Wednesday, June 3, 2015

Eric Aarons on The Middle Class Today

Above: Eric Aarons some years ago now, pursuing his passion for sculpture

In the following notes and reflections former Communist Party of Australia Secretary Eric Aarons considers the historical and current social and economic importance of the Middle Class to the causes of liberal rights and social change. After Bernstein, he considers that the Middle Class has not disappeared - despite prior Marxist predictions that it would.  Hence the place of the middle class remains important for Australian Leftists today.

by Eric Aarons

I write this essay, not to expound or urge any particular political line or policy, but to stress the importance for those doing so not to neglect today’s middle class. 

In my view, Karl Marx’s most abiding contribution to understanding human history and forms of social organisation was the primacy he gave to the development of the ‘productive forces’ available to any  population  of human beings. He was not the first to do so; Adam Smith, and the group of ‘Scottish Historians’ around him, held to that view also (see Classics edition of The Wealth of Nations: Books 1-111, 1986).

In his introduction to that edition, scholar Andrew S. Skinner quotes William Robertson, a member of the Historians group, that ‘In every inquiry covering the operations of men when united together in society, the first object of attention should be their mode of existence. Accordingly as that varies, their laws and policy must be different,’ (p. 28)

The ‘Industrial revolution’ of the 18th century was characterised as ‘a rapid and ceaseless development of the productive forces’. Most of these were new inventions, featuring machines driven by the power of steam, then electricity, then nuclear power, and in sizes from miniscule to massive. Lawrence James writes: ‘The middle classes refused to abandon the rest of society to the physical and moral consequences of industrialisation. Middle class men and women put pressure on the state and local  government and offered their time and money to create what they regarded as a humane, contented and civilised society.’ (p.249 Lawrence James: The Middle Class  A History, 2006). They still do.

It may be needless to point out that this proliferation of new productive forces, their operation,  maintenance and improvement, required more skilled and educated people, and in turn more educators to achieve that purpose. So education rapidly extended, spreading far beyond its previous limits of educating and forming ‘gentlemen’ who were distinguished by not having to work for a living with their hands, or even their brains, but to be recognised socially as such, and to keep up with the escalating written cultural advances.

Their daughters also had to be educated ‘to  make a good marriage’ – that is, one to a man with money, or expecting an inheritance.  There were also growing demands of generally not fully occupied middle class wives for suitable enjoyable reading, while an increasing number of women wrote such books and are still famous for doing so.

On a wider scale, the industrial revolution required a growing proportion of the population to be educated so that they could extend and deepen that approach to the industrialisation revolution.  I suggest that these requirements marked the origins of the modern middle class, and the building  of its present cultural, political and economic larger role, with women becoming increasingly prominent, despite remaining discriminations.  

Karl Marx wrote a lot about the growing proletariat, created by the ascending capitalism, that he thought would end the rule of capital. And, using his withering polemics, Marx defended his predictions, warning that radical members of the middle class might be ‘unreliable revolutionaries’, because of what he saw as their impending ruin by capital and decent into the ranks of the proletariat. Marx thought that ‘class origins’ were generally a useful guide to future political behaviour, and this still existed in my young days. But 90 years later, in today’s ‘topsy-turvy’ world,                it doesn’t count for very much.

 The Middle Class today

The modern middle class in the economically developed countries, though not officially organised,  has become the largest stable social group in their countries, since the working class, unwillingly, relinquished that position. It comprises about 40 percent of the population, and holds 35 per cent of the wealth of the countries they inhabit, according to figures presented by Thomas Piketty in his book: Capital in the Twenty-First Century. This analyst also points to their growing patrimonial (inheritance) role, particularly in regard to housing, which is becoming increasingly expensive, and important for their offspring.

The middle class is neither disappearing now, nor destined to do so, as Marx and not a few later economic theorists have suggested, though they struggle along with others to cope with the continuing Global Financial Crisis. It is time that left/progressives acquainted themselves with the social characteristics of the middle class, and the role they could play (indeed are presently playing) in ongoing struggles, such as climate change, conservation, and exerting a degree of moderation in human dealings with our planet and other living species.

An attempt to sketch this class’s  modern ‘profile’.

I present, partly from my own memories, elements of such a profile. Both sets of grandparents were middle class; one Jewish (from England). He was there employed as a cigar-maker, but he established himself in business as a shoe-repairer in Melbourne, then a seller of manufactured boots and shoes. Successful, he bought a house in the developing suburb of Glen Huntly, then one beside it for his eldest daughter, Miriam.

He had a club foot and walked with the aid of a stick. He had quite a good voice, and knew a wide selection of Cockney songs, a large number of which denigrated women. This was widespread in those days, but remains very active, and still widely violent along with economic discrimination.

 Clearly, the middle class likes new things and processes, notably with women, along with men taking to bicycles in large numbers when they became available. They also took to the early radios driven by a metal ‘cat’s whisker’ on a sliver of metal ore, then large decorative consoles with valves.

My maternal grandparents had a large modern house in the northern (upper) part of the suburb of Caulfield, and they had built in the large grounds a sheltered garden in which the grew plants, mostly  for sale.                                               

My paternal grandmother drove (rather roughly) the big Buick they owned, as did her daughter Rae. TV when it came was a must – indeed any new device that responded to the desire to extend and exercise their inherent human capacities, which were stifled or looked upon with disapproval by conservatives who want to keep to accustomed ways.

