Budget 2013: An Analysis of Labor's Budget, and of Abbott's Reply

 

above: Treasurer Wayne Swan has delivered a Budget that could have been worse; but also could have been better.

In the following article Tristan Ewins examines the pros and cons of Labor's 2013 Federal Budget. Labor's timidity in key areas of reform (eg: superannuation concessions) is confusing given its willingness to withdraw benefits from some low and middle income demographics. But there are some very good policies here as well - even though Gonski has been 'watered down'. Nonetheless, there are clear divisons between Labor and the Conservatives; and hopefully these will be cast into greate relief as the election draws nearer.

Tristan Ewins

The 2013 Federal Budget was neither what it could have been, nor what it should have been. Labor faced an unenviable task with a $60 billion revenue shortfall over four years- linked with the high dollar, declining terms of trade – and wavering business profits as a consequence. This impacted on Company Tax receipts especially. Reduced revenues from the mining and carbon taxes certainly didn’t help either; though Labor was too timid or too pragmatic to restructure and revivify either.

Labor had options – which we will discuss later – to bypass austerity entirely while actually better containing the deficit. But they chose not to go down that path for fear of ‘getting on the wrong side’ of vested interests. On the good side, Labor did decide to limit austerity. Cuts have not been so severe as to lead to a European style scenario of negative growth and mass unemployment. For this (parts of) ‘the business community’are happy: as increased consumption power is in their interests (or at least for those focusing on domestic consumer markets), even though business tends to oppose social welfare as a rule. (in order to ‘make room’ for further tax cuts that add to their bottom line) The overall dimensions of this Budget include cuts of $6 billion over four years and increased revenue of $29 billion of the same period.

First we will summarise Labor’s cuts in more detail.

Decreases in Medicare coverage will hurt some on low incomes and represent a step in the wrong direction. And while changes to superannuation will reduce concessions for the richest of all and bring in $800 million over four years – this is not anywhere near what was necessary – or what was possible if the government had targeted a broader base of genuinely wealthy Australians.

Higher Education cuts are in the vicinity of $2.3 billion. The worrisome truth, here, is that having locked itself in to a policy of small government and low taxes the Government decided to reprioritise rather than provide new money in order to fund something anything like what the Gonski review had recommended. The result of was the sacrifice of university scholarships valued at $2000 – which were transformed into ‘loans’, as well as the rescission of options to repay HECS (Higher Education Contribution Scheme) upfront at a 10 per cent discount. The latter will mainly affect reasonably secure families – as for the disadvantaged upfront payment could be unmanageable in any case. But the $900 million ‘efficiency dividend’ will put pressure on the wages of academics and other education professionals, while perhaps resulting in more course closures. There are already predictions that Sydney University will be required to slash $44-$55 million, while Wollongong University has predicted $14 million in cuts and foreshadowed further staff reductions.

Not just middle class welfare, but middle income welfare (as Tim Colebatch argues) is set to go. This is classic Labor policy–at least since the Hawke years: making do with less through extensive and narrow targeting of welfare. But some of the cuts are regressive. Here it is interesting that Labor has chosen to crack down on welfare for those on average incomes, but shied away from reducing superannuation concessions for the top 5% or 10% income demographic – which alone could have taken care of the deficit – bringing in between $10 billion and $20 billion.

So Labor has not quarantined ‘middle income Australia’ from its cuts. But by some analyses middle income is not the same as middle class. Surely more reforms aimed at recouping revenue from the top 10% income demographic would have been fairer – though the reality is that we need a broad enough tax base to bring in the necessary revenue to maintain health, education, welfare, infrastructure etc.

Family Tax Benefit A – intended to assist in child rearing - has been also targeted. The Costello-erea ‘baby bonus’ has been wound back. Low income groups who would have benefited from carbon tax compensation will also find that some of that compensation– in the form of tax cuts – has been withdrawn. (a more regressive decision) This is disappointing because regardless of the fact of a falling carbon price with moves to a ‘market carbon trading system’,progressive changes to the tax mix would have been of great benefit to workers and the poor in any case.

Notably the policy of mandatory detention of asylum seekers – supported by both the major parties – has itself resulted in a blowout of over $3 billion. But so long as Abbott plays the fear card on refugees Labor can be expected to emulate Coalition policy in order to neutralise or minimise any political benefit.

Now for a range of other policy initiatives – someof them quite welcome. Although many of them have not been taken far enough.

An increase to the amount of money that those deemed unemployed can earn in casual labour before their benefits are effected has risen by about $20 a week. This is a good initiative: but not going far enough; and not lifting the unemployed out of dire poverty. (which in principle is supported not only by welfare organisations, but even by elements of the business community.) A $50/week increase in Newstart remains an urgent priority.

There have also been boosts for cancer research and treatment, and a scheme to assist seniors to ‘downsize’ their home - moving into smaller and more “manageable’ residences is very welcome. This is welcome; but further progressive action could involve the removal of taxes such as stamp duty from low-income Australians also wanting to move in to cheaper accommodation. Stamp duty is a state tax; but the states could be encouraged to implement such a policy in return for compensation from the Commonwealth.

Labor is promising public money for transport infrastructure – but probably much of this will be in the form of Public Private Partnerships. It is likely, therefore, that some new projects will take the form of toll roads and the like. This is likely to have a regressive distributive effect.

Though hopefully the decision to invest $4.6 million in “an institute for ageing” could lead to more robust and fair aged care policies into the future.

And importantly – Labor is recouping $4.2 billion over four years by closing business tax loopholes – certainly a more welcome initiative than further austerity.

But Labor’s big policies remain disability insurance and the so-called Gonski reforms.

According to‘The Age’ (May 15^th 2013) - when fully implemented by 2019-20 disability insurance will have a price-tag of about $22 billion – covering over 450,000 disabled Australians. In order to provide funding there will be a 0.5% increase in the Medicare Levy –though arguably more robust action is necessary on the tax reform front to fund the program over the long term. These increases to the Medicare Levy are welcome, though further progressive tax mechanisms to provide funding would have been more welcome.

The government is set to provide 50% of the funding for the NDIS (renamed Disability Care Australia) – though when combined with the education reforms it is doubtful that the states can afford this without further federal grants – or further state-level ‘reforms’ – with user pays infrastructure, or increased state taxes. Disability insurance is a massive and overdue reform – providing support, amenities and services to some of those who are in the most need. But even the Liberal states had been arguing for tax reform in order to consolidate their fiscal position. (though of course they were Ideologically driven to demand a regressive increase in the scope and coverage of the GST, rather than fair reforms elsewhere in the tax mix)

The Gonski reforms have also been dramatically watered down. Though nonetheless they remain substantial. While originally the Gonski Review called for an increase in funding of $6 billion a year, the government is promising only $9.8 billion over six years. Some money will be redirected from other schemes, and again there is the expectation that the states will ‘come to the party’. When combined with projected State funding the Commonwealth expects total funding of $14.9 billion over six years – compared with the initial vision to expand education funding by more than twice that amount. The changes to the funding mix are apparently more progressive, however, with loadings targeting the inclusion of students from disadvantaged backgrounds –whether the consequence of poverty or disability.

The Abbott response

In response to the Labor Budget Abbott talked of a “Budget Crisis’ created by ‘Labor mismanagement.’ This might go down well with some people who don’t want to scratch far beneath the surface. But the reality is that the high dollar has been central to the Budget’s deteriorating position. And for Abbott’s part he shared the position of not intervening to lower the dollar in order to mitigate poor terms of trade, and the disaster for manufacturing. Arguably intervention is warranted in exceptional circumstances. And furthermore, Abbott’s opposition to a more robust mining tax deprived the government of the funds that may have been employed to effectively subsidise affected industries in manufacturing and tourism especially – keeping them viable until the end of the mining boom, and a drop in the dollar. This was important to prevent skills and capacities being lost over the long term.

