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Sunday, May 4, 2014

Abbott in a ‘Breach of Trust’ on the Budget


But is Shorten ‘backing Labor into a corner’ on future tax and social welfare reform?
 
 

Above:  Shorten in the Red Tie, Abbott in the Blue Tie -
But what's the substance come Budget-time?

Tristan Ewins

Tony Abbott is coming under increasing pressure with regard his proposed tax measures as well as his overall agenda of austerity.    The Sydney Morning Herald observed the following proposals under consideration by Abbott for the 2014-15 Federal Budget.  (Some comprised very probable items for the May Budget - following the “Commission of Audit’; others might be considered ‘longer term aspirations’ for the sake of an Ideological commitment to ‘small government’.  Some may even be rejected as ‘too hard-line’ to be ‘electorally viable’)

·         Firstly there is Abbott’s ‘debt levy’ impacting on those on incomes over $80,000

 

·          Attacks on universal health-care, with  extra upfront payments for those visiting a GP, or a Hospital emergency department

 

·         Cuts in the Aged and Disability Pensions, and also to Newstart – a more austere formula for pensioners; but also cuts in eligibility;  (Also there is talk of ‘slowing’ NDIS implementation - a cut by another name)

 

·         Phasing in 70 as the age of retirement, with the family home included in an assets test – even where such assets are way below average property values….

 

·         Big increases in university fees – but also reductions in repayment thresholds – so poorer graduates are put under extreme financial strain even where there is not a proportionate financial benefit stemming from their education

 

·         Massive cuts in the minimum wage; moving towards a permanent stratum of ‘working poor’; a divided Australia similar to the United States -  where middle class lifestyles rest partly on intensifying exploitation or the poor and vulnerable

 

·         Forcing the young unemployed (25 and under) from the austere ‘Newstart’ and onto the even more austere “Youth Allowance”.  (approx $207/week for those living away from home)  (Even more severe changes appear to have been dropped: changes which would have forced young unemployed to move house to find work – even where ‘live at home’ was the only way of ‘making ends meet’ for the barest necessities)  (‘The Age’, May 4th, p 13)

 

·         Road tolls (effectively flat ‘user pays’ mechanism) – In my opinion probably leading to further extensive privatisation of transport infrastructure (rail, road etc)

 

·         Privatisation of what few federal assets remain:  “Snowy-Hydro, the Australian Submarine Corporation, Defence Housing, Australian Rail Track Corporation, Australia Post, Medibank, the Royal Mint and the National Broadband Network.”  (Where infrastructure and central government functions are concerned these will likely be leased back to the Australian people – but at enormous financial cost – revealing the privatisation agenda as essentially Ideological – with the public fleeced in the final analysis)

 

·         Industry Assistance cut in areas like the auto industry.  (We already know this may ‘flow on’ with a cost of around 50,000 Jobs)


Importantly: Howard era tax cuts went well into the tens of billions.  ‘The Australian’ observed how in the dying days of the Howard/Costello government $34 billion in tax cuts were promised – and then matched by Rudd Labor.   Even the usually-biased ‘Australian’ noted the impact this had upon the Federal deficit. 

‘The Australian’ also noted more recently how  the final 2013-14 Labor Federal Budget  “would [have been]  in surplus by at least $25 billion, with an estimated $40 billion in extra revenue, if income tax cuts introduced between 2005-2008 had not been put into place.”

(Wayne Swan would have made his budget surplus by a country mile were it not for his own insistence on ‘small government’)   

The consequence of these unsustainable tax cuts was a Labor Government that largely ‘trod water’ when it came to overall progressive reform of welfare and of the social wage.   Restructuring of income tax, improvements in pensions, and subsidies for disadvantaged workers (eg: in aged care) – were important exceptions.  And Rudd Labor deserves credit for its response to the Global Financial Crisis; with its timely investment in infrastructure.  Yet there were also attacks – such as cuts to Sole Parent pensions.  And implementation of Gonski and the NDIS were committed to ‘into the future’ at a time when Labor seemed bound to lose office in any case.  Labor did ‘put Abbott on the spot’ – pressuring him to commit to these popular polices.  But now it appears Abbott never had any intention of keeping his promises.

Peter Martin in ‘The Age’ explains that ‘Net Debt’ is now set to peak at 16 per cent of GDP or about $280 billion.  The consequence of this is that 2.2 per cent of GDP must be devoted to servicing that debt : or about $9 billion a year.   (The Age, May 4th, pp 29-29) 


net debt is the sum of all liabilities (gross debt) of an organisation, less their respective financial assets (cash and other liquid assets).”

To get this in perspective Australian Gross Domestic Product is now worth over  US $1.5 TRILLION; and by comparison Japanese ‘general government debt’  is over 200% of GDP; and US ‘general government debt’ at over 100% GDP.   

There are a number of factors worth considering amidst the panic and deception surrounding the issue of government debt:

a)       Lower gross debt under Howard/Costello needs to be considered alongside greatly reduced government income and income bearing assets – the cost of unsustainable tax cuts, upper middle class welfare, and privatisations

 

b)      We need to consider our capacity to SERVICE the debt; and the ‘trade off’ from public debt compared with greater productivity which would flow from public investment in infrastructure, education and the like. 

 

c)      The Liberals attempt to compare the Federal Budget with household budgets. And yet those families who can still afford it (since the Howard era housing bubble) need to make long term investments in the family home; servicing and repaying debt in a sustainable fashion over decades.  Families ‘having a roof over their heads’ is a fairly un-negotiable need.  By comparison, if governments fail to invest over the long term in infrastructure and education – the cost to the economy (and to real people) is greater than had those governments ‘opted out’ in order to cut debt.  And if the private sector is brought in ‘to pick up the slack’ – the cost to the Australian people as private consumers is greater than had they ‘collectively consumed’ infrastructure and services via progressive tax.   To clarify: there are additional private sector costs such as profit margins, marketing, executive salaries and a higher cost of borrowing

 

d)      Finally: issuing government bonds over the long term is arguably a fairer way of financing major public infrastructure – as the cost can be staggered over several generations  with those who will benefit in the future paying their fair share.

