Labor needs a policy ‘circuit breaker’ - NOW

In the following article Tristan Ewins argues that overcompensation is key to 'selling' the carbon tax' - and that welfare recipients should not be 'left behind'; But also that Labor needs a 'policy circuit breaker' NOW if it is to have any hope of re-election in 2013. A National Disability Insurance Scheme, and pay parity for community sector workers - could provide 'a way forward'.

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Speaking to Melbourne’s ‘Herald Sun’ on June 18^th Australian Prime Minister Julia Gillard seemed calm in the face of appalling poll results.    In an article titled: “Why I Rolled Kevin Rudd”, the Prime Minister seemed to hold out hope for a Labor victory in 2013.   (nb: we will assume PM Gillard did not anticipate the choice of title used by the Herald-Sun, with the usual loaded language and negative connotations)

Specifically, Phillip Hudson reported how Gillard:

“warned that poll numbers might not lift until after the tax begins in July next year and anxious voters "live it" and see the effect of the whole package and compensation on their daily life.”  http://www.heraldsun.com.au/news/more-news/why-i-rolled-kevin-rudd-prime-minister-julia-gillard/story-fn7x8me2-1226077339474

What is most crucial at this point is for Labor to implement some kind of policy “circuit breaker”, to stop voters from ‘switching off’ before it is too late.  

On 18th June 2011  “popular support for the Federal Government [had] fallen to its lowest level in 39 years, with a…Nielsen poll putting approval for Labor at only 27 per cent.”   http://www.efarming.com.au/News/general/18/06/2011/80081/abbott-blames-policies-for-labor-slide.html

This was a devastating result for Labor.

Gillard cannot afford for everything to hinge upon reception to a carbon tax a whole year into the future. (ie: mid-2012)    Even if compensation (and overcompensation) does emerge as intended, voters may already have firmed in their judgements before then… 

 But a National Disability Insurance Scheme could provide the vital ‘policy circuit breaker’ needed so desperately by Labor.  We will return to this issue later.

The carbon tax is perhaps the most problematic issue for Labor, as fear has been whipped up so effectively by Abbott and by sections of the media.

There are also tensions between the Greens and Labor.

The Channel 7 website has published an article reporting a developing impasse between Labor and the Greens on the form any future carbon tax will take.   

Specifically, Jeremy Thompson reported that:

“It is understood the Greens are unhappy with the Government's preferred deal on industry compensation, including substantial assistance to coal miners.”  http://au.news.yahoo.com/a/-/australian-news/9660562/carbon-tax-rift-emerges-between-labor-greens/

Here assistance to coal miners seems pointless.  Already low and middle income consumers – as well as trade-exposed industries - should be compensated for any increased flow on costs from coal-fired energy.  If coal-fired energy plants are directly compensated, however, then where are the ‘market signals’ driving a shift to renewables?  

The other question, here, is what rate the carbon tax will be set at.  Ross Garnaut has argued that a carbon tax at $26/tonne would raise $11.5 billion in its first year. http://www.smh.com.au/business/carbon-tax-to-raise-115b-in-year-one-garnaut-20110531-1fdvi.html?skin=text-only

This author has argued in the past that there will likely be a rate of $20/tonne: a position that seems to be popular with Labor.  But in the past the Greens have argued for a rate as high as $40/tonne.    

 Also notable (again as I’ve reflected elsewhere) is Garnaut’s argument that pensioners ought not be ‘overcompensated’ because of previous improvements to pensions.  Garnaut had also argued that compensation to be phased out only for incomes “well north” of $80,000/year. http://www.theaustralian.com.au/national-affairs/early-carbon-compensation-plan-under-garnaut-review/story-fn59niix-1226066805423

It’s important to note here that even before carbon tax implementation electricity prices have risen in Australia by about 30% in recent years, and already this has hit pensioners hard.  (see: http://theconversation.edu.au/increasing-electricity-prices-watts-the-culprit-1408 ) 

Melbourne University Researcher, Roger Darville blames this situation on the troika of renewable quotas, the need for new infrastructure, and increased demand.  But privatisation is the real ‘elephant in the room’ with increased finance costs and profit margins for the private sector, and reduced market power for small consumers.  (see: http://leftfocus.blogspot.com/2011/06/right-populist-monopoly-media-attempts.html )  And in any case increased demand should not simply translate into higher charges pocketed by private companies in the form of profit.

