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's 'last best chance' to prevent a 'downwards spiral' of austerity

 

above:  As Finance Minister Penny Wong is well-placed to attempt to 'head off' any strategy of unnecessary austerity for Labor's May Federal Budget.  Penny, Please stand up for what it right!

 

Tristan Ewins

Dear Readers: I wrote the following after the government’s announcement that it was cutting back higher education funding in order to pay for a much-reduced version of the Gonski education reforms in the May Budget:

As to what is determining Labor’s behaviour – I think there was an element of cynical opportunism when it came to Sole Parents.  (playing on peoples’ prejudices – but ultimately causing more self-harm in the process – by losing credibility with parts of its base… )

But on Gonski I think it’s a bit more complex.  I think – as a friend of mine said a short way back – that Labor is ‘curling up into a ball’ in the face of attacks from powerful vested interests.  Hence the collapse on superannuation concessions – ie: tax shelters for the rich; on the Minerals Resource Rent Tax; and now the retreat on Gonski. 

It seems they would rather compromise their core ‘signature’ policies then take on the powerful and wealthy vested interests…  And what they don’t seem to grasp is that this does not win respect over the long term.  It only makes our adversaries more confident, brazen and aggressive in their attacks on what remains of the welfare state, the tax-transfer system, the social wage….  IN short – If we never fight -  It means we almost completely lose control of the discourse over the long term.  We all but completely lose control over the definition of the prevailing ‘common sense’ on everything from tax to industrial relations, and social expenditures, infrastructure and welfare…  The Conservatives get their way no matter which party governs….  Failure to defend social justice, progressive taxation, the principle of redistribution  - will mean the self-liquidation of Australian social democracy unless someone else steps into the breach.  And the Greens could not achieve that on their own either.

But that said there IS progress for state education if Labor’s policies go through….  The means of paying for it are regressive; But it is still a more progressive overall outcome than what we already had…  Students – including students from low income backgrounds – will have to repay ‘start-up scholarships’.  This is bad.  Though it is mainly students from higher income backgrounds that will lose out from the decision to prevent them paying their HECS fees up-front.  And at least repayment will be deferred.   (the obvious question now being where the repayment threshold is set) 

Regardless, though, it is a Positive-Sum Affair for disadvantaged students taken overall  – many of whom would never enjoy the opportunity of tertiary study were it not for this re-ordering of priorities.  Hence additional resources for indigenous, disabled, non-English speaking and poor-literacy students – and the ‘Lion’s Share’ going to state schools.

In short – this policy could also be crucial in stemming the drift of students to private schools to the point of ‘critical mass’ – where otherwise the state sector would become permanently second-class and residual.  The policy inflicts an injustice on tertiary students –but will provide opportunities for many who otherwise would never have a hope of a tertiary education; or even of making the most of Year 12.

The policy involves about half the resources that Labor originally promised, also.  Much is expected of the States given their finances.  The States should not be obstructionist – or blur the issues.  But while they are low on cash themselves – the logic of events could lead to user-pays infrastructure inflicted on us by the State Governments.  The states should promote the cause of federal tax reform to make all this unnecessary  – but it seems they are only interested in increasing the GST and removing exemptions for food  – as today’s conservatives  seem to ‘believe in principle’ in flat taxation that hits the poor hard.   Apparently this Ideology is not “class warfare” but anything else even mildly progressive is...

All this also begs the question what is going to happen to the National Disability Insurance Scheme (NDIS).  Tony Abbott says he supports it.  But Of course he will have no problem ‘neutralising’  the issue by paying for the program with savage austerity against the apparently ‘undeserving’ poor – for example the unemployed; and possibly against mentally ill recipients of Newstart deemed able to do ‘some’ work.  Where Labor would get the money from is anyone’s guess.  But with a price-tag in the vicinity of $15 billion/year to implement the policy I am afraid we are going to ‘squib’ the issue again by only half implementing the policy; and projecting full implementation into a distant future that may never come.

Labor would be more credible if they stood up on these signature policies even if it means abandoning the idea we can have a ‘Positive Sum Affair’ FOR EVERYONE.  Again this is the myth cultivated with the whole ‘social justice equals class warfare’ discourse. ( ie: that ‘the state should get out of the picture’)   This is sold as a liberal principle and ironically it exploits past Australian egalitarian traditions and self-image.  But in fact this discourse rests firmly on the interests of the wealthy; who seek to divide us all against each other on the basis of an economically Liberal Ideology, ‘downwards envy’ and other prejudices.

