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Tag Archives: Debt.

The government that doesn’t want to govern

On 1 October, the Affordable Health Care Act comes into force in the United States. It has split the US down the middle – by some polls, over half of the population hates the Act. Detractors call it “Obamacare” as if to identify it with a single person is to devalue the raft of policy and the nation-changing effects it will have. Republicans, quite simply, hate it outright.

I recently requested clarification from a right-wing, evangelical Christian blog as to why, if the Act is of so much benefit to the poor and downtrodden of America, the right oppose it.

I received in response a bullet list of seven reasons “Obamacare” is a disaster for America. Of these seven objections, one is a moral statement: the argument that some aspects of the law don’t suit all people, but will apply to all people. The argument was made that funding for abortions may be made available through the Act. This is highly arguable, at least in the law as enacted, but fair enough; this seems like a valid objection.

It is entirely legitimate to oppose legislation on the basis of disagreement with the moral outcomes. Two of the objections question the effectiveness of the legislation. Similar to the Australian Coalition flatly stating that Labor, even when in possession of a good idea, cannot turn it into effective action, opponents of the AHCA point to other countries with national healthcare systems and claim that they’re not perfect.

They argue that such systems will be open to abuse, rorting and fraud. You could argue that all systems are open to abuse, rorting and fraud and that this is a good reason to refine the legislation to progressively remove these opportunities; however, it’s not an entirely invalid objection.

And three of the objections boil down to the basic assertion: “We can’t afford it”. The policy will cost the US government, and thus the taxpayer. The US is already debt-ridden. The government ought to concentrate on paying down debt before engaging in further expenditure. Fair enough. That does seem a valid, and eerily familiar, objection. Except…

“We can’t afford it” has become a catch-cry of conservatives the world over. The Affordable Healthcare Act? Can’t afford it. National Broadband Network? Can’t afford it. Public servants? Can’t afford them. Social support and welfare? Can’t afford them.

Government is a case of competing priorities. All governments work within limitations of resources, in terms of finance and political goodwill and legislative time and personnel; every potential advance in society which government needs to enact comes at the expense of other needs. To evaluate whether “can’t afford it” is ever a valid objection to policy advances, let us take a step back and examine what it is that we have a government for.

The human species is gregarious by nature. Since the formation of the first agrarian communities, we have instituted some kind of authority structure. All governments throughout history have entailed a personage, or group of personages, to which the people voluntarily surrender power and authority. The people sacrifice their autonomy, their time, and their taxes, for the sake of the benefit of the whole.

For many centuries, the fundamental purpose of government was law and order, and peace/protection from invasion. In other words, government’s areas of responsibility went no further than setting the legislature and maintaining a standing army which, in addition to its function of protecting the people against hostility from outside, also enforced the law.

Some empires also dabbled in infrastructure. The ancient empire of Rome is famous for its network of roads; after the fall of the Roman empire, significant expenditure on roads would not be seen again in Europe until the 1800s. Rome also built aqueducts to service its wealthy citizens. The Roman empire was centuries ahead of its time, but in modern society, we expect governments to spend some resources on infrastructure. Roads, water, sewerage, power, telecommunications – these things that modern society relies upon are part of the bread and butter of modern government.

Governments of old, however progressive in their approach to infrastructure and law and defense, had no interest in some of the areas we currently consider to be expected parts of civilisation. Rome implemented a “corn dole” for citizens too poor to buy food; the Song dynasty in China (circa 1000 AD) managed a range of progressive welfare programs. Apart from a few stand-out examples such as these, however, social support was nonexistent.

Modern-day welfare came into being in the 19th and 20th centuries. We now consider a certain level of unemployment benefit, disability benefit, aged care benefit, etc. to be a reasonable imposition on society. Before the 1900s, the unemployed and the aged (and unmarried women) were the responsibility of their families, not of society as a whole.

It wasn’t until the 1700s that history saw the first public, secular hospitals being created. Prior to this, health care would have been taken care of by organisations other than government; primarily, in Europe, by the Church and the monasteries. Education is a similar story. Before the emergence of universal education for the populace – as early as the 1700s in some parts of Europe, but not widespread until the 19th century AD – education was reserved for the elite and provided by the churches.

It is important to note that for all of this time, the churches and other bodies responsible for providing these services – education, health care, welfare – were accepted and fundamental parts of society, and society contributed to them regularly and generously. Everybody gave alms to the churches. The monasteries were at the center of landholdings in their own rights and levied taxes upon their surrounds. In a way, these organisations were analogous to government – they received support from society as a whole, and in return, they provided certain necessary services.

