Budget 2013 - lunge and riposte

The 2013 Federal Budget was neither what it could have been, nor what it should have been. Labor faced an unenviable task with a $60 billion revenue shortfall over four years- linked with the high dollar, declining terms of trade – and wavering business profits as a consequence. This impacted on Company Tax receipts especially. Reduced revenues from the mining and carbon taxes didn't help either; though Labor was too timid or too pragmatic to restructure and revivify either.

Labor had options to bypass austerity while actually better containing the deficit. But they chose not to go down that path for fear of 'getting on the wrong side' of relatively narrow vested interests. Yet Labor did decide tolimit austerity. Cuts have not been so severe as to lead to a European style scenario of negative growth and mass unemployment.

Higher Education cuts are in the vicinity of $2.3 billion. Having locked itself in to a policy of small government and low taxes the Government decided to reprioritise rather than provide new money for crucial programs. The result was the sacrifice of university scholarships valued at $2000 – which were transformed into 'loans', as well as the rescission of options to repay HECS (Higher Education Contribution Scheme) upfront at a 10 per cent discount. The latter will mainly affect reasonably secure families – as for the disadvantaged upfront payment could be unmanageable in any case. But the $900 million 'efficiency dividend' could put pressure on the wages of academics and other education professionals, while perhaps resulting in more course closures.

Not just middle class welfare, but middle income welfare is set to go. This is classic Labor policy–at least since the Hawke years: making do with less through extensive and narrow targeting of welfare. But some of the cuts are regressive. Low income groups who would have benefited from carbon tax compensation will also find that some of that compensation– in the form of tax cuts – has been withdrawn.

So Labor has not quarantined 'middle income Australia' from its cuts. But for some middle income is not the same as middle class. Surely further reforms aimed at recouping revenue from the top 10% income demographic would have been fairer – even though the reality is that we need a broad enough tax base to bring in the necessary revenue to maintain health, education, welfare, infrastructure etc.

Notably the policy of mandatory detention of asylum seekers – supported by both the major parties – has itself resulted in a blowout of over $3 billion. But so long as Abbott plays the fear card on refugees Labor can be expected to emulate Coalition policy in order to neutralise or minimise any political benefit.

The amount of money those deemed unemployed can earn via casual labour before their benefits are effected has risen by about $20 a week. But the initiative does not go far enough; and not. A $50/week increase in Newstart remains urgent to lift the unemployed out of dire poverty

There have also been boosts for cancer research and treatment. And a scheme to assist seniors to 'downsize' their home - moving into more "manageable' residences - is very welcome. But further progressive action could involve the removal of taxes such as stamp duty from low-income Australians also wanting to move in to cheaper accommodation. Stamp duty is a state tax; but the states could be encouraged to implement such a policy in return for compensation from the Commonwealth.

Labor is promising public money for transport infrastructure – but probably much of this will be in the form of Public Private Partnerships. It is likely, therefore, that some new projects will take the form of toll roads and the like. This would have a regressive distributive effect.

And importantly – Labor is recouping $4.2 billion over four years by closing business tax loopholes – certainly a more welcome initiative than further austerity.

But Labor's big policies remain disability insurance and the so-called Gonski reforms.

When fully implemented by 2019-20 disability insurance will have a price-tag of about $22 billion – covering over 450,000 disabled Australians and their carers. Therefore there will be a 0.5% increase in the Medicare Levy. ( 'The Age' (May 15^th 2013) Though more robust action is necessary on the tax reform front to fund the program over the long term.

Combined with the education reforms, though, it is doubtful that the states can afford this without further federal grants – or further state-level 'reforms'. (again: user pays infrastructure, or increased state taxes) Even the Liberal states had been arguing for federal tax reform in order to consolidate their fiscal position. (though of course they were Ideologically driven to demand a regressive increase in the scope and coverage of the GST, rather than fair reforms elsewhere in the tax mix)

The Gonski reforms have also been dramatically watered down - though they remain substantial. Combined with state funding the Commonwealth expects funding of $14.9 billion over six years – compared with the initial vision to expand education funding by more than twice that amount.

The Abbott response

In response to the Labor Budget Abbott talked of a "Budget Crisis' created by 'Labor mismanagement.' This might go down well with some people who don't want to scratch far beneath the surface. But the reality is that the high dollar has driven the Budget's deteriorating position. Abbott has shared the government's position of not intervening to lower the dollar in order to mitigate poor terms of trade, and the disaster for manufacturing. Arguably intervention is warranted in exceptional circumstances. And furthermore, Abbott's opposition to a more robust mining tax deprived the government of the funds that may have been employed to effectively subsidise affected industries in manufacturing and tourism especially – keeping them viable until the end of the mining boom, and a drop in the dollar. This was important to prevent skills and capacities being lost over the long term.