Abbott and the Conservatives have also been complaining about Labor’s ‘out of control spending’. And they are talking about a ‘simpler’ tax system – which almost certainly translates into more regressive flat taxes –(eg: an expansion of the GST, and its extension to food) with a redistribution of wealth from the real ‘battlers’ to the affluent. Here, the Australian Conservatives are taking a leaf out of the extreme US Tea Party’s book. And for Abbott it is a betrayal of his Democratic Labor Party past. While the DLP sabotaged Labor for years, and were not a friend of Labor, they were not neo-liberals and believed in social welfare. But Abbott will say and do anything to get the ‘top job’. The Americanisation of Australian politics is a real threat: and the Liberals seem to see the US ‘ideal’ of harsh social stratification as something to aspire to and emulate.

Also, Abbott’s rhetoric proves to be hollow when subjected to scrutiny. As Tim Colebatch points out (The Age, May 15^th 2013) “Revenue this year is forecast to be 23 per cent of GDP, compared with the Howard Government’s post-GST average of25.4 per cent. And spending levels are pretty much identical. And amazingly - in Melbourne’s ‘Herald Sun’ Jessica Irvine was allowed to make the observation that Labor“inherited a structurally flabby Budget from the Howard Government, with too many cash handouts and unsustainable tax cuts.” And: “The Budget would be in surplus today if personal income tax rates had not been cut [under the Howard Government) eight years in a row.” (Herald-Sun, May 15^th, 2013)

Why is Costello’s record therefore not examined more rigorously? On the Howard/Costello watch the housing bubble rendered home ownership an impossible dream for many. The privatisation of Telstra left subsequent Labor governments in a position of having to ‘pick up the pieces’ and pay a high price for access to Telstra infrastructure for the NBN. The benefits of the mining boom were squandered with unnecessary middle class welfare and unsustainable tax cuts.

Abbott has also attempted to rationalise his Parental Leave for the wealthy scheme by comparing it to annual leave. There is a significant difference, however. While many Australians only get 2 weeks annual leave, Abbott’s scheme will provide SIX MONTHS leave on FULL PAY for professionals earning $150,000/year. True, Abbott is sourcing the funds from a levy on big business – But the money could be prioritised for areas of greater need. The ultimate effect is a redistribution from more vulnerable groups to the wealthy – as Abbott’s largesse with Parental Leave will be mirrored by austerity elsewhere.

Other projected Abbott policies include more punitive welfare in the form of Work for the Dole, and the removal of the Newstart (threadbare) ‘safety net’ entirely for under 30s. A layer of desperately unemployed – a ’reserve army of labour’ – will undermine workers’ organisation and bargaining power. And perhaps for the Conservatives that is the point!

We can also expect an inferior version of the National Broadband Network; as well as assaults on the rights of labour including organisational rights; cuts to welfare; and the rescission of superannuation co-contributions for low income workers.

Abbott is still maintaining a 'small target' strategy; and most of the media is providing precious little scrutiny. Should he attain government, the austerity could well extend further than even this author supposes!

Lessons for Labor

There are several areas in which Labor could have taken a proactive stance – minimising the deficit, preventing austerity and actually expanding the social wage.

A more rigorous mining tax could have brought in perhaps $6 billion. Reversion to 75% Dividend Imputation could have recouped perhaps another $6 billion – or perhaps $12 billion if reverting to 50% as once advocated by renowned Australian economist John Quiggin. Restructuring income tax should also be an option; as should a tax on inheritances over $2 million. Cutting superannuation concessions for the wealthy and the upper middle class could have captured between $10 billion and $20 billion. Talk of ‘taking pressure off public pensions’,here, is a furphy – as superannuation concessions alone are now costing more than the entire Aged Pension Budget. Again: we have a policy redistributing money from ‘battlers’ to the wealthy.

Arguably Labor’s timidity was unnecessary. The government is withdrawing payments from low to middle income groups – but somehow thinks it could not have raised further revenue from the top 5% to 10% income and wealth demographics. Why back away from such reforms when they would target only a wealthy minority; and when they would provide the scope for massive expansion of Australia’s social wage and infrastructure – the benefits of which should be plain to voters?

Also importantly– Labor could have mimicked Abbott on one crucial point: his 1.5% levy on big business. Abbott could hardly have complained given his own policy, and Labor could have directed the money into areas of much more acute human need – for instance, aged care. It is still not too late to develop just such a policy and seek a mandate for it at the coming election. Such a policy could well be very popular!

With perhaps over $30 billion from such initiatives- that is, were they all implemented to the fullest extent – a surplus may even have been achieved for the coming year. Though that would be a political objective; as in reality the precariousness of the world economy demands a more fiscally expansionist stance. Gonski could have been implemented in full. And comprehensive Aged Care insurance could have been rolled out on similar principles to Disability Care Australia. Finally, resources could have been provided for the States – maintaining health funding; maintaining equity in provision of health services; providing further resources for public transport and other infrastructure without regressive user pays mechanisms or even privatisation of roads…

Policies of‘small government’ will only lead to more Public Private Partnerships, and perhaps outright infrastructure privatisation for which consumers will pay the price.

Instead, Labor should go to the election heralding further action on the social insurance front. And while following through with its education and disability reforms, Labor must promise a multi-billion dollar annual investment (new money) for Aged Care services.

Indeed it is not too late for Labor to further re-emphasise social insurance as a central theme for the election. If Abbott could be pressed to accept disability social insurance, the right kind of articulatory strategies by Labor could drive him to accept Aged Care insurance as well. If Labor loses the election –but manages to dictate the policy agenda in such a manner – then even in electoral defeat it would comprise a kind of victory. The suffering of our aged citizens – especially those in high dependency care – is an obscenity to the extent it could be ameliorated – but is not – because of ‘other priorities’. I have argued for such action in previous articles here – and for any who have not read this material yet I urge them to read the following:

http://leftfocus.blogspot.com.au/2009/02/another-look-at-aged-care-crisis-call.html

Again: There is relief that (in Julia Gillard’s words) Labor “has not cut to the bone”. But the Budget is not all that is could have been, nor what it should have been. Failing to extensively reform superannuation concessions was the key capitulation in the face of vested interests.. Hopefully, though, Labor will press the themes of tax reform , social insurance and social wage expansion further in the following months, and seek a mandate for progressive change.

Labor needs to “Take the High Ground” on the Economy

 

above: Australian Labor Treasurer Wayne Swan made the right call on the surplus

The Federal Labor Government's reversal on the Federal Budget Surplus was considered a failure by some, but grassroots Labor activist, Tristan Ewins argues that Wayne Swan has made the right call on this one: Although unfair attacks on sole parents, the disabled and others need to be re-thought in the new context. Labor needs a bold social wage reform package, funded broadly by progressively extracting a fairer contribution from the top 15 per cent.

nb: our Facebook group can be found here: http://www.facebook.com/#!/groups/58243419565/

Tristan Ewins

December 27th 2012

The headlines of the Melbourne Herald-Sun on December 21^st proclaimed “Julia Clean Bowled – Third Broken Promise as $1 billion surplus axed.” Other headlines further into the paper announced: “Swan comes clean on deficit” and “Budget blows credibility of Gillard, Swan.”

To be fair, within the pages of the Herald-Sun there was some deeper and more balanced analysis – admitting the objective necessity of abandoning the surplus at this particular conjuncture. But clearly the editors of the publication were aiming to influence via first impressions: via the power of headlines; and the likelihood that many readers would not actually read through all the material.

