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Labor’s First Budget pitched as “Modest and Responsible’ – But more Ambition needed

Labor’s first Budget has been pitched as ‘modest and responsible’, with limited new spending; and the intent of not fuelling inflationary pressures. That said, there are some welcome measures. $20 billion will be invested towards upgrading the electricity grid; preparing for a low-emissions future. Promises on Aged Care will be fulfilled, with tougher regulation and an improvement in the wages and working conditions of Aged Care workers. Over $2 billion will go into Education; with free TAFE, 20,000 university places for the disadvantaged, and money for more qualified teachers and better-resourced schools. Money will be provided for ‘urgent care clinics’, and reducing the maximum co-payment for medicines from $42.50 to $30. Finally, there will be more support for parental leave and subsidised childcare; with a plan to promote an increase in housing supply (and hence affordability), as well as an increase in Defence expenditure to over 2 per cent of GDP (Herald-Sun 26/10/22). Though this housing plan appears over-dependent on private investment.

All that said, there are numerous problems as well. Jim Chalmers has flagged possible intervention into the energy market, with power prices set to rise by 40 to 50 per cent. This will crush struggling individuals and families. Also, Labor is flagging its intention to go ahead with the Stage Three Tax Cuts which will deliver a $9000 windfall for those earning $200,000 at a cost to the Budget of around $250 billion over 10 years. Nothing has been projected in the way of energy subsidies, and the price for reining in inflation seems to be falling upon those least able to pay. Wages are also flatlining, regardless of pre-election commitments to get wages moving.

So – what should Labor do? Some would oppose improvements for those on low wages and welfare as fuelling inflation. But those people should not be shouldering the burden. Already the bulk of their income is going towards non-negotiable necessities; and increases in power costs will challenge their capacity to make ends meet in the most basic sense. There will be homelessness, skipped meals, and Winters and Summers without heating or cooling. A temporary increase in tax for those on middle and higher incomes could also have an anti-inflationary effect without impacting on the most disadvantaged. Specifically, temporary tax increases for those on middle incomes could tighten demand significantly. Without such tax increases, individuals and families will be left to shoulder the burden with higher interest rates, and hence higher home loan repayments. Some of this will be passed on to renters as well. The question is: What is the most efficient way of containing inflation?; and how can this be achieved while lessening the burden on those least able to pay? Also, what other measures need to be taken to sustain an improvement in the social wage longer term? Including the preservation of a truly needs-based National Disability Insurance Scheme (NDIS). This may mean some other taxes need to increase progressively and permanently.

Over the longer term Labor needs a rethink on tax reform. Ideally the Stage Three tax cuts should be withdrawn completely. There are so many priorities which demand funding. But a compromise strategy could be to deliver the same amount of tax relief; but skewed towards those on lower and middle incomes. Median taxable income is just under $50,000/year. If tax credits are provided for those on low and middle incomes; relief could be delivered without delivering an expensive windfall for those on higher incomes. By the time the tax cuts are projected to be phased in we will likely be struggling to recover from an inflation-induced slowdown; or maybe even a recession. At this point, it makes sense to support the vulnerable and low-paid – as they spend the highest proportion of their income on ‘getting by’ compared with others. That is, they can be depended upon to spend their incomes.

Unemployment is also set to rise to 4.5% over 2023 to 2025. This begs the question of whether Labor accepts arguments around a supposed Non Accelerating Inflation Rate of Unemployment (NAIRU). Again, recession and ‘spare capacity’ are not the only means of containing inflation. Taxes can achieve this without depending on social misery and wasted human resources.

Also, record profits in the gas industry should be subjected to taxation; as has occurred in Norway for instance. Those resources properly belong to all Australians, and any windfall should be shared substantially with the Australian people. This could be redirected to energy consumers with subsidies – especially those on low incomes – while a legislated gas reserve could ensure Australian consumers don’t miss out because of exports and global demand.

Into the future Labor should be seeking to reduce poverty and inequality by boosting the social wage and driving reform of the labour market; especially for the working poor. An important improvement in the social wage would be implementation of Medicare Dental. Earlier in its first term Labor delivered an increase in the minimum wage. But others on low wages also need urgent assistance. This is especially the case in feminised industries like early childhood education. Again, any inflationary impact could be countered with strategic and temporary increases in tax. While impacting ‘the economic middle’ would be regrettable; the plight of those on low incomes is more urgent, and Labor needs to prioritise.

While Labor needs to deliver on promises to improve the Cost of Living, including energy affordability, it also needs to be looking to boost the wage share of the economy. To some extent this should be delivered as a matter of distributive justice; and not only in return for improved productivity. In 2018, Jim Stanford explained how the wage share of the economy had fallen from 58.4 per cent in 1975 to 47.1 per cent in 2018. That translated to over $16,000 a year on average per worker, and $210 billion per year in total. Not only does Labor need to agitate for improved Awards at the lower end. It also needs to improve workers’ bargaining power more broadly, and this must include support for pattern bargaining. Even Secondary Boycott should be legalised in circumstances where the ‘industrially strong’ support the ‘industrially weak’ ‘in good faith’.

Importantly, though, the wage share is lagging in areas like mining; where regardless of this wages are significantly higher than average. Profits are that high. In this case the social wage needs to be factored in, and again a windfall profits tax and a longer-term super-profits tax – could help. Welfare also needs to be reformed to respond comprehensively to the Cost-of-Living crisis; including all pensions and unemployment benefits.

Finally, the required strategic expansion of social and affordable housing demands a greater public investment. While Labor is correct to promote an increase in housing supply in geographic areas of job growth, it also needs to ‘put its money where its mouth is’.

