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 – on April 22nd – 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 alarming:  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 Fibre-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...

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 - we are 'on track' to capitalize politically from the Abbott austerity .  And yet we are also ‘on track’ to probably introduce austerity of our own in government. (though probably less severe, and less cynically targeted - you would hope!)

 We need to ‘think bigger’ (and better!) than this!!!

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

To get an idea of where some people in the Party stand, a rank and file Labor colleague said in a conversation the other day that the National Conference is effectively “dead”, and that Shorten can basically get his way on policy without reference to it. .   He also argued that Gonski and NDIS are “dead” in their original forms.   And he responded to the option of redistributive tax policies targeting the top 10 per cent that ‘its not Russia’, and ‘balance’ is needed.   What ‘balance’ means is also up for question.   A general outlook of pragmatism appears to make policy a matter of tactical expedience!

To summarise, 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 we sell out on progressive tax, new social programs – and end up implementing only "slightly less savage austerity" than the Libs - that is both gutless, pointless and self-destructive.   Gonski and NDIS were immensely popular policies!  Dropping them as a matter of tactical expedience  will simply mean we continue hemorrhaging support to the Greens.  It is not 'realism'.  It is both ideological and practical self-destruction.

I look at the Rudd/Gillard years as a terrible wasted opportunity. I look at the Hawke/Keating years also as involving wasted opportunity also. "Australia Reconstructed" suggested something 'Nordic' - but we got very little of the kind....  We need to pursue an agenda of steady, gradual reform - but appreciable reform nonetheless.   Real (steady) Progress - not 'one step forward, two steps back'. So If we increase 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 my discussion with this Labor colleague was his notion of the rise of a  'wants not needs generation'.  In contrast I posit that the masses are still concerned with issues of non-negotiable need.  That is,  cost of living; cost of housing; cost 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!

Comrades; We actually have to organise between now and National Conference and make sure our SL National Conference delegates do NOT vote in support of 'No further action on Superannuation Concessions". WE also need to make sure they vote in favour of ‘an open mind’ on a future increase in overall progressive tax and social expenditure - to avoid harsh austerity even under a Labor Government!  Ideas pls!

Tristan Ewins; 

Rank and file SL member of 20 years

Main Author:  ‘For an Equal and Democratic Australia’ ‘model platform’

For references SEE:

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.

Tuesday, March 3, 2015

Will Labor Stand Up against Small Government and Austerity? And Reflections on Greece, Anti-Semitism and more

above:  Shadow Assistant Treasurer Andrew Leigh has been unfortunately equivocal on the issue of tax reform needed to ward off austerity under a future Shorten Labor Government.
In the following reflections the blog publisher, Tristan Ewins considers the dilemma faced by Labor on tax reform; as well as the Greek economic crisis, rising anti-Semitism and other issues.  He also calls for readers to register their support for a genuinely progressive Labor Platform at this year's National Conference.  Without such a Platform Labor will lack the flexibility on fiscal reform it needs in order to hold off against austerity - and instead improve the social wage and welfare

Tristan Ewins
Reflecting on this week’s QandA episode raises crucial questions as to whether or not Labor will seriously resist pressures towards austerity and small government amidst a manufactured ‘debt crisis’.  Tony Jones repeatedly pressured Assistant Shadow Treasurer Andrew Leigh to respond on that very question.  And sadly Leigh was largely evasive in response. (probably under pressure from his Shadow Cabinet colleagues)  Statements regarding a crackdown on corporate tax evasion were somewhat encouraging, yes.  But Sydney Morning Herald columnist Michael West is correct to proclaim approximately $2 billion of savings over three years as ‘pocket fluff’.   That tax policy is not going to ‘turn the tide’ on small government, punitive welfare and austerity.  In the context of an economy valued at approximately $1.6 Trillion the effect will be relatively marginal if there is not additional progressive tax reform elsewhere.  Empty rhetoric and tokenistic policies will make little difference for those who need our help.   I believe Leigh is better than this - and am hoping for a less equivocal stand into the future.