Abbott and the Conservatives have also been complaining about Labor's 'out of control spending'. They are talking about a 'simpler' tax system – which almost certainly translates into more regressive flat taxes (eg: an expanded GST) which redistribute wealth from the real 'battlers' to the affluent. For Abbott this kind of 'tea bagger Ideology' is a betrayal of his Democratic Labor Party past. While the DLP was not a friend of Labor, they were not neo-liberals and believed in social welfare. But Abbott will say and do anything to get the 'top job'. The Americanisation of Australian politics is a real threat: and the Liberal neo-conservatives seem to see the US 'ideal' of harsh social stratification as something to aspire to and emulate.

Also, Abbott's rhetoric proves to be hollow when subjected to scrutiny. As Tim Colebatch points out (The Age, May 15^th 2013) "Revenue this year is forecast to be 23 per cent of GDP, compared with the Howard Government's post-GST average of25.4 per cent. And spending levels are pretty much identical. And amazingly - in Melbourne's 'Herald Sun' Jessica Irvine was allowed to make the observation that Labor"inherited a structurally flabby Budget from the Howard Government, with too many cash handouts and unsustainable tax cuts." And: "The Budget would be in surplus today if personal income tax rates had not been cut [under the Howard Government) eight years in a row." (Herald-Sun, May 15^th, 2013)

Why is Costello's record therefore not examined more rigorously? On the Howard/Costello watch the housing bubble rendered home ownership an impossible dream for many. The privatisation of Telstra left subsequent Labor governments in a position of having to 'pick up the pieces' and pay a high price for access to Telstra infrastructure for the NBN. The benefits of the mining boom were squandered with unnecessary middle class welfare and unsustainable tax cuts.

Abbott has also attempted to rationalise his Parental Leave for the wealthy scheme by comparing it to annual leave. But while many Australians only get 2 weeks annual leave, Abbott's scheme will provide SIX MONTHS leave on FULL PAY for professionals earning $150,000/year. The ultimate effect is a redistribution from 'battlers' to the wealthy – as Abbott's largesse with Parental Leave will be mirrored by austerity elsewhere.

Other projected Abbott policies include more punitive welfare in the form of Work for the Dole, and the removal of the (threadbare) Newstart 'safety net' entirely for under 30s. A layer of desperately unemployed – a 'reserve army of labour' – will undermine workers' organisation and bargaining power.

We can also expect an inferior version of the National Broadband Network; as well as assaults on the rights of labour including organisational rights; cuts to welfare; and the rescission of superannuation co-contributions for low income workers.

Lessons for Labor

There are several areas in which Labor could have further minimised the deficit, preventing austerity and actually expanding the social wage.

Rigorous mining tax reform could have brought in $6 billion. Reversion to 75% Dividend Imputation could have recouped perhaps another $6 billion – or perhaps $12 billion if reverting to 50% as once advocated by renowned Australian economist John Quiggin. Restructuring income tax should also be an option; as should a tax on inheritances over $2 million. And cutting superannuation concessions for the wealthy and the upper middle class could have captured between $10 billion and $20 billion. Talk of 'taking pressure off public pensions', here, is a furphy – as superannuation concessions alone are now costing more than the entire Aged Pension Budget.

Arguably Labor's timidity was unnecessary. The government is withdrawing some payments from low to middle income groups – but shies away from raising further revenue from the top 5% to 10% income and wealth demographics. Why back away from such reforms when they would target only a wealthy minority; and when they would provide the scope for massive expansion of Australia's social wage and infrastructure – the benefits of which should be plain to voters?

Also importantly – Labor could have mimicked Abbott on one crucial point: his 1.5% levy on big business. Abbott could hardly have complained given his own policy, and Labor could have directed the money into areas of much more acute human need – for instance, aged care. It is still not too lateto develop just such a policy and seek a mandate for it at the coming election.

With perhaps over $30 billion from such initiatives a surplus may even have been achieved for the coming year. Though that would be apolitical objective; as the precariousness of the world economy demands a more fiscally expansionist stance. But Gonski could have been implemented in full. And comprehensive Aged Care insurance could have been rolled out on similar principles to Disability Care Australia. Finally, resources could have been provided for the States – maintaining equity in provision of health services; providing further resources for public transport and other infrastructure without regressive user pays mechanisms or even privatisation of roads – where consumers pay the price.

It is not too late for Labor to emphasise social insurance as a central theme for the election. If Abbott could be pressed to accept disability social insurance, the right kind of articulatory strategies by Labor could drive him to accept Aged Care insurance as well. If Labor loses the election –but manages to dictate the policy agenda in such a manner – then even in electoral defeat it would comprise a kind of victory. The suffering of our aged citizens – especially those in high dependency care – is an obscenity to the extent it could be ameliorated – but is not – because of 'other priorities'.

There is relief that Labor "has not cut to the bone". But the Budget is not all that is could have been, nor what it should have been. Failing to extensively reform superannuation concessions was the key capitulation in the face of relatively narrow vested interests. Hopefully, though, Labor will now press the themes of tax reform , social insurance and social wage expansion in the following months, and seek a mandate for progressive change.