All these facts combined also reveal the falsehood of our supposed ‘economic crisis’ and insincere cries that we must cut radically in order to ‘live within our means.’   

But there ARE alternatives.

If the regressive subsidies for wealthy retirees via the Superannuation Concessions regime are taken into account; and if unsustainable tax cuts flowing largely to the wealthy and the upper middle class are considered;  it becomes clear that Australia has the means to provide for the Aged and the disabled without vicious austerity. That is: without attempts to whip up resentment against vulnerable welfare recipients. 

GetUp! has observed that over $15 billion in superannuation concessions go to the “richest ten per cent”;  and arguably even more if we consider the upper middle class.  

And according to the Sydney Morning Herald the overall  “Commonwealth bill for [superannuation] concessions is projected to rise at a staggering 12 per cent annually to be $50.7 billion in 2016-17.  

On the basis of the figures already considered: progressively raising government revenue to pre-Howard levels (as a proportion of GDP); and winding back regressive superannuation concessions alone could claw back well over $50 billion.   From those measures alone, the Federal government could meet increasing demands in future decades on health, welfare and aged care .   It could also meet the cost of providing key infrastructure and social services publicly – without the extra (regressively structured) costs on private consumers that flow from privatization.  

There are several areas of urgent need which will certainly be neglected should the Abbott administration continue to ruthlessly pursue its Ideological ‘small government’ agenda:

·         Roads, rail (including Fast Rail), and other public transport

 

·         Better funded State schools; greater Tertiary educational opportunity; make HECS fairer by raising rather than lowering the repayment threshold

 

·         Better resourced public hospitals, universal health care with comprehensive Medicare dental and improved mental health facilities and services

 

·         National Disability Insurance, and National Aged Care Insurance

 

·         A National Broadband Network ‘to last the long term’ instead of a ‘second best’ option

 

·         Pensions maintained without cutting payments and eligibility for vulnerable Australians; and without regressive assets tests that include ‘the family home’ even when it is roughly equal to or lower than average property values

 

·         Free burials or cremations to save families unfair costs and stress when they are grieving for their loved ones

 

·         massive investment in public housing to increase supply – finally correcting the Howard-era bubble and making housing accessible and affordable for more Australians again

 

·         Continue to invest in renewable energy for Australia’s future – and for the planet;  the Clean Energy Finance Corporation is not a ‘drag on the Budget’ anyway – and reported a profit of 7 per cent

 
·         Invest in pure and applied scientific research; for example into a cure for dementia
 

Abbott has broken faith with the Australian people.   And unlike with Julia Gillard, he has broken that faith without the Greens ‘holding him over a barrel’ lest he lose Government.  Just as Gillard was hounded until the very end on her carbon tax promise – Labor needs to ensure Abbott – and the Australian people – never forget this broken promise.

The Government’s plans to raise taxation slightly for the upper middle class and the wealthy while ‘coming down like a ton of bricks’ against welfare recipients is also offensive. 

Oscar Wilde once said: “To recommend thrift to the poor is both grotesque and insulting. It is like advising a man who is starving to eat less.” 

He could just as well have been speaking to Abbott, Hockey or Cormann. 

A wealthy taxpayer might barely notice a marginal increase in tax.  But for the poor and vulnerable the impact of welfare austerity would be crushing.

But Shorten’s response to the Government’s plans is also very disappointing.

He has been quoted as arguing:

“Increasing taxes on working class and middle class Australians is a terrible mistake and people will not forgive Mr Abbott for breaking this very big promise to increase taxes.”

Again: Abbott must be held accountable for the breach of trust. 

But Shorten’s apparent opposition to any increase of tax on the middle class is also deeply concerning.  Yes, removing superannuation concessions from the most wealthy could save  over $15 billion.  But a more ambitious program of welfare, infrastructure and social wage expansion would necessitate a broader base.   And over the longer term even ‘treading water’ on welfare and social wage provision would require a proportionate increase in tax.   The ‘good news’, however, is that tax increases on the middle class don’t have to be too severe – because of that broader base.

Labor should never have abandoned its support for a retirement age of 65. Arguably for retirees there are ‘quality of life’ issues that go beyond the drive to extract more revenue and press ever-growing consumption.   Under these circumstances the middle class would have to shoulder part of the responsibility for making Australia a truly ‘Good Society’.   If Shorten does not take account of this the Greens most likely will.  And Labor will progressively ‘lose ground’ to the Greens ‘on their Left Flank’; while floundering in its attempts to inspire a rush in membership levels and activity.

All said, though, it is the austerity rather than the tax measures which are the most concerning aspect of the Conservative agenda in Australia.  The tax measures on their own could provide a ‘silver lining’.  Some debt is arguably necessary to spread the cost of infrastructure over generations.  But cutting debt servicing costs in half could be workable, and arguably see all that money  saved (approx. $4.5 billion) redirected every year toward the most vulnerable and needy.  For instance: for those in need of Aged Care.

With Hockey’s priorities, reduced debt servicing costs would likely be passed onto corporations, the wealthy and the upper middle class rather than the poor and vulnerable.  But if there are those in the Government who would rather aspire towards ‘Catholic social welfare Centrism’ – then this would be a crucial issue on which to take an uncompromising stand.  (both on social welfare; and in opposition to US-style exploitation of the working poor)   (And the same would apply to others identifying as 'compassionate Christians' - though there is a very significant Catholic representation in the Government)

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