THAT outcome (ie: squibbing on NDIS) is what we need to agitate and mobilise against as the 2013 May Federal Budget approaches.  Without an assertive, confident and progressive Labor the task will become all the more difficult for the government, and  Labor will not be able to inspire activists, trade unionists, environmentalists into the kind of on-the-ground campaigning which alone can counter Abbott’s advantage of uncritical and biased monopoly mass media coverage . It could actually be a more difficult task, in fact, than had they stood up to the vested interests in the first place.

Finally: now that we have ‘squibbed’ on the issue of superannuation concessions even centre-left commentators like Tim Colebatch are arguing that significant austerity cannot be avoided.  But let’s be clear: Compared to other OECD countries we have small government in Australia.   By some estimates removing ‘middle class welfare’ could save a few  billion; but this pales in significance to the money that could be saved by winding back superannuation concessions for the top 5%-10% income demographic, and by reducing dividend imputation – just for a start.  Instead  of conceding the logic and the agenda of austerity rather Labor and the Left need to go on to the front foot and move towards an extension of social welfare for the most disadvantaged and the most vulnerable….  Aged Care is perhaps the most vital area where action is necessary – when one considers the regressive nature of existing user-pays mechanisms – and the sheer extremity of the human suffering by these amongst our most vulnerable citizens….

Tony Abbott apparently has a Democratic Labor Party background if you trace it back far enough…  And while the DLP and the NCC did untold damage to the ALP during the years of the split, you would at least expect from them a  ‘Catholic social welfare’ outlook with a measure of compassion for the poor.  Some have commented that towards the end of his life B.A Santamaria realised that in facilitating the neo-liberal hegemony the DLP did more damage to its cause then had ever been inflicted on them by the Left.   And now Abbott himself promises to be the bearer of previously unheard of austerity.    

It is not only Labor that needs to search its conscience when it comes to the treatment of the vulnerable, including Sole Parent families.  Abbott could have used his leadership of the Liberal Party to lead it down the path of ‘compassionate conservatism’ after the fashion of the immediate-post-war German Christian Democrats.  Instead the disabled and the unemployed stand to suffer, and one can only speculate where else the axe may fall when it comes to further austerity in the Ideological pursuit of ever-smaller government.   The American-style rhetoric against practically any and all social investment is incessant – with no regard for the human consequences when the time comes to put this rhetoric into action…   The rights of the Aged don’t seem to be ‘factoring in’ with either of the major parties, and nor do we hear much from the Greens on that issue as well.

For both Abbott and Labor – Search your consciences when it comes to austerity and the rhetoric of  small government.  Neo-liberalism is not the proper ideology of Labor and social democracy, and nor is it the proper Ideology for compassionate Conservatism with a Christian ‘social welfare’ outlook.

For Labor’s part it is not too late for a mix of tax reform and reprioritisation of expenditure that avoids austerity against the vulnerable.   There is the potential mix of MRRT reform, reduction of dividend imputation, and winding back of ‘middle class welfare’ – that combined could bring in maybe $15 billion a year.  Reform of superannuation concessions has been ruled out for this year – but must factor into our plans for the future.

We have a choice.  Only a progressive ALP can inspire and mobilise its core base and potentially sympathetic social movements.  The May Budget is perhaps our last best chance to achieve this.

For details re: Labor’s Tertiary Education cutbacks see:  http://www.afr.com/p/national/education/extra_bn_for_schools_under_gonski_tFWyWqxCXfag4O1BvsOkMJ

What Labor should have done on Superannuation Concessions

above: former  Liberal MP and now lobbyist for the most wealthy superannuants, John Brogden. Threatened a mining industry style fear campaign unless Labor capitulated on superannuation tax shelters for the rich. 

 

Average taxpayers, workers, the elderly and the poor - to pay the price.

 

 

by Tristan Ewins

 

For a long time, now, there has been an ongoing campaign on Superannuation Concessions: led by Richard Denniss of the Australia Institute. 

 

Superannuation Concessions for the top 5% income demographic cost the Australian taxpayer over $10 billion a year as things stand. That is set to rise to $15 billion by 2015. Labor is hard-pressed to fund Gonski and NDIS - as well as other crucial policies on Aged Care insurance and transport infrastructure.  The recent annoucement of Labor policy on superannuation concessions by Bill Shorten was very disappointing.  The total cost of all superannuation tax concessions will be $45 billion by 2015 according to Denniss. 

Labor knows the system is unsustainable - but was 'spooked' by the prospect of the mining industry style 'fear campaign' - led by former Liberal MP and now lobbyist for the most wealthy superannuants, John Brogden.  As usual - Brogden was subjected to very little scrutiny by most of the media - including the ABC - when it came to the fear campaign...

But failing to fund Gonski and NDIS could be much more damaging for the ALP come September. 

