Saturday, May 14, 2011

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)

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.

Also very notable was the government’s announcement that it intends to enact separate legislation to means test the Private Health Insurance Rebate.

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.

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".

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.

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.

Single Parents will also face incentives to work, with an easing of means tests.

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.

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.


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.”

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.

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)

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.

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.”

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’.


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.

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