So what of the reality, then?

With a world economy in crisis, even affecting Chinese growth – Australia has been hit; and so too have Australian tax revenues – including the GST and Company tax. Notably business is actually supporting Labor with regard postponing the surplus – well aware of the “multiplier effect” stimulus has upon the economy, and thus upon consumer and investor confidence. Tony Abbott is decrying Labor as “spending like a drunken sailor” – but this is nothing more than a play upon people’s misassumptions and prejudices. In reality Labor has held tax revenues down as a proportion of GDP, and has ‘robbed Peter to pay Paul’ – hitting Single mothers and many disability pensioners to provide some ‘fiscal room’ for Gonski and the National Disability Insurance Scheme. (NDIS)

For his part, also, Abbott has to explain how he will deliver his Paid Parental Leave for the upper middle class, while withdrawing the minerals resource rent tax, as well as the carbon tax, and restoring upper middle-class welfare in the form of a broad-based Private Health Insurance Rebate. And Liberal support for the NDIS is compromised by hysterical and deceptive panic-mongering about its price-tag; projecting into the future – without explaining the context of inflation – to provide a distorted impression of its ultimate cost. Lastly: Abbott’s agenda of cutting expenditure at this particular conjuncture would be deflationary and contractionary – a criticism of him which Labor and the corporates seem to have in common.

At the same time Liberal State governments are imposing austerity in their irrational drive for a ‘surplus at any cost’. Again, this is about retaining the political advantage on “perceived economic competence”. Having consistently distorted the question of economic management as approximating the management of a household budget, at all levels the Conservatives cannot confess the truth without undermining their political position. Thus in Victoria Ballieu has gutted TAFE expenditure to achieve a surplus: when in fact stimulus is required; as is investment on infrastructure, education and training to overcome capacity constraints. User pays mechanisms – for instance increased public transport charges and increased costs for license renewal – are also being imposed to bridge ‘the fiscal gap’ from falling GST revenue. While the Liberals like to avoid the word ‘tax’ – the effect of these measures approximate regressive, flat taxation.

But what should be done?

Budgets need to be balanced – but not always: only over the course of the economic cycle. And this need not imply ‘small government’ during periods of growth either: so long as the ‘inflation genie’ is contained some way or another – preferably progressively via taxation on the wealthy and upon conspicuous consumption. (also inflation shouldn't be raised as an excuse for distributive injustice and exploitation) During times of relative stagnation (ie: right now!) – and in some parts of the world outright Depression – the time is still right to bring forward big infrastructure programs for quality of life and to overcome capacity constraints. Again: this has a ‘multiplier effect’ on growth and confidence. 

At a state level the Liberal State Governments also need to face reality. Without investment in education, health and infrastructure the economy will wither – and human beings will suffer. The Conservative State Governments have argued meekly for an increased GST to overcome the ‘fiscal gap’ – but surely they perceive the bind Labor is in: restrained by the same ‘small government and surplus at any cost’ mentality which the Conservatives themselves have nurtured. If the State Governments are to acquire the funds they need it is imperative that they come out consistently, openly, clearly and loudly in favour of increased taxes, and against the lie that surpluses are always appropriate. No matter how politically unpalatable it may seem, a bipartisan consensus is necessary right now, here - in the national interest.

And in other words the Conservative State Governments need to publicly refute the position taken so far on this theme by the Abbott Federal Opposition. Only by doing can they provide Federal Labor the “political breathing room” to do what is necessary to restore State Government finances. To avoid embarrassment, Abbott himself could finally be responsible: taking the lead in conceding that we still live in precarious economic times; and hence action on the tax/stimulus/services/infrastructure front is necessary.

Finally: both Labor and the States need agree to progressive taxation reform – which is fair both to most working class families and to the disadvantaged. Increasing a flat, regressive GST is not acceptable. Yet if these conditions are met – then ‘the ball will be in Federal Labor’s court’ – to reform tax, maintain and expand infrastructure and services, and provide economic stimulus in uncertain times.

But even this compromise should not be enough for a reforming Labor Government. Gonski and the NDIS need to be “locked in” (with a price tag of about $14 billion) – and without ‘robbing Peter to Pay Paul’ again with regards critical social programs – or else reducing ourselves to empty, token and distant promises. To ‘deliver the goods’ for 2013 there is a need to raise tax as a proportion of GDP.

As against the popular assumption any tax reform would comprise ‘electoral poison’ there is the contrary argument that improved infrastructure and services – paid for via the progressive targeting of the top 15% wealth and income demographic – could appeal to a broad class base of support. Such an emphasis would be electorally viable on the basis of the economic interests of most Australians; but broad-based enough to bring in meaningful revenue.

Specific measures could include removing superannuation concessions for the top 5 per cent income demographic – bringing in over $10 billion. Meanwhile reverting to 75% dividend imputation (tax concessions on investments) could bring in over $5 billion while affecting mainly the wealthy: and with other (small) investors compensated via tax and social wage reform elsewhere. Should an incremental approach work, here, Dividend Imputation could later be reduced to 50% - bringing in over $10 billion. (in today’s terms) Company Tax cuts could – and should – be put on hold indefinitely (business needs to contribute to the training and infrastructure it benefits from); and income tax reform could also target the top 15% income demographic. A minimum Company Tax rate could be imposed; land tax imposed on properties valued over $1 million; and further taxes imposed upon economic rent in oligopolistic sectors such as mining and banking. Finally the Medicare Levy could be reformed to broaden its scope, apply a more progressive and graduated structure, and provide a desperately-needed boost to Aged Care – caring for the most vulnerable, and removing regressive user-pays charges that hit working class families hard.

The aim would be to free about $25 billion of new money for socially necessary programs – including desperately-necessary funding for the States - while at the same time providing economic stimulus. To put this in perspective, this would comprise about 1.5 per cent of a $1.6 Trillion economy) Further funds could be freed via even better targeting of programs such as the Private Health Insurance Rebate.

The programs that would emerge from such measures there must strike a balance between providing for the most vulnerable (the aged, the disabled, single parents, the poor); and in providing broad-based improvements of infrastructure, welfare and services that favour the “mainstream” – ie: the great majority of citizens, workers, families.

But time is running out for Labor. Vague and unrealized promises for the future will not be sufficient for the revival of Labor’s fortunes in 2013. Labor needs to ‘deliver the goods’ with infrastructure, services and social welfare programs well before the approaching 2013 election. And in doing so it could also do worse than to nail down the Conservatives’ economic irresponsibility in opposing stimulus and crucial social investment with their deceptive ploys on the theme of economic responsibility.

A Labor government which remains authentically on-message; succinctly explaining such themes as stimulus, economic multiplier effects, capacity constraints, and the economic role of infrastructure, education and training – could outflank the Conservatives with their claims to economic responsibility and competence. They could break the myth of Conservative economic credentials and competence.

Julia Gillard herself proclaimed at one point that Labor is a cause: and not a ‘brand’. Yet if the Labor cause is authentic, constantly “robbing Peter to pay Paul’, with “one step forward, two steps back” should not be acceptable. And neither should incessant mutual attacks upon character be considered a substitute for policy substance.

Labor needs to reconsider its recent attacks on single parents and disability pensioners. It needs new initiatives provided without unfair austerity elsewhere. We need to overcome infrastructure backlogs progressively; without inefficient, Ideological and perhaps even corrupt Public Private Partnerships. A public fast-rail line along the east coast could revolutionize transport logistics for business, and provide opportunities for citizens. And we need to implement the NDIS and Gonski; but also provide for other crucial yet less-politically convenient causes such as reform of Newstart. We need big new initiatives in Aged Care and mental health – because the most vulnerable of all cannot afford to wait.