The middle class does not respond to theoretical speculation about general social advance,but  persistently pursue it pragmatically, devising practical measures to actually achieve some aspect of it. ‘Schools of Art’, for instance, if I remember rightly, were widely established, mainly by middle class women in Melbourne, around the turn of the twentieth century.


Using his deciles mathematical system on income, Piketty says that if the average pay in a country is 2000 euros per month then this distribution implies that the top 10 percent can earn on average, 4000 per month, the bottom 50 percent 1400 euros a month, and the middle 40 percent 2,250 a month. “This intermediate group may be regarded as a vast ‘middle class’ whose standard of living is determined by the average wage of the society in question.”

But it helps to keep in mind that ten ‘deciles’ consist of 10 parts that he then often divides into 3 parts, which correspond roughly to the classes. The first decile, comprised of the top dogs, is basically made up of those who hold the most wealth and have the most say on the key issues, and is often called the establishment. The next usage goes 2 to 4 (the middle), and the lower five make up 10. Piketty adds: ‘. . . if the average pay in a country is 2,000 euros per month then this distribution implies that the top 10 percent earn 4,000 euros a month on average, the  bottom 50 percent 1,400 and the middle 40 percent 2,250 . This intermediate group may be regarded as a vast ‘middle class’ whose standard of living is determined by the average wage of the society in question’. (p. 250)             

‘The middle class allegiance is to free trade (and of course cheap food and the rights of property). For the previous seventy years the middle class had enjoyed unparalleled power over the lives of others, mostly those beneath it. Whether as employers, shapers of public opinion, voters, elected officials or public servants, its members had been able to compel a significant part of society to accept its assumptions and ambitions. Pragmatists tended to outnumber idealists.’ (p. 248, James Lawrence book)

The prevailing religious and moral codes of the Victorian middle class made social indifference impossible. They refused to abandon the rest of society to the accompanying physical and moral consequences of industrialisation, to create what they saw as a humane, contented and civilised society, of which they would constitute a major if not leading part.

They endorsed the view that the possession of the faculty of reason was humanity’s major weapon in winning a material life from nature, and urged that it should  also be the centre of political life, thereby under-estimating the role of other factors, such as emotions, values, self-promotion, enrichment and plain deception.

Anyone who wants to win their support for a cause or a particular approach to an issue, needs to ‘make a good case’, including a fair one, which the Abbott/Hockey government has failed miserably to do; Their bluster does not suffice.

An earlier example of the role that the middle class can play was the defeat of Menzies, who declared in the post-war election of 1949 his intention to declare the Communist Party illegal and dissolve it. Winning that vote, he introduced a law to do so, but it was declared invalid by the High Court.  He then resorted to a referendum (of the whole of ‘white’ Australia that he was confident of winning).  It was defeated on September 21, 1951, and there can be little doubt that a large section of the middle class, both high officials and ‘ordinary’ members, voted in this direction.

Similarly, the middle class joining the struggle against the Vietnam war was crucial to the struggle against it, so the lesson is an abiding one.                                                         

Tuesday, May 12, 2015

A Response to the 'Consultation Draft Platform' of the ALP - Chapter 2 'A Strong Economy for all Australians'


by Tristan Ewins, ALP Socialist Left member of over 20 years 

Friends and Comrades;

Not long ago a ‘Consultation Draft’ of the National Platform of the Australian Labor Party was released for purposes of feedback between now and National Conference in July this year.  Over the coming weeks I will release commentary on this consultation draft. 

Today, though, I will discuss Chapter 2 specifically – which relates to economics policy.  Importantly, in the consultation draft there was little or no mention of economic democracy, exploitation or the public sector.  To begin, therefore, I will propose an addendum whereby in this section the Labor Party needs to come out clearly in favour of what I call a ‘democratic mixed economy’.   

Considering we maintained the Socialist Objective for the best part of a century - we should at least be able to sustain a Platform that as a minimum supports a mixed economy ; but a mixed economy which aims to extend the principle of democracy in the way I suggest here - as much as can practicably achieved.

Other areas of concern include: fiscal reform to pay for and extend social insurance, the social wage, welfare, social services and public infrastructure; as well as the progressive structure of the overall tax system.  The form of superannuation for the working poor also needs to be considered, as well as an notion of ‘equal opportunity’ which goes behind the narrow confines of the labour market.   The TPP also needs further discussion; and our capacity to grow the public sector, including natural public monopolies, and also to assist  the democratic sector (eg: co-ops) – also needs to be maintained.  The failure of ‘the market’ to provide just outcomes needs recognition also.   And the social wage and social insurance must assist and protect the working class as well as the most disadvantaged of all.   Finally ‘a simpler tax system’ should not necessarily be out aim if the end product is less progressive for distributive purposes.

IMPORTANT ADDENDUM re: ALP Economic Platform

In an earlier version of this post on the ALP economic platform there was a passage which read as follows:

  • "Finally, in keeping with our principles we will not deliver natural public monopolies or near-monopolies into the private sector because this may result in an abuse of market power."