 

There comes a time when you have to 'stand and fight' - and not just 'neutralise' every difficult issue by capitulation to the Conservatives and the most wealthy vested interests. 

And surely ALP strategists must realise by now that most of the monopoly media will spin anything they say and do against them regardless of the actual policy.  'Neutralising' this issue provides only very limited 'breathing room'.  Lacking the necesary funds for 'signature policies' such as Gonski and NDIS will be far more damaging come September.  Unless Labor finds other progressive funding mechanisms in the May Budget - without further callous and unpopular austerity.

I am arguing for another look at dividend imputation, the Minerals Resource Rent Tax, income tax structure, a tax on inheritances valued over $2 million, and an increased Medicare Levy to help pay for NDIS.   I welcome people to post their own ideas here at the blog too - in an attempt to get some debate going on how Labor can retrieve its Budget position without austerity or compromising signature policies.

 

What follows below are three links to recent articles on these issues published at our 'sister site' 'ALP Socialist Left Forum'.  

 

Beneath that we are also publishing some links to prior articles from this blog on Aged Care - to impart a sense of just how urgent action is on that front for May. 

 

A statement put out by Shorten is also republished below at the end of this post - so readers understand what the Labor Policy really is.

 

Recent Articles on Superannuation Concessions and Other Issues:

• * A Final Plea for Federal Labor and the May Budget: Progressively Fund Gonski and NDIS – and No More Austerity!  (Published April 4th) 

• Responding to Andrew Bolt: Is Social Insurance ‘Class Warfare’?  (published March 26th)
 
• Responding to Simon Crean on ALP unity and Government Policy (published March 20th)
  
  

 

 

We also need to consider the plight of our most vulnerable aged citizens: their unnecessarily pronounced suffering as a consequence of insufficient funding for Aged Care; and the highly regressive ‘user pays’ mechanisms that apply.  I ask readers to keep the issues in mind that are raised in the articles linked to below for the May Budget.  The articles are republished from this blog in previous years...  But I am hoping readers will be of a mind to refresh their understanding of just how much many Aged Australians suffer, and how urgent action in the Budget is. Between now and May we need to press the government hard to do something very significant on Aged Care - both its quality, and addressing regressive user-pays funding mechanisms. 

 

nb: For more comprehensive critiques of the the Aged Care crisis in this country see here: http://leftfocus.blogspot.com.au/2009/02/another-look-at-aged-care-crisis-call.html

And for a more recent critique by this author see here: http://leftfocus.blogspot.com.au/2012/04/talking-about-aged-care.html

 

 

And finally we turn to that statement by Bill Shorten - to establish the facts of the matter.  As against the Liberal fear campaign; and quite aside from my personal disappointment on the government's superannuation concessions policy.  Again - debate welcome!

 

 

 

Above: A message for Bill Shorten - Please do whatever you can to lock in funding for Gonski, and for the NDIS which you were instrumental in championing; And Please do not do so at the cost of further callous austerity as in the case of Sole Parents!

 

 

The Facts on ALP Superannuation Policy

 

A Note from Bill Shorten;

 

You've probably heard a lot of talk about superannuation lately – and a lot of misinformation.

 

Today Labor announced how we'll make superannuation fairer for those on lower incomes and more sustainable for the future.

 

Can you share these facts and set the record straight?

 

1. A person aged 30 today on average full-time earnings will now retire with an extra $118,000 in

superannuation savings.
 

 

2. Only people with superannuation savings of $2 million or more will be affected by these changes – this is only 0.4% of Australians retiring in 2014-15.

 

3. The Liberals want to cut additional superannuation support for 3.6 million low paid Australians, including 2.1 million women, and oppose these changes for 16,000 wealthy Australians.

 

Former Prime Minister Paul Keating says the changes are in keeping with the original intention of Labor’s superannuation system, which was never meant to be an income shelter for those able to contribute increasing levels of precautionary savings.

 

Can you tell your friends and family about these changes so more people know the facts?

 

Thank you,

 

Bill.

 

 

Superannuation and Dividend Imputation the Key for Delivering in the May Budget

above:  Gonski is crucial for moving closer towards educational equal opportunity

If Labor wants to win in September it needs bold new initiatives – without ‘robbing Peter to Pay Paul’.  Reforming superannuation concessions and dividend imputation may provide Labor with the ‘warchest’ it needs to ‘break through;’ to disengaged voters.   Labor also needs to deliver in the immediate term as well – as voters may be sceptical of commitments only for the ‘distant future’.