In the modern world, the social bodies that would have been responsible for education and healthcare are declining or have died. Catholic schools and hospitals still exist, but not to the extent required to support our population. For the past 200 years governments have taken on these responsibilities, as the world gave way to secular sympathies, and governments took on these responsibilities as key determinants of national progress and success. A healthy, educated populace was the key to national prosperity.

Which brings us to the present. In 2013 we have conservative groups and political parties wanting the government to get out of the way while the market takes care of these things. On infrastructure – for example, the NBN – let it be driven by market forces. Environmental action, likewise: rather than a carbon tax operated by the government, a “direct action” policy will find the emissions abatements efforts that already exist and support them, rather than mandating change from the outside.

We have Republicans and Liberals wanting the government to get out of the business of mandating healthcare because it ought to be driven by market forces. We have governments of all persuasions pursuing privatisation and outsourcing of previously fundamental responsibilities in the name of efficiency and cost-effectiveness. And we have governments preferring to return the community its taxes in the form of tax cuts (to individuals; to business) and infrastructure spending. All of this comes with a wave of the hand and a “we can’t afford [whatever]”.

But can the government really abrogate its responsibilities in these areas? Without other bodies or structures to take on these responsibilities, it’s not ethical to stop providing them. So can the free market be relied upon to do this?

Money to pay for education, fire services, health, broadband, has to come from somewhere. The social structures – primarily church – which previously might have supported these things no longer have the resources or the popular support to be able to take up the slack. Charities around the country are crying out for support and berating the government for not providing enough basic resources/support; something has to give. In this environment, the idea of “small government” doesn’t make sense.

The government has to be big enough to do the things that the monasteries aren’t around to do anymore.

The Republican right in the US and the Lib-Nats in Australia run on a platform of “individual empowerment”. With the exception of a few big-ticket items, where they have specific, active policies – policies towards boat people come to mind – the Coalition’s ideology is to get out of the way, reduce government’s interference in society, reduce the tax burden on individuals and corporations, and let the free market have its way. It believes that everyone will benefit if there are lower taxes and more money moving.

Let’s put aside for a moment the fact that trickle-down economics doesn’t work. Even in some fictional world where successful humans were altruistic enough to plough their profits back into providing more employment and more productivity, rather than squirreling away the proceeds as profit, we still need these other functions to happen.

And these other functions – hospitals, schools, heavy rail, telecommunications infrastructure – don’t happen at the behest of successful capitalists. They happen because the community needs them and the community as a whole will pay for them.

Individualism is what you have when you don’t have strong governments. Individual empowerment is what you get when the strong ride roughshod over the weak.

Now we seem to be on the verge of voting in a Coalition government which will be forced to cut back on all sorts of areas of service provision and expenditure if it is to meet its overriding goal of bringing the budget back to surplus.

A government whose budget figures and estimates we’ve not been allowed to see, which is promising to repeal several sources of revenue and increase expenditure in several areas, whilst not increasing taxes. Something has to give. It seems certain that “We can’t afford it” will come into force after the election in a big way.

“We can’t afford that” is never a valid excuse. That’s what government is for: to find a way to be able to afford the basic things we need our government for. If that involves raising taxes in an equitable manner, then that’s what you do – it’s exactly why we pay taxes in the first place.

If it involves an imposition on businesses to achieve an end that the community desires – for example, a carbon tax – then that is why we have a government. The whole purpose of government is to place impositions on the strong to benefit the weak and to regulate the individual to offer benefits to the whole.

A government that doesn’t want to do these things is not governing.

A government that doesn’t want to provide these things is a government that doesn’t want to govern.

 

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History. And why our grandchildren should be paying off debt!

  1. Victoria. Kennett has been elected, and his main platform was that the State was “broke” and that we were in so much debt that our grandchildren would be paying it off.

Slash, burn, cut the public service! INCREASE taxes – not because he wanted to, but because it was necessary. You see, Labor enjoys increasing taxes so we should criticise every single increase or new taxes, but Liberals only do it out NECESSITY. Some argue that Kennett didn’t have to move so quickly. Some find his cuts to services while spending money on improving the dining in Parliament House or bringing “Sunset Boulevard” to Melbourne offensive.

But whether Kennett moved too quickly or cut too deeply, he DID pay off Victoria’s debt. And it doesn’t take several generations. It takes less than the seven years he’s in office.

Of course, the asset sales and the lower interest rates probably helped, but the point is: Whatever was said before he was elected, our great-grandchildren weren’t paying for the debt. Neither, for that matter, were our children.