This SHOULD have read as follows instead:  

  • "Finally, in keeping with our principles we will not deliver monopolies or near-monopolies into the private sector because this may result in an abuse of market power."

Clearly this changes the meaning completely.

Sincere apologies for any confusion.

Tristan Ewins

HENCE – beginning with a discussion of ‘he democratic mixed economy’ -  the following needs to be inserted at some point in Chapter Two:

“Labor believes in the principles and practice of a ‘democratic mixed economy’. Hence we seek to extend democratic principles and forms to the economy as far as is practicable.  Though there are limits to what can be achieved for the foreseeable future: the consequence of the prevailing ‘balance of forces’ both in the global economy, and the domestic Australian economy.  

Promotion of  ‘democratic principles’ in the economy includes support for sectors of the economy which can be held accountable to the populace in their capacities as citizens; as workers/producers;  in mutual association; and as consumers.  And this applies on both a large scale and a small scale. 

In this context we strive after the best balance between various kinds of enterprise which can realistically be achieved for the modern day. Such a ‘balance’ involves checks and balances between producers, government and consumers; and includes strategic socialisation of various kinds.  

In addition to existing private enterprise, and the need to remain engaged with the transnational corporations whose innovations and investment are essential to Australian jobs and material living standards, our vision for a ‘democratic mixed economy’ includes an expanded role for the following:

·        producers’ co-operatives of various types – on both a large scale and on a small scale;  This is also to include multi-stakeholder co-operatives which involve producers, regions and government

·        consumers’ co-operatives through which the associated consumers are empowered

·        Mutualist enterprise; for example Mutualist insurance

·        natural public monopolies, including in areas of essential services and infrastructure, where duplication of cost structures can be avoided to the benefit of the economy at large, and where the superior credit ratings of government result in more efficient finance

·        other public infrastructure (eg: where a natural public monopoly cannot apply because of existing privatisation; eg: through Public Private Partnerships)

·        strategic Government Business Enterprises which actually enhance competition in areas of oligopoly, concentrated market power and potential collusion; and also enhancing accountability to consumers

·        Government Business Enterprises which can also compete internationally - subject to global market forces

·        Public investment in Australia’s Natural Resources which are properly the property of the Australian people collectively.

·        Co-determination agreements between workers, unions and business – supported through a legislative framework

·        Democratic collective capital formation, including through the superannuation system, but also through public pension funds which will support the operation of a strong and fair system of Pensions in this country far into the future

·        Self-employment

To these ends we believe there is a role for government in extending democratic principles and forms to the Australian economy.  That includes:

·        through tax breaks, advice and cheap credit for co-operative and mutualist enterprise;

·        through co-investment to help co-operative enterprise upgrade its economies of scale so as to remain competitive in larger markets while retaining the co-operative form

·        through the creation/construction/maintenance of government business enterprises,  social services and welfare, and public-owned infrastructure

·        through an active industry policy

Finally, in keeping with our principles we will not deliver natural public monopolies or near-monopolies into the private sector because this may result in an abuse of market power.

Strategic socialisation of different kinds can also ameliorate exploitation; and sometimes even enhance competition. Progress in extending a democratic mixed economy can also assist in ameliorating the self-destructive aspects of capitalism, while extending the principle of democracy into the economy in such a way as advances social democracy not just into the distant future - but beginning here and now."

What follows now are some excerpts from Chapter Two of the Consultation Draft of the National Platform – with my responses under headings labelled as ‘Comment’.

P 11    “Labor rejects the false choice between economic growth and equality. Excessive inequality detracts from economic growth and damages the social fabric. Labor believes in economic growth that is inclusive of all. We believe there is a role for Government in ensuring that people from all backgrounds and circumstances can both contribute to economic growth and benefit from it. The benefits of economic growth must be redistributed through the economy to those on low wages, not in work or reliant on welfare.”   

COMMENT:  To this we should add:  “We also believe that through the social wage and social insurance  we can redistribute wealth in a socially just manner from the wealthy to the working class.”

4) “Labor believes in economic policy that promotes social mobility and opportunity. Your family’s wealth should not determine your ability to grow to your full potential. Promoting equality of opportunity is at the core of Labor’s economic approach.”

COMMENT:   Here we should refer to diverse forms of equal opportunity – not just work;  but also education, civic activism and cultural participation and consumption as well.

6) “Australia’s long-term prosperity depends on competing successfully in global markets. This means Australia needs to produce high quality goods and services that the world wants to buy, and remove barriers to overseas markets. Labor will work to ensure major policy settings like skills development and training, infrastructure planning, tax and regulation frameworks do not hold businesses and workers back from achieving their full potential in global markets, while at the same time ensuring that all Australians enjoy a fair share of the benefits of growth. Strong and sustainable public finances underpin the progressive future we want for the next generation. Meeting the health care, pensions and education needs of future generations will require prudent budget management and prioritising support for those most in need.”

COMMENT:  We need to provide for those most in need; But also we need to provide for more general forms of collective consumption and social insurance which EVERYONE can benefit from.  For example through funding state schools; through funding the NDIS; through funding a National Aged Care Insurance Scheme which provides the highest quality infrastructure and services, but which eliminates user pays mechanisms for disadvantaged and working class families.  Also consider the universalism of Medicare – which now needs to be extended further throughout the health system.

