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After the Budget - debating our future

By Tristan Ewins - posted Tuesday, 2 June 2009


Recent polls suggest an increase of support for the conservatives in Australia under Malcolm Turnbull’s leadership. In particular, the conservative parties have been putting on the “hard sell”: that Labor is an irresponsible economic manager, and that deficits and debt finance are unsustainable.

Yet despite this, the conservatives have made little point of differentiation between their proposals and Rudd Labor’s 2009-2010 Federal Budget. Instead, there is an opportunist war of perception playing upon ingrained prejudices. Turnbull has decided to oppose progressive changes to the Private Health Insurance rebate which would see benefits cut for higher income earners with some of this redirected towards needy pensioners.

In place of these progressive reforms Turnbull has instead suggested a 12.5 per cent increase in tobacco taxation: enough to cover the $1.9 billion lost as a consequence of blocking Private Health Insurance Rebate reform.

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Importantly, we are not talking about a substantial difference in policy here. Remember, the economy is now annually valued at more than $1 trillion.

In some senses Turnbull’s stance is weak. In other ways it is a clever piece of political footwork. By focusing on a relatively minor difference in policy, Turnbull makes it difficult for Rudd to justify a double dissolution. Without such a “trigger” there is a danger that Labor may go to the next Federal election with the economy still struggling with the impact of global recession. Further: “by getting his way” Turnbull appears to have had a victory: providing the appearance of credibility he craves.

Of course, in reality the only alternative currently to running a deficit is to submit to a “downward deflationary spiral” of falling tax receipts, economic recession, and unemployment. Here, Turnbull’s play on popular prejudices and fears is grossly irresponsible.

Furthermore, Turnbull’s condemnation of Rudd’s earlier stimulus package (comprised of cash handouts) neglects the fact that infrastructure investment will take some time to get underway from the original announcement and until the benefits flow through the economy in the form of employment. The so-called “cash splash” in-fact supported the economy - specifically retail - during the interim.

The strategy, therefore, makes sense. In fact there are some who suggest that Labor’s stimulus does not - in fact - go far enough: Ken Davidson has argued that “the expenditure is not sufficient to hold unemployment at 6 per cent or lower.”

To put the deficit in perspective: as Paul Kelly has noted that the 2009 budget deficit is:

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… caused two-thirds by the revenue collapse (totalling $200 billion over four years) and one-third by the stimulus package.

Furthermore, the figure of $22 billion (on “nation-building” projects) doesn’t only refer to new spending, There is the $4.7 billion already set aside for the National Broadband Network, and also “projects from the last budget”.http://www.smartcompany.com.au/construction-and-engineering/22-billion-for-infrastructure-in-budget.html

Labor's stimulus spending is timely and necessary. By investing in infrastructure now, we support jobs through the course of the recession. Meanwhile, this provides the foundations for future prosperity and growth. Any debt incurred can be serviced later - especially so assuming investment now adds to productivity, capacity and growth in the future.

Returning again to Ken Davidson’s projections which assume “a deficit of $54 billion in 2009-10 and $188 billion in 2012”: the “interest on the debt would be only 0.6 per cent of GDP”. That’s less than $6 billion a year in the context of an economy valued at more than $1 trillion. The amount is significant but well within our means. And when considered alongside the toll that would otherwise be taken by unemployment on tax receipts and broader economic activity the effective cost is lower still.

Again, it raises the question of why Labor is not providing bolder and more assertive leadership.

Labor’s budget does at least not fall into the austerity trap, by which disinvestment in infrastructure and public goods and services feeds a recessionary spiral. While most of the investment mooted in the budget it not new at least Labor opts for a deficit to cushion the economy, and support tens of thousands of jobs.

Labor could go further - and should go further - but there is a clear distinction now between Rudd Labor and the conservatives.

The real losers in Labor’s 2009 Federal budget are the unemployed who languish behind other pension groups. They are deemed “unworthy” in the eyes of reactionary pundits of “popular opinion”. Here Labor’s timidity in the face of injustice is cause for despair and anger from those who have hoped for a stronger social justice agenda from the government.

Single aged and disability pensions are now “pegged to CPI with a new pensioner cost of living index or 27.7 per cent of male average weekly earnings” (MATWE), “whichever is the highest”.

These reforms while a genuine and welcome improvement do not meet the minimum demanded by pension lobby groups or the more modest benchmark of 30 per cent of MATWE proposed by me. Certainly, these measures are not sufficient to eliminate or even meaningfully mitigate poverty among some of the most vulnerable Australians.

Even assuming an activity test, the unemployed are expected to make do on $454 a fortnight. The full single aged pension, in contrast, will rise to $673.36 a fortnight: a gap of more than $100 a fortnight between this and “Newstart” (the unemployment pension).

The plight of sole parents is also of special concern: their support payments should be pegged the same as the aged and disability pensions and should be provided until the youngest child reaches 16 (instead of 8, as introduced by the Howard government).

The onus is now upon the Greens and independent Senators to apply pressure to Labor: pressure for a bolder expansionary deficit directed towards sustaining employment, and future productivity and capacity for our economy. And further, we need for those Senators to apply pressure upon Labor now for Newstart to be raised to the point of parity with other full single pensions.

Finally, we need a movement WITHIN Labor and throughout Australian civil society towards these and other essential demands of social justice: an expanded welfare state; a broad and inclusive social wage; and a democratic mixed economy.

There are many initiatives Labor could undertake. We will mention just a few.

The National Broadband Network could be prioritised as a fully-public project, fast-tracking construction as far as is possible, and avoiding the long-term pitfalls of private monopoly, inaccessibility for the disadvantaged, and profit-gouging.

And Karen Churchill, commenting at the Crikey website, has argued that public housing projects could be taken much further. According to Churchill, “low income people have to wait up to six years for public housing and two or three for ‘crisis’ housing”.

Strong investment in public housing could also produce a long-term correction to Costello’s disastrous “housing bubble” which placed home ownership and even rental affordability out of the reach of so many Australians.

Finally, Labor could make a greater investment in renewable energy. Bob Brown, speaking on behalf of the Australian Greens, condemned Labor policy, arguing that “A single coal project in the Hunter Valley will receive almost the same amount of money as the entire $1.5 billion Solar Flagship program over the next six years."

Labor’s commitment, here, could easily be doubled: although it would certainly earn the chagrin of powerful coal interests in Australia.

Understandably, investment in renewable energy is a priority for the Greens. But to broaden their appeal leading into the next election, the Greens need to take as strong a stand on welfare, unemployment, a democratic mixed economy, and economic stimulus as we have come to expect from them on the environment.

Steve Fielding and Nick Xenophon could also improve their credibility and relevance by offering critically-needed support on these concerns.

During hard times such as these, the oppressed and the vulnerable ought not lose heart. Together, Australians can emerge victorious in the struggle for justice.

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About the Author

Tristan Ewins has a PhD and is a freelance writer, qualified teacher and social commentator based in Melbourne, Australia. He is also a long-time member of the Socialist Left of the Australian Labor Party (ALP). He blogs at Left Focus, ALP Socialist Left Forum and the Movement for a Democratic Mixed Economy.
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