The Politics    Friday, July 5, 2019

Tax cuts commit Australia to austerity

By Russell Marks

Tax cuts commit Australia to austerity

Prime Minister Scott Morrison and Treasurer Josh Frydenberg. Source: Twitter

The only thing tax cuts are sure to deliver is growing inequality

Even amid the various analyses that warn of the long-term effects of the Morrison government’s tax package, the massive cuts are often described as “stimulatory”. That’s because, theoretically, anyone earning between $50,000 and $100,000 is likely to see an additional $1000 in their tax returns for 2018–19, and for every year thereafter. But there is nothing stimulatory about cuts like these.

On the face of it, spending $158 billion over the next 10 years – which is what the Coalition successfully convinced parliament to do yesterday – would have a stimulatory effect. But that ceases to be the case if the government’s budget remains in surplus (which is the government’s aim). Because to achieve surpluses the government will need to take spending cuts in other areas – infrastructure or services – to make up for the lost billions in revenue. Scott Morrison claims his government won’t be doing that, but it’s simply not possible to (1) spend $158 billion, (2) remain in surplus, and (3) avoid cuts to other government spending. Tony Abbott promised the same bogus cocktail in 2013, and it didn’t take long for the 2014–15 budget to expose his lie.

There’s a difference between government spending on tax cuts and government spending on infrastructure and services. The latter is almost always stimulatory, because it’s money actually injected into the economy – and in ways that often have “multiplier” effects. (For instance, spending on improved rail services creates jobs and improves people’s ability to move around, which has a flow-on effect on economic growth.) Tax cuts simply privatise what under the current tax regime is public wealth. Some of that money will be spent (as private consumption). But a lot of it will also be saved. Private savings take money out of circulation and tend to have a dampening effect on the economy. Sure, fewer of these returns will be saved than usual, given record low interest rates. But private consumption generally has fewer multipliers than government spending. The trickle-down notion that increasing private wealth will lead to “jobs and growth” is mythical.

Despite what Morrison and others may say, the prime minister’s plans won’t bring economic stimulation. The pursuit of government surplus simply means Morrison is committed to ensuring that the “expenditure” column of the budget ledger shows a lower figure than the “revenue” column. Government budget surpluses are inherently contractionary. They’re a good thing when the economy is overheating. But Australia’s economy is currently so cool it’s practically stagnant. Surpluses in the present context are nonsensical.

If Morrison really wanted to stimulate the economy – if he truly wanted to create more jobs, to “grow the pie” – then he’d ensure that most of the tax cuts are delivered to those on lowest incomes, because they typically spend most of any windfalls. But the returns to those earning less than $40,000 under this plan are quite modest. At the same time, the Morrison government has lowered penalty rates for working unsociable hours even further, which will take more money out of low-income pockets. Instead, the Morrison tax-cuts package will deliver much greater returns to those earning relatively high incomes – and these people typically save more.

To stimulate the economy, Morrison could have gone into budget deficit to deliver a one-off windfall to those earning relatively low incomes – just as the Rudd government did at the time of the global financial crisis. The problem with tax cuts is that they’re structural. They’re long term. They’re very difficult to reverse in the future. There’s no getting that revenue back.

Morrison appears committed to budget surplus above everything else, and that can only mean contractionary cuts to government spending. What Morrison is really interested in is austerity.

The Labor Party says it might try to reverse the stage-three tax cuts that benefit high-income earners if it wins the next election, before they come into effect. But can this be believed? To do so would be to invite the same kind of political backlash it suffered this election when it promised to reign in franking credits and negative gearing. In a media environment dominated by Murdoch, whose mastheads and TV stations convert the self-interest of the wealthy into everyman common sense, Labor has no theory of power or change that would carry it through.

In capitulating on the Morrison tax cuts, the ALP confirmed a few things. It confirmed that its commitment to the apparently principled policy platform that it had put together over the last three years and which it took to the May election was ultimately built on weak foundations. It confirmed that it has no stomach for formulating an alternative narrative – about the desperate need to value quality public services over small sugar-hits to individual incomes, about the virtues of the common good, about the importance of taxation as redistribution. For 20 years now, Labor has capitulated to the neoliberal agenda of the wealth-accumulators every time it’s been tested.

And this is a shame. Morrison’s pursuit of a discredited, disingenuous and thoroughly divisive austerity agenda for the next three (or 10) years will further undermine what Australians once most valued about our country: its egalitarianism. The rich will get richer. And the millions of Australians who won’t benefit from the growing privatisation of wealth? They’ll continue to be blamed for their own poverty, surveilled by the state and ignored by their wealthy fellow citizens, who can afford to gate themselves away as they hoover up public subsidies for their hospital care and their children’s private education.

There’s a real-world model for the kind of Australia Morrison is creating, where the state refuses to tax its wealthy and redistribute wealth across its society. It’s a place where social mobility is ever diminishing. It’s the place where Donald Trump was elected president.

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Russell Marks

Russell Marks is a lawyer and an adjunct research fellow at La Trobe University. He is the author of Crime and Punishment: Offenders and Victims in a Broken Justice System (Black Inc., 2015). 

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