7) “The market will often create the most equitable and efficient distributions of power, wealth and services, but markets sometimes fail. Government has a responsibility to intervene, to address market failures and the extremes of capitalism. Labor supports an active role for governments in addressing market failure, and improving equity and social justice through the full range of government policy instruments including expenditure, taxation, regulation, and the provision of goods and services.”

COMMENT:  Often markets do NOT create “the most equitable…distributions of power”; This point in the Draft Platform needs to be removed or edited so as to change the meaning.  Private sector monopolism – and sometimes oligopolism  - produces inefficiencies as well - and deserves a specific mention.

Responsible Fiscal Policy

9)   “Labor is committed to sound public finances by adhering to a fiscal strategy that achieves budget surpluses on average, over the economic cycle…”

COMMENT: this should be changed to read: ‘balance the budget on average over the economic cycle’;  And should also include mention of productivity-enhancing public investments that adds to economic growth.  (A good example is the NBN) The EFFECTS of these INVESTMENTS need to be taken into account re: the aim of “a balanced budget over the course of the economic cycle”.

  16.) Labor, as the party of universal, compulsory superannuation, will continue to put in place reforms to protect and to grow superannuation, to ensure the superannuation system meets an objective of providing a comfortable retirement for all Australians. This will include, when prudent, ending the Coalition’s freeze of the Superannuation Guarantee at 9.5 per cent, and fast-tracking the Superannuation Guarantee increase to 12 per cent, which will provide millions of Australians with higher retirement incomes. The current system of superannuation tax concessions has seen more than 35 per cent of the value of tax concessions accrue to the top 10 per cent of income earners. Labor will put in place reforms to address this imbalance, ensuring Australia has a sustainable and fair retirement income system. 

COMMENT: EXCELLENT to see recognition of the problem with inequitable superannuation concessions; a big victory for progressive forces if this finds reflection in strong policies.  But there are flaws in superannuation as well.  The working poor already struggle; and forcing them to contribute more of their own money into superannuation will worsen their poverty throughout their working life.  If we are to increase superannuation contributions, perhaps the working poor could be excused from contributing. (but not their employers)  Also there is the problem of inequity – affecting women, the disabled and the working poor especially.  Resentment against the Aged Pension could lead to austerity against some of the most vulnerable into the future.

18-30  ‘A Strong and Vibrant Small Business Sector’

COMMENT:  Mention should be made of co-operative small business somewhere in this section.

35- 54  Trading with the World

41. Labor supports trade and investment liberalisation through the Asia–Pacific Economic Cooperation (APEC) forum. Labor will ensure APEC is a driver of regional economic integration and will take an active approach to its role in the region’s economic architecture. Labor believes APEC has a key role in promoting economic reform behind the border throughout the Asia–Pacific region and will promote these efforts. Labor will endeavour to strengthen APEC’s role in mobilising support for the WTO’s Doha Round. Labor will also support Australia’s engagement in the emerging regional trade and investment architecture under the auspices of the Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership and the proposed Free Trade Area of the AsiaPacific. 

COMMENT: I’m not not sure about the TPP.  There hasn’t been enough consultation.  Also we need to make sure that any agreements we enter into do not prevent appropriate regulation; or prevent policies which are meant to support or encourage a ‘democratic mixed economy;  For example establishing natural public monopolies, or implementing tax breaks, advice and cheap credit for co-operative enterprise.

42. Labor will work to:

 Provide leadership to the Cairns Group and seek reductions in agricultural subsidies and protection;

 Secure reciprocal new market access for all of Australia’s economic sectors;

 Tackle non-tariff “behind the border” trade barriers such as excise tax arrangements, standards, customs procedures, subsidies and other restrictive measures which impede Australian exports;

COMMENT: This cuts both ways; sometimes standards must be applied; sometimes the ability of a nation to feed itself is important to its security;  Subsidies should also be allowed in strategic cases – and with assistance for co-operative enterprise. We should not commit ourselves to a framework which would 'tie our hands' on economic democracy and the strategic extension of the public sector into the future.  I am uncertain of the content of TPP and I’m sure many others in the Party are as well…

Specifically the Consultation Platform argues the following in relation to TPP:

54. A well-balanced Trans-Pacific Partnership offers the prospect of more and better jobs through improved access to member countries’ markets for Australian exporting businesses and their employees. Labor’s position is that the Trans-Pacific Partnership must be consistent with the following principles:

 Does not undermine the Pharmaceutical Benefits Scheme and public health initiatives;

 Provides for national treatment — that foreign and domestic companies are treated equally under the law, while not conferring greater legal rights on foreign businesses than those available to domestic businesses;

 Does not require Australia to remove protection of cultural industries;

 Retains the Foreign Investment Review Board and its powers to review foreign investment in the public interest;

  Retains quarantine provisions to reduce the risk of imported pests and diseases;

 Retains the flexibility to encourage industry development including through research and development, regional development and appropriate environmental, employment and procurement policies;

 Contains enforceable labour clauses that require signatories to enforce core labour standards in International Labour Organisation conventions; and

 Contains enforceable environmental clauses that require signatories to meet all relevant international environmental standards, including those in applicable United Nations international environmental agreements.