Crucial to these initiatives could be the concept of ‘collective consumption’. That is: If we do not pay for health, aged care, infrastructure and education progressively (and relatively cheaply) as taxpayers – we will instead pay more for these regressively as private consumers.

Swan and Gillard have done the right thing – and the responsible thing - in abandoning the surplus for the time being. While it may have seemed politically prudential at one point, to follow through now would undermine the economy, and also Labor’s credentials. Now Labor needs to turn the economic debate around – so it is possible to conduct that debate on its own terms. Yet even if Labor does all this, victory in 2013 is not assured. Best, then, to lock a big reform agenda in: reforms in tax, social services, infrastructure and welfare that will put the Conservatives on the defensive; reforms they will not dare to wind back.

$25 billion in new social expenditure – and more accommodated through socially progressive savings elsewhere – could provide the vital ‘Labor war-chest’ – to provide much ahead of the 2013 election – and to promise even more in its wake. Yet even this is relatively modest in the big picture of a $1.6 Trillion economy. That sense of perspective is so often missing in Conservative critiques of Labor programs which (just like Conservative initiatives) necessarily go into the hundreds of millions or even billions. Even on the Labor Left - which is largely acquiescent on the issue of 'small government' these days - learning to think on this scale is necessary in coming to grips with a genuine reform agenda.

The bottom line is that an end be put to Labor’s decades-long retreat: that by appealing to and providing for both the disadvantaged and vulnerable – and to the ‘mainstream’ of working Australia – we can consolidate an electoral bloc, and begin anew ‘the steady march forward of Labor’.

For a budget both sustainable and fair

 

Above: Wayne Swan is under political pressure to produce a surplus for May 8th. But to re-engage with voters Labor needs to do a lot more; delivering truly meaningful and substantial social programs that appeal both to Labor's working class and liberal middle class electoral bases. This needs to be provided for through a progressive tax restructure including reform of superannuation tax concessions, dividend imputation and consideration of further 'super profits' taxes where appropriate.

Readers also please feel welcome to join our Facebook discussion group!: See: 

http://www.facebook.com/#!/groups/58243419565/

By Tristan Ewins

As the May 8^th 2012 Federal Budget approaches top Labor policy-makers will be nervous. While there is enormous political pressure to deliver a surplus only very substantial progressive new initiatives hold the prospect of re-engaging with Labor's traditional working class and liberal middle class support bases. 'Treading water' on policy simply will not do at this point. So many voters are 'disengaged' after years now of systemic smears and disinformation in the media. Very substantial new programs are the only chance, now, of breaking through: at the very least saving the Senate, and leaving behind a reform legacy that Abbott will not be able to uproot.

But what specific programs could Labor embrace in order to re-engage with voters; perhaps even to win in 2013?

Immediately there are a number of options which spring to mind:

• Medicare Dental
• Gonski recommendations on education
• Stop-gap measures in anticipaiton of the National Disability Insurance Scheme (NDIS)
• Further funding to improve the quality and equity of Aged Care; with a long-term official policy of establishing universal Aged Care Social Insurance
• Robust Cost of Living initiatives for disadvantaged and working class Australians, including pensioners and Newstart recipients
• Substantial investment in public housing to assist those low income families and individuals experiencing housing stress; with the additional benefit of increasing housing supply, driving down rent costs
• Targeted tax-driven cross-subsidies for sectors struggling under the weight of the 'two speed economy'; to include tourism, education and manufacturing;
• Fast rail and other infrastructure projects (eg: infrastructure for emerging suburbs) expedited along the East Coast, with the additional benefit of stimulus in states which are economically struggling.

It is difficult to estimate how much would be necessary in way of funding for industry cross-subsidies. Although a fast-rail line along the Australian East Coast – costing $100 billion - could "dramatically cut emissions" and provide great convenience for travellers, and those utilising rail freight.

Such infrastructure initiatives could be financed via the issuing of government bonds, which could spread debt repayments over decades, with competitive annual repayment rates.

Development of infrastructure in new suburbs is also crucial on practical, environmental and equity grounds: and could create jobs along the economically languishing South-East Coast. Urban design, including public transport, parklands and other social facilities are crucial for the quality of lives of those young families who have been driven by the Howard housing bubble and population growth onto the 'urban fringe'.

And while Cost-of-Living subsidies should aim to deliver a minimum of an additional 1 per cent of Male Average Weekly Earnings (approximately $600/year for individual adults) to assist mainstream working class and disadvantaged families with energy, water, mortgages and rent, this author does not have access to modelling to determine the cost.

Yet 'Cost of Living' is THE issue 'out there' with Australian families, including those working class and disadvantaged families it is Labor's duty to protect and assist. A big initiative, here: as significant or more significant than already suggested – could be THE crucial factor in re-engaging with Australian voters.

Labor also stands to gain, here, by linking Carbon Tax relief with broader Cost-of-Living Relief. In such a way Labor needs to develop a package in which all disadvantaged and mainstream working class Australians are significantly better off. By linking these issues Labor has a chance of changing public perceptions of the Carbon Tax, while addressing genuine Cost of Living stresses for those in need.

And tax cuts would be quickly forgotten, so Cost of Living Relief will be better addressed through a dedicated supplement, to be paid twice-yearly.

Public construction of new energy and water infrastructure could also have savings flowing on to consumers because of the lower cost of public borrowing.

Nonetheless, despite our lack of access to modelling in some areas it can be stated that were the government to reform taxation so as to bring in around an additional 1.5 per cent of GDP in taxation (approximately $22 billion out of a $1.5 trillion economy), this would provide substantial scope for the social welfare and industry assistance packages hinted at here, while also providing for the politically-desirable surplus.

Potential fund-raising mechanisms could include a move to either 75% or 50% Dividend Imputation (saving between $5 billion and $10 billion/year); eliminating superannuation concessions for the wealthy (saving approximately $10 billion/year); restructuring of income tax, reversion to the original Resource Super Profits Tax template, and reneging on projected Company Tax cuts.

There is even the prospect of emulating Abbott in terms ofa 1% increase in Company Tax for large enterprises, ploughing the proceeds into Aged Care. Given his own position on Paid Parental Leave and his eagerness to appeal to aged Australia Abbott would be hard-pressed to oppose such an initiative. It is worth noting that Company Tax in Australia is 30% as compared with 35% in some areas of the United States – so there is 'room to move'.

For now, though, it is also worth observing those initiatives for which we do have costings.

Implementing the Gonski recommendations for education could ultimately cost an estimated $5 billion/year. Although the Gonski report itself suggests the Federal Government would only have to pay for 30% of the Education initiative ($1.5 billion) – with $3.5 billion shouldered by the States.

Detractors have attempted to conceal their own vested interests with calls of 'class warfare', but the reality is that 'class warfare' has been waged not against the wealthy, but against poor and mainstream working class Australia with the neglect of public education and health care, and increasing dependence on levies for essential school infrastructure which are 'voluntary' in name only. The appeal of Gonski is in its emphasis on all students, including those most struggling – with a further emphasis on improving state school funding, but without withdrawing existing funding from the private sector. Implementation of Gonski would mean improved infrastructure, smaller classes, more teachers and more subject choice for all schools.

Meanwhile projected public dental initiatives have variously been estimated to (ultimately) involve costs running into the billions annually. Apart from crucial equity and human interest ramifications of universal public dental care, preventative public dental care could save the economy billions over the long term. Though according to the proposal put to Labor by the Greens the first phase of new public dental programs– focusing on the needs of children and low-income groups - need only cost the government $400 million for the upcoming financial year, and as much as "$8.4bn to $14.4bn across four years, depending on the options chosen".

