A blueprint for real reform - it’s time

Although the coming election campaign has only just been announced, a “phoney war” has been long brewing, with the ALP and Coalition seeking to match each other, especially in the portfolio of health. Despite this, however, it seems that both parties have seemed intent on “keeping their powder dry” in anticipation of the “real war”.

Rudd’s much vaunted “education revolution”, for instance, is yet to truly emerge, with little in the way of additional funding being allowed for to provide a “big picture” alternative vision for education and training.

The following survey of options is an attempt to sketch a policy blueprint that seeks to meaningfully expand social expenditure and reform taxation while maintaining Labor’s commitment to holding taxes down as a proportion of GDP - at least until the next ALP National Conference.

For a political party to move in contravention of its mandate would be a bad precedent to set - had the major parties not so flagrantly broken with their mandate so many times before. Tax cuts, for instance, are routinely embraced with abandon by both major parties regardless of any platform, and regardless of the consequences of austerity that follow.

To expand the overall tax base by approximately 1 per cent of GDP - or somewhere over $10 billion - following the next ALP National Conference could be seen as a modest and necessary measure in implementing vital and landmark health and welfare reform. This, we must remember, is in the broader context of an economy of well over $1 trillion. While this would move beyond Labor’s mandate, the demands of health and welfare reform are crucial and immediate.

Also, while there is only minimal scope to expand taxation as a proportion of GDP, this is not to say that the overall tax system cannot be radically restructured so as to render it far more progressive.

While bracket creep could be eliminated for those on lower incomes by indexing the bottom two tax scales, the process could be left in the case of those on higher incomes, with the revenue thus gained flowing through into progressive tax cuts. Proceeds from bracket creep, eliminating negative gearing and halving dividend imputation could thus be redirected.

The tax free threshold could be raised, while full pensions (Aged Pension, Disability Support Pension, Single Parents Pension, Carer’s Allowance, Newstart, Austudy) would be raised by about 5 per cent of average weekly earnings - or marginally over $100 a fortnight. In the same spirit, means tests on pensions could be further relaxed.

Such a move may seem radical, but petrol, transport, water and energy are all key fields where the cost of living for ordinary Australians has, for some time, been spiraling out of control.

The Disability Support Pension, in particular, ought to be expanded by at least an additional $50 a week: to counter previous austerity measures introduced by the conservatives.

Revenue gained through the abolition of negative gearing could also be redirected into rent assistance for those on lower incomes.

Increases in the basic cost of living for ordinary Australians also underline the need to more thoroughly regulate the lower end of the labour market. Labor’s “simplified” award system could do with more “muscle” - especially for the most vulnerable of workers.

The Fair Pay Commission’s decision in July 2007 to limit the increase in the minimum full time wage to $10.96 a week is best understood as a vile attempt to rein in inflation and interest rates by undermining the basic living conditions of vulnerable and struggling Australian workers.

It is not only the most vulnerable of workers who have suffered under the Coalition government, however. Writing in The Age, Ross Gittins noted that the wage share of the economy had fallen from 70.6 per cent of GDP in 1999-2000 to only 66 per cent of GDP in 2007.

Such a gap is worth more than $2,000 a year.

Since Hawke and the Accord in the 1980s, crises in the rate of profit in Australia have been met with wage restraint. Restraint under Hawke was voluntary, while under Howard cuts in the wage share of the economy has been achieved through repressive labour laws.

In light of this, it is worth making the argument now for wage earner funds. Such compensatory measures could uphold the rate of profit and foster stability, while delivering economic democracy and justice to ordinary Australians.

Legislation could be adopted requiring businesses listed on the Australian Stock Exchange to issue shares every year to community-based funds valued at 7.5 per cent of the profit share of every listed enterprise. Rather than suppressing the profit share of the economy, such a move would seek to shift this share collectively into the hands of workers.

Such measures also need to combine with other measures aimed at maintaining incentive and improving labour market participation. Labor’s tax credits scheme could well go a long way towards achieving such an outcome, while more vulnerable workers need a general lift in the minimum award wages and conditions.

As always, education and health loom large in the public consciousness as the election approaches. Neither main party, however, has said very much about expanding education funding to meet the changing needs of the tertiary education sector.

The much-mentioned “Melbourne Model” (adopted by Melbourne University) demands the broadening of the scope of the Higher Education Contribution Scheme (HECS) to meet the minimum requirements of many students. Funding of graduate positions through HECS under such conditions is a fundamental equity consideration.

Full fee positions for domestic undergraduates, and those obtaining a first graduate qualification, should be in the process of being phased out. One option is the introduction of a bracketed HECS repayment scale, where repayment thresholds are raised and brackets are introduced governing the proportion of debt repaid in relation to total income.

Rudd’s devotion of $2 billion over four years towards rectifying the crisis of the broader health system may sound substantial: but again, in the context of an economy of more than $1 trillion annual GDP, it is plainly insufficient.