Pensioners are already absorbing these and other costs (eg: water), and so should not be ‘left out of the equation’.

From this it’s possible to draw a number of conclusions.

Firstly, a higher carbon tax rate could provide more scope for overcompensation for pensioners, as well as low and middle income working families. 

As this author has argued elsewhere, Newstart recipients  are ‘doing it tough’ – to put it mildly.  Indeed, Newstart is currently only $474.90/fortnight, and has not kept up with a rising basic cost of living. (See: http://www.centrelink.gov.au/internet/internet.nsf/payments/newstart_rates.htm )

In light of existing punitive active labour market policies there are no decent or valid arguments not to reform Newstart.  And real increases to Austudy are also crucial to provide conditions where students can apply themselves fully to study, rather than risk failure or underperformance as a consequence of the pressures of part-time work. 

And here a ‘loans scheme’ is neither equitable nor fair.

 If reform is not implemented here in the context of carbon tax overcompensation, then it needs to be achieved separately; But progressive Labor figures on a cross-factional basis, and the Greens -  need to demand reform one way or another during the current term of Labor government.  Ultimately carbon tax overcompensation may prove the easiest path to reform regardless.

But to achieve robust overcompensation for low and middle income groups difficult decisions need to be made about ‘cut off’ thresholds. 

Based on previous modelling for a CPRS (carbon pollution reduction scheme – ie: via emissions trading), it has been argued that a carbon tax at $30/tonne would cost families $863.20/year. http://www.adelaidenow.com.au/ipad/pms-carbon-tax-to-cost-households-1660-a-week-treasury-figures-show/story-fn6bqpju-1226032314762

 It’s difficult to extrapolate a figure for single income earners from this, but it would be reasonable to assume the costs could be easily absorbed by individuals on $80,000/year.  (as well, the rate is unlikely to be $30/tonne) Therefore, in order to maximise the scope for overcompensation for low-middle income groups – including pensioners and the vast majority of workers  (that is – the vast majority of voters as well) compensation could begin to be ‘phased out’ at around $70,000/year (or maybe somewhat higher), dissipating entirely at $80,000/year.  (ie: for those who could reasonably be described as occupying that range from 'upper middle class' to 'wealthy')

Robust overcompensation for low-middle income groups will be crucial if Labor is to retain government in 2013; but must be paid for somehow.  Therefore after reconsidering, the author believes that to provide the scope for such extensive overcompensation, a rate of at least $26/tonne – as preferred by Ross Garnaut – and with the ‘cut-off points’ suggested here - is preferable.  And of course the rate and cut-off thresholds would have to be properly indexed.

Finally, compensation might best be provided in the form of regular cash supplements (also indexed) – as otherwise tax cuts could be ‘taken for granted’ and forgotten.   With regular cash payments there would be a constant reminder of compensation provisions.

A ‘circuit-breaker’ for Labor

Labor has been taking ‘hit after hit’ in the polls and in popular media for a long time now.  There are many publications which will put a ‘negative spin’ on pretty much anything and everything Labor says and does.  The danger is that voters will ‘switch off’, virtually determining the government’s fate more than two years ahead of the next election.  The carbon tax may turn out well ultimately, but a year from now it may be ‘too late’ for the government. 

 The government needs a ‘circuit breaker’ and needs it now.   Labor needs to break the cycle of fearful speculation now - with an agenda of constructive and visionary reform with which to inspire and engage the electorate.  The National Broadband Network (NBN) helped Labor ‘across the line’ last time; but the government needs new initiatives, as well as substantial progress on the NBN.

 A National Disability Insurance Scheme has long been touted as an option by rising Labor parliamentarian Bill Shorten.  