Labor has come to government at an especially difficult time. But there is a need to deliver on its mandate, especially for those most in need. Inflation can be contained without hitting the most vulnerable overall; and this needs to be Labor’s priority during its first term.

This article was originally published on ALP Socialist Left Forum.

 

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7 comments

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  1. Socrates.

    Won’t say gutless as to substantial issues such as the “revenue not spending” problem and the gormless approach to energy gouging.

    Could a person employ the term, “timid” without this being taken as a declaration of war?

  2. Brad

    Albanese’s small target strategy in opposition, with respect to his imprimatur of a ridiculous tax cut to those that least need it, has come back to bite him. Unfortunately, a nip in the backside for him is a chunk out of the backside for most of the rest of us!

  3. Clakka

    The realities well enunciated. The great problem of the (allegedly) developed world, an inextricable and self-defeating plague of toadying and sophistry. It has gone on for so long now that the shift of assets and wealth to the ‘elite’ minority has rendered politics subservient to the whims and lack of wit of those elite. Their mountains of money and ineffective assets, and their inability to keep it spinning are utterly irreconcilable, and that is the death of economy. Political timidity and / or cringe will achieve absolutely nothing but prolonged pain until it all comes tumbling down – for the ‘elites’ and the rest. QED.

  4. Fran

    The stage 3 tax cut is not due before 2024. Why should this be a priority for the incoming Government now at this critical stage. Is it not wiser to consider that problem at later date when they can see some of their many implementations from this first budget taking seed. So many long term policies need attention as we are well aware which have been neglected over the past 9years. Labor is aware that the tax system needs urgent reforms, but to get it right does take more time then just 6months in office. Can you ever make a budget right for EVERYONE?

  5. Harry Lime

    A typically excellent summation of the budget and the origins of most of the giant problems (the ratshit opposition,of course) in Michael Pascoe’s column in todays New Daily.

  6. Canguro

    In the Guardian today, a piece on how farmers will ‘gear up’ to fight water buybacks; the buybacks being a projected outcome based on a budgetary allocation that implies a commitment towards restoration and remediation of the depleted ecosystems along the Murray-Darling waterways.

    A predictable outcome by the farming community; themselves the progenitors of the destruction of this fragile ecosystem, whether current or former generations, the key point being farming communities whose collective self-interests were continuously and extensively allowed to over-ride best-practice management of the Murray-Darling and associated minor contributing river systems within the overall massive catchment. Self-interests which, let it be said, were aided and abetted by supine regulatory agencies along with politicians whose interests aligned with the farmers and not with the ecology that enabled the farmers to operate in the first instance. A classic example of allowing the slow death of the goose that laid the golden eggs, vis-a-vis; no water, no farming.

    Personally, I find it somewhat annoying (I’m being temperate here with moderate language) that these rural capitalists will continue to argue for retention of current water rights and the MDS be damned; their attitude, unpacked, says ‘we don’t care if the Murray Darling system dies, whether quickly or slowly, and what consequences that has for flora, fauna both land-based and riverine, we don’t care because we’ve got a job to do, crops to sow & reap, children to educate, machinery to finance, overseas holidays to budget and plan for, down payments to make on that Cessna 337 Skymaster, we don’t care, it’s not our problem. We must have that water’

    But it is. They are the problem, and the government hold the reins to the solution. Gird the loins, fellas, and don’t back off.

  7. Canguro

    From the press desk that gives us news that counts, (as opposed to, say, any of the News Corp mastheads, of for that matter, regrettably, the ABC, now a pathetic shadow of its former self thanks in large part to the efforts of serial LNP governments to muzzle and neuter our once-beloved and now mostly derided Auntie), the Guardian today reports on the latest slew of UN reports on the state of the climate.

    They do not make for comfortable reading.

    Hypothetically, if language was used that, amongst other choices, employed phrases like “really bleak moment”, or “very, very close to irreversible changes … time is really running out very, very fast”, or “woefully inadequate”, in the context of some event that seems, let’s say, close to home, for example, the boss caught you with your fingers in the can and he said to you that he used to trust you but this behaviour is a really bleak moment, and you’re likely to be sacked, you’d sit up and take notice, apologise, promise never to raid the tea kitty again, and hope he didn’t tell your colleagues what a thieving wretch you were, or if you were having an affair and your partner found out, and you said sorry, I’ll never do this again, and by the way can I buy you a bunch of roses and take you out for dinner, they might just say that your response was woefully inadequate, or again, along the same lines of thinking in relation to behaviour that threatened to lead to separation or divorce, an appropriate comment might well be that time is really running out very, very fast to save this relationship.

    But it seems, when used in the context of an existential crisis that threatens humanity, along with most of the rest of the planet’s creatures, as well as a large swathe of the planet’s flora and who knows what else, such language fails to move us, or more importantly, those who need to be moved, the one’s with the capacity to initiate and shepherd the exact sort of changes necessary to alleviate the imminent crisis looming over all of this planet’s inhabitants.

    As Greta Thunberg said, it’s just more blah blah blah, sadly. I reckon the Shit-Hitting-the-Fan-ometer might be currently registering around 3 or 4 on the scale of 10, but with tipping points and the likelihood of rapid escalations in outcomes the SHTF-ometer’s pointer might race to 10 at warp speed, relatively speaking, and then we’ll really sit up and take notice. By then it will be too late, and we’ll be drawing straws as to who gets to sleep in the cave overnight and who gets a chunk of jerky and who misses out. Might be time to re-read Cormac McCarthy.

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