Of course Liberal proclamations to the effect that it is ‘cleaning up Labor’s mess’ also need to be met with healthy scepticism.  Current fiscal strains can be traced to repeated tax cuts and ‘middle class welfare’ during the Howard/Costello years.   Rather than capitalising on the China mining boom, investing the proceeds for the future, Costello and Howard implemented a series of tax breaks – largely for the relatively well off – resulting in today’s structural deficit.   Because from the outset it was clear the boom would not last forever, the short-term focus adopted by Howard and Costello condemned Australia to its current fiscal crisis.   (nb: the fiscal crisis is not the same as the ‘manufactured public debt crisis’; debt is serviceable; but there is a need to reform tax to maintain the social wage, welfare, public infrastructure) The situation was further worsened as a consequence of Liberal opportunism over the Mining Super Profits Tax -  which saw a responsible policy destroyed – further locking Australia into a fiscally unsustainable footing.

Labor’s next National Conference will take place mid-year 2015; and it is critical for Labor to reflect on what it stands for; and how it can defend services and social welfare against the Ideological Liberal drive towards austerity.  There is also a need to address an infrastructure crisis – with fiscal pressures locking the country into polices of infrastructure privatisation which pass on inefficient cost structures onto the broader economy. (the consequence of profit margins and inferior costs to finance via the private sector)   

What is most important is for Labor’s 2015 National Conference to endorse a Platform which keeps Labor’s options open!  Locking into a small government, low tax policy will provide Labor with no room to move in response to fiscal pressures; and consequently pressures towards brutal austerity. Without a reformed Platform this year, Labor will lack the mandate to pursue the necessary change after the next Federal election. At the blogs ‘Left Focus’ and “ALP Socialist Left Forum’ last year we initiated a campaign in favour of progressive tax reform, reform of superannuation concessions and more; including an expansion of progressive taxation in a first Labor term by about $40 billion.  (or by 2.5 per cent of GDP in the context of a $1.6 trillion economy)  

Such a policy would see Australia only ‘edging towards’ average OECD levels of government social expenditure – and should not be viewed as being ‘too radical’.   But failure to embrace a reform footing would inevitably mean sustained austerity even under a Labor government.   And a lack of meaningful opposition to the fiscal policies that underscore Liberal austerity would only strengthen the Conservatives’ hand, with policy convergence on austerity, punitive welfare and the like. 

Finally – the fiscal reform we have suggested here would provide scope for other progressive policies.  This could include (but not be limited to)

·         a National Aged Care Insurance Scheme,

·         comprehensive Medicare Dental

·         alleviating poverty for the welfare dependent and for low-wage workers

·         properly implementing Gonski and the National Disability Insurance Scheme without resorting to punitive policies against other vulnerable groups

·         developing a policy with the aim of ‘closing the gap’ on life expectancy for those with mental illness

But without progressive fiscal reform  Labor could only provide the same drift towards austerity; even albeit more reluctantly.  Certainly Labor could not pose as the party of social progress; and would stand to cede further electoral ground to the Greens; while also damaging its attempts to renew and inspire its membership base.

Other issues also arose from the most recent QandA.  For instance the argument was forwarded that childcare subsidies only worsened cost pressures as private providers pocketed the money without passing on the savings.   The obvious response is that greater emphasis on public and not-for-profit childcare would help do away with those pressures. 

Similarly, it was no surprise that while the question of housing affordability was raised – and even the question of negative gearing – there was no consideration of the potential role of a big investment in public housing to promote urban consolidation (helping to address social problems like increasing transit times to work that damage families and communities); and also increase housing supply and drive down prices.

Greek Depression and the Eurozone

All these questions around austerity are also relevant for Europe, and especially for Greece. Unfortunately Germany had tried to tie an EU financial bailout package to austerity and privatisation – to the point of severely impairing the ability of Greece to repay its debts sustainably.  The Social Democrats in Coalition with the Christian Democrats in Germany need to question this; and promote a new policy. With Greek unemployment at over 25 per cent, the consequence is economic Depression, loss of tax revenues, and unnecessary and extraordinary human suffering.  For Greece and other similarly affected economies (eg: Spain), the answer is one of sustainable economic restructuring, and sustainable repayment of debts on the basis of full employment.  The wealthy must also be made to shoulder a fair part of the burden.  This must mean active industry policies around creating new export industries – that improve these nations’ balance of trade.  Hence employment could be kept high, and the improved balance of trade could aid in the repayment of debts without a downwards deflationary and recessionary spiral; or forced privatisations and the like.   By comparison austerity is a ‘double whammy’: hurting the Greek and Spanish people while also destroying their ability to repay debts.

Importantly there remain broader questions of disproportionalities in capitalist economies: the consequence of competitive pressures which drive constant renewal of the means of production.  The Euro-zone economic crisis also provides an opportunity to question neo-liberal Ideology; and indeed to question capitalism as we know it.

