One of the most notable aspects of the recent past Federal election campaign was Labor’s swift emulation of the Coalition’s tax policy. Labor promised $34 billion in tax breaks, with much of the largesse being transferred to those on higher incomes.
The deferral of $3 billion in cuts for those on incomes of over $180,000 a year, here, is best understood as an ineffective and empty gesture. The “simplification” of PAYG tax, with a reduction in the number of tax brackets from four to three also promises to “flatten” the system, rendering it significantly less progressive.
Now, in the wake of the election campaign, Labor is facing a raft of hard choices. Economic forecasters are warning of the prospect of inflation, and already official interest rates have risen once this year. It is likely that this will be the first official interest rise of many in the year ahead for the fledgling Labor government.
High rates of inflation threaten uncertainty and economic instability: providing a disincentive for savings and investment. What is neglected, though, in popular neo-liberal responses to inflation, is a balanced assessment that takes into consideration impacts on equity, wage justice and unemployment.
There are many possible responses to inflation: including wage restraint, tax reform and austerity. Labor is also looking to respond to “capacity constraints” which can feed into a vicious cycle of inflation. Particularly, the government is looking to fund education and training: to counter skills shortages, and to invest in infrastructure: removing “infrastructure bottlenecks”.
Australians are well-justified, however, to ask whether or not Labor has “backed itself into a corner” on the issues of tax reform and inflation. According to The Age, Labor “is looking for another $3 billion to $4 billion in cuts for the May budget, on top of the $10 billion Labor identified before the election”.
But while Labor Finance Minister, Lindsay Tanner rightly belittles the Coalition for its economic irresponsibility, Labor’s own culpability in raising expectations of sweeping tax cuts must be admitted. Labor now faces the inpalatable prospect of wide-ranging austerity; and of struggling families being forced “to the wall” as a result of the housing bubble and continuing interest rate hikes.
At this point, there are a number of questions that are worthy of consideration. If demand must be reduced in order to counter inflation, surely it is better to do so through a targeted expansion in taxation, and by more severe means testing of programs such as Family Tax Benefit B and the Private Health Insurance Rebate.
Additional savings might imaginably be achieved in the Defence budget – especially in the wake of withdrawal from Iraq. Importantly, only cuts in personnel could reasonably be deflationary. Cuts in the acquisition of military hardware would not. Abolishing negative gearing and halving dividend imputation, meanwhile, could free funds necessary for progressive restructuring of the broader tax system, radical expansion of public housing, and of social services.
Surely this is better than demanding austerity for the vulnerable and average income-earners, and sending desperate home buyers to the wall.
There is a good and valid argument, here, that Labor is bound by its pre-election promises, and thus feels compelled to abide by its mandate. And indeed, Labor’s platform is seriously constrictive: promising not to increase taxation overall as a proportion of Gross Domestic Product (GDP). But if the minerals boom comes to an end, though, along with its corresponding explosion in Company Tax revenue, the consequences of such a policy could be disastrous. In the face of such contingencies there must be “room to move”: exactly what Labor has denied itself.
This argument (that Labor’s platform must be strictly upheld) would resonate more strongly if Labor had not already so flagrantly violated its own platform: such as with the privatisation of the Commonwealth Bank in the 1990s. The need to rein in inflation, however, without impacting negatively upon social justice, or giving rise to the spectre of unemployment, demands bi-partisan attention. As a matter of “national emergency”, it is an urgent and valid position that tax cuts be put on hold.
Surely – as already noted – such money could instead be redirected into infrastructure and education, thus responding to the skills shortages and “infrastructure bottlenecks” that are feeding into inflation. And surely with steep increases in the cost of living, it is time to be more generous and just with the provision of welfare for the vulnerable and the needy.
It should not be these people, or ordinary working-class families struggling with exorbitant mortgages, who pay the price of the fight against inflation through wage restraint, spiraling interest rates, and austerity. Furthermore, in regard to urges for “wage restraint” it must be noted that workers’ share of the “economic pie” has already fallen to a 35-year low.
Australian workers need to organise: to strive for wage justice, and compensation for prior wage restraint in the form of collective co-ownership and economic democracy. Poorly organised, unskilled and semi-skilled workers also need stronger protection than what is currently envisaged in Labor’s proposed “safety net”. Beyond this, Labor needs also to develop a plan to restructure the tax system progressively: addressing inflation through taxes that seek to dampen “conspicuous consumption” among the wealthy.
Labor should not shift a greater proportion of the tax burden upon the poor, the vulnerable, and average workers. Instead of reducing the number of PAYG income tax brackets, the system would do better to encompass a greater number of thresholds. The entire tax system needs to be organised in such a way as to be more equitable in its spread, and so as to finance progressive expansion and development of Australia’s welfare state and social wage.
As previously noted, there is a legitimate position which holds that Labor must be held accountable for its pre-election promises. Even if Labor resolves to stay firm to its platform, though, this ought at least not be without dissent or controversy.
Beyond the calls for “belt-tightening”, there is a desperate need for investment in welfare, infrastructure, education, health, aged care, and foreign aid. Ambitious public housing programs should also be provided for: to increase supply and to burst the “property bubble” which has put home ownership out of the reach of so many Australians.
And Labor’s apology for injustices visited upon Australia’s Indigenous people will ring hollow unless accompanied by the resources necessary to “close the gap” in age expectancy, income, home ownership, health services and educational opportunity. If Federal Labor fails to provide in any of these areas, then it is up to citizens to mobilise and demand change. Rank and file ALP members need to organise now – hopefully with leadership from dissenting elements within the Party – to win a shift in policy at Labor’s next National Conference.
Progressive activists, including those to the left of the ALP, also need to mobilise and take a stand for the values of compassion, mercy, kindness and justice.
In particular, trade unions, Non-Government Organisations (NGOs), and citizens’ networks including “Now We The People”, “Melbourne Social Forum” and “GetUp!”, could mobilise activists to intervene in Australia’s political parties in support of more progressive agendas. GetUp! alone has well over 200,000 members. In light of such figures, those on the broad Left would do well to imagine the impact of a concerted campaign to mobilise these Australians into party-political activism.
Importantly, if leadership were provided in recruiting more Australians from unions, NGOs and citizens’ networks into party-political activism, progressive influence in the ALP, and also minor progressive parties could expand simultaneously. There is a space, now, to the left of the ALP, which is begging to be filled by a new party embracing the traditional values of the Left.
And if Labor holds firm to policies of inequitable “tax reform” and austerity, the ranks and appeal of any new formation could swell – if only with a determination to “move into the mainstream” and not be lost in a “self-imposed political ghetto”. Such a party, in alliance with the Greens, could shift the relative centre of Australian politics to the Left, leading public debate in a way the ALP cannot – because of its conflicting constituencies.
Effectively, the broad Australian Left – comprising the ALP, Greens, and a new party of the Left – would launch a “multi-pronged assault”, mobilising activists and voters of different identities and backgrounds from several directions at once. The aim would be to forge, through exchange, co-operation and engagement, a “cultural and electoral bloc”.
Some activists despair that the Rudd Labor Government could be yet another “wasted opportunity”. Should enough citizens “stand up and be heard”, however, perhaps there is yet hope for real and progressive change.
