How to improve social wages with tax reform: Labor’s mission

Shorten has been an eager proponent of the NDIS, but he needs to start thinking of progressive ways to actually fund and implement the program. And hopefully he will apply the same standards of decency and compassion by popularising a similar program for aged care as well. John Passant has suggested other measures: an inheritance tax, minimum company tax, end capital gains tax concessions, tax trusts as companies, implement land tax for properties valued over $1 million, apply stronger economic rent taxes on mining, banking, and supermarket oligopolies.

Some of these proposals could form part of a more long-term agenda of reform, with Labor aiming to expand the social wage proportionately by 1.5 per cent of GDP per term of government, levelling out after several terms.

Nonetheless, funds levied over the next two years could then be deployed to provide stop-gap services and support in anticipation of a broader NDIS by 2014, with a similar scheme for aged care.  Such ‘stop-gap’ measures could be crucial in that the government would be seen to be ‘delivering the goods’. This is always more valuable than promises only ‘for the distant future’.

By locking such investments in and implementing the necessary funding mechanisms pressure would also be applied upon Opposition leader Tony Abbott to maintain bipartisan support. Abbott would appear callous were he to sabotage or obstruct such programs, and in contravention of self-professed Catholic/Christian convictions of compassion towards the vulnerable.

After reform of Aged Care and Disability Support and Services, much of the remaining funds (from an $18 billion pool) could then be dedicated to a major cost of living package aimed at mainstream working Australia as well as the most vulnerable.  Tax reform measures as alluded to earlier could be deployed to provide robust subsidies for energy and water in the case of low-middle income households, and for new public housing (increasing supply, and hence enhancing affordability). Broader tax restructure could also benefit these households, and comprise part of the package.

Over the long term, meanwhile, Labor could move to gradually resocialise energy and water, perhaps on a national basis, while moving away from user-pays mechanisms for roads and other essential infrastructure. Lower public sector borrowing costs could be passed on to consumers, while small consumers (individuals, families) would no longer be discriminated against because of lack of market power. Finally, productivity agreements with unions - including retraining and active industry policies - could deliver the best value for the public over the long term while providing justice and security for workers. Such initiatives would thus negate the core arguments for privatisation. Tighter regulation of energy/water over the trasnsitional period necessary for resocialisation could also be an essential part of a cost-of-living package.

Some of this money could also go towards funding the realisation of the Australian Service Union’s (ASU) community sector wage claim, which would make a massive difference mainly for women but also for men, working in that field. This could also lead to an influx of skilled labour and a big increase of morale in aged care.

Finally, the dire need to improve poverty-level Newstart benefits (even in the midst of harsh active labour market policies) demands action. And stricter conditions for the Disability Support Pension need to be reconsidered in light of the reduced job prospects and capacity of those genuinely disabled nonetheless judged able to work in someform.

Some funds could flow to the public coffers by cutting Dividend Imputation from 100 per cent to 75 per cent.  Dividend Imputation involves ‘credits’ applied so that dividends are not taxed ‘a second time’ after Company Tax. But the measure – not applied widely outside of Australia – overwhelmingly favours the wealthy and in any case Company Tax rates have been steadily eroded in recent decades.  

Partial withdrawal of Dividend Imputation could be crucial in reaching the $18 billion target. John Quiggin has argued for half dividend imputation in the past (which would yield over $10 billion). But getting ‘a foot in the door’ for tax reform (with 75 per cent imputation) could be a precursor for further reform in the future.

Targeting Dividend Imputation like this is a good strategy because, as opposed to raising Company Tax, the costs are less likely to be passed on to workers and consumers through reduced wages and increased prices. As a strategy it would target the ‘rentier’ capitalist class and thus would be a fair and egalitarian measure.

Assuming the implementation of such a reform agenda, even were Labor to lose in 2013, there would be a valuable and lasting legacy of which Gillard, Swan, Shorten, Wong and the federal Cabinet could be proud. Indeed, such programs would comprise a veritable ‘rallying cry’ for Labor’s eroding membership and core support base.

But by actually deliving such a big $18 billion/year package and making a real difference for mainstream working Australia as well as the most vulnerable Labor can still hold hope of victory in 2013.

Ammending Labor’s National Platform this coming December 2011 to enable an expansion of social expenditure by 1.5 per cent of GDP would provide hope for Labor and for Labor’s constituency.