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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