Although, it could be argued that these ARE the people who paid for the debt. The ones who missed out on educational opportunities. Or the people who died waiting for an ambulance – although it was considered bad form to try to make political capital out of that, unlike these days when the Liberals suggest that Labor have blood on their hands over the Pink Batts. (“Should have been more regulated! Because private industry needs regulation, although once we’re in power we can cut red tape because as with the economy, it’ll all be ok then!”) And of course, the generations who are told that power prices have to go up because the private companies that Kennett sold our assets to haven’t spent money on infrastructure and that the public transport system can’t be improved because the private companies can’t afford to.

Liberals are fond of using household budgets as an analogy, and I suspect that my son would rather be left with a small mortgage on a house that was safe for him to live in than being debt free but homeless. That’s the thing with debt, it’s always relative to assets. The Australian Government – or the taxpayer – may be $300 billion in debt, but servicing that debt is only costing $2 a week for every working Australian (my source is a Murdoch paper!) And as for assets, well the $300 billion is less than a quarter of our Superannuation. Or about equivalent to what the Government spends in a year.

Basically, the debt isn’t that bad. We can pay it back over ten years by just a small increase in tax.

Or we can say it’s out of control. Sack half the public service. Cause a recession. And spend the next ten years blaming Labor for our inability to deliver a surplus. The Kennett option isn’t possible because there’s nothing left to sell. Apart from Medibank Private.

 

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Comparing Government to a Family Budget

Consider the following scenario:

A family of children are turning up to school hungry, and without books or pens. Teachers are concerned. The parents are called in to the school. When they arrive, they are well-dressed and articulate. They understand the purpose of the meeting and have brought their eldest child who is now a well-paid lawyer. The meeting begins.

The father explains that they are currently unable to afford to feed their children adequately, and have explained to the children that they’ll need to get part time jobs or do without. The father explains that neither he nor the mother have paid employment, and that they’re money comes from the share market, which as we all know has been down since the global financial crisis. When it’s suggested that perhaps he could sell some shares, he bristles:

“These shares provide my income! If I sell them every time things go wrong, I’ll end up with nothing!”

Someone has noticed that they have arrived in an expensive car, perhaps they could sell that and drive something less costly. No, the car is leased, it would cost too much to get out of the lease.

Could the lawyer sibling perhaps help out? The mother chimes in and says that by coming here this child has already made a large contribution. The lawyer sibling also points out that she has worked hard for her money.

Perhaps, they could borrow some money, suggests the welfare officer. Outrageous. The father thumps the table. “WE WILL NOT GO INTO DEBT!”

This, of course, is a great relief to the principal of the school. “I’m pleased to hear that at least you aren’t like those irresponsible parents I had in here last week. They’d put their groceries on the credit card, just so the family could eat that week.”

It was concluded that the only solution to this was for the children to continue to survive on scraps until the economy picked up.

* * * * *

Ok, which part of that story is far-fetched?

Yes, that’s right. The bit about selling the shares because they provide future income. What, you think I’m wrong? Well, just consider how governments behave, have another look at the story, and provide me with a concrete example of any government saying, “No this is not negotiable, even if we have to raise taxes, we’ll find a way to make this work, because health/education/the environment is far too important to just give up.”

Yep, you’re right. The rare times it’s happened, like Medicare or the national disability insurance scheme always seems to be a Labor Government. And, of course, we now have the arguments about whether or not we can afford Gonski, but sometimes we need to actually make an argument that there are certain things that we can’t afford to neglect. Education, of course, being one. And yes, I’m sure that we’ll soon be hearing from the LNP that throwing money education isn’t the answer. Or that a leaky roof never stopped anyone from learning. Complaining about a private school’s second boat shed is just the politics of the politics of envy and class warfare.

Education needs a major overhaul. Money won’t solve all the problems, but, if we can stop schools worried about the basic necessities long enough to actually think about how to improve what they do, it’ll at least provide a good start.

Strangely, unlike Government, some families DO go into debt to ensure that their children receive a good education. And they don’t say that they can’t afford it. They see it as a way of ensuring future prosperity.

 

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The Lateral View

Allow me to add my lateral view of things.

Government debt is frequently referred to as “the credit card” by Joe Hockey. This is, of course, a deliberate attempt to make the Labor Party sound like those “hopeless” people who can’t manage and who are paying 22% interest. Of course, in reality, Government debt is more like refinancing your mortgage – a reasonable rate of interest with assets to back it up.

