- by Anna Pha
- The Guardian
- Issue #1978
The latest national income figures showing economic growth barely above zero are suggestive of a sluggish economy, struggling to avoid recession. The economy is hardly growing, by even the kindest of measures. But: the big banks and corporates are awash with record profits, while workers struggle on shrinking wages! Welcome to capitalism, a system based on greed and wealth for the few and pain and suffering for the majority.
This profit surge has been propelled by taxpayer-funded corporate welfare, tax cuts, close-to-zero interest rates, booming housing prices, and above all, an assault on wages and working conditions. The public sector is starved of funds; JobSeeker at $44 a day remains below the poverty line; and pensioners, carers, and other social security recipients struggle to put food on the table.
This profit season has delivered a record $86.6 billion bonanza for shareholders. This is despite some large corporations like Qantas and many small businesses being hit by border closures and lockdowns during the pandemic. Behind the curtain of COVID, a massive transfer of wealth is taking place, and not in a desirable direction! The wealth is not trickling down, but soaring upwards. The wealth gap is rapidly widening in Australia.
As the annual business reporting season draws to a close, a record $31 billion in dividends for shareholders has been declared. But it doesn’t stop there. Awash with surplus capital, a record $15 million in share buybacks will further enrich shareholders. Companies buying back shares further line the pockets of shareholders in addition to the dividends. It also results in fewer shares remaining on the market, with an immediate increase in the value of remaining shares.
Another $34 billion will be paid out to shareholders in takeovers of businesses, drawing on accumulated profits and access to cheap loans due to record low interest rates.
BHP, Rio Tinto, and Fortescue Metals combined are paying $18.27 billion in dividends, mostly to wealthy shareholders and directors. These resource companies have made mammoth profits from record high iron ore prices and other resources extracted from the land that belongs to First Nations people – who receive little or nothing in return. These monopolies are also the beneficiaries of huge subsidies from governments, while paying peanuts in royalties.
Relatively little of the $86.6 billion cash will flow into the economy. It will mostly go to people on higher incomes, generating relatively little in terms of additional demand for goods and services. It will not boost the economy like increasing low wages and social security payments would: people on lower incomes spend every extra cent they receive.
The economy is awash with surplus capital, but workers’ pockets are empty. According to Oxfam, Australia’s thirty-one billionaires have seen their riches increase by almost $85 billion over the past eighteen months. The richest one per cent own more wealth than the bottom seventy per cent of Australians combined.
This widening of the wealth gap is not unique to Australia. In its Inequality Virus report released in January 2021, Oxfam noted:
“The coronavirus pandemic has the potential to lead to an increase in inequality in almost every country at once, the first time this has happened since records began. The virus has exposed, fed off and increased existing inequalities of wealth, gender, and race. Close to two million people have died, and hundreds of millions of people are being forced into poverty while many of the richest – individuals and corporations – are thriving.”
Wages remain stagnant, and lower for the thousands of workers on reduced hours of work. Employers did not hesitate to make the most of the government’s “flexible” work arrangements during the pandemic to drive down wages and conditions, which alongside the massive profits and dividend payouts to the wealthy, are proof of the fast-widening gap.
LACK OF DEMAND
It is unusual for big business to distribute such a large percentage of their profits as dividends for shareholders. They always have an eye on accumulating more capital for investment in expansion or modernisation to generate even more profits. So why not this time?
Put simply, they only invest when they see it as being highly profitable to do so. At present the economy is experiencing a crisis of overproduction and overcapacity. Until demand for goods and services increases, they are unlikely to invest as much. These developments are uneven; there are a few booming sectors such as mining and construction.
The fact that a smaller portion of profits has been held for future expansion suggests an economy in bad shape.
ALL THE WAY TO THE BANK
Housing, increasingly unaffordable for workers and their families, has become a commodity for investors seeking secure, safe investments. Low-interest rates have fuelled the rapid rise in housing prices during a period in which the underlying economy is flat.
In 2020, in order to address the economic fallout of the COVID crisis, the Reserve Bank of Australia gave banks a major line of credit of $100 billion at 0.25 per cent interest – what was known as the Term Funding Facility. This was later doubled to $200 billion, and the rate reduced to a near give-away low of 0.1 per cent. Almost half of that line remains unused. It seems the banks have too much cash!
The Commonwealth Bank of Australia (CBA) and the other three big banks are awash with surplus cash. They screw retirees and others with savings in the bank, paying as little as 0.01 per cent interest, while raking in record high profits through a massive increase in housing loans on a booming market.