According to the ‘Every Australian Counts’ website, a NDIS would:

• maximise employment opportunities for the disabled, with comprehensive support services and any necessary equipment

• provide similar support to assist in providing education opportunities

• “provide funding for home modifications and specialised equipment and support to ensure people are able to live as independently as possible in their own homes”

• provide support for family and carers

• provide “early intervention and support” for children with disabilities

(see:  http://everyaustraliancounts.com.au/changing_lives/for_families/ )

In addition to this a NDIS needs to provide substantial new funds (ie: several billions every year) via a Medicare Levy-like mechanism rather than just a restructuring of the funding mix.  New funds are necessary to increase Disability Support Pensions and Carers’ Pensions; extend support services and provision of necessary home infrastructure; and to bring more crucial medications under the umbrella of the Pharmaceutical Benefits Scheme.

 Specifically as a consequence of a NDIS, in current terms carers and disability pensioners should also receive a rise in their pensions of at least $25/week; indexed on top of existing pension formulae.

A NDIS could also source additional funds for improvement of mental health services: an issue which is resonating strongly with the electorate.

While a NDIS could disrupt the cycle of fearful speculation about a carbon tax, it would also comprise a landmark reform – a genuine record of achievement for Gillard Labor.

Finally, the government could move onto the front foot regarding the ‘equal pay’ campaign being driven by the Australian Services Union – to provide effective pay parity for workers (mainly women) in the community services sector. 

Because it is mainly women who are employed in the sector, this issue has been raised as one of effective gender discrimination. But not-for-profit organisations providing aged care and other services (as well as in the public sector) will need support from the government in adapting to any improved regime of pay and conditions.  Hence for these – and other vital reforms – the government needs to aim during this term for a sustainable expansion of social expenditure in the vicinity of 1.5% of GDP; backed by progressive tax reform.

Generous superannuation concessions for the wealthy could also be wound back.

But until the carbon tax is implemented – with accompanying compensation and overcompensation – some degree of fearful speculation will continue. Labor needs to finalise its carbon tax package soon – to put fears to rest. 

But speeding up implementation could also be crucial; and Labor could do well to aim for the end of this year, rather than allowing damaging speculation to continue until mid-2012.  Again: by then it could be ‘too late’.

Debate welcome as always!

Right-Populist monopoly media attempts to ‘deprive carbon debate of oxygen'

above: Cate Blanchett in the recent advertisement backing action on climate change

In this article Tristan Ewins reflects upon the Australian carbon tax debate as transpired recently on the ABC television program 'QandA'.  (Questions and Answers)  He considers issues such as compensation, welfare reform, and 'trivialisation' in Australian politics. The treatment of Cate Blanchett for participating in a related commercial is a case in point.

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Tristan Ewins, 2nd June 2011

In a recent episode of  ‘QandA” (Questions and Answers) the debate over the Australian Labor government’s proposed carbon tax continued in the same manner as it has for quite some time now.  In particular, the representative on QANDA for the conservative parties,  Liberal Senator George Brandis, repeated the usual line citing cost-of-living pressures and job destruction as the essential reasons the tax ought be rejected. While Labor MP Kate Lundy repeated again and again that low and middle income groups would be fully compensated (the point of the tax being not to raise revenue - but to create ‘market signals’ and so change patterns of consumption and investment)   Brandis calculatedly avoided engaging in his response – as to give any recognition here would ‘give the debate oxygen’ and reveal the ‘convenient fictions’ propagated by the conservative parties in attempting to build up pressure for an early election.

Brandis ignored the issue of what would have happened to the Australian economy without Labor’s stimulus; and the extent to which the most recent budget deficit was exacerbated by natural disasters beyond the control of any political party.  He also continued with the same ‘line’ that ‘Labor is addicted to debt’, ‘cannot handle money’ etc: not because it is true, but rather because Liberal focus groups must be reporting that these kind of truisms ‘resonate’ with the public. But if this is so it is only because these kind of ideas have been reinforced again and again over decades by the right-populist monopoly media.  The same focus groups must be telling Abbott that opportunist ‘lowest common denominator’ politics – especially in the case of vilification of refugees - are eroding Labor’s support base; ‘backing Labor into a corner’.  The human suffering of refugees is little consequence for many on the Right: ‘Anything goes’ for Abbott, and for ‘fear campaign shock troops’ like Scott Morrison in pursuit of personal ambition.

