Mark Latham's tax policy does not sit comfortably with Labor's heartland

While it is impossible to deny that a Crean Labor government would be fundamentally more progressive on a whole host of issues than the incumbent Conservatives, recent statements by Shadow Treasurer, Mark Latham will be close to providing “the straw that breaks the camel’s back” for many rank-and-file Labor activists, and disillusioned Labor voters.

Latham’s commitment to “tax relief” for those “struggling” on as much as $60,000-$80,000 a year has many shaking their heads in disbelief. It is enough to prompt one to consider the plight of the unemployed, the welfare-dependent, or the working poor, and their place in Latham’s “order of priorities”.

Those on Labor’s Left (and even some from its Right) will be searching their consciences in the face of proposals that can only serve to hasten the “Americanisation” of Australia’s social and economic systems. (i.e. obsession with small government and tax cuts, marginalization of the interests of workers and the poor and destruction of the welfare state).

It is not beyond imagination that at least some of those pragmatists who are advocating sweeping tax cuts actually conceive an ethical basis for their opportunism. For them, it is a matter of “harm minimization”. Organised labour and social democracy, by this reckoning, have lost the “culture war”. The only remaining option is to soften the reaction, by internalising certain of its key tenets.

For many “pragmatists”, however, opportunism has developed to such a point where even the ideological basis for “harm minimization” is totally absent. Politics is simply a matter of personal ambition, underlying interests, marketing, market-research and shallow “product differentiation”.

This, however, is to neglect a number of key concerns. To begin with, there is a growing body of evidence suggesting that Australians are willing to pay taxes that they can identify as being closely linked with spending initiatives and priorities that “are in the public interest”.

According to the Australian Council of Social Services (ACOSS): "A new analysis of Roy Morgan Research opinion poll data by ACOSS finds that the importance the public gives to taxation has halved over the past five years while concern over health and education has risen by 67 per cent and 89 per cent respectively."

Meanwhile, according to additional studies undertaken by Australian Research Consultants publicised in The Age on 17 August 2003, “75 per cent of voters, including 69 per cent of federal government supporters, would prefer more spent on hospitals and schools, rather than tax cuts.”

Where tax increases focus primarily upon “the high end of town”, therefore, Labor stands an even greater chance of building a solid constituency for reform: relentlessly pressing home the message that such reform is in the financial and social interests of the vast majority of Australian voters.

Abolition of dividend imputation, a modest carbon tax, an increase in the Medicare Levy for upper-income earners, introduction of a progressively scaled “education levy”, abolition of capital gains tax concessions, a marginal one per cent increase in company tax, the introduction of a wealth tax for millionaires, and the introduction of new PAYE tax brackets for the wealthy could, in of themselves, net more than $8 billion in new revenue.

This money could be used to:

• bring final closure to the hospital waiting-lists crisis, restoring faith in the public health system, and thus undercutting the cost of the private health insurance rebate;
• expand Medicare to include dental care, optical care, prosthetics, physio, and other vital areas of service provision;
• markedly increase support for carers to at least $120/fortnight, while providing the revenue base to provide for an aging population compassionately and equitably;
• restore equity, quality and participation in both secondary and higher education, with positive implications for investment and growth, also “heading off” the drift towards a “two-tiered”, class-based education system;
• allow boosts in pensions and the provision of targeted programs against unemployment, entrenched disadvantage and poverty;
• increase state grants, removing the impetus behind private provision of essential infrastructure such as roads, and the resultant imposition of tolls (i.e. regressive, privately-administered flat taxes); and/or
• expand quality public housing to address the generational poverty issues associated with rising property prices, and plummeting levels of home ownership.

By comparison, any real tax cuts aimed at Australians living on above-Average Weekly Earnings will come from the budget bottom line. Quite directly, this will result in reduced social expenditure, and the imposition of further regressive user charges in education, health, aged care and basic infrastructure including roads.

In this way, such tax cuts must ultimately come at the expense of the majority of Australians. When social services in Health, Education, Aged Care and elsewhere, are not provided for by the State on the basis of progressive taxation, with contributions made on the basis of “capacity to pay”, demand for such services does not simply disappear. Instead, provision of such services usually reverts to the market, where the cost of services is determined by supply and demand.

In this context such user charges comprise the equivalent of a regressive flat tax. At best, a two-tiered system is created: private affluence and public squalor – where the public system is progressively marginalised, as are those who depend upon it. At worst, those on average incomes find themselves paying a greater proportion of their total income for basic services, while those on lower incomes and welfare are simply priced out of the market altogether. Hence US-style health care, where capacity to pay determines life and death.

If there are to be tax cuts of any sort, then they should be in the form of tax credits or rebates, aimed at benefiting only those on Average Weekly Earnings and lower, while at least maintaining public revenue (and hence outlays) in real terms. This, then, should be coupled with a progressive restructuring of the PAYE tax scale to restore distributive justice. Such reform could finally be complemented by the indexation of the lowest PAYE tax brackets, enabling protection from bracket creep for those on lower and average incomes.

Labor Shadow Treasurer Mark Latham has pointed to the demographics of three marginal Liberal seats: Aston, Casey and Hughes, where median incomes range between $45,000 and $65,000, in an attempt to bolster his plan to slash the top PAYE income tax rate. However while Aston is a true marginal, 2001 election figures put Hughes at a 6.1 per cent margin, with a total of 40 electorates within closer “striking range”. In the 2004 election, therefore, neither Hughes nor Casey are likely to play the decisive role.

Conservative political commentators, plying a deceptive agenda, are prone to point to average full-time adult earnings of about $48,000 a year to construct a “snapshot” of the “average Australian”. Such figures, however, ignore those Australians who are unemployed, welfare-dependent, or in part-time or casual work. This considered, according to the 2001 Australian Census, the “average Australian” survived on $300-$399 a week. Even assuming a figure of $400/week, this would place the “average Australian” on barely $20,000/year.

According to The Age (20/11/2003), “Confidential Labor Party research” suggests that a “squeeze’ on the cost of living will be a “potent election issue”. In the opportunist drive for tax cuts, Latham ignores the electoral (and social) impact of failing to deliver substantially and qualitatively better health, education and aged-care programs to middle and lower-income groups, the unemployed and the welfare dependent.

Furthermore, he ignores the tangible benefits in regard to “cost of living issues” that would be provided by an expansion of the social wage from which the vast majority of Australians would benefit. If Labor is to maintain, let alone expand, Australia’s social wage, and thus govern in the interests of the majority of Australians, if cannot afford to provide real tax cuts to those on average full-time adult earnings, let alone the relatively wealthy.

Failing to address the question of revenue will inevitably relegate Labor to merely “tinkering around the edges” in regard to health, education, welfare, aged care and other concerns. When Labor talks about committing about $2 billion to Medicare and Higher Education, it ought to be remembered that this is in the context of an economy of well over $700 billion. Meanwhile, John Howard’s recent tax cut, providing a mere $4 a week to certain voters (which was passed by Labor in the Senate) abandoned a source of revenue sufficient to fund Labor’s entire Higher Education strategy.

Labor should take heart from successive studies demonstrating the willingness of voters to pay tax in the event that such revenue is linked with clearly identifiable “social goods” in health and education. Rather than moving again onto the back foot, into a “harm minimization” approach characterised by a bidding war on tax, Labor needs to be setting the foundations for a real social-justice strategy that provides a comprehensive and qualitative alternative to the Conservatives.