In the first half of 2020-21 Westpac’s net (post tax) profits rose 213 per cent, NAB’s by 144.3 per cent, ANZ’s by 45 per cent and for the full 2021 financial year the CBA’s net profits rose by 20 per cent.
GENEROUS CORPORATE WELFARE
Although JobKeeper was paid to workers through their employer, it indirectly assisted them by keeping their workforce attached and keeping them afloat during the 2020 lockdowns. Analysis by the Parliamentary Budget Office shows that at least $13 billion in JobKeeper was paid to companies that ultimately recorded an increase in revenue. This was because companies with turnover of more than $1 billion were eligible for JobKeeper if they had had, or “could anticipate,” a drop in revenue of more than fifty per cent. The government, as has been widely reported, refuses to demand repayment of those monies. It was negligent in not making a drawback provision in the original program.
Depending on their size, businesses were eligible for between $20,000 and $100,000 under the COVID “cashflow boost for business” scheme. The total cost of the program was $35.5 billion, only surpassed by the $90 billion program for JobKeeper and the $89 billion plus cost blowouts for new attack submarines. There is a commitment for sixty per cent of this to be fed into Australian military businesses.
Businesses with a turnover of less than $50 million have also benefitted from a phased-in reduction in taxation of profits, from thirty cents to twenty-five cents in the dollar this financial year.
Oil and gas companies and major fossil fuel users receive more than $10 billion a year in government subsidies. Instead of subsidising fossil fuel industries, the money should be directed to research and development of renewables, and job creation.
DISASTER PAYMENT INEQUITIES
“Currently, more than half a million people in lockdown and their children are excluded from the disaster payments because they did not have paid work going into lockdown, despite trying to find it. Now in lockdown, they are restricted in finding paid work and most are continuing to struggle on the JobSeeker payment, which is just $44 a day,” Cassandra Goldie, CEO of the Australian Council of Social Service (ACOSS) said.
ACOSS is calling for the government to restore the $550 per fortnight JobSeeker supplement that was temporarily introduced during the pandemic crisis in 2020.
No one can live in dignity on $44 a day in Australia. An already dire situation is compounded by lockdowns and loss of income. Only people who normally work for more than eight hours a week and have lost work because of the lockdown are eligible. This is even though finding paid work during lockdowns is almost impossible.
“Single mothers, international students, casuals who have lost work and can’t access extra COVID payments, and people who are isolating are among those struggling to pay their bills and purchase food,” Food Bank Australia CEO Brianna Casey said. She described the demand as “mind blowing.” Food Bank is Australia’s largest hunger relief charity.
Prices have continued to rise during the lockdown. It is not surprising that food banks and other charities in Victoria and NSW are facing a huge demand beyond anything experienced in the past – even the 2019-20 bushfires.
Food Bank Australia says it is giving out more than 2500 hampers and food parcels a day – a number they would normally do in a week. That’s the equivalent of 2.3 million kilograms of food and groceries every week. It cannot meet the demand that has grown rapidly during lockdown.
SUPER PROFITS TAX
Last week the Greens proposed a forty per cent super profits tax on non-mining businesses and a separate tax on resource companies whose profits reach a certain level. With such a tax, CBA’s tax would increase by $1.3 billion, Wesfarmers by $570 million and Telstra by $300 million. The Greens plan to take comprehensive proposals for an overhaul of the taxation system to the next federal elections.
“In balance of power, the Greens will kick the Liberals out and push the next government to make billionaire corporations pay their fair share of tax so we can get dental and mental health into Medicare and build affordable housing,” Greens leader Adam Bandt said.
Bandt said the measures would bring in $338 billion over the next decade, a figure based on costings by the Parliamentary Budget Office.
The Greens’ plan would effectively raise the Commonwealth’s tax take from corporate Australia by a third. About $124 billion over a decade would come from a mining profits tax and another $214 billion via a forty per cent company tax rate applied to non-mining corporations with $100 million or more in annual income. A six per cent wealth tax on Australian billionaires would raise another $48 billion over ten years.
Over recent decades, successive governments have flattened the personal income tax system and made substantial cuts to company taxes, making a once progressive system increasingly regressive. This has reduced the government’s income by tens of billions of dollars and will make it more difficult to balance the books.
The neoliberal Coalition government will seek to bring the budget into surplus as quickly as possible and clear its mounting debt. It should be increasing corporate taxes and income tax paid by the wealthy. No way are further cuts to services and social security acceptable.