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Issue #1455      19 May 2010

Editorial

Budget 2010-11

Trying to save capitalism from itself

Treasurer Wayne Swan’s forecast that the budget deficit will be turned into a surplus by 2013 is based on a China-led economic recovery. This is a neo-liberal budget with forecasts that make a mockery of the “this reckless spending must stop” line of the Opposition. The most important content of the budget was buried in diversionary debates about future budget surpluses and the mining super profits tax, with the Opposition appearing to make some mileage if the opinion polls are to be believed.

The most important aspects of this budget are what it failed to do. The people who have footed the bill for Labor’s “miracle”, the most disadvantaged in the community, are yet again neglected. It is business as usual; the lessons of the financial and subsequent economic crises have clearly not been learnt.

Swan went to great lengths to demonstrate “fiscal responsibility” – spin for budget surpluses and austerity measures – and counter the line that Labor is not as good an economic manager as the Liberals.

The government intervened in 2008 and 2009 to stabilise the financial sector and create the economic conditions for the corporate and financial sectors to find a profitable way out of the crisis. Not for one minute did it abandon its long-term agenda. As PM Kevin Rudd said in his essay “The Global Financial Crisis” (The Monthly, Feb 2009) “the international challenge for “social democrats is to save capitalism from itself ”. The state, he said, has a role to play in “creating the framework in which the markets operate and in correcting market failure.”

In terms of managing the capitalist system in the interests of big business it has so far proved very successful.

Just 12 months ago the Treasurer forecast that the government’s debt would peak at $203 billion and be paid off by 2020-21. Whether the figures were exaggerated is debatable, but at the time the Opposition did not think so. It ferociously attacked them, claiming government debt would peak at $315 billion and “reckless spending” Labor would never pay it off.

Last week, Swan forecast a peak debt of $93.7 billion with debt paid off three years earlier, by 2017-18. He also stated that the budget deficit would be turned around into a surplus in three years time – not six as forecast last year.

Opposition leader Tony Abbott was left speechless. There was little of substance for the official neo-liberals to attack and leading big business and finance sector representatives, with the exception of the powerful mining lobby, were smiling.

The Opposition tried to cast doubt over Labor’s seemingly miraculous performance, claiming it was based on the super profit tax on mining corporations which might not get through Parliament. This line did not stand up well, as the super profit tax on resources does not come into operation until the year of the predicted surplus. In that year the budget estimates only $3 billion in income from the super profit tax – hardly a major factor in turning around a forecast budget deficit of $40.8 billion!

The sad truth is that the Opposition could not have delivered a more conservative budget itself. They are scratching to find something to attack, that they could disagree with or would not do themselves. Neither of the major parties nor the mass media question the neo-liberal assumption that budgets should turn a surplus.

As for this latest set of predictions, they could also be turned on their head any time. As Swan notes, “… events in Greece remind us that risks in the global economy endure.

“Aftershocks from the crisis continue to reverberate. The robustness of this budget forms a solid buffer against the troubles of Europe.”

Actually the real buffers being relied on by the government against “the troubles of Europe” are the robustness of the Chinese economy and expectations of economic growth in India.

Basis of budget turnaround

The budget deficit arose largely out of the government’s $43 billion counter-cyclical stimulatory package as the economy was heading into recession. It was contributed to by morally and economically indefensible personal income tax cuts on higher incomes and a drop in income tax due to a fall in wages and corporate profits. The stimulus packages helped retain business confidence, sustain demand for goods and services and generate jobs. But it was China that paved the way for recovery in big business fortunes.

The stimulus measures are coming to an end, and the winding back of this spending is one of the main factors behind the government’s forecasts of a return to surplus. The government is also relying on an upsurge in tax takings from individuals and companies as export earnings rise, profits take off, and employment and total wages income increase. It will also increase its revenue by raising the tax on tobacco and a number of savings and cuts in other areas. These include:

  • Cancelling 260 childcare centres
  • Reducing and freezing the cap for childcare subsidies
  • Transferring more than 25,000 people from disability pension to Newstart Allowance (means a reduction in the single benefit from $350 to $251 per week)
  • Scrapping the emissions trading scheme
  • Slashing foreign aid by $1 billion over four years
  • Scrapped or capping a number of environmental programs such as water saving programs and home insulation
  • Cutting payments under the Pharmaceutical Benefits Scheme

In most areas government ministers were required to contain spending increases to within two percent in real terms. With wages expected to rise by around four percent per annum, this can only lead to job losses in the public service – possibly by attrition. It is not much different to Opposition leader Abbott’s plans to slash the number of public servants.