COMMENT:  In response the following points should be added:

·         Does not inhibit the right of government to support and extend the public sector, including maintenance of natural public monopolies

·         Does not inhibit the right of government to extend a ‘democratic mixed economy’, including through support for co-operative and mutualist enterprise of various sorts

A Fair and Efficient Tax System

67. Labor is committed to a fair and sustainable tax system that provides incentives for all Australians to work and undertake productive enterprise while guaranteeing adequate revenue to fund the proper role of government, including providing quality public services and ensuring an equitable distribution of income and wealth. Public confidence in Australia’s tax system depends on a simple and transparent tax system where everyone pays their fair share of tax. Labor has implemented important tax reforms to improve competitiveness, boost savings through superannuation, make superannuation fairer, simplify personal tax, reduce barriers to participation and provide better assistance to families. We will also continue this record of tax reform, making the system more efficient, less costly and more equitable.

COMMENT: ADD THIS:  “Specifically we support a simpler tax system only where the final outcome does not negatively affect our efforts to ensure a fairer and more equitable distribution of wealth and income.”

68. Future tax reforms will:

[large excerpt cut out]

 Minimise the impact of high effective marginal tax rates, particularly on those moving from welfare to work or the second income earners in low- to middle income families;

COMMENT:  The excerpt above is problematic as it suggests cutting tax for those who do not need to have their tax cut; That is, it suggests a general cut in taxes (the word ‘particularly’  needs to be deleted so it is clear the reference is only to the specific disadvantaged groups. The consequence of cutting tax more generally is that pressure is put on public finances, and hence also the social wage, public infrastructure, social services and welfare. It must be edited to read:

“ Minimise the impact of high effective marginal tax rates on those moving from welfare to work or the second income earners in low- to middle income families”

I hope the readers of this commentary will have found it interesting, and will be inspired to respond to the ‘Consultation Draft’ as well.  I especially hope readers will register their support for this document and the documents which are to follow.

Specifically members can provide feedback on the Consultation Draft Here:

If you want to support this Commentary please include a link to the appropriate URL in your submission.  Ie: link to this URL in your submission.  (it is the URL where this post was originally published)


Sunday, April 26, 2015

Wasted Opportunity on Superannuation Concessions needs to be ‘Put Right’ at ALP National Conference in July!

Above: Where to for Labor in July?

Wasted Opportunity on Superannuation Concessions needs to be 'Put Right' at ALP National Conference in July!    Australia Institute data shows a stronger line on reform is needed.

Tristan Ewins

Recently Bill Shorten announced projected reform of superannuation concessions affecting around 180,000 Australians.  ‘The Age’ in particular observed that the two key reforms concerned

“would see retirees lose tax-free status on annual superannuation earnings above $75,000, and more people paying 30 per cent tax on contributions.”

Certainly Bill Shorten’s announcement is “a step in the right direction”, bringing in $14 billion over ten years. 

But it is a very  modest intake when considered in perspective.

The problem is that Shorten appears to be ruling out further action on top of this on superannuation concessions AHEAD of the ALP's 2015 July National Conference. 

And more alarmingly:  arguably $15 billion out of a total of $50 billion will soon be going to 'the top 10 per cent' income demographic. 

Former Australian Tax Office public servant, John Passant has explained that this means  the top ten percent of income earners get 30% of the tax concessions on super.”  (discussion with John Passant, 22/4/15)

To get that in perspective
, the Australia Institute observed in 2014 that: “The [entire] age pension currently costs [only] $39 billion”.

Is this really the best possible use of taxpayers’ money? Does it fulfil the ‘distributive justice’ test?  And given the scale of the gain to only the top 10 per cent income demographic is it even politically wise when we consider what else might be done with the money?

A more decisive policy here could fund a suite of progressive reforms: National Aged Care Insurance; NDIS and Gonski; build the National Broadband Network Fiber-To-The-Premises; Medicare Dental; address life expectancy crisis for indigenous and mentally ill; expand mental health services; crisis accommodation for cases of domestic violence; welfare reform; build transport infrastructure publicly; invest in public housing to put downwards pressure on property prices and rental costs...   Many of these policies have been suggested in the
‘For an Equal and Democratic Australia’ document which points the way to the kind of policy a reforming Labor government could potentially introduce.

Labor needs to think of policies in terms of tens of billions – not just ‘token policies’ which attempt to win over voters on APPEARANCES only. Further reform of Superannuation Concessions is ESSENTIAL. As is reform of the broader tax mix – ideally to bring in new revenue in the vicinity of $40-$50 billion. (about 2.5%-3% of GDP) (modest in the context of an economy valued at $1.6 Trillion)

Right now,  with the mining boom over – Labor is 'on track' to capitalize politically from the Abbott government’s austerity .  And yet Labor is also ‘on track’ to again introduce austerity of its own in government should it maintain its inflexible commitment in its National Platform to ‘small government’. (though probably less severe, and less cynically targeted - you would hope!)

Specifically the problem is Labor’s commitment to holding down tax as a proportion of GDP.