Anti-Semitism Resurgent

Finally, this week’s QandA also saw a question in reference to growing anti-Semitism not only in Europe but also in Australia.  Anti-Semites appear to have been emboldened by the military policies of the State of Israel in its conflicts with Hamas particularly.  In Europe Jews increasingly feel unsafe – and are targeted violently ‘simply for being Jews’.  But this turnaround has not resulted in the same degree of public consternation on the Left as has  Islamophobia.   And indeed while there is a great deal of damaging ignorance and fear with regard Islam in Australia, the Left nonetheless needs to be careful and vigilant with regard this emboldening of anti-Semitism.  A new generation is being desensitised to the past sufferings and persecution of the Jewish people; and hence some may be open to historical revisionism on the Holocaust into the future.

The targeting of Orthodox Jewish communities appears to be especially fruitful for the anti-Semites – because significant numbers have always been fearful of what is clearly at variance with the ‘mainstream’ and is ‘different’.   On the Left there are periodic qualifications to the effect that while we condemn the military and other repressive policies of the State of Israel, we do not accept hate crimes and violent attacks against Jews.  But we need to be much more consistent and forthright.  We need to confront where the current tenor of debate on the State of Israel and its policies is leading.  For genuine Leftists certainly it is not in any way our intention to legitimise anti-Semitism.  But we have a responsibility to confront the emerging Anti-Semitic trends just as forthrightly and consistently as we confront bigotry against Islamic communities.  And just as consistently as we criticise human rights abuses by the State of Israel under its current right-wing leadership.

Closing Appeal:

Our Campaign in favour of progressive reform of Labor’s platform is approaching the goal of 500 supporters on Facebook.  See HERE for our ‘model Platform’.  And See HERE to register your support. 

To help us ‘get over the line’ and maybe even go further depends on your support!  Please ‘Like’ our page at Facebook; and let all your friends and networks know about our campaign.  It is crucial to achieve a Labor Platform this year which at the very least keeps our options open on tax reform, progressive welfare reform, and extensions of the social wage.

nb:  independent socialist blogger John Passant has also written a piece on the insufficient nature of Shorten's proposed tax changes.   Readers may be interested in taking a look:

"Labor's tax avoidance crack down statement was the old pea and thimble trick. It wants to give the impression of doing something about big business tax avoidance (always a popular issue among ordinary workers) without really frightening the big business horses"

Monday, February 23, 2015

Crumbling Pillars of Global Capitalist Political Economy - Reflections from Eric Aarons

In the following reflections, former Australian communist leader Eric Aarons considers the moral and practical shortcomings of capitalist political economy and its attendant Ideology; including the Ideology underpinning 'Austrian Economics' and the thought of Friedrich Hayek.
by Eric Aarons
The pillars of a building, a narrative, a culture or theoretical edifice are those parts of the whole  that keep the other parts  in their designated places. The many books Friedrich Hayek wrote outlining his economic, social and philosophic  views , of and for humanity, eventually prevailed over other theories and became dominant.  I therefore  re-examine  its  major beliefs and assertions –  the pillars – that sustain the capitalist system he championed, and which are daily crumbling before our eyes.

The first pillar is money

Hayek asserts that: ‘Most people are still reluctant to accept the fact that it should be the disdained ‘cash nexus’ which holds the Great Society together, [and] that the great ideal of the unity of mankind should in the last resort depend on [it]’. (LLL,2, 112)’

Money is of course essential in a commodity-based society; but are its possession and use uniformly  equitable and honest?  Why could Oxfam, unchallenged, reveal that: ‘Almost half of the world’s wealth is now owned by just one percent of the population [and] the bottom half of the world’s population owns the same as the richest 85 people in the world?’ (Jan. 2014).

Moreover, compared with earlier stages of the capitalist system, honesty today is very much wanting. For examples of top-organised fraud, recall the laundering of billions of dollars of Mexican drug money by HSBC (Hong Kong and Shanghai Banking Corporation), and the Libor scandal.

Libor referred to the internationally used and trusted benchmark, the ‘ London Inter-bank Offered Rate’ set daily by experts.  On a  day when  the person in charge was an employee of Barclays Bank which was suffering survival difficulties  in the developing  Great Financial Crisis, he skewed the benchmark  rate to favour his bank over others.  Though big fines were imposed, the practice spread worldwide, and even years later new instances of benchmark  corruption keep cropping up, while  new scams are continually invented.