The two percent does not keep pace with the rapid growth in population and forecast growth in the national economy of 3.5 percent (as measured by Gross Domestic Product) next year and four percent the year after. It represents a contraction in government activity relative to the economy.

“I also announce a new phase focused on building even stronger surpluses and paying off debt even more quickly,” Swan announced.

Restoring the budget to a surplus of income over spending and wiping out government debt is a neo-liberal obsession. There is no valid reason why governments should not fund programs and infrastructure through debt. To the neo-liberal, every cent the government borrows is a cent less available to the private sector for investment and profit-generating. Yet lending to a government is far less risky than to the private sector and the money can buy more without the layers of profit extracted by the private sector.

Basis of recovery

The budget contains a number of measures to make Australia more attractive to foreign investors, in particular to encourage exploration in the resource sector.

It hopes to position Australia as a leading financial hub in the Asia Pacific region.

“The private sector is re-emerging as a driver of growth”, Swan said in his budget night speech,” and it was that growth and not the well-being of the most disadvantaged in the community that the budget was directed to assist.

What the budget didn’t do

Pensioners, carers, unemployed, those with disabilities and other welfare recipients yet again miss out. They are expected to continue battling on below subsistence incomes and charity. Many of them face harsher means testing and higher hurdles to jump to remain on their benefits. They are paying a high price for Labor’s budget obsession with surpluses.

The public sector continues to be wound back with additional funding for training going mostly to the private sector. The changes to the public health system take public hospitals and Medicare another step closer to privatisation. There are a few headline items relating to GPs, nurses and after hours services, but total neglect of dental, mental, preventative health and aged care services. Nurses and other aged care staff are still fighting to be recognised as professionals and paid accordingly.

Likewise the government continues with its development of an education market – increasing funding to private schools by even more than to state schools.

The government has begun phasing in some of the Henry Tax Review’s recommendations (see Guardian May 12 for details of Review). It has commenced the reduction of company taxation to the Review’s recommendation of 25 percent – reducing it from 30 percent to 29 percent in three years time and 28 percent the following year (2014-15).

The final round of income taxes, originating from the Howard government, will commence on July 1. As with previous rounds, those on high incomes have the most to gain. Some low income earners will benefit by an increase in the low income rebate.

There are a number of tax incentives for small business and huge handouts to mining companies for exploration costs. The mining companies will have the benefit of tax cuts up to the level where the super profit tax cuts in. The introduction of a super profits tax is important and should be extended to all industries, in particular, to the finance sector. It remains to be seen whether the government stands up to the powerful mining lobby and scare tactics of the Opposition.

The budget shows that lessons of the financial crisis have not been learnt. There are no measures to re-regulate the financial sector, impose controls on capital flows or abolish the most highly speculative activities of hedge funds and other financial institutions which operate beyond the radar of government regulation. Yet it is these institutions that would have caused a systemic collapse of the global financial system if governments had not come to their rescue with taxpayers’ money.

In fact, the government is negotiating free trade agreements with the US and at the World Trade Organisation for the further lifting of restrictions on capital flows internationally – a sure recipe for further crises.

The money directed to infrastructure will serve to further privatise roads, ports, rail and other key infrastructure. It is mostly directed towards coal mining and other resource industries with a focus on exports.

The budget is remarkably silent on the pressing needs of urban development, public housing, public transport and other infrastructure. Its attitude to the environment and climate change is nothing short of criminal with a few token gestures.

Needless to say, military spending and other related security activities are not subjected to the same austerity, with no shortage of funds for weapons or serving the US military in Afghanistan and where ever else called upon.

When the electorate threw the Howard government out in 2007, it was seeking real change in social, environmental and economic policy. It is not surprising that Labor’s fortunes in the opinion polls have plummeted as very little has changed on the ground in regard to health, education, public transport, industrial relations, the environment and treatment of Indigenous Australians. This budget, as with Labor’s previous two budgets, fails to deliver the hoped for changes.

See
Budget 2010-11 – Education – Howard era priorities locked in
Budget 2010-11 – Let down on environment
Budget 2010-11 – Boosting investment, cutting income taxes
and future issues of The Guardian for additional analysis of the budget
and an alternative Budget for The People. 

Next article – Message of solidarity

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