 Tristan Ewins,  March 2013

As the May Federal Budget approaches and Liberal state governments increasingly move to sabotage the Federal Government’s Gonski proposals purely for political purposes – it seems increasingly likely that if Gonski is to succeed the Federal Government must ‘pick up the entire tab’.  The National Disability Insurance Scheme (NDIS) will also involve a heavy cost, and Labor simply cannot deliver without progressive reform on the revenue side.   More unpopular austerity – as in the case of Sole Parents – which saw disgust and cynicism amongst parts of the electorate – is not a viable option. And in any case it simply should not be part of the Labor ethos –‘to take from Peter to pay Paul’ – seeking to spin these matters to create only an illusion of overall progress.

Mark Kenny, writing for the Sydney Morning Herald explains how resort to superannuation investment has become a prime means of tax avoidance for high income groups.. Hence:

“High-income earners simply have greater scope to save and thus evade the 46.5 per cent marginal tax rate on income by sending it into super. The result is that what is saved on the aged pension budget through self-funded retirement winds up being less than what the superannuation policy costs in tax revenue foregone.”

(Read more: http://www.smh.com.au/opinion/politics/for-richer-or-poorer-class-warfare-opens-on-a-new-front-20130208-2e3jp.html#ixzz2MMN0j7MX)

Richard Denniss of the Australia Institute has been one of the most determined critics of the existing system of superannuation concessions. In August last year he put the argument that while those concessions cost the public $30 billion in late 2012, they will cost $45 billion as early as 2015.  This is well in excess of the entire Aged Pension budget – which was only $25 billion in 2012.  And in 2012 $10 billion of these superannuation concessions were going only to the top 5 per cent income demographic.    Denniss has argued:  “We estimate, for high income earners, up to 60 per cent of their lump sum is actually the contribution of the taxpayer.”    http://www.abc.net.au/worldtoday/content/2012/s3568235.htm

The ACTU, meanwhile, has urged the Government to target the top 10 per cent income demographic.  And were superannuation concessions revoked for that top 10 per cent group, at an estimate it could bring in over $15 billion -  enough for the government to fund Gonski and the NDIS without having to depend upon the Conservative states.  (nb: though NDIS will cost more over the years as the full program is phased in)   http://www.theaustralian.com.au/national-affairs/treasury/wealthy-in-wayne-swans-sights-on-superannuation/story-fn59nsif-1226572182403

Yet even as Tony Abbott and the Liberal Party condemn Labor for considering revoking concessions for some of the most privileged, they are committed to withdrawing superannuation tax breaks for low paid workers. Bill Shorten has pointed out that the restoration of a 15 per cent tax rate on these Australian workers will affect 3.7 million people, including 2.1 million women.  It could cost these workers $500 a year: which is not inconsiderable for those on low incomes.  This is blatant hypocrisy from Abbott.

See:http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/002.htm&pageID=003&min=brs&Year=&DocType

So what should Labor do?  Gonski and NDIS are potentially landmark reforms which appeal strongly to Labor’s base. Withdrawing superannuation concessions from the top 10% income demographic would make these policies affordable regardless of the Liberal states’ spoiler tactics.  And withdrawing Labor’s unjust policies on Sole Parent payments could moderate the backlash from this callous and self-destructive decision.

But arguably Labor needs a more robust electoral war chest in order to ‘break through’ to a cynical electorate which has already ‘turned off’ in parts of the country. 

Another area of potential reform is Dividend Imputation  - which the Henry Tax Review considered axing a few years ago.  Dividend Imputation seeks to eliminate so-called “double taxation” of investments by providing credits on dividends.  This is fine for small investors – but should the wealthy be receiving a massive tax break as a consequence?   Especially when the Company Tax rate has been cut again and again for decades. 

Writing for ‘The Age’ Nicholas Gruen pointed out late in 2012 that the Dividend Imputation system costs the government in excess of $20 billion a year!  That being the case he went so far as to suggest getting rid of the entire system; demonstrating that the benefits of the system in spurring additional investment are minimal anyway. A spare $20 billion annually – on top of rescission of superannuation concessions for the wealthy – invested in health, education, aged care, welfare, infrastructure, and foreign aid – could work wonders!  It could also help Labor balance the budget over the course of the economic cycle without further callous austerity.  (indeed, quite the opposite!)  http://www.smh.com.au/business/dividend-imputation--20bn-for-the-taking-20120917-262h2.html

Even were the dividend imputation rate only incrementally reduced, an initial reversion to a 75 per cent imputation credit could bring in over another $5 billion; and a 50 per cent rate – argued for in the early 1990s by economist, John Quiggin, could bring in over an additional $10 billion.  