To believe that ‘cash’ in these circumstances can unify rather than divide humanity is among the greatest of follies, especially considering the next pillar which is rotten from the start. 

In essence this means creating more and bigger capitalist organisations which, with globalisation, today embody the worldwide domination of possessors of ever larger slabs of capital,  and general wealth.

What else can this lead to but the conditions reported by Oxfam, that signify the increased concentration of wealth in the form of capital , which has reached a stage where capital is such a large proportion of the total wealth created, that governments cannot now provide, as they formerly did,  services, such as health and higher education, let alone the sums needed to ease the burdens of the disabled, or the facilities for learning, and character development,  now socially essential.

 It is called austerity.

Giving to those who already have

This is a second pillar of the existing capitalist system, stated by Hayek in these words: ‘… ‘such a system gives to those who already have. But this is its merit rather than its defect, because it is this feature which makes it worth-while for everybody to direct his efforts not only towards immediate results but also to the future increase of his capacity of rendering services to others. It is the possibility of acquisition for the purpose of improving the capacity for future acquisition which engenders a continual overall process in which we do not at every moment have to start from scratch, but can begin with equipment which is the result of past efforts in order to make as large as possible the earnings from the means we control.’ (LLL vol. 2, pp.123-4)

Who is it that does the giving?  Consumers of course and waged employees. But here we are talking about economic theory which purports to show that economic processes involving markets are objective because individuals, as such, and by and large, cannot alter what the larger forces of the markets have proclaimed. This is not fully true due to monopolies and cartels – especially in these days of globalisation, where the stated aims of many multinational corporations are to make these forms of economic plunder almost routine, as illustrated in the oil and gas areas today.

Even in Hayek’s much smaller scale he had put the case just as pertinently: ‘We (capitalists) can decide whether the material reward others are prepared to pay for our services makes it worthwhile to render them.’ (The Moral element in Free Enterprise, pages 229 – 236 of Studies in Philosophy, Politics and Economics, 1966)

Who is it that does the giving? The consumer and the waged employee of course. But here we are talking about economic theory which contends and purports to show that economic processes involving markets are objective because individuals, or groups of them, cannot alter what the larger forces of the markets  have proclaimed. This is not fully true because of monopolies and cartels – especially in these days of globalisation, where the stated aims of many multinational corporations are to make these forms of economic plunder almost routine.

Even on a smaller scale Hayek, addressing capitalist organisations in 1961, put their moral case just as pertinently: ‘We (capitalists) can decide whether the material reward others are prepared to pay for our services makes it worthwhile to render them.’ (The Moral element in Free Enterprise, pages 229 – 236 of Studies in Philosophy, Politics and Economics, 1966)

Compare this with his contention that market processes are impersonal  (The Constitution of Liberty, page 45).

Neo-Liberalism claims that human beings are (basically) rule-following animals

This is a claim without substance, and differs from every serious account of human nature that I have read. For instance, I recently reviewed a very useful and interesting book  (The Sixth Extinction, by Elizabeth Kolbert) which had a brief description of the human race:

‘The members of the species are not particularly swift or strong or fertile. They are, however, singularly resourceful. Gradually they push into regions with different climates, different predators and different prey. None of the usual constraints of habitat or geography seem to check them. They cross rivers, plateaus, mountain ranges. In coastal regions, they gather shellfish; further inland they hunt mammals. Everywhere they settle they adapt and innovate. On reaching Europe they encounter creatures very much like themselves, but stockier and probably heavier, who have been living on the continent longer. They interbreed with these creatures and then, by one means or another, kill them off.
The current system is beyond human control
In Hayek’s theory this is because capitalism is not a system formed by humans, but an entity that spontaneously formed itself. This is so singular (so idiosyncratic) a view that, unless grasped, it renders much of his early writing in The Constitution of Liberty and Law, Legislation and Liberty almost illogical. At least I found it so.

Conclusion: The pillars of the present system are crumbling; It is rickety (liable to break or fail) as Thomas Piketty so  thoroughly exposed.
 It requires major restructuring .

Sunday, January 25, 2015

Debate on Tax and Small Government Flares Yet Again

Recent Claims by Joe Hockey that Australians pay about half their income to the Government through the tax system has once more spurred a broader debate about tax reform - and the falsehoods spread by the Conservatives and Economic Liberals to rationalise their Ideology.