The final expenditure priority we will consider, here, is Aged Care.

The Federal Government's standing Aged Care policy provides a real funding boost of only $577 million over 5 years.

Much more is needed,yet nonetheless by shifting its priorities and implementing means tests an improvement in service will be experienced by many.

While $1.2 billion has been devoted to providing better salaries and conditions with the aim of retaining aged care staff, user-pays mechanisms will not include any forced sale of the family home. User pays charges will apply for many – both for residential and at-home care. But full pensioners will pay no fees.

There will be 40,000 new home care places (Up to 100,000), relieving the impact upon the Aged Care budget of expensive residential care, while providing many aged Australians with the preferred option of staying at home. Further initiatives include $269.4 m for dementia, $1 billion for Carers' Respite (over several years) and the removal of the low care/high care distinction - which in the past saw aged Australians diverted into high intensity care facilities prematurely in order to save money. The 'My Aged Care website' is another good initiative, and the government has wisely avoided a 'free market in Aged Care'. Many amongst the aged are vulnerable and on their own enjoy little consumer choice or market power. ('The Age', 21/4/2012)

Yet again the initiatives go nowhere near far enough.

The Combined Pensioners and Superannuant's Association New South Wales (CPSA – NSW) has long argued for a Aged Care 'social insurance' model. While CPSA NSW is encouraged by the government's emphasis on at-home care, however, those most in need do not always have the choice. Billions in new funding are necessary to improve the quality of residential care, and to give the aged the choice of high quality low-intensity care in a social environment. (eg: hostels) Staff to resident and nurse to resident ratios are also crucial that those needing high intensity care.

And even for those remaining at home more programs are necessary to keep aged Australians socially engaged, and happy.

The problem with Aged Care is that for many it remains a 'hidden issue'. Aged Australians are suffering – for lack of care; because of poverty; because of social disengagement; and because of the dehumanisation and loss of individual identity that often goes with high-care accomodation.

As an absolute minimum Labor needs to devote an additional $1 billion for Aged Care in the financial year 2012-13; and announce a progressively-structured Aged Care Social Insurance Scheme over the long term – similar to the agreed 'National Disability Insurance Scheme' (NDIS). (covering care, but not pension entitlements) Specifially this author challenges Government Minister Bill Shorten to champion this cause – no less worthy as it is – as he championed the cause of disability insurance.

'The Surplus'

There are sound political arguments for Labor's pursuit of a surplus in the year 2012-13. The level of economic debate in Australia is for the most part quite low. The perspective on the Federal Budget is akin to peoples' ideas on managing a family budget. Hence apparently 'The books must be balanced'. But failure to produce a surplus will result in opportunist media-grabs by the Opposition – which irresponsibly maintains popular mythologies on economic management in order to hold on to political advantage re: perceived competency.

Deeper arguments and realities do not always 'sink in'. Media speculation about the political imperative of a surplus is usually shallow and uncritical. Many voters do not seem to comprehend that investment in infrastructure can increase capacity, improving quality of life and increasing growth over the long term. And there are those who do not seem to see how stimulus is still warranted in many state economies as a consequence of the high dollar, and with falling confidence alongside the decline of tourism, education and manufacturing. Nor how lack of transport infrastructure in developing suburbs is a drag upon the broader economy – making investment there not only sustainable, but of positive benefit.

On the other hand Jessica Irving from the Sydney Morning Herald predicts that after already-projected cuts Swan will needto "raise taxes by $7 billion to achieve his surplus." And also that: "Tax increases on foreigners earning profits in Australia, say mining companies, would also have less of an impact on domestic demand, as would reduced spending on foreign-produced defence equipment."

Were the revenue proposals in this article adopted, alongside other measures suggested by Irving such as increased taxation of foreign profits in mining, that could still leave $15 billion for social programs, while the surplus was achieved.

But regardless of the perceived political imperative of a surplus for 2012-13 Labor still needs truly substantial policy initiatives if it is to re-engage with voters who have 'switched off' or 'turned away' after almost two years of sustained media onslaught. This can only be achieved with a commitment of resources which is truly substantial and appreciable in the 'big picture' of an economy valued at over $1.5 trillion.

Yet if Labor does produce such initiatives it might also manage to rally its own base, as well as the sympathetic social movements which could provide for social base for a real fight-back; and perhaps even a Labor victory in 2013.

Is this a real Labor Budget?

above: Treasurer Wayne Swan thinks he has the economic policy settings right

In this latest 'Left Focus' article Tristan Ewins asks:  What are the high and low points of Federal Labor's 2011-12 Budget?   Labor seems to be prioritising return to surplus, and containing inflation. But has social justice been lost in the process?

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Federal Labor’s 2011-12 Budget is framed by a variety of political and economic imperatives: fear of being outflanked by the Conservatives on the populist right with welfare and refugees; fears of inflation and increased interest rates as the economy picks up; and the symbolic drive for a surplus by 2013 – regardless of natural disasters at home and abroad which have impacted upon our economy. I intend to consider the high points and low points of the budget, with some views on how it may have been improved, and what progressives ought be aiming to achieve in the future.

Firstly, the high points

The $1.5 billion in new initiatives for mental health is both welcome and necessary. ‘The Age’ has observed there are an estimated 600,000 Australians “with debilitating mental illness”, with the most severely affected second only to indigenous Australians in mortality rates. (presumably including suicide) http://www.theage.com.au/business/federal-budget/new-services-to-benefit-mentally-ill-20110510-1ehin.html

The emphasis on ‘early intervention’ for young people is notable – as surely prevention is better than cure – most importantly in terms of preventing human suffering, but also for the budget bottom-line. Though more resources should be devoted to improving social participation and reducing social isolation.

Meanwhile some of Labor’s savings make good sense. The practice of parents using children for purposes of ‘income splitting’ in relation to the low income tax offset on unearned income will be cut back severely to $416 per annum. Tighter superannuation contribution caps for the over-50s demographic comprise an attempt to stem an effective tax-minimisation strategy, and reduced concessionary arrangements for upfront payment of HECS debt by students will save $480 million over four years, affecting mainly higher income groups. http://www.news.com.au/money/federal-budget/the-budget-what-it-means-for-you/story-fn84fgcm-1226053524859

Also very notable was the government’s announcement that it intends to enact separate legislation to means test the Private Health Insurance Rebate. http://news.ninemsn.com.au/mobile/article.aspx?id=8247906&_sp=2045&noid=6303&_s=eb0745b1-ffdd-4839-b584-91e50ee86c21

These savings are targeted for fairness, and are welcome insofar as the alternative may have involved further cuts to health, welfare, education, or crucial infrastructure. They are welcome in providing the scope to increase income support for families with teenagers in study aged 16-19, as well as ‘bringing forward’ the Low Income Tax Offset to apply to workers’ weekly pay instead of being accessible only with their end-of-year tax return. http://www.abc.net.au/news/stories/2011/05/09/3210940.htm

In relation to the government’s skills policy Treasurer, Wayne Swan had observed that: “skills shortages could constrain our economic growth and mean missed opportunities for Australians". http://www.smartcompany.com.au/economy/20110510-federal-budget-2011-3-billion-workforce-training-and-participation-projects-to-combat-skills-shortages.html

In this context the government has committed $3 billion in new money over six years including a National Workforce Development Fund (industry-based training with 130,000 places over four years), support for new apprenticeships, and incorporating a renewed commitment to skilled migration. This is the Budget’s true centre-piece. http://www.smartcompany.com.au/economy/20110510-federal-budget-2011-3-billion-workforce-training-and-participation-projects-to-combat-skills-shortages.html