 Labor must  ‘think bigger’ (and better!) than this!!!

These issues MUST be addressed at Labor’s National Conference in July.

From conversations and research I have become aware that there are some within the Labor Party who are resigned to (or even in favour of) the National Conference being reduced to a merely token affair.  Shadow Treasurer Chris Bowen, for instance, is in favour of a more robust and inclusive discussion of policy at Conference; but on condition that Conference  (and the Platform itself) have no binding influence on policy. (Bowen,  pp 122-124)  In a conversation with one colleague  specifically (and probably there are more),  this colleague was resigned to the notion that Gonski and NDIS are ‘dead’  in their original form – presumably because they think the money cannot be sourced for reforms on a large scale. (the assumption seems that ‘small government’ cannot successfully be refuted; that we should not even try)   Even mild redistributive policies are apparently viewed by some as an ‘ideological anachronism’ – belonging to an apparently ‘defunct’ tradition of social democracy.  

Just how widespread these views are I cannot tell.  But there is a now-long history of Labor governments (dominated by the Party’s Right)  cutting and regressively restructuring tax, capitulating to the ideology of small government, and pursuing cynical policies such as assaults on the welfare rights of sole parents.  Top income tax rates, for instance, have been reduced or eliminated.  The tax system has become ‘flatter’.   Again, Chris Bowen has come out in favour of a ‘simpler’ tax system which includes lower Company Tax;  which probably translates as a less progressive tax system. (Bowen, pp 60-67)  Though there have been some efforts in the opposite direction from Labor governments as well; for instance raising the tax free threshold.

 More generally an outlook of pragmatism appears to make policy a matter of tactical expedience.

To summarize, this kind of pragmatism is highly questionable.  Bill Shorten was elected to reform the Party; and part of what people wanted was fidelity to Conference decisions. Shorten also has to offer his supporters on the Left something - after they were pivotal in his success.  If Labor fails to deliver on progressive tax, new social programs – and end up implementing only more austerity – just not as severe  as the Libs - that would show  a lack of conviction and principle.  For instance Gonski and NDIS were immensely popular policies!   Dropping or otherwise avoiding strong policies as a matter of tactical expedience  could  simply mean Labor continues hemorrhaging support to the Greens.  That would not be 'realism'.  It would be both ideological and practical self-destruction.

We are yet to see an outcome, here, however.  I hope these views I have encountered are not as widespread within Labor as I fear.  But it is a debate Labor has to have with itself between now on the National Conference in July this year.

I look at the Rudd/Gillard years as involving wasted opportunity. I look at the Hawke/Keating years also as involving wasted opportunity also.  For example, the  "Australia Reconstructed"  document suggested something 'Nordic' - but we got very little of the kind.  We need a Labor Party which pursues an agenda of steady, gradual reform - but appreciable reform nonetheless.   Real (steady) Progress is needed  - not 'one step forward, two steps back'.  So If Labor increases progressive tax and associated social expenditure and investment by 5% of GDP over three terms (roughly a decade) - that's a legitimate medium term agenda.

Another thing that really struck me in one discussion with a Labor colleague was his notion of the rise of a  'wants not needs generation'.  In contrast I would hold that the masses are still concerned with issues of non-negotiable need.  That is,  cost of living;  housing affordability; costs and quality of education; threat of illness or need of aged care for family members.  I think my Labor colleague overstates peoples disengagement from 'non-negotiable-needs'. A lot of people really are still 'doing it tough'.  And they are inclined to vote on that basis!  This needs to find reflection in the ALP’s National Platform.

None of this is likely to change unless progressives in the ALP begin organizing and agitating now – ahead of July’s National Conference.  Superannuation Concessions are ‘the elephant in the room’ – and a lack of decisive reform here will severely limit Labor’s options following the next Federal Election.  Labor doesn’t have to ‘lock itself in’.  But it is better for Labor to ‘keep its options open’ rather than lock into minimalist policies which offer very little real progress.   A POLICY of ‘tactical expediency’ is self-destructive;  but tactical decisions do need to be made during election campaigns.  And for Labor to ‘keep its options open’ there needs to be  a Platform which does not irretrievably commit Labor to small government; a platform which does not ‘lock Labor in’ to merely token reform of superannuation concessions.

Bowen, Chris, ‘Hearts and Minds’, Melbourne University Press, Melbourne 2013


Tuesday, March 31, 2015

Treasury ‘White Paper on Tax’ seized upon by an Abbott Government Considering Regressive ‘Reforms’

The Abbott Government's 'White Paper' on Tax could see big changes to superannuation and the overall tax mix.  But the Paper seems oriented towards the Government's Ideological preference for 'small government', 'low tax' and 'simple/regressive tax' as opposed to a progressive tax system. Labor and the Greens need to enunciate a comprehensive alternative - also informed by a progressive ideology of equity and fairness.  Tristan Ewins looks at the alternatives.
Tristan Ewins


The Federal Australian Treasury’s White Paper on tax reform seems to have been received well by the Abbott Conservative Government. 

Amongst other suggestions, it urges slashing the Company Tax rate to make Australia a more attractive place for investment.   

But arguably decreased Company Tax is not the answer and will only lead to further ‘corporate welfare’. 