Tristan Ewins

January 25th 2015

Recently debate has arisen once more about rates of tax in this country. Again Joe Hockey has come out with totally unfounded claims that individuals on average pay half of their income in tax.

 In response ACOSS chief executive Cassandra Goldie has argued that in fact middle income earners pay only 11 per cent of their income in personal tax, and higher income groups only about 20 per cent.  

Peter Martin of ‘The Age’ further explains how: “ACOSS [arrived] at the figures by including all household income in its total, including untaxed or lightly taxed…Income washed through superannuation, family trusts and negatively geared properties.”

Martin also explains how:

“The bottom one-fifth of households pay 3 per cent of their income in personal tax, the next group pays 7 per cent, middle group 11 per cent, the second-top group 15 per cent and the top group 20 per cent…

But [this] progressivity vanishes when other forms of tax are included. Including the goods and services tax and other consumption taxes such as petrol and tobacco excise, the lowest earning household pays 24 per cent of its income in tax and the highest earning household only a little more at 28 per cent.”

So the existing system is also barely progressive when taken as a whole; and the Conservatives want to dilute or reverse this even more!

 And today Gareth Hutchens of ‘The Age’ has also questioned the facts surrounding Joe Hockey’s claim that increased taxation through bracket creep is ‘the only alternative’ if Labor does not support the Conservative government’s austerity agenda. 

Crucially: improper reliance on bracket creep and increases in the GST and other regressive taxes and charges – including user pays mechanisms - are not the only alternative.

 The Liberals’ offensive against and all forms of redistribution rests upon their commitment to a classical liberal economic philosophy which naturalises the inequalities in wealth, income and power that arise under capitalism. Employers rather than workers are seen as ‘the real wealth creators’. Workers are seen as freely entering into contracts with employers. Their bargaining power as relates to skills in the marketplace are recognised; but the influence of trade unions in improving that bargaining position of workers is not. Differences in recompense based on demand and supply in the labour market are also ‘naturalised’. Because of this ‘naturalisation’ government intervention in the economy is rejected outright – except for instance in cases where this paradigm is enforced – for instance through impositions against the industrial liberties of organised labour. Hence the Conservatives and economic libertarians press for ‘simpler’ tax and lower tax because that means less redistribution.

 There is also the question of peoples’ own liberties in their capacities as consumers. This issue is raised by the Conservatives and economic liberals and deserves a considered response. There is the question of whether or not we are better off to determine our own ‘needs structures’ freely through consumption.

 Very few socialists today would aspire to abolishing ‘the market’ in its entirety. Most socialists today would recognise the place of ‘the market’ as a medium by which workers and citizens in their capacities as consumers hold corporations accountable through the play of market signals. Importantly, though, this entails the organisation of people in their capacity as consumers – both to improve the quality of information they can access as consumers – but also improving their market power through collective bargaining as consumers.

 But there are problems with this ‘market utopia’. Information is not perfect. Consumers are not sufficiently organised. There are monopolies and oligopolies which minimise the effective role of competitive market forces and signals. And there is the possibility of consumers prevailing to the expense of the more poorly organised workers. That is: the prospect of more – not less –exploitation. 

ALSO where there is intense competition there is the problem of investment in ‘the means of production’ growing so disproportionate compared with recompense through wages that the market is no longer able to absorb these costs – or provide sufficient consumption power to absorb what is produced.

 But if all this is true what are the alternatives?

 Firstly Labor should support a progressive restructuring of the tax system as a whole. That must mean winding back superannuation concessions for the well-off – a good proportion out of about $50 billion in total by 2016-17. In total superannuation concessions cost about as much the entire aged pension budget. It could also mean partially withdrawing dividend imputation (tax breaks ostensibly to negate ‘double taxation’) - justified on distributive grounds – and with exemptions for ‘small investors’. 

Further – it could entail an active restructuring of the income tax system – as opposed to ‘passively’ waiting for bracket creep to ‘do its work’. ‘Passive’ reliance on bracket creep for lower and middle income tax thresholds would have a regressive distributive effect. (which is why Hockey is willing to consider it despite his preference for ‘ever smaller government’) But restructuring and altering income tax scales and rates could allow bracket creep to work for higher income earners, delivering billions while actually reducing income tax for those on low incomes. A new top income tax rate could also be established for the millionaires. And restoration of a robust ‘resource rent’ tax for mining could deliver billions; as could ‘super profits’ taxes in crucial areas such as banking. Finally: with modest increases in corporate tax we could signal our desire to end the ‘race to the bottom’ that results in effective ‘corporate welfare’.