Debate on the proposed carbon tax had intensified as a consequence of a recent advertisement in favour of action on climate change – sponsored by progressive lobby association ‘GetUp!’, the Australian Conservation Foundation and the Australian Council of Trade Unions (ACTU).  Australian actress Cate Blanchett in particular had ‘come under fire’ from conservative forces, including most of the right-populist monopoly media, for taking a stand on this issue.  Opposition leader Tony Abbott, George Brandis and others had accused her of being ‘out of touch’ with struggling Australian families trying to make ends meet as a consequence of her personal wealth.  And yet the conservatives and their media allies want to attack truly vulnerable pensioners, while pleading for upper-middle class welfare for those on $80,000/year and more…

 If anything the focus on Cate Blanchett as a personality detracted from the real debate over climate change.  This was no accident – but was a tactic of distraction intended to avoid engaging on the issues; to prevent the message of this campaign from ‘getting through.’  This ‘trivialisation’ of politics in Australia is a regular phenomena – and perhaps a deliberate one – having the effect of weakening our democracy.  Australian social commentator, Guy Rundle – also a participant in the ‘QandA’ episode - observed tellingly that the conservative response was ‘a beat-up’.

 Perhaps the greatest deception of all by the conservatives, here, is the underlying assumption that a carbon tax would see cost-of-living pressures passed on to the public: while an Emissions Trading Scheme or Abbott’s so-called ‘direct action’ would not. This is crucial as an ETS has in the past been supported by past Liberal Party leaders John Howard and Malcolm Turnbull. 

 In reality a market-driven ETS would see the price paid for carbon credits being passed on to the public in about the same dimensions as with a carbon tax. And Malcolm Turnbull has estimated the cost of Abbott’s ‘direct action’ approach could approach the vicinity of $18 billion a year were the government “buying offsets or otherwise directly paying for abatement”, and aiming for an 80 per cent reduction of emissions by 2050, as urged by scientists.  A much more modest target of a 5% overall cut in emissions by 2020 would cost $2.1 billion/year in today’s terms.

 These costs would of course be passed on to Australian families also – via the tax system. Only it would be ‘hidden’ in a wide range of other different taxes – rather than an overt and obvious carbon tax.

It should be noted, of course, that Ross Garnaut also argued in ‘The Age’ on 1^st June that a carbon tax at $26/tonne would rase $11.5 billion in the first year. But the overwhelmingly vast majority of this money would be returned to low and middle income families. Again – the point is not to raise revenue, but to change consumer and investor behaviour.  While the ultimate rate is probably more likely to be $20/tonne, once compensation is provided low and middle income groups will actually be better off.  Although over the longer term any kind of structural adjustment to deal with climate change will come at a cost (even if only as a ‘once off’) as it will necessitate investment in new technologies and infrastructure.  (including under Abbott’s ‘direct action’)

The point is that any kind of action on climate change will cost elements of the public directly or indirectly. By raising the spectre of ‘cost of living pressures’ while supporting ‘direct action’ Abbott is obfuscating this essential truth, and deceiving voters.

That said, there are some kinds of ‘direct action’ that make sense; and others that don’t.  At QandA Guy Rundle pointed out that Abbott’s program was one of ‘socialising’ the costs and losses of business – to be paid for by the public – while ‘privatising the profits’.  An example is Abbott’s preference to pay businesses directly for changed practices on climate change. This kind of ‘corporate welfare’ has become standard fare in recent decades.  And it also begs the question: where has the rationale for privatisation gone – supported by both Labor and the Liberals - where there is effectively no ‘risk'? (ie: when things go wrong ‘government picks up the pieces’)  The same could be said of Public Private Partnerships – also supported by ‘both sides’ of politics.

 But the right kind of direct investment in renewable energy could make a very significant difference, combined with other incentives. In particular new public initiatives in the power industry could be combined with a German-style program mandating compulsory purchase of energy from renewable sources fed into the national energy grid. In 2009 Germany enjoyed a share of over 16% of the power supply provided from renewable sources. 

 But in Australia the figure is only slightly over 5 per cent. 

