on ‘nation-building’ projects) does not refer only to new spending,  There is the $4.7 billion already set aside for the National Broadband Network, and also “projects from the last budget”.


Labor’s rhetoric of stimulus is spot on.  By investing in infrastructure now, we support jobs through the course of the recession.  Meanwhile, this provides the foundations for future prosperity and growth.  Any debt incurred can be serviced later – especially so assuming investment now adds to productivity, capacity and growth in the future.


Returning again to Ken Davidson’s projections:  assuming “ a deficit of $54 billion in 2009-10 and $188 billion in 2012” – “interest on the debt will be only 0.6 per cent of GDP.”


That’s less than $6 billion/year in the context of an economy valued at over $AUS 1 trillion.    The amount is significant: but well within our means.  And when considered alongside the toll that would otherwise be taken by unemployment – to tax receipts and broader economic activity – the effective cost is lower still.

Again: it raises the question of why Labor is not providing bolder and more assertive leadership.


Labor’s budget does at least not fall into the austerity trap: by which disinvestment in infrastructure and public goods and services feeds a recessionary spiral. 


While most of the investment mooted in the budget it not new – at least Labor opts for a deficit – to cushion the economy, and support tens of thousands of jobs. 


Labor could go further – and should go further – but there is a clear distinction now between Rudd Labor and the conservatives. 


The real losers in Labor’s 2009 Federal budget are the unemployed: who languish behind other pension groups.  They are deemed ‘unworthy’ in the eyes of reactionary pundits of ‘popular opinion’.  Here Labor’s timidity in the face of injustice is cause for despair and anger from those who have hoped for a social justice agenda from the government.


Single Aged and Disability pensions are now “pegged to CPI with  a new pensioner cost of living index or 27.7 per cent of male average weekly earnings”  (MATWE),  “whichever is the highest.”,21985,25470871-662,00.html

These reforms – while a genuine improvement - do not meet the minimum demanded by pension lobby groups: or the even more modest benchmark of 30% MATWE proposed by the author.   Certainly, it is not sufficient to eliminate – or even meaningfully mitigate - poverty amongst some of the most vulnerable Australians. 


Even assuming an activity test, the unemployed are expected to make do on $454/fortnight.

The full Single Aged Pension, in contrast, will rise to $673.36 per fortnight: a gap of well over $100/fortnight between this and ‘Newstart.’  (the unemployment pension)


The onus is now upon the Greens and independent Senators to apply pressure to Labor:  pressure for a bolder expansionary deficit – directed towards sustaining employment, and future productivity and capacity for our economy.   And further, we need for those Senators to apply pressure to Labor now - for Newstart to be raised to a the point of parity with other full single pensions.  


Finally, we need a movement WITHIN Labor  - and throughout Australian civil society - towards these and other essential demands of social justice: an expanded welfare state; a broad and inclusive social wage; and a democratic mixed economy. 

Together, Australians can emerge victorious in the struggle for justice – during hard time, and always.


Tristan Ewins, May 23rd 2009

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