There are also some bright spots amidst a largely disappointing welfare agenda. Employer subsidies aimed at helping the long-term unemployed and the disabled to re-enter the workforce are welcome: as is a restructuring of Disability Support Pension eligibility enabling the retention of some payment up to a maximum of 30 hours a week. For some disability pensioners – for instance those suffering mental illnesses – this is welcome on the basis that such peoples’ capacity to work fluctuates irregularly. http://www.jennymacklin.fahcsia.gov.au/mediareleases/2011/Pages/b05_10052011.aspx

Single Parents will also face incentives to work, with an easing of means tests. http://www.theage.com.au/business/federal-budget/tough-love-work-rules-20110510-1ehi8.html

Finally, a record $4.3 billion is being provided for the regions, targeting areas like health, infrastructure, and vocational and higher education. And an emphasis on skilled migration - with 16 000 places allocated to the Regional Sponsored Migration Scheme - will prove crucial to regions facing critical skills shortages in areas such as health services. http://www.minister.immi.gov.au/media/cb/2011/cb165287.htm

The commitment to regional Australia illustrates that where country-independent MPs hold leverage over a minority Labor government they will be in a position to ‘deliver the goods’. A mutually beneficial move could be for these independent MPs to enter into a ‘pact’ with Labor now, foreshadowing the possibility of another minority government, involving guarantees of a continued flow of resources for regional Australia. This could even provide a spur for additional independent contenders: and at least in theory provide impetus for a new party. Emphasis on consolidating regional population centres could ultimately be crucial in ameliorating the effects of urban sprawl in the major cities.

But Tony Windsor must reconsider his demand that Carbon Tax money be diverted from compensation for affected groups to investment in renewable energy programs. If there is to be new investment here it needs to be funded separately. Overcompensation and support for trade-exposed industries are just too crucial for Labor in ‘selling’ the Carbon Tax and achieving re-election. And despite talk of ‘cash churning’ the resulting market signals should still provide the desired effect.

Disappointments

Perhaps the most glaring disappointment is the government’s capitulation regarding the never-ending campaign of vilification against the unemployed, single parents and to some extent disability pensioners.
Disability Support Pension (DSP) recipients under 35 will face a more stringent “impairment test” . They will also be compelled to attend regular interviews (every three months) reassessing their capacity to work. This will apply to those “assessed as having a work capacity of at least eight hours a week.” http://www.jennymacklin.fahcsia.gov.au/mediareleases/2011/Pages/b05_10052011.aspx

With regard to ‘NewStart’, the unemployment benefit: long-term unemployed will now be compelled to ‘work for the dole’ 11 months of the year, two days a week. http://thecourierpigeon.com.au/government-gets-tough-on-the-unemployed/851664/

And unemployed 21 year olds will be shifted to the ‘Youth Allowance’. (at a rate $43 a week less than the poverty-level Newstart allowance). The targeting of this demographic seems largely arbitrary, and hence unfair. Many people will be of this age upon completion of tertiary study. For young people thrown into unemployment, and yet struggling to pay rent and bills, search for work, and feed themselves – this is a cruel blow. Perhaps some of the costs will simply be passed on to parents.

And yet Single Parents will be shifted on to Newstart Allowance (a $56/week reduction) when their child/children reach the age of 12. (down from 16) http://www.businessspectator.com.au/bs.nsf/Article/Groups-question-tough-love-welfare-GQGNM?opendocument&src=rss

One wonders whether the politicians, who expect these women (and some men) to raise a young family, and balance this task with paid work, understand the pressures and demands of raising a family alone. Do they really suppose a 12 year old child is in a position to care for themselves? The stresses of these new arrangements will undoubtedly also ‘flow through’ to young dependents in the form of emotional pressures and academic disadvantage.

The unemployed and single parents comprise ‘soft targets’, the vilification of whom is regularly beat up in the dominant right-populist monopoly media. And even still, expectations that savings can be made by targeting ‘rorting’ of the Disability Support Pension betray a lack of understanding of how debilitating some conditions – for example, mental illness - can be.

It warrants the question: does Labor accept the logic of its own policies, or is this a ‘sacrifice’ to placate those looking for scapegoats? Already Abbott is claiming so-called ‘tough love’ measures do not go far enough. So if Labor’s policies do comprise some strategic ‘sacrifice’ – then will this logic of retreat know any end??

Yet even amongst these attacks upon the most disadvantaged, ‘The Australian’ and Tony Abbott are talking of ‘class war’ against ‘middle Australia’ with some welfare cutbacks for households on $150,000/year and more. http://www.theaustralian.com.au/national-affairs/budgets/thats-not-a-knife-wayne-swan-as-budget-cuts-middle-class-welfare-but-increases-jobs/story-fn8gf1nz-1226053971008

Assaults upon the rights of pensioners, the introduction of regressive user-pays principles for everything from roads to schools, the gradual abandonment of progressive distributive mechanisms – these are considered ‘objectively sound policy’. But any attempt to achieve a modicum of distributive justice involving a greater proportionate burden upon the upper middle class is branded by the Conservatives a ‘war on middle Australia’.

Labor needs to press home the argument that someone must pay for health, education, infrastructure and the social security safety net. And if those on relatively high incomes do not pay their share then who will pay instead? Also while the very rich should pay their fair share, the tax system needs a broad enough base to fund the social necessities provided by government.

Chris Lewis, writing for ‘Online Opinion’ and quoting The Household, Income and Labor Dynamics in Australia Survey points out that restricting welfare payments to households on incomes of $150,000 and more “will [only] exclude about 15 per cent of income groups.” http://www.theaustralian.com.au/national-affairs/budgets/were-not-rich-but-wealthier-than-most-sydney-family/story-fn8gf1nz-1226054297260

Class interest is an unavoidable factor of political and economic life -although the Conservatives attempt to obscure the issue with false appeals to the principle of ‘classlessness’; where distributive justice is labelled ‘class war’ but assaults upon the most vulnerable are unquestioned. At other times fears about refugees and resentment against marginal groups are beaten up as a ‘wedge’. Finally there is appeal to ‘competence’ on ‘economic management’: usually constructed as adherence to the dominant neo-liberal ideology.

Many a radical in the 19th and early 20th Century imagined an in-built working-class majority would make transition to socialism inevitable in the context of universal suffrage. Since then, however, the class homogenisation imagined by Karl Marx was replaced by many layers of differentiation within the working class. The idea of a (predominantly white collar) middle class self-identity has long since impeded working class solidarity. Essentially, though, the Conservatives are still afraid of a Labor Party which appeals consistently, unashamedly and unambiguously to the class interests of the majority; a move which could reconsolidate Labor’s ‘natural base’.

Conclusions

This Budget – including its welfare and training provisions - is about pushing the economy to full capacity – anticipating a reinvigorated mining boom . There is the accompanying goal of containing inflation and hence interest rates and cost of living pressures. Greater participation should also ‘increase the size of the pie’ from which a larger and proportionate investment in infrastructure and social services could spring.

Labor governments of times past would attempt to contain inflation by working with the trade unions. But with the lack of such arrangements so-called ‘tough love’ measures on welfare aim to increase labour market participation by ‘any and all’ means necessary. Apparently this includes labour conscription, pressures upon the disabled and vulnerable single mothers, and continued relegation of the unemployed to dire poverty. By expanding a ‘reserve army’ at the bottom end of the labour market, Swan supposes he can contain the inflation genie.