Writing for Green Left Weekly, David Nichols also explained in 2008 how the costs of power privatisation in Australia have been passed on to the public.  He explains that “private capital has to earn a higher rate of return than public investment” and this means large enterprises with significant purchasing power can bargain for a better deal then, say, pensioners and others on low incomes.   He explains also how according to privatisation consultant KPMG, “the rate of return on publicly owned electricity generation capacity [was] 7.1% in Queensland and 10.6% in NSW, while corporate investors wouldn´t touch electricity generation until the rate was 15%.”  Finally Nichols contended  “private debt is more costly than public debt.”  The consequence of this is that public ownership could deliver a 30 per cent cut in costs as flowing from lower finance costs alone.”

As Guy Rundle effectively contested at QandA – privatisation is the ‘elephant in the room’ that the conservatives will not acknowledge when it comes to cost of living pressures.  But for that matter – neither will Labor – which had long since assimilated the privatisation ideology and effectively abandoned the mixed economy.

Perhaps now there is a need for introspective reflection within Labor on a cross factional basis – to reconsider the mixed economy, and concede  past mistakes. And even within the Liberal Party there could well be recognition that the mixed economy was undisputed under Menzies.

The final issue we will consider here will be the nature of carbon tax compensation. 

In ‘The Age’ on 1^st June 2011 Ross Garnaut was quoted as arguing for 55% of carbon tax revenue to be passed on to tax-payers, rising to 64 per cent by 2021-22, with industry receiving 35 per cent, moving down to 20 per cent by 2021. (presumbly as industry adapted and modernised)  But ‘The Age’ also reported him as arguing that there should be “less compensation for pensioners and welfare recipients…because of [the] 2009 rise in benefits.” Effectively this would mean ‘no overcompensation for pensioners’.

 There are  a few issues here.

 Firstly overcompensation is essential for Labor in ‘selling’ the carbon tax.  This is as much the case for pensioners as for anyone else.  Pensioners vote!

 It is also key for social justice imperatives. Pretty much all pensioners struggle, and many disability pensioners and carers in particular don’t have many options in improving their financial circumstances.

Writing in February 2011, Peter Martin noted that :

“Working households faced extra costs of 4.5 per cent in the year to December, age pensioners 3.1 per cent and welfare recipients 4.5 per cent. The CPI grew 2.7 per cent.”

He also noted how the Bureau of Statistics had argued:

“Age pensioners spend a relatively high proportion of their income on utility bills and fruit and vegetables, both of which shot up in price in the year to December.But while aged pensioners had their payments adapting to  “either the CPI [or] the pensioner living-cost index or male total average earnings (whichever is most favourable),  Newstart Allowance is only adjusted to only “what is…the lowest of these.” 

This means that even in the face of onerous active labour market policies and ‘work for the dole’ programs, Newstart has been eroding greatly relative to other pensions for a long time. 

Carbon tax overcompensation is a great opportunity to finally provide for the basic cost-of-living pressures faced by all pensioners, and especially by Newstart recipients.  Most Newstart recipients ought receive overcompensation of $50/week. And those working two days a week under the government’s new ‘work for the dole’ provisions could receive overcompensation of at least $100/week.  (for progressives this would be ‘making the most of a bad situation’)

Other full-pensioners (disability, carers, aged pensioners), whose financial situation is not necessarily so dire as that of the unemployed, could receive overcompensation starting at $25/week. Single Parents also deserve a significant extension of benefits.

And all such increases should be fully indexed on top of existing formulae.

Although improvement for Disability and Carers pensions – and associated services- could also be achieved via a National Disability Insurance Scheme; which would have Labor seen as ‘moving onto the policy front foot’. Perhaps providing such reform for Disability Pensioners and Carers separately would enable proportionately greater carbon tax-related compensation for other low to middle income groups, making the carbon tax ‘easier to sell’. But on social justice grounds Gillard Labor would still have to provide for Disability pensioners and Carers separately via a National Disability Insurance Scheme (NDIS) well before the end of the current term. Labor needs a positive message to re-engage with voters, and a NDIS could be crucial here.

The Greens and Independents especially need to make the most of their leverage over Labor to promote this reasonable and achieveable social justice agenda.

Here’s hoping that conservative forces fail in their strategy of attempting to ‘deprive the climate and carbon tax debate of oxygen’; manipulating voters through distraction and focus on trivalities. The issues are just too important to be engaging in these kind of cynical games.