If an incoming Labor Government succeeded in raising at least $45 billion in new Commonwealth revenue (in today’s terms) through these and other measures in its first term upon retaking government it would be in a strong position to deliver on Australian taxpayers needs in education, health, transport, communications, welfare and more. Specifically it could fund big initiatives such as the National Disability Insurance Scheme progressively; And could also provide for another area of critical need – for a National Aged Care Insurance Scheme. Without austerity.

 In response the Conservatives and economic libertarians would insist that public provision ‘rejects the market’ which is the proper arbiter of all goods and services.

 But Labor must reject such claims for several very practical reasons; as well as for the sake of economic justice.

 Firstly ‘collective consumption’ as taxpayers can often secures for us ‘a better deal’ than in our capacities as isolated private consumers. Private infrastructure means user pays – which hits low and middle income citizens hardest. It also involves higher rates of borrowing – with the cost structures passed on to consumers. Finally it means private profit margins and dividends – which demand that as much income be extracted from consumers as is possible. And in the case of private toll roads, for instance, can mean the exclusion of public transport investment to artificially support the particular private investors.

 Competition in place of ‘strategic and natural public monopoly’ also passes on increased underlying cost-structures to consumers. A ‘hybrid’ economic system which delivered those efficient cost structures on would mean more consumption power – not less. Business actually gains from this. Both through cheaper infrastructure and services – but also through the increased consumption power of workers and citizens.

 Hence there is ‘the bottom line’ that tax-payers would have more to spend in the areas where choice is most important as a consequence of strategic ‘collective consumption’; including ‘social insurance’ for instance. And frankly ‘market forces’ do not necessarily make enough of a difference when it comes to roads and rail; or in the provision of water and energy; or in areas that are properly the reserve of ‘natural public monopoly’. (eg: energy, water, communications, and transport infrastructure) Often it all comes down to a contest as to which provider can most efficiently fleece consumers with unintelligible deals and plans foisted upon people who would much rather take ‘the basics’ for granted. And in areas like Education – ‘market choice’ just sorts us out on the basis of our capacity to pay. That is, on the basis of class. And that is unfair.

 But if ordinary people secure a ‘better deal’ through collective consumption in these areas that frees up more money for determining our needs structures in the areas where that really counts. For instance, including but not limited to the consumption and other participation in culture, sport, fitness, social activity and art. 

The time has come to question neo-liberal shibboleths around ‘small government’ and ‘the market’. An alternative is possible which delivers a better deal for the general public in our capacities as workers, citizens and consumers. But which has also learned from the mistakes of the old socialism which thought it could supersede ‘the market’ entirely.

tag cloud

aarons (9) according (12) aged (23) ago (13) america (18) argues (14) au (27) australia (20) australian (32) bank (25) based (14) billion (17) blog (17) book (11) budget (25) bush (11) business (13) capital (17) cent (13) change (16) com (25) comments (15) commonwealth (16) competition (18) congress (10) conservative (10) consider (10) country (10) course (15) cpsa (9) create (12) crisis (12) critical (10) cuba (12) deficit (11) democratic (10) different (10) economic (26) economy (24) en (9) ewins (20) federal (14) financial (11) focus (12) full (10) government (41) greens (12) groups (15) hayek (9) housing (10) html (16) http (42) income (13) increase (13) infrastructure (14) interest (10) investment (9) labels (11) labor (64) labour (13) land (32) liberal (15) market (10) matwe (10) money (9) needs (16) news (13) obama (22) office (15) opportunity (12) org (15) parents (13) party (22) pension (23) people (16) per (18) platform (9) political (18) posted (18) poverty (13) power (14) president (19) production (12) progressive (15) provide (10) public (19) raised (9) rate (14) red (14) reform (16) revolution (17) rudd (12) scare (11) services (12) single (14) social (38) socialist (10) sole (13) state (26) strong (10) struggle (11) suggested (10) support (19) tax (33) taxation (12) trade (12) tristan (23) unemployed (13) unemployment (12) values (14) venezuela (9) vulnerable (15) war (13) wealth (12) week (11) welcome (15) working (9) world (15) www (26) years (27)
created at