The latest federal budget in Australia by the Liberal Party was a real break with the recent past in which politicians were reluctant to offend any large group of voters and in which the status quo with respect to entitlements was avidly kept. There was a bit of playing around with extra money under Labor – spent on projects like the NBN – and there were some attempts at taxing the richest sectors more, such as the carbon tax, but it was largely a case of ‘All quiet on the Western front’.
This budget was different and seems to herald a shift in orientation of our political elites, not just the Liberal Party. What seems to have happened is that the political elites now take their cue from well-organised interest groups, to the detriment of the unorganised majority, effectively trailing the US by about a decade. The US saw the same move towards a ‘money talks’ society about 10 years ago, including the lifting of the Glass-Steagall laws that were meant to prevent the kind of financial piracy that lead to the GFC. In the US the trend is again reversing, but here we are just getting to the crest of money-talks politics. This is dressed up as going towards ‘small government’, but in reality we are talking about Government for the few. It is an inequality increasing agenda that rewards topic-specific organisation. Let me expand.
As Ross Gittins has pointed out in a whole set of articles on the budget, the headline changes are quite dramatic for the majority, especially for young poor people: the Gonski reforms, benefitting the least able within the schooling system, have been axed; the Carbon Tax, a tax mainly on a couple of big firms (mines and electricity generators), has been repealed; the age-pension, which is one of the main transfer programs, has now been indexed to inflation rather than average wages, which implies a 2% reduction in relative terms per year and 25% within about 12 years; the public school system and the hospitals will similarly see their commonwealth subsidies indexed to inflation, ensuring the same 25% decline in about 12 years; the cuts in parenting support similarly hit large parts of the population, whilst the effective halving of the unemployment benefits for the young (via the 6-months-on, 6-months-off rules) are estimated by the Department of Social Services to eventually impoverish close to half a million people.
One might see all this as indications of a move towards ‘small government’ and ‘starving the beast of government of funds’. That is certainly the storyline kept up by the Coalition and one that business economists bandy around also. It was the story of the Bush years in the US. If you look closely though, you will find it is not about small government at all. For you would have missed all the areas where government just got bigger. Substantially bigger. So look at the other changes to see the full picture.
In terms of small fry, the government has increased its budget for infrastructure and armament by several billion a year, benefiting a few large construction companies and arms dealers.
The more radical increase in government spending comes via the liberalisation of the Hecs fees though: this can be expected to double if not treble the government subsidies for education in terms of new loans, which is currently a flow of around 6 billion a year. The government could thus quite possibly lend out an additional 10 billion AUS a year in coming years, or 50 billion over the next 5 years. That is an increase in the size of the government that dwarfs all the other changes, cuts or increases. It will not be counted as new government debt because of the presumption that these loans will be paid back in the future, but, as the UK experience suggests, non-repayment rates can easily go to 30-40%, particularly when the loans are indexed to nominal interest rates and hence blow up quickly for anyone who cannot repay them fast. A 40% non-payment rate would mean an effective cost blow-out of 4 to 7 billion a year, much bigger than any other item on the budget!
So just on the proposed changes to Hecs alone, one should see this budget as a massive expansion of government, not a move towards small government at all.
And one should be clear as to whom the winners and losers of this expansion will be: the losers will course be the students and their parents, which is the whole of the middle classes. The winners will be a quite small but well-organised group of top-administrators at the top 10 universities in the country who have lobbied for these changes for years. So for the benefit of a few hundred people, who wield large bureaucracies inside their universities that help them lobby politics on this topic, this government is expanding its involvement via government-backed loans quite massively.
Similarly, the axing of the Carbon Tax (something I don’t actually mind because the Carbon Tax was never going to have the effect it was supposed to have) benefits large generators and rich shareholders in London and New York and other overseas places (who own around 85% of all the shares of our biggest 3 mining firms).
The same theme of how the budget benefits very small but well-organised groups at the expense of millions of voters pertains to many other changes. Private schools for instance have not been affected by the reduced subsidies to public schools as their implicit subsidies (via tax write-offs) have been untouched. Indeed, with the temporary increase of the top rate of income tax, private schools are now subsidised more by the government, not less!
The reduction in Corporate Tax will also primarily benefit a few very large firms that make lots of profits, including those big three foreign-owned mining firms (BHP, Tinto, Extrata).
Then think of what has not been affected: there has been no move to reduce the tax write-offs used by the Super-rich; no move to unravel the medical cartels; no move to reduce the fees charged by the superannuation firms; no move against the fuel subsidies for the mining industry; no increase in accountability of financial advisers.
Worse, down the line, it is expected that we are looking at reductions in the marginal rate of taxation about $200,000, something that will benefit only a few percent of the population but will cost the other 99%.
We are clearly looking at the effect of years of lobbying of interest groups behind the scenes and a fundamental shift in the orientation of political elites on both sides of politics towards this lobbying, ie towards the ‘stakeholders’ they hang out with.
The writing was already on the wall in 2010 when the Labor government did not manage to push through a mining tax which would essentially have meant a grab for the profits of largely foreign shareholders (!!). It was obviously beneficial to the Australian population, but could not be pushed through due to concentrated lobbying and media efforts of the big foreign-owned mining companies. It also revealed the failure of civil society, top ministry advisers, and of academics who were caught off-guard by the media-blitz. The politicians saw ‘us’ lose.
This loss heralded a short period in which the Labor government effectively was in tax limbo-land, unable to push through any major change that would adversely affect the well-organised and the well-funded. Worse, it was co-opted to fund fanciful and inefficient projects like the NBN, which also benefited the few over the many. There were many other examples.
The shift in power that was hinted at following the battle over the mining tax in 2010 has now become much more apparent and ingrained: it seems to have become the actual policy of the government in power to do the bidding of the few. Like many newspapers, politicians are simply going with the stories that they get bombarded with, offered for free, which are the stories by the well-funded few (as well as the baby-boomers). These are our ‘Bush years’, whether or not the changes survive the Senate.
So we are looking at a shift in political influence in this country, away from the masses and towards the well-funded and the well-organised. For the moment, academics, ministry experts, and civil society, still oriented towards the wellbeing of the many, have no answer. Ministry experts who could formulate alternatives are being fired, left, right, and center. We are losing. Big time.
But what are the underlying reasons for this shift in our political elites to do the bidding of well-organised vested interests? What has eroded the relative ability of the many to have their needs represented and championed in our democracy? Where is this ‘regulatory capture’ of the government by the well-funded and the well-organised leading us as a society?