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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Labor and the Greens on the Carbon Tax debate

above: Less tumultuous times for PM Julia Gillard and Greens leader Bob Brown

The following article evaluates the debate on Carbon Tax reform in Australia, but also divisons between the Greens and ALP government on Company Tax and with the Minerals Resource Rent Tax (MRRT).  Starting with a preference for distributive justice and social wage expansion, the author - Tristan Ewins - tries to chart some kind of way forward for the Gillard government and its allies.
..

Debate on Company Tax cuts is beginning to gain momentum in Canberra with Gillard Labor, independents and the Greens at odds over what comprises the best policy. That debate is more broadly framed in the context of the Minerals Resource Rent Tax (MRRT), and a declared intent by Labor to direct new revenue into corporate tax cuts and infrastructure (especially in the ‘mining states’ of WA and Queensland), and in the process to provide room for an increase in superannuation contributions by business.

Therefore it’s probably best to explain the background of the MRRT before going into the debates that hinge on the treatment of revenue thus gained - and how all this relates to the other crucial debate on Carbon Tax reform.

During the 2010 debate David Richardson – writing for On Line Opinion – explained that the real effective rate paid by the miners in 2010 was 19 per cent, as opposed to 24 per cent for the corporate sector more broadly. To correct this the originally-proposed tax on ‘super profits’ aimed to affect profits above the government bond rate – then at 5.8 per cent. http://www.onlineopinion.com.au/view.asp?article=10469

The aim was to garner a fair share of profits from the sector for ordinary Australians who collectively own the non-renewable resources which the mining companies profit from.

But elements of the mining industry spent an estimated $22 million on advertisements undermining Rudd Labor in an effort that effectively brought down a Prime Minister. Mining concerns would have remained viable and profitable. But the scare campaign: threatening disinvestment and job losses – found its mark.

While the original tax was to be levied at 40 per cent, the heavily diluted version negotiated by Gillard will apply at 30 per cent on profits over the long-term government bond rate plus 7 per cent. http://www.abc.net.au/news/stories/2011/03/29/3176405.htm

Allowances and concessions will see an “effective statutory tax rate [of] 22.5%.” http://en.wikipedia.org/wiki/Mineral_Resource_Rent_Tax

And the newer version will also only apply to coal and iron ore, excluding other minerals including gold, nickel and uranium.

The original Resource Super Profits Tax would have raised approximately $12 billion over its first two years. http://www.theaustralian.com.au/national-affairs/greens-join-mining-tax-deal-revolt/story-fn59niix-1226027728392

But the revised Minerals Resource Rent Tax will see a significant reduction in revenue compared to the original proposal.

To be more specific: In 2010 Gillard Labor estimated the compromise would cost $1.5 billion less over the first two years than under the original package. http://www.news.com.au/business/the-great-mining-tax-battle-at-a-glance/story-e6frfm1i-1225888848317

But Treasury estimates suppose a gap in the vicinity of $60 billion over ten years; with some others projecting that the shortfall could be closer to $100 billion. http://www.perthnow.com.au/business/minerals-resource-rent-tax-to-regain-spotlight/story-e6frg2r3-1226025450249

It is in this context that Labor has downgraded its original promises to cut Company Tax. Instead of cutting the rate from 30% to 28%, now the government is proposing a cut of only one per cent. (ie: to a rate of 29%)

However Greens leader Bob Brown has argued that even a cut of one per cent would return half of new revenue taken back to the miners. Instead Brown is proposing a ‘two-tiered’ approach to Company Tax which would see only companies enjoying profits of less than $250 million enjoying the tax discount. This would hit ‘the big end of town’: including the major banks and mining giants – while sparing small business. For Brown the money thus saved would be better spent improving wages and conditions for aged care workers, funding national dental health care, or increasing Newstart, the youth allowance, Austudy and Abstudy," http://www.abc.net.au/news/stories/2011/03/29/3176405.htm

As against claims lower Company Tax is needed to allow for greater competitiveness, research commissioned by the Greens shows that the current rate of 30 per cent is still very significantly below the OECD “weighted average” of 36 per cent. The same research estimates a 1 per cent cut would cost $18 billion by 2021. http://au.news.yahoo.com/thewest/business/a/-/national/9091822/greens-want-to-restrict-company-tax-cut-to-small-business/

Such a pool of money could also be critical for infrastructure, education, and mental health and aged care services. http://www.businessday.com.au/business/mining-tax-tax-cuts-are-linked--swan-20110329-1ce3v.html

But there are potential issues for Labor in drifting away further from the platform it took on these issues to the 2010 Federal election.

