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Social Justice doesn’t need to be ‘put on hold’ to fight inflation

In Australia the Labor Government is being warned not to spend too much for fear of exacerbating inflation. At the same time workers are urged to moderate wage demands to avoid a ‘wage/price spiral’. This is the ‘common sense’ of the day. But at the same time the labour share of the economy has fallen by over 10 per cent of GDP since the 1970s.

Furthermore, income inequality is marked. ACOSS observes that:

“People in the highest 20% income group receive 42% of all national income, which is more than the share of the lowest 60% combined. People in the lowest 20% receive only 6% of all household income, while the second lowest 20% receive 12%.”

Here, those in the lowest 20% bracket earn on average $753 a week. While those in the highest 10% bracket take $5230.

Meanwhile, in terms of wealth the bottom 20% average $36,000, while the top 10% average $4,754,000.

Amidst this the Federal Labor Government’s support for an increase of the minimum wage in line with inflation is welcome. But ‘the bigger picture’ is one of increasing inequality, and an increasingly lower share of the economy going towards the needs of working Australians. At some point Labor needs to confront inequality; and rectify these imbalances. But rather than suppressing wages or implementing austerity, the ‘heat’ could be taken out of the economy by raising tax. Temporary tax increases could target those on middle incomes, while permanent tax increases could target those on high incomes with the goal on funding social wage measures – like Medicare Dental.

Because of the need to moderate demand at this time, the ‘middle’ will be affected either by interest rates, or wage suppression, or tax. Choosing ‘the tax lever’ achieves this while providing the means to fund infrastructure, welfare and social wage initiatives. At the same time wages – especially at the lower end – could rise – with the aim of furthering distributive justice. Overall wages should also rise where the wage share is lower; and where rectification is necessary. Labor should make representations to Fair Work Australia to achieve this; and to increase the share going to lower income earners overall. But in the immediate term demand would be moderated through higher tax. Over the longer term such taxes on ‘the middle’ could be removed to promote an economic recovery.

The question Labor needs to ask is: ‘can social and distributive justice be furthered while tackling inflation at the same time?’ In this context, pursuing the Stage Three tax cuts makes no sense economically, and from a social and distributive justice perspective. They will see a flat 30 per cent tax rate for all incomes from $40,000 to $200,000. This will see an increase in overall demand rather than have a dampening effect (though by then the inflation genie may be ‘back in the bottle’ so to speak). It will also minimise progressive redistribution and entrench inequality.

It means proportionately those on lower incomes will pay more for the services and infrastructure functions of government. The Stage Three Tax Cats will also cost the Budget billions: almost $250 billion over nine years. This money could fund high speed rail, and Medicare Dental, while improving pensions, and winding back user pays in Higher Education. It could also fund a massive investment in public housing, while improving the wages of Aged Care workers significantly. And probably much more besides. Some would say such investment would act as a stimulus; but again it depends on what temporary and permanent tax increases accompany said measures. Importantly, if such spending kicked in a bit later down the track, the inflation crisis might be over; and stimulus may in fact be appropriate once more.

The bottom line is that managing inflation does not have to mean social and distributive justice are put on hold. There is scope to improve welfare and social wage while dampening demand overall in the immediate term; but also rectifying the imbalance between capital’s share of the economy and labour’s share of the economy. When we have Labor Governments we need to make the most of such opportunities. We need an Albanese Government that makes the most of the possibilities of government; and makes long term structural reforms which further the goals of social and distributive justice.

This article was originally published on ALP Socialist Left Forum.

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15 comments

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  1. Hotspringer

    Who cares as long as we can afford nuclear submarines and stage three tax cuts.
    By the way, I find “ALP socialist left” something of an oxymoron.

  2. Tristan Ewins

    If we don’t actually talk about socialism we will stop being socialist in practice. We need a Left counter-culture to keep ideas alive ; and to inform policy.

  3. totaram

    Hotspringer: In these difficult times, one must distinguish between, left, socialist left, socialist right, Marxist, revolutionary Marxist, and terrorist Marxist etc.
    🙂

  4. Florence nee Fedup

    Social Justice should dictate the way governments fight inflation.

  5. Andrew J. Smith

    Agree, I heard John Harris of The Guardian UK with whom I do not always agree with, but he does good social reportage on the ground and recently spoke about UK economic policy.

    On UK’s economics woes, income and employment conditions he stated that although he is not an economist he suggested that it makes sense to ensure low and middle income have increases (vs. high income) as they spend everything, good for the real economy vs catering to wealthier &/or older squirreling away their resources, but defy the ‘trickle down effect’ (myth?).

    In Australia we have had the ‘immigrant worker’ card being played for decades (or ever?), but seems to bypass higher income professionals for focus upon lower wage employees and claiming their conditions are contingent upon levels of immigration and no need for unions and awards; BS but even many union types still… believe it.