When the Liberals bang on about how THEY didn’t go into debt, and how the GFC is so 2007, I always want to remind them, that they spent a large part of their time in office selling off assets like Telstra. Nobody ever talks about how Costello sold our gold reserves for about a sixth of what gold is worth today. To use the household analogy that the Coalition is so fond of, they paid off our mortgage by selling the house. No debt, but no asset either.

Someone, somewhere has to actually start mounting the perfectly reasonable economic argument that for governments, debt is neither good nor bad; it totally depends what the debt is for. The idea that debt is saddling our future generations with a burden starts to unravel when one looks at the past twenty years. Future generations now have a backlog of infrastructure that requires funding. Putting up taxes to pay for that is still a burden.

HECS is an example of a debt. But I don’t imagine anyone will be saying, “Becoming a doctor will give you a financial burden which’ll take years to repay, better to keep your job at Red Rooster and ask for me shifts so that you’ll be debt free all your life!”

Sadly, when we look at the country as a whole, that’s exactly how some people think. We can’t afford to educate, but we can afford to build jails. We can’t afford to build infrastructure, because we’d be incurring debt for future generations. Let’s wait – let those future generations build it and pay for it.

 

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Two dialogues by Rossleigh

“Good morning, I’m here to inspect your house.”

“What! I didn’t ask for any inspection.”

“There’s been a complaint from someone that when they knocked on your door, part of the roof fell down and nearly hit them, so there’s some safety concerns.”

“Yeah, yeah, I know the roof’s falling down. I can’t afford to get it fixed at the moment.”

“But it could be a serious health hazard. Do you own the house, or are you renting?”

“I own it.”

“Well, can’t you borrow some money?”

“Borrow money! God no, I have to live within my means.”

“But this is vital. Perhaps, you could get some extra hours at work.”

“Oh, I don’t have a job.”

“Perhaps you could get one.”

“No, no. They’re too costly. I’d need extra clothes. Then there’s fares to and from work. Besides I’m not really qualified for anything. I didn’t go to uni because I’d have had to take on a HECS debt.”


“Good morning, Mr Jockey, we’d like to talk to you about the Liberal’s economic policy.”

“What! I didn’t ask for any inspection.”

“There’s been a complaint that your figures don’t quite add up.”

“Look, it’s Labor that’s got this country into a real mess. We’re going to fix it up by living within our means.”

“So what sorts of things are you going to do?”

“Well, for a start we’re going to get rid of the carbon tax. And the mining tax. The country can’t afford to pay for those.”

“But that’ll leave you with less revenue.”

“I just make the point again. Labor got us into this mess, we’re the one living within our means. Have you any idea how much debt we’re in?”

“But how do you propose to fix that debt?”

“By cutting the fat from the public service which has blown out by over 20,000 since Labor took office.”

“But by our calculations, even eliminating 40,000 public servants wouldn’t raise more than $5 billion. Where’s the rest of the money coming from?”

“We getting rid of the school kids bonus. And we’re not spending any more money on the carbon tax.”

“But that RAISES revenue.”

“Exactly, it’s a tax that we can’t afford at the moment.”

“But you get it, you don’t pay it.”

“We don’t get it, the Government gets it.”

“But you’ll be the Government.”

“Now, we don’t want to seem overconfident here. There’s still the formality of an election.”

“Ok, so what about some of your promises, such as the maternity leave scheme.”

“That’ll be paid for by a LEVY on big business, not a tax, a levy, because a tax would be passed on to the consumer.”

“But aren’t you going to give them a tax cut of the equivalent amount?”

“Yes, if we can afford it. Then it won’t cost anyone anything.”

“And Gonski, the Disability Scheme insurance…”

“We have to live within our means. This has been the way it’s always been Whitlam left a massive debt, and the Liberals had to clean it up.”

“Actually, the Whitlam Government left no government debt, and the Fraser Government left the biggest debt to GDP ratio in the country’s history.”

“Because of the Whitlam Government’s poor economic management.”

“So you don’t think there are investments we need to make in the future, and it might be worth using taxes on the well-off to fund them.”

“Yes, but you need to understand that we don’t have any well-off people in this country. People on $250,000 are struggling.”

“So you’d support a rise for our lowest paid workers on less than $40,000.”

“No, they’re ok. They don’t have the same expenses as the people with proper jobs.”

“So let’s get this straight. According to your party, we’re in deep debt trouble and your plan is to balance the budget by cutting taxes, and not spending money on things that have been implemented yet. I don’t see how that will lead to any improvement in the bottom line.”

“It’s simple we’ll have a STRONGER economy, because we’re in charge.”

“Mr Jockey, your roof is falling down!”

“I don’t know what you’re talking about.”

“That’s what I’m afraid of.”

 

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