To begin: it is important for Labor to honour any agreements in order to retain credibility as a partner for negotiation into the future. This means that if Labor has any kind of ‘agreement’ it is a practical necessity at least that the government ought enter into fresh negotiations if seeking to change its position on resource taxation during the current term. Either that or take such action as to make the consequences ‘neutral’ for those concerned. This could boil down to a choice between either increases in corporate superannuation contributions for low income workers, or abandoning the Company Tax cut, diverting the proceeds to other crucial priorities as Brown suggests.

Further: if the government goes down the path of increasing superannuation contributions for low income earners it would be best to also ease Aged Pension means tests for such groups to enhance any real effective gain.

It is equally compelling as a matter of public interest, however, that the electorate be made aware of the scope of any agreement Gillard made with the big miners, including BHP and Rio Tinto, and corporate Australia more broadly, in the run up to the 2010 poll. Negotiations with the most powerful corporate interests ‘behind closed doors’ is anathema to democracy.

Unfortunately, the political power of the miners, and the corporate sector more broadly, is not going to disappear any time soon, no matter how it skews democratic processes, overshadowing the voices of ordinary citizens. So maintaining credibility in negotiations with those interests is crucial no matter how problematic their power may be.

However it is also most definitely legitimate for Labor to seek a fresh mandate at the next Federal election to effectively increase and widen the scope of the Minerals Resource Rent Tax; and to start canvassing support for any such move now. Given the past defeat, though, Labor would need to adopt a cautious approach.

Yet there could be a difficulty with such a move as well if not handled properly. Labor might not want to ‘muddy the waters’ by pursuing too many distinct major debates on tax reform at once for fear of leaving some voters overwhelmed.

Climate Minister Greg Combet is anticipating a “long debate” suggesting any Carbon Tax will not be implemented until July 2012. http://au.news.yahoo.com/a/-/latest/9001318/carbon-tax-will-be-a-long-debate-combet/

In that context a ‘tax summit’ (Wayne Swan prefers the word ‘forum’) is planned for October this year. http://www.theage.com.au/national/key-tax-plans-before-summit-20110320-1c2bm.html

But without putting public fears to rest – as early implementation could achieve – the debate may become a ‘running sore’ distracting from any further reform agenda.

If the Gillard government could resolve the shape of Carbon Tax reform and see the tax implemented late this year (2011), though, fear and scepticism could be put to rest well before the next election. Crucially: this could provide the necessary time and ‘breathing room’ to pursue a debate on further significant progressive tax reform.

Taking that into consideration, the tax ‘summit’ or ‘forum’ could do to be brought forward somewhat – perhaps by a couple of months.

Openness to future reform is also crucial given the scenario of profit levels in the industry waning somewhat - to the point where the government will need to consider additional changes simply to maintain revenue, and fair returns on the natural resources that belong properly to all Australians.

All this considered, what is the best move for Labor in pursuing social justice objectives, while fostering co-operation with its independent and Green partners?

The key could be in the implementation of any Carbon Tax.

In 2010 the Greens were proposing a Carbon Tax of $24/Tonne, including assistance to ‘trade exposed’ industries. http://www.greenleft.org.au/node/43138

Without some form of assistance exports and import-competing jobs might simply be lost overseas without any real reduction in emissions.

Professor Ross Garnaut, meanwhile (responsible for the Rudd Labor ‘Climate Change Review’), has argued for a tax somewhere in the range of $20-$30 a tonne. http://www.smh.com.au/opinion/politics/garnauts-carbon-tax-plan-can-kill-two-big-reforms-in-one-hit-20110317-1by5o.html?comments=148

Garnaut has furthermore estimated that a carbon tax at a rate of $26/tonne would bring in $11.5 billion in the first year alone. http://au.news.yahoo.com/thewest/a/-/breaking/9032850/garnaut-ties-income-tax-cuts-to-carbon-tax/

Assuming these levels of revenue, it is the structure of compensation that is crucial: and which provides opportunities for fairer wealth distribution.