    Like the ‘trickle down effect’, immigrants taking our jerbs &/or depressing wages etc. owes more to the US ‘radical right libertarian’ ideology coursing round the Anglosphere and elsewhere, highlighted indirectly by BBC two days ago with article on 55 Tufton St. think tanks (same pod as IPA, CIS & Tanton linked SPA), allegedly informing government policy and ‘Trussonomics’ (= ‘Kochonomics’).

    When the ideology or policies are dissembled or desynthesised, one is left with dour Christianity of Calvin, distortion of classical economics with dollops of eugenics from the populationist Malthus, social Darwinism (of his cousin) Galton ala immigration restrictions and top down authority or pecking order for the 1% via authoritarianism; repackaged by Koch’s muse the US ‘segregation’ economist Buchanan, as 21st century policies for promotion to dumbed down right wing parties, with media, gaming ageing electorates….

  6. Andy56

    the economy is being run by intellectual giants. Starting with Lowe. Its 2022 and we have had super computers for a few decades now but we still calculate everything in averages and with broad strokes. Inflation up so lets raise the interest rates. Never mind that the inflation rate is driven up by a whole range of things that have bare no corelation with interest rates. price of oil went up so lets raise interest rates. Thats before we even start to define inflation. I read that rental has gone up by $3000 this year. Thats probably 5% on its own to the average household renter. petrol has raced from around $1.60 to over $2.00, a 20% increase. So the solution is to raise interest rates. The one area where its obvious , without any more studies that interest rates do affect the price is property. So are these clowns regulating the money supply to contain inflation caused by borrowing or trying to limit the size of our economy? The target is ill defined and thus the tools are very narrow and clumsy. Lots of collateral damage with minimal returns.

  7. Arnd

    Social Justice doesn’t need to be ‘put on hold’ to fight inflation

    But why would the purveyors of neo-liberalism miss an opportunity to pretend that it does? They do have an agenda to pursue … and national economies to wreck. Just see Liz Truss and Kwasi Kwarteng.

    totaram,

    … In these difficult times, one must distinguish between, left, socialist left, socialist right, Marxist, revolutionary Marxist, and terrorist Marxist etc.

    Wasn’t it always thus? As far back as Roman times? The “Judean People’s Front” vs “People’s Front of Judea” vs the “Popular Front” – one old guy sitting by himself.

  8. Michael Taylor

    Arnd, the UK doesn’t know what hit them, in regards to Liz Truss. She could actually be worse than Boris. So far, she’s on track.

  9. Arnd

    Michael, indeed, what plays out in the UK truly is unbefuckinglievable – on the one hand!

    On the other hand: it is the logically necessary continuation of the political and economic course the UK set for itself be electing Margaret Thatcher back in 1979. It’s going from bad, to worse, to worse still, with an almost mathematical inexorability.

  10. Arnd

    Andy56:

    Never mind that the inflation rate is driven up by a whole range of things that have bare no corelation with interest rates.

    “To a man whose only tool is a hammer …”, ‘n all like that!

  11. Terence Mills

    I’m not the sharpest tool in the shed but I do try to keep up. Can anybody enlighten me on what is happening with monetary policy ?

    In the US around 90% of all household debt is on fixed rates for average loan terms of thirty years : in Australia it’s the reverse, the majority of home loans are on variable rates for the life of the loan – the banks prefer it that way as they make more money at times like this when interest rates are going up. Why is that permitted ?

    The RBA tells us that interest rates must go up to ‘dampen demand’ and tame inflation. Evidently the theory is that people will borrow less and spend less as the cost of borrowing (the cost of money) increases, demand will fall away and inflation will be a thing of the past. I don’t know who they are talking about it’s not me who is borrowing money, it must be you !

    But what actually happens when interest rates go up is that people with existing mortgages get hit with higher repayments and the banks make more money on the same loans. How can that be fair ?

    Kaye Lee used to explain these things but, in her absence can anybody thrown any light on this crazy situation.

  12. Michael Taylor

    I’ll have to pass on that one, Terry. I know nuthin’.

  13. Tristan Ewins

    They hope with falling demand businesses won’t risk putting their prices up ; but there are structural problems which won’t be fixed by this – like the global oil and gas market.

  14. Ann

    Terence, it makes a lot of sense if banks can create a massive debt bubble and then have the screws on interest rates turned by the RBA. This is no suggestion of collusion, but you know history. All that is needed to carry off the heist is the illusion the commercial banks are innocent bystanders in the situation, they couldn’t possibly imagine that their irresponsible lending would at some point hit a brick wall of raising rates. If a certain percentage of borrowers default, look at who picks up the assets – banks. The cream for lenders are investors and small business owners who usually have to put up the family home for collateral. The whole thing is a dog’s breakfast.

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