Finally,  the Greens have argued for lifting the Minerals Resource Rent Tax (MRRT) rate to 40 per cent, eliminating loopholes and removing “generous accelerate depreciation provisions.”   This, they argued, could raise $26 billion our four years.   http://www.theaustralian.com.au/news/breaking-news/greens-disappointed-with-mrrt-result/story-fn3dxiwe-1226573649144

‘Doing the math’ this would translate into an additional $6.5 billion a year on average.  

Nonetheless it is quite possible that Labor has ‘done a deal’ with the miners. If so it is a fundamental matter of democracy that this ought be made known to the public. The alternative is the kind of ‘Iron Law of Oligarchy’ referred to by political scientist, Robert Michels – whereby political and economic elites determine agreements ‘behind the scenes’ – cutting ordinary citizens out of the equation.  (the anathema of democracy) Yet at the same time trust is an extremely valuable thing in politics – and even if Labor has made the wrong call on any deal, it would be understandable were they to remain true to that commitment. 

The Greens are thinking of ‘holding Labor over a barrel’ over the MRRT. And ideally the tax does need to revert to its original form as intended by the Henry Tax Review.  But if this is politically impossible the Greens must co-operate with a Labor Government that makes big progressive social initiatives possible through thorough-going reform of superannuation concessions and dividend imputation.

To put all this in perspective the Australian economy today is valued at approximately $1.4 Trillion. The Gonski package – crucial for the very viability of our state school system into the future – and to the opportunities of hundreds of thousands of students - will cost about $6.5 billion a year to implement.  And the NDIS – crucial to some of our most vulnerable Australians and their families - is assumed to being going to cost at least $15 billion a year when ‘fully operational’ in 2018.  (but only phased in gradually)

See: http://www.probonoaustralia.com.au/news/2012/11/campaign-rejects-ndis-cost-%E2%80%98scaremongering%E2%80%99#

But what else can Labor do to ‘break through’ ahead of September; with the May Budget perhaps being its last opportunity to bed down such major initiatives?

For a long time this author has argued for reform of Aged Care.  It is an issue that effects many of us. Even the younger among us will have family who may need care in the future.

The unnecessary acuteness of suffering experienced by many aged Australians is a matter of national shame.

For those needing low-intensity care there must be high quality, affordable options available.  The  2012-13 Aged Care Reforms proclaimed the end of  'Living Longer. Living Better.'  This must include those with low care needs as well as those needing high level care.

Residents in high intensity care need privacy – they need their own rooms if they so desire.  They need heating and air-conditioning, dental care, facilitated interaction, quality food, and ‘changes of scenery’ - perhaps including access to gardens.  In the future some of those who remain alert and in need of mental stimulation could do with access to information technology.   There are also problems with staff to patient ratios, including a need for more registered nurses.

More generally there is a need for more robust career paths for aged care workers; with better training being complemented with better wages and conditions.  This will also improve the quality of care experienced by aged residents.

For those older Australians wanting to stay at home – and well enough to do so –  there is a also need for regular interaction to ward away the loneliness from which so many suffer. And Families and Carers also need additional support in order to make home care viable.  Staying at home is only an option for many with significant support, and the Combined Pensioners and Superannuants Association has long argued support services here are under-funded.

A minimum additional annual $5 billion devoted to Aged Care would be a start (though certainly not the ‘final word’) in working towards these ends; while also beginning a phase-out of user pays mechanisms that hit average and working class families. Working class and middle income Australians should not be forced to sell their family homes (using the equity in the home - even incrementally,) with an effective regressive ‘flat tax’ in order to secure care for their loved ones.  All the more so while there are massive tax breaks for quite wealthy Australians that go into the tens of billions

The NDIS will care for some of our most vulnerable – but not all of them.  Care for the Aged is just as crucial.

In order to ‘break through’ to cynical Australians who have ‘switched off’ from Labor, the government needs big initiatives that capture the public’s imagination. The government needs to mobilise the welfare sector, labour movement and other social movements behind it with a raft of measures unprecedented in our time.  Yet another dilemma is how to find ways of actually delivering to the public between now and September in such a way as to avoid cynicism about ‘distant’ promises. 

By withdrawing superannuation concessions for the wealthy and reducing dividend imputation Federal Labor can amass a very substantial war chest.

One thing is clear.  Without substantial reforms bringing in the revenue for the coming May Federal Budget Labor will be left with very limited options.  ‘Business as usual’ will not win Labor the election.

The Policy of the Combined Pensioners and Superannuants Association can be found via the URL below;  They generally lead the way in campaigning for the rights of aged Australians, including those in need of care:

http://www.cpsa.org.au/index.php?option=com_content&view=article&id=41&Itemid=82

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’.