John Menadue, by comparison, writing for the Centre for Policy Development (CPD), envisages an expansion in public health programs, fuelled by the abolition of the Private Health Insurance rebate. Menadue views the current system as a misguided and costly example of corporate welfare whose abolition, in addition to the removal of other wasteful subsidies, could net as much as $18 billion over three years. Menadue views this potential windfall as being critical to the expansion of programs in such fields as mental health and Indigenous health, primary care, prevention and dental care.

The crisis of confidence in the public health system, however, is not so easily addressed, and many on lower incomes might feel compelled to take out private health insurance for fear of their well being; perhaps even their very lives. Here, means testing of the Private Health Insurance Rebate would prove a more popular measure than its immediate and outright abolition.

A Federal Government commitment of $24 billion or more over four years would be guaranteed of making significant and lasting inroads into the waiting lists crisis, supplying vital funding and infrastructure: perhaps even providing affordable dental care for all.

Rather than “tinkering around the edges” with piecemeal and incremental change, such “root and branch” reform would imprint itself deeply in the public’s consciousness: beyond the immediate reach of conservative sabotage.

Additional funding for such reform could be drawn from a variety of sources. Already, Labor Finance Shadow Minister, Lindsay Tanner, has outlined $3 billion in possible savings. This is nowhere near enough in itself, but it can be seen as a starting point.

A less adventuresome approach to foreign affairs might also justify significant cuts in defence expenditure.

The budget surplus could also well be halved to somewhere in the vicinity of $5 billion, while the proposed emissions trading scheme could also be tinkered with so as to raise $5 billion a year: one means of raising revenue without technically raising tax.

Altogether, it could be reasonably estimated that over $15 billion in additional revenue and savings might be allowed for without increasing tax as a proportion of GDP. Allowing for a 1 per cent increase in the tax base as a proportion of GDP, this could rise beyond $25 billion.

There are many other policy areas which demand immediate attention.

There is a regrettable lack of in depth research into the extent of crises in Australia’s health, education, aged care and welfare systems, not to mention the glaring omission of detailed research into poverty and social inequality. A new “Social Modeling, Inequality and Poverty Commission”, though, could undertake desperately needed research into poverty, wealth distribution and concentration, including access to public services and social infrastructure.

Labor’s proposal for a fibre-optic broadband network is also deserving of scrutiny. As the proposal stands, it appears to be a recipe for a private part-monopoly. In many instances there are still firm arguments for natural public monopoly in areas of essential infrastructure: communication, roads, water, power. Attempts to promote competition in telecommunications infrastructure, for instance, has only seen a radical increase in the cost structures of the industry for very limited public gain. And in other areas of private oligopoly such as energy, limited competition has only led to frustration and confusion from consumers who would rather take the provision of essential services for granted.

It is not too late for Rudd to commit to a fully public fibre-optic broadband network: funded along with other essential infrastructure projects by diverting capital from the Future Fund.  Investment in public education infrastructure is one area in dire need of attention. Such moves are anything but fiscally irresponsible: comprising as they do an investment in overall productivity and growth, as well as in the skills base of the nation.

Briefly, the housing affordability crisis demands a greater investment than the $500 million earmarked by Kevin Rudd for Labor’s Housing Affordability Fund.

Now, as never before, public housing, infrastructure development and urban consolidation need to be on the “political radar” of all parties. While a “first home buyers grant” could feed into a housing bubble and further appreciation of property prices (as has occurred under the Coalition government), an increase in supply led by the public sector could lead to a much-needed correction in the market.

While some would stand to lose from a relative reduction in property prices, we need to consider those for whom home ownership or rental affordability have become an “impossible dream”. The conservatives, so far, have suggested a willingness to invest more than $4 billion in public housing in the next 10 years. The plan envisages the provision of as much as 37,000 new public housing units.

In response, Labor needs a plan of its own: preferably one which increases public housing stock as swiftly as possible. Given the scenario, it is not unreasonable to suppose Labor ought to trump the conservatives, doubling the commitment to $8 billion: funded through public borrowings, and implemented as soon as is possible.

Finally, all political parties need to plan now for the prospect of an ageing population, with the associated drop in labour market participation and government revenue, and increase in pensions, health and aged care costs.

All aged Australians ought to be able to receive quality care. Nurse to patient ratios need to be managed and improved, while nursing home and hostel environs should properly provide for privacy and quality of life. Ideally, all nursing homes and hostels ought to include gardens, single rooms, quality meals, the opportunity for outings, activities and access to communication technology - private phones, Internet access and so on.

Ultimately, such an investment must involve either an increase in the “user pays” component, or otherwise a lift in progressive taxation. Rather than “sorting us out in our twilight years” on the basis of ability to pay, the tax base needs now to be broadened in anticipation of future needs.

The “phoney war” of the past few months is now swiftly drawing to a close. It is to be hoped, then, that as the “real war” commences that policies of vision and depth are brought before the electorate. As the real election campaign gathers steam, it is up to voters to hold governments, politicians and parties accountable.

Policy convergence and opportunism provide no way forward in the face of those challenges confronting our nation. It is to be hoped that this contribution will in some way inform a vital and much-needed debate.