IAN McAULEY.  Don’t call economic reform “class war”

Those who accuse Labor of having engaged in “class warfare” in its election campaign are trying to stymie economically responsible taxation reform and to deflect attention from the corrupting influence of big money on our democracy.

When Bill Shorten lashed out at “corporate leviathans … a financial behemoth, spending unprecedented hundreds of millions of dollars advertising, telling lies, spreading fear”, anti-Labor voices were quick to accuse him of “class warfare” and “the politics of envy”.

I don’t recall at any time in the campaign when Shorten, or anyone else in the Labor Party, called on the oppressed proletariat to march on Point Piper or to storm the Melbourne Club.

Tax reform is not “class war”

What I did hear, although in the muddled messages of the Labor campaign, was a recognition that our tax system has at least two bad distortions. One is a set of incentives for people to become heavily indebted in order to speculate on housing, rather than to invest in wealth-creating enterprises. (The Coalition and its media supporters call such naïve property speculators “aspirationals”.) The other distortion relates to retirement incomes: a “hard-working Australian” with an income of $100 000 pays around $25 000 income tax, while a retiree (possibly the same person a few years later), living off $100 000 of earnings from $2 million of superannuation and other investments, pays no tax. Something very wrong there.

If the Liberal Party and its media supporters can’t understand the difference between tax reform and class war, there is little hope of any meaningful tax reform while Morrison, Cormann and Frydenberg are in charge of economic policy.

When Shorten complained about “powerful vested interests” he wasn’t talking about the  tradesperson with a couple of apartments or the retiree who has pulled together $2 million of superannuation and other saving. Such people, who are well-off in comparison with most Australians ($2 million puts one at the 90th percentile in wealth distribution), may have disproportionate political influence, but only in a collective sense. They don’t have the individual means to determine political outcomes.

These are the people who may donate, say, $1000 to a political party or an interest group because they agree with the party’s or group’s cause. A receipt and a standard “thank-you” e-mail is about all the recognition they can reasonably expect.

But the same proportionate donation from someone with $2 billion of wealth would be $1 million, and that is something quite different: it’s about buying influence.

Just two days after Shorten made his complaint, the Financial Review produced its annual “rich list”, revealing that there are now 39 Australians with personal fortunes of $2 billion or more: Shorten wasn’t talking hypothetically. On that list, at position #15, is Clive Palmer, who quite unashamedly – proudly in fact – says that his multi-million dollar campaign was specifically to keep Labor out of office.  (Had he been more strategic he probably could have spent far less – perhaps the comparatively modest $1 million Turnbull is reputed to have spent when the Coalition was in trouble before the 2016 election.)

Shorten’s point has nothing to do with “the politics of envy”. The only people who would envy those on the “rich list” are the also-rans who didn’t quite make it. (Envy is a real emotion, but we are envious only of those who are near to us in social rank or means: the corporal may be envious of the sergeant, but not of the colonel; the leading hand may be envious of the foreman, but not of the CEO.) Rather, the issue is about the influence of money on politics.

A struggle that goes back to Federation  

As Joseph Stiglitz warns, the link between market power and political influence must be severed. That link is starkly on display when just one person can do what Palmer did, and perhaps we should be grateful to Palmer for putting that power on display, because for the most part the influence of money is much less visible.

Maybe the super-rich are responsible citizens: their biographies provide plenty of examples of their good works, but it takes just one who puts his or her own fortune above the national interest to do what Palmer did. When we look at the potted biographies of those 39 we see many who made their fortunes in tough, competitive markets such as high technology and retail, but we also see many – almost half – who have made their fortunes in the wealth-extracting activities of real estate and mining, where there are huge returns in securing privilege from federal, state and local governments.

What we have seen in this election is an ideological conflict at least 120 years old. It’s not the traditional Marxist class conflict – although we had elements of that in the first half of last century. Rather it’s about the struggle we had at the time of Federation about what sort of country we were to become. Were we to go down the path of industrialisation, with its benefits of decent wages and prospects for people to advance through their enterprise and effort, or were we to go down what may be called the Argentinian path, with an established plutocracy living off rents from extractive industries?

At Federation we made a choice for the former, but as the scholar Ian McLean points out, in “settler societies” like Australia where fortunes have been made from land speculation and mining, the deal which made that choice is fragile. It’s hardly coincidental that the geographic divisions in 2019, between the resource states of Queensland and Western Australia, are the same as they were in 1901. In the election the Coalition and conservative independents hold a 35 to 11 majority in Queensland and Western Australia, while in southeast Australia, where 70 per cent of Australians live, Labor and more progressive independents hold a 59 to 43 majority.

And there’s a global aspect

In many ways the Palmer campaign was a re-run of the hysterical opposition to the Rudd Government’s resource rent tax – an opposition led not only by some corporations and mining lobby groups, but also by Gina Rinehart, who in that year topped the rich list.  While corporate and lobby group power has been a constant backdrop of capitalism, the power of wealthy individuals has grown tremendously in recent years. In 1984, when the rich list was founded, Kerry Packer topped it with a fortune of $200 million. Scaling that up by a factor of nine, to account for growth in nominal GDP, would give him a 2019 fortune of only $1.8 billion, competing with Gerry Harvey for #40 spot, and a long way from the present $16 billion top spot.

Worldwide the number of super-rich has grown tremendously since 2008, when, in response to the Global Financial Crisis, the monetary authorities, trying to stimulate economies teetering on the brink of a 1930s-style depression, flooded the world with money, through vanishingly low interest rates and “quantitative easing” (a polite term for Venezuelan-style money-printing). Australia’s latest instalment in this process was on Tuesday when the Reserve bank reduced the cash rate to 1.25 per cent. Cheap money has allowed for a massive re-distribution of financial wealth, without doing anything more than keeping the real economy from falling over the edge. Urban real-estate prices have boomed, as have sales of Monet paintings, ocean-going yachts and luxury cars, but job-creating investment in the real economy has been sluggish.

While the Coalition and its media cheer squad will go on about “class war” and “the politics of envy”, more reasonable people will call for campaign finance reform, and a ban on how-to-vote cards to stop preference deals and to remove the opportunity for the rich to pay to man polling booths. They would both be welcome reforms, but the more basic problem relates to structural weaknesses in our economic model, and the failure of 30 years of neoliberal economic policies, which have left us with no alternative but loose monetary policy to stave off economic collapse.

Ian McAuley is a retired lecturer in public sector finance at the University of Canberra.

 

 

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Ian McAuley is a retired lecturer in public finance at the University of Canberra and a Fellow of the Centre for Policy Development.

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