It is conceded that labour market participation can ameliorate social isolation; though this can be pursued without the punitive elements contained in this Budget. As suggested, there are better ways of promoting growth and containing inflation than these. (ie: via agreements with organised labour which nonetheless do not erode real wages; but also through tax measures targeting consumption at the upper end to reduce inflationary pressures in the most equitable manner possible)

Despite this it is notable that Gillard Labor has broken with a long tradition amongst both Labor and Liberal governments of delivering income tax cuts ‘as a matter of course’. The political pressure to return to surplus by 2012-13, and pressures to maintain some modicum of social justice have ensured that.

Yet a higher and progressively-structured flood levy could have stemmed pressures to enact austerity. And delivering on an unnecessary and costly cut in Company Tax simply put the government under more pressure. However, a National Disability Insurance Scheme could have seen Labor ‘on the front foot’ – pursuing a big ticket reform agenda re-establishing Labor’s ‘can-do’ credentials. A ‘NDIS’ especially could have been crucial in expanding by billions real funding for disability services and income support to meet the true level of human need.

Instead the government is ‘dying a death of a thousand cuts’, depicted as indecisive, and victim to a deceptive fear campaign on the Carbon Tax.

The question that arises, therefore, is: ‘where to now’ for the government?.

Harsh ‘Work for the Dole’ provisions could actually spur public sympathy for reform of Newstart. The best could be made of a bad situation by tying these provisions to significant across-the-board increases in the Newstart pension (perhaps $50 a week), and signficantly greater increases for those directly involved in the program. Its severity could also be diluted with time; with more ‘carrots’ and less ‘sticks’. The Greens should demand such compromise through the negotiation process.

It is also crucial for Labor to drop its commitment to restrain proportionate growth in public expenditure ‘no matter what’. A NDIS must deliver significant NEW funds into the system. And in addition to existing shortfalls for services, welfare and infrastructure, sooner or later Labor must address in a progressive manner the pressures of an ageing population and a growing population.

Tens of billions are needed for aged care, health, medium-high density social housing, and transport infrastructure. This expansion cannot go on forever, but a reasonable goal for the time being would be to increase the tax base progressively by 1.5% of GDP per term of government. As this author has argued before, Labor should consider restructure of income tax or dividend imputation, a wealth tax, or a National Disability Insurance Scheme - or a mix of these options. And following a broader restructure and indexation of the bottom two income tax brackets, Labor could also let bracket creep ‘do some of the work’.

Only by meaningfully grappling with these issues can Labor overcome the impression of indecisiveness; reclaiming its status as a real electoral contender; as a government of vision, social conscience, and active social and economic reform.

Budget Austerity and Small Government not the Answer – A response to Wayne Swan

above:  Australian Treasurer and Deputy Prime Minister Wayne Swan

The following essay is a response to Australian Treasurer, Wayne Swan - who has recently written a Fabian Essay - whose obvious significance concerns the coming Australian Federal Budget for 2011-12.  While the author is highly sympathetic with the Treasurer's defence of Labor's record fighting the Global Financial Crisis (GFC), he nonetheless insists that - with the recovery - 'small government' is not the answer.  Tristan Ewins responds that rather, a government committed to human need - and facing the consequences of an expanding and ageing population - should further reform tax, invest in necessary infrastructure and incrementally expand the social wage...

By Tristan Ewins
23/04/2011

In a recent Fabian Essay, ‘Keynesians in the Recovery’, Australian Treasurer and Deputy Prime Minister, Wayne Swan, has defended the Labor Federal government’s legacy in preventing recession at home, and contributing to a global recovery in the wake of the Global Financial Crisis. (GFC) It is a crucial narrative for Labor to contest: restoring a practical Keynesian orthodoxy in striving towards an implicit social-democratic consensus, and achieving generational change in perceptions of Labor on economic management.

And it is all the more important in wake of other policy failures and forced back-downs which have harmed the government, and left behind an impression which obscures and detracts from Labor’s very significant achievements.

With the Resource Super Profits Tax (RSPT) Labor had ‘bitten off more than it could chew’: taking on the mining giants close to an election. Combined with Labor’s back-down on its original CPRS (Carbon Pollution Reduction Scheme), these presented an impression of a government in retreat. That on its own shook – and continues to shake - public confidence.

And while compared with the scale of other major initiatives the real level of waste in the government’s home insulation rebate program was minor, nothing can make good the loss of life which followed the lack of sufficient regulatory oversight.

But where would Australia have been had the Conservatives been in government with the onset of the Global Financial Crisis? (GFC) Most likely a Conservative government would have implemented deflationary policies which would have sent the economy into freefall, with an ever-escalating toll of human misery.

In 2008 the world teetered upon the precipice of a potential economic Depression. In his Fabian Essay
Swan refects upon Australia’s position at the time as follows:

“It is too easy to forget just how exposed Australia was to the crisis. Eight out of ten of our major trading partners went into recession. Our banks faced dislocated global capital markets and calls from bank customers flowed into my office. The decline in production, investment and exports affected jobs, with unemployment rising by 175,000 within months. Our economy contracted by almost 1 per cent in the final three months of 2008.” (p 5)

In the face of this looming catastrophe, Swan defends the government’s response:

“Underpinning our policy response were the principles of fiscal and monetary action to boost aggregate demand set out by Keynes in his General Theory and his activist publications of the Great Depression era: immediate stimulus measures to boost consumer spending and confidence; useful public works to create employment; lower interest rates to boost investment and spending; and concerted international action to strengthen the world financial system.” (p 5)

“Labor, guided by Keynes, is driven by a morality that regards unemployment, ruined businesses, foreclosed mortgages and myriad other signs of economic distress not as part of an inevitable and desirable cleansing process for the economy, but as the symptoms of a recession that should and can be avoided with the necessary will. (p 8)

How the government gets this message out to the public is a different matter, though. How can Labor contest and ultimately determine the narrative – that is, ‘popular wisdom’ - on its response to the Global Financial Crisis?

Part of the answer is rebuilding Labor as a social movement; a mass party which promotes the activity and real policy influence of its members; and so remobilising its base, places itself on a permanent campaign footing on a wide variety of fronts.

But there’s another side to the story Swan is trying to sell on the economy. With the 2011-2012 Federal Budget about to be passed, it seems he’s preparing us for austerity.

Swan writes of the importance of being “Keynesians in recovery” as well as in the downturn.

“With private demand strengthening, unemployment falling and our economy pushing towards capacity, we need to restrain public spending, and stay the course back to budget surpluses. Just as it was the right thing to step in and support demand during the GFC, the right thing to do is to take a step back as private activity recovers.” (p 1)


[This means] “making room for the private sector when economic growth is strong.” (p 1)

And he takes the argument further:

“[The very] phrase ‘counter- cyclical’’….implies the opposite of the critics’ claim that Keynesian policies constitute a recipe for ever-increasing rates of public spending as a proportion of GDP. (p 7)


“[While] governments have a responsibility to increase public spending going into a recession, once growth and prosperity have been restored, they have an equal responsibility to restrain public expenditure, budget for surpluses and reduce debt in climbing out.” (p 7)

Finally Swan indicates his preference, now, to promote:

“reforms to strengthen and broaden our economy by cutting business taxes, investing in infrastructure and boosting national savings.” (p 8)

While Swan’s message on counter-cyclical demand management is crucial to Labor’s intellectual armoury, and its credibility on the economy, there are other aspects of his account that need to be challenged. This is regardless of Swan’s (correct) assertion that ‘big government’ is not the necessary or inevitable counterpart to Keynesian counter-cyclical demand management.

Specifically: Swan’s concern to keep taxes low – and hence ‘government’ ‘small’ has real-life consequences. His call to government to ‘make room’ for the private sector seems reminiscent of old Conservative claims that the welfare state and social wage were ‘crowding out’ private economic activity. But the services in the firing line are so often in the realm of social necessity, and are most efficiently provided through the public sector or other forms of collective consumption in any case.