Firstly, compensation should take the form of direct payments for low and middle income groups, and increases in welfare – including the Aged Pension, Disability Support Pension, Austudy and Newstart. Income tax cuts, by comparison, are a clumsy instrument which would compensate high income groups who do not need the assistance.

Secondly: Compensation should exclude the top 30%-35% income demographic to provide sufficient scope to increase welfare and significantly improve the final financial position of low and middle income groups and individuals.

Thirdly: In this context - by returning all such revenue gained via a carbon tax taxpayers in the form of cash payments to low and middle income groups, including welfare recipients, Labor could actually expand and consolidate its electoral support base. This could very effectively undercut Abbott’s appeal to ‘battlers’ on ‘cost-of-living’ issues.

Fourth: A carbon tax rate at what Labor considers ‘the upper end’ of the scale (including the Garnaut proposal) could actually provide greater scope to assist low and middle income groups via compensation and effective redistribution. Hence it makes electoral sense in shoring up Labor’s support base.

Finally:  The only real problem in this scheme of things is that of what happens when the transition to a lower-emissions economy is actually achieved.  The problem being that at this point carbon tax or ETS revenue may 'dry up'.  For the long term, therefore, an alternative funding mechanism will be necessary to compensate low and middle income groups.  Hopefully, though, innovation in the renewable energy sector will also drive down cost structures.  Solar Paint, developed in Australia, looks particularly promising. See: http://www.abc.net.au/tv/newinventors/txt/s3008638.htm   and also: http://www.greenlivingpedia.org/Solar_paint

As for right-wing commentators such as Miranda Devine who seem to think distributive justice measures via tax comprise some malign ‘social engineering’: do they suppose the same is true in the case of most tax 'reforms' – including the gradual ‘flattening’ of income tax – which historically have redistributed wealth from low and middle income groups to the wealthy? The double-standards are palpable.

This leaves us with the concerns of Bob Brown and the Greens more broadly that emphasis on Company Tax cuts will leave crucial areas of the welfare state and social wage under-funded and exposed. While Labor cannot be seen to be simply ‘dancing to the Greens’ tune’, minority government necessarily involves compromise. And indeed, given their significant electoral support base, the positions of the Greens ought be considered seriously regardless.

As already alluded to – early implementation of a carbon tax could provide ‘breathing room’ for further debate and further reform before the next election.

In 2009 ‘Lateral Economics’ informed the Henry Tax review that ‘axing’ dividend imputation could save the Federal government $20 billion a year. http://www.businessday.com.au/business/dividend-imputation-wont-be-cut-says-henry-20090821-etwn.html

Dividend imputation is meant to stop so-called ‘double taxation’ of profits: providing credits to shareholders to compenstate for Company Tax already paid.  This was supposed to provide an incentive for investment. But the reform – first implemented under Keating Labor – provided a windfall for the most wealthy Australians, with a massive cost to the budget bottom line, and less money for crucial social programs and infrastructure.

Without fully removing the measure, shifting to half dividend imputation – as once suggested by progressive economist John Quiggin - would be a substantial equity measure, and provide over $10 billion/year much of which could be directed to crucial social programs in aged care, mental health and education, and for social housing and infrastructure.

Such reform would mainly hit millionaires who own so much invested wealth in this country: but small investors may resent the change as well. The benefit from social investment would need to be clear before the next Federal election. And while a means test could provide fairness to small investors, using some of the money to further improve the Aged Pension could be a smart move in the context of ‘winning over' such people as well.

Furthermore: to maintain investment in the Australian economy in that context, some of the money could be diverted to a public pension fund. (to be invested locally) Not only could this support ongoing job creation: it could also sustain the Aged Pension in the context of an ageing population.

A compromise between the Greens, independents and Labor – with early implementation of a Carbon Tax, and a trade-off for half-dividend imputation in return for agreement on Company Tax – could be in the interests of Labor’s core constituency. Appealing to the material interests of most voters, it would also consolidate Labor’s electoral support base, while being well in keeping with Labor ideals.

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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