The white paper complains that 70 per cent of Commonwealth tax revenue is drawn from personal and company taxes.  But what is the alternative?  A higher GST?  More user pays?  More austerity in the context of an-already stunted social wage and welfare state?

Dividend Imputation, Corporate Taxation, Corporate Welfare

On the good side, Gareth Hutchens of ‘The Age’  (30/3/2015) notes arguments have arisen for the potential rescission of Australia’s regime of Dividend Imputation. (tax breaks on share dividends; ostensibly to make up for ‘double taxation’)

For a start, lower Company Tax rates dilute arguments about the unfairness of ‘double taxation’.  Australia’s Company Tax rate has been reduced markedly since the Keating Government which introduced the dividend imputation system.  Countries such as the UK and France – which once had imputation – have now dropped the measure.  It no longer appears ‘necessary’ either for ‘fairness’ or ‘competitiveness’.

To clarify: Nicholas Gruen of ‘The Age’ pointed out in 2012 that the cost of Dividend Imputation to the Australian people (as represented in the Government) of over $20 billion a year!  

The result of falling Company Tax, dividend imputation and other pro-corporate measures has been much lower levels of tax paid by business, and the effective consequence of ‘corporate welfare’, in tandem with other effective corporate subsidies. 

For instance David Holmes  at ‘The Conversation’ has noted– “the fuel tax credit scheme to the mining industry”  which delivered $2 billion in corporate subsidies for mining corporate interests in 2011 alone; and a total of over $5 billion all up.

But it goes much further than this.  Corporate welfare can also be interpreted as taking the form of a falling minimum wage and a falling wage share of the economy. In Australia specifically the wage share fell by about ten percentage points since 1959.  (see the associated graph via the hyperlink above)  That means higher levels of exploitation of working people by business. That is, Australian workers are subsidising corporate profit through lower relative wages.

Further, there is an assault on welfare rights to ‘make room’ for effective corporate tax subsidies; and ‘punitive welfare’ , ‘work for the dole’ etc, effectively reduce the bargaining power of workers because of an insecure and desperate ‘reserve army of labour’.

Also consider the proliferation of ‘user pays’ measures. (for example for access to transport infrastructure;  school ‘levies’; a higher cost of living re: water and energy etc)  User pays mechanisms can only spread as a consequence of lower taxes.  What we do not pay for collectively as tax payers, we will pay for (and usually we will pay more) in our capacity as private consumers.   

Declining levels of corporate contributions (via tax) to the construction of infrastructure, and the development of skills which the corporates benefit from – means the burden is increasingly paid by workers, consumers and individual (private) tax payers.  More corporate welfare!

Privatisation of communications, energy and water utilities and assets such as state-owned banks also saw an end to progressive cross subsidies. At the same time – progressively from the 1980s and 1990s - a more regressive tax mix (including the GST) ‘began to bite’.

Importantly, the argument that rates of corporate and personal income tax must fall because of ‘competition’ does not apply to all companies and individuals.  Many companies cater to Australian markets and Australian consumers.   The threat of capital flight is not universally applicable; and contributing to a ‘race to the bottom’ on corporate tax will result in spiralling and out-of-control corporate welfare.  Global action is necessary to stop the existing ‘race to the bottom’ on tax. 

To get the situation in perspective: Company Tax (now 30 per cent)  has been reduced by approximately 20 percentage points since the time of the Hawke Labor Government. 

The cost to the Australian people of this is tens of billions in revenue annually - which might otherwise have been directed towards infrastructure and education (which the corporate world benefits from after all), as well as health, social services and welfare. 

Even though a return to the ‘high water mark’ of corporate tax may not be possible, an increase to levels enjoyed by other advanced economies might be doable, and would make a big difference.  (nb: US Company Tax goes as high as 39 per cent; Japan 37 per cent and France 34 per cent – see HERE)

Furthermore, arguably most Australians are not so ‘mobile’ as the proponents of lower income tax suggest either.  Taxes also contribute to the quality of infrastructure and services which underscore the desirability of living in particular country. This includes the professionals which some say are likely to ‘pack up and leave’ if progressive income taxes remain.   Indeed the quality of education, services and infrastructure also acts as a ‘pull factor’ for investment and skilled labour.

Income Tax and GST

Treasury is also pressing for lower income taxes and a higher, less discriminate GST.  (eg: apply it also to education and food)

But because apparently an increase in GST is rejected by the Andrews Victorian Labor Government we might hope for a more equitable alternative.  

Unfortunately, though, it is more likely we will simply see further austerity.

The Treasury white paper apparently complains that only Denmark relies more on income and company taxation than Australia.   But ‘just because other people are doing something’ is not a strong argument to follow suit.  More appropriate would be to consider what –if anything – is wrong with the Danish tax system and economy.

Wikipedia states of Denmark that:

It has the world's lowest level of income inequality, according to the World Bank Gini (%),[8] and the world's highest minimum wage, according to the IMF.[9] As of January 2015 the unemployment rate is at 6.2%, which is below the Euro Area average of 11.2%.[10] As of 28 February 2014 Denmark is among the countries with the highest credit rating.

So Denmark has a strong economy.  It has chosen ‘a different path’, say, compared with the Anglosphere. But its path of high, progressive taxes, labour market regulation and strong social welfare works! 