Meanwhile the investment in infrastructure that Swan champions is difficult to achieve except in the context of maintaining and expanding the tax base. A growing population, and an ageing population will mean increased pressures on transport infrastructure, housing and health services now and into the future.

Even considering the current (modest) correction in the housing market, thousands of families experience housing stress, which is a drain upon their incomes and other areas of the economy. The situation is exacerbated by rapidly growing populations – such as in Melbourne – where young families are driven to the urban fringe; but once there have inadequate access to public transport. There is a cost to the economy in terms of transit expenses including petrol. But there is a hidden social cost also, including to families, where transit times detract from time for recreation, including time with spouses and children. Less time for recreation resulting in obesity and ill health could flow on to the Health sector over the long term as well.

More investment in social housing and transport infrastructure – including urban consolidation - is essential for economic and quality of life purposes; but requires a commitment of resources inconsistent with ‘small government’.

The ‘ageing population’ also demands a rethink by policy makers, including by Wayne Swan, on the theme of Aged Care and welfare, and how this relates to restraining the size of government – partly for Ideological purposes.

Social democrats once stood indignantly against demands under capitalism that workers continue in sometimes alienating, monotonous or physically demanding jobs practically until their grave, or to physical and mental ruination. (whichever came first)

A key social-democratic tenet was the placing of real life quality for workers ahead of the abstract-economic; ahead of profits outside the context of real social benefit. Yet now in pursuit of ever lower taxes, less welfare and ‘smaller government’, Labor seems itself resigned to raising the age of retirement, and in so doing denying older Australians the opportunity for fulfilment with cultural participation, civic activism, education for life, and time with family and community. This at a time in people’s lives where ‘every year’ of relative good health can feel precious.

What is worse, the Productivity Commission is promoting a user-pays agenda for the Aged Care sector: a move which Ben Spies-Butcher, a lecturer in sociology at Macquarie University, argues will actually deter the less-wealthy from accessing services for which they may have an acute need. And Charmaine Crowe of the Combined Pensioners and Superannuant’s Association (CPSA) has pointed out that Australia already only spends only 0.8 per cent of GDP on Aged Care compared to 3.5 per cent in the Netherlands and 3.6 per cent in Sweden. http://www.agedcareinsite.com.au/pages/section/article.php?s=News&idArticle=19979

This cannot fail to have a devastating impact on the quality of life of our most vulnerable Australians. We are a wealthy nation and can afford to do better. It is a matter of priorities.

As a basic question of humanity we must make the necessary commitment to ameliorate suffering as much as possible, and provide opportunities for life quality. This must include outings, pleasant surrounds including gardens, opportunities for personal and social interaction; provision for privacy and personal space, access to medical (including dental) care, air conditioning and heating, and into the future access to information technology including internet.

And as this author has argued elsewhere: quality aged care must involve sufficient nurse to patient ratios, and decent conditions for aged care staff. (this dovetails with the Australian Services Union campaign for fair wages – mainly for women – in the sector) Many residents need acute care whether for showering, dressing, eating, being turned regularly to prevent bed sores, or using the toilet. For many such circumstances will continue for years, and it simply is not good enough to ‘let the market sort us out’.

Even for less-robust ‘Third Way’ interpretations of social democracy such standards for inclusion and protection of the vulnerable are core. And by comparison with progressive funding, ‘user pays’ would act like a regressive flat inheritance tax anyway, hitting overwhelmingly low and middle income families, while eschewing a more direct and formal inheritance or wealth tax - which would affect the more affluent.

To improve quality of service – and quality of life – requires a commitment of resources. And to meet the scope of commitment made by the Netherlands and Sweden would require new money (perhaps an extra twenty billion a year) out of an economy valued somewhere over $1.2 Trillion This has to start somewhere.

Meanwhile increased demand upon the Disability Support Pension (DSP) is partly the consequence of a genuine mental health crisis, and also cannot be addressed in the context of small government. And in light of recent debate it is worth noting that extensive and punitive active labour market policies already exist for Newstart recipients. The DSP and other pensions remain in need of extension to meet a rising cost of living without further ‘punishing the victim’.

For the chronically-ill, and for their carers - especially those without any prospect of steady, decent-paying employment – there must be provision for a decent material quality of life. Easing of income/means tests for recipients, and introduction of incentives for employers – without effective discrimination against the disabled themselves on wages and conditions – could be part of a constructive government response. And a National Disability Insurance Scheme (NDIS) which provided significant new money to address these and other areas of concern - could also secure support from a public not only on compassionate grounds - but with the realisation potentially every individual and every family can be vulnerable.

So where should Labor start in addressing these issues in the process of framing the 2011-12 Federal Budget?

As noted at this blog recently - The Greens have already provided research demonstrating “that at 30 per cent, the current company tax rate is still below the Organisation for Economic Co-operation and Development's (OECD's) "weighted average" of 36 per cent.” Where business stands to share in the gain from necessary infrastructure investment (eg: transport) surely it should continue to ‘pay its fair share’. The 1% Company Tax cut has to go. http://au.news.yahoo.com/thewest/business/a/-/national/9091822/greens-want-to-restrict-company-tax-cut-to-small-business/

Apart from this, Gillard Labor could aim to increase social expenditure in the critical fields mentioned in this essay by around 1 per cent to 1.5 per cent of GDP (not including Carbon Tax compensation) over the course of the current term. (the first step of a long-term plan for reform)  In the context of an economy valued at over $1.2 Trillion, this would provide a starting pool of approximately $12-$18 billion annually which could be gained via reform of income tax or dividend imputation, a wealth tax, or a National Disability Insurance Scheme.  (or a mix of these options)

If the government still has to find savings over the relative-short term, with a new Senate it could realistically implement means-testing of the existing private health insurance rebate. This could be combined with means testing child care rebates to exclude families with combined incomes over $150,000 – which despite complaints is a threshold beyond what most families can aspire to.

Meanwhile national savings should be promoted through democratic collective capital formation amongst the great mass of citizens and workers - rather than further ‘incentives’ for the wealthy in Superannuation and elsewhere. Further tax reform could also help fill any void left by removing superannuation concessions for the wealthy, redirecting monies into a public pension fund.

To be competitive at the next Federal election Labor needs to restore its status as a ‘can do’ government after successive retreats on several fronts. National Broadband Network (NBN) rollout and Carbon Tax ‘overcompensation’ could form part of this picture, but funds for social housing, transport, welfare and aged care could finally establish solid credentials for Gillard Labor as a government of genuine reform.

There is a particularly noteworthy quote from Swan’s recent ‘Fabian Essay’ that is worth reproducing here to put in an interesting context.

Swan writes:

“…in contrast to our opponents – we understand that economic policy must bend to the needs of the times, not the other way around.” (p 4)

This could be interpreted in the sense that the economy must serve human interests first: not some abstract logic or goal. In this sense attacking pensioners or neglecting the aged, the mentally ill, or the disabled in pursuit of a surplus reminds the author of the Vietnam War-era statement that it was ‘necessary to destroy the village in order to save it’.

There are political reasons for pursuing a record-fast return to surplus - hence the scepticism of some with regard to the government's amitions here.   Although allowing deficits to consistently spiral out of control over the course of the entire economic cycle will bring ruin in the end.  But if we are pursuing the kind of economy that serves truly human needs and purposes, surely a narrow and timid Ideology of ‘small government’ is not the answer.


Nb: The full version of Wayne Swan’s essay can be found at the URL below:
http://www.fabian.org.au/1140.asp

Tristan Ewins is a freelance writer and grassroots Labor activist based in Melbourne, Australia. He maintains and publishes the 'Left Focus' blog



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