Bruce Duncan. Budget ignores growing inequality

May 9, 2016

Scott Morrison’s Commonwealth budget aims to be politically balanced but, like the Hockey budgets, neglects struggle street. The budget still labours under the neoliberal belief in minimal taxes, small government and maximum freedom for private enterprise.

Morrison’s mantra is that cutting taxes on businesses and the wealthy will increase investment, growth and jobs. The trouble is, this is not the case, in part because the meagre income of much of the population reduces demand. It appears also that tax cuts for the wealthy make little difference to the growth rate.

In addition, the unfairness of the economic system builds up popular resentment against elites groups who often make the rules to benefit themselves. This explains much of the disenchantment with politics that we see in Australia. We haven’t reached the situation of the United States, where anger and resentment is very evident in the widespread support for Donald Trump and Bernie Sanders. Consider also the rise of populist movements in parts of Europe with very high unemployment. Youth unemployment in Greece is at 48 per cent. How long can nations manage such social distress without turning to extremes?

Trickle-down economics & inequality

The trickle-down assumptions of supply-side economics have been proven bogus, but they supply a rationale for rich individuals and corporations to justify the inequitable division of wealth.

Joseph Stiglitz and many other economists have highlighted how inequality has grown to astonishing levels in the United States and elsewhere. Mike Secombe in The Saturday Paper pointed out that in Australia, the top 20 per cent have 70 times more wealth than the bottom 20 percent. While 10 per cent of households own 40 per cent of the wealth, the bottom 40 per cent of households own just 5 per cent. Secombe quoted an OECD study that ‘growing inequality is harmful for long-term economic growth.’

This is certainly the view of Pope Francis and other religious leaders. The Pope’s recent social encyclical, Laudato Si’, identified inequality and climate change as two of the greatest challenges to human wellbeing today. Francis highlights greater equity as a key to sustainable growth and prosperity.

Scott Morrison declared an end to class warfare, yet it would seem that the very rich have been waging class warfare for years, largely unhindered.

Major budget problems

The 2016-17 budget makes superannuation somewhat fairer for low-income people, but three-quarters of the benefit goes to the top 10 per cent of taxpayers. In addition, few of the steep cuts to services and programs made by the Abbott government have been restored. Indeed, there are more cuts to health and aged care in particular, and some Medicare benefits.

Despite strong support from business groups to lift unemployment benefits, the government curiously refused to increase them. For people going on to Newstart, the benefit will actually drop because they will not receive the small carbon tax compensation benefit. Unemployment benefits remain under $530 a fortnight for a single adult without children, not enough to pay for board at a backpacker’s and for food, medication, clothing and a phone card. Many walk the streets by day, and at times sleep rough. Increasing numbers of people are relying on charitable agencies for emergency support, and you may have seen more people begging in the streets of major cities.

The budget does little for the homeless or those in housing stress. And what of the 600,000 children living in poverty? Instead the budget cuts 810 jobs from the Department of Human Services, and a further 344 from the Department of Social Services. There was little new for Indigenous programs either. The budget did not restore earlier cuts, and there were further cuts to Indigenous legal services and higher education participation programs.

The extraordinary cost of housing is raising great concern in the community, as it is pricing many young couples out of the housing market, or saddling them with crippling debts. The housing bubble is also socially damaging, a source of considerable stress and delaying family formation. The budget completely resiled from any attempt to tackle the problems arising from negative gearing, as well as from capital gains taxes.

Perhaps most surprising, the budget ignored the looming crises from global warming. At a time when Australia could be a world leader in sustainable energy, and developing ways to adjust to climate change with new technologies and know-how in farming, fishing, housing, health care etc., the Coalition seems diffident, despite the Prime Minister’s own personal views. The cuts to funding for our world-famous CSIRO, and for research on climate change, are emblematic of the blinkered thinking of the Coalition government.

As for the budget’s centrepiece, the ‘enterprise tax plan’ to cut company tax from 30 per cent to 25 per cent over ten years, Stephen Long called it a ‘con’, and Tim Colebatch considered it ‘breathtaking’ and ‘courageous’, in Sir Humphrey’s famous phrase. Will the tax cuts produce growth and jobs? Not for years, according to Stephen Long. Small companies will likely retain profits in the business rather than risk new investment. The lower tax rate will encourage investors from overseas, but that will take years to eventuate. ‘The gains for jobs and wages are so small they are trivial’, comments Long. Malcolm Turnbull eventually confirmed that the program could eventually cost nearly $50 billion.

One of the few bright spots in the budget is an effort to tighten multinationals’ tax avoidance and capital flight. Voters are naturally outraged at such systemic tax avoidance and governments themselves are suffering from this massive haemorrhage of capital into tax havens. All the political parties broadly support curtailing this tax avoidance.

Yet because the Coalition had reduced its funding, the Australian Tax Office cut its workforce from 22,000 to about 18,500. In a major about-face, Treasurer Morrison announced that the ATO would now gain an extra 1000 staff, with 390 of them joining a taskforce of 1300 to ensure tax compliance by multinationals. Better late than never.

In short, what we urgently need in Australia is stronger support for those on struggle street, and policies to restore a fairer distribution of wealth and opportunity.

Bruce Duncan is a Redemptorist priest lecturing in social ethics at Yarra Theological Union in Melbourne. He is one of the founders of the advocacy organisation Social Policy Connections.

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