Finally the Treasury White Paper has considered the threat of bracket creep, and apparently the Abbott Conservatives are considering an increased GST as an alternative.

Bracket Creep refers to workers being pushed into higher tax brackets as a consequence of inflation, and (only nominally) increasing wages.  Both Labor and Liberal governments have a history of dealing with bracket creep by returning the proceeds to tax-payers through tax cuts.  Though even under Labor arguably this has sometimes been dealt with in a regressive way.   Higher brackets have been eliminated or cut - or raised so high as to minimise their progressive impact - and restrict (relatively) strong progressive taxation to only the most wealthy of all.  Arguably this is to the benefit of the upper middle class and the wealthy; and to the detriment of working people, including the working poor.  It means the working class and the poor pay more proportionately; and that those in need suffer with the constriction of the social wage and welfare.

But this is not an honest Liberal-National Federal Government.  Joe Hockey made the ingenuous claim, for instance, that Australians pay 50 per cent of their income in tax.  

As Ben Phillips explained at ‘The Conversation’:

Nobody in Australia pays 50% of their income as personal income taxation. According to NATSEM modelling, around 3.5% of those who have a tax liability actually face a top marginal tax rate of 49 cents in the dollar. Around 25% of taxpayers are paying a top marginal tax rate of at least 39 cents in the dollar.”

To summarise – Australia’s income tax system involves several brackets.  Higher brackets and rates only apply after specific thresholds are met. So as Phillips insists: NO-ONE is paying 50 per cent of their income in income tax! 

Hockey is not stupid.  Surely he understood this.  Apparently he was attempting to tap into populist anti-tax sentiment through a deceptive and false argument.

But depending on your notion of ‘the good society’ tax as a whole needs to go up; and the tax and spending mix also needs to be reformed.

Negative Gearing, for instance, benefits upper middle class investors; but does not create much in the way of new employment.  And important social programs demand higher levels of social expenditure.

Crucial priority areas which need substantial public funding include:

·         Full implementation of the National Disability Insurance Scheme as well as ‘lifting up’ the standards and resource base for state schools; Extend the NDIS to apply to aged disability pensioners

·         A big public investment in a National Aged Care Insurance Scheme: to provide for the needs of aged Australians both at home and in care

·         Investment in a comprehensive Medicare Dental Scheme

·         Implement Programs to ‘Close the Gap’ on both Indigenous Life Expectancy and Life Expectancy for the Mentally Ill

·         A big investment in new Public Housing stock – solving the housing affordability crisis by increasing supply

·         Fair Welfare and amelioration of Poverty – Raise all welfare payments by at least $35 a week on top of the current indexing arrangements; Thereafter implement fairer indexing arrangements for Newstart, Sole Parents and Student Allowance;  Relax criteria and significantly slow the withdrawal of payments for disability pensioners attempting to re-enter the work-force; Eliminate welfare poverty traps

·         Restructure the Higher Education Contribution Scheme (HECS); raise the repayment threshold and lower interest on debt; suspend all debt for former students who acquire a disability which interferes with or prevents work

·         Public investment in public infrastructure – Including the National Broadband Network – with Fibre to the Home Broadband

At a crude estimate these items would likely cost over $50 billion a year to implement out of an economy valued at around $1.6 Trillion.

Options to fund include Company and Income Tax reform, and withdrawal of Dividend Imputation;  but also the following

·          reform of Superannuation Concessions for the wealthy and the upper middle class*

·         cut Negative Gearing and plough the proceeds into Public Housing;

·         implement an Inheritance Tax;

·         Restore the original (Rudd-inspired) Mining Tax

·         Increase and progressively restructure the Medicare Levy

·         Implement a banking sector tax on super profits

·         Implement progressively-structured infrastructure levies on business and individual taxpayers– to provide for communications, transport, energy-related and water and sanitation related infrastructure – without regressive user pays mechanisms or inefficient/wasteful private finance

·          Implement a progressively structured Aged Care Levy

The Treasury ‘white paper’ on taxation seems at a first glance to largely comprise a ‘wish list’ for Liberals pursuing an ideological ideal of small government, low taxes, and high levels of inequality. (which the Liberal ideologues put down to ‘merit’)   Labor and the Greens need to develop their own responses.  And hopefully this post will contribute meaningfully to that process.


*It should be noted, however, that even $1 million in accrued superannuation will  provide a relatively modest retirement income of $33,000 a year.  (compared with a Single Aged Pension of just over $22,000 and in the case of a couple roughly $17,000 each)  This is far from grandiose – though assuming the recipients’ home is owned it provides relative comfort compared with those fully dependent on the Aged Pension.   (more than $10,000/year additional income)   But The Australia Institute has suggested that cuts in Superannuation Concessions  - which cost taxpayers tens of billions annually – could instead be channelled into a more robust Aged Pension – lifting the full Single Rate to just over $26,000/year, and just under $40,000/year for couples.   The rate at which the Aged Pension is withdrawn could also be slowed, benefitting those with smaller superannuation accounts – and especially women – who have suffered as a consequence of interrupted working lives and the devaluing of ‘feminised’ professions.

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