The Coalition’s first budget since the 2016 federal election is a clear attempt to reset the political agenda. In 2014 the government attempted to introduce a raft of austerity measures, but many of their proposals were thwarted. Against the backdrop of widespread discontent, the Labor opposition and the Senate crossbench were forced to block some of the most contentious cuts.
In frustration, the Liberals called a double-dissolution election in 2016 hoping to win a majority in the Senate. But far from achieving this, an even bigger crossbench was elected in the Senate and the Coalition were only just able to form government in the House of Representatives. Facing up to this unstable situation, they have had to rejig their approach.
It is estimated that there will be a budget deficit of about $25 billion for 2017-18. Big business is desperate for the deficit to be addressed in order to provide them with an environment where corporate taxes can be lowered and profits increased. From their perspective, the best way to do this is to slash spending on social services and increase taxes on workers. The dilemma the government faces however is that these measures are highly unpopular with the majority.
Some sections of the right-wing press have suggested that given their difficult situation this budget is a departure from traditional pro-business values of the Liberals. Presented as a budget of “fairness, security and opportunity”, some papers described it as “Labor lite”, essentially complaining that it doesn’t do enough to shift the burden of budget repair on to ordinary people. In reality all Labor budgets in recent decades have been cravenly pro-business, so even if it was “Labor lite” it would be more than acceptable to the corporate elite.
The truth is this budget is not a departure from pro-business values in any way, instead it merely recognises the political problems that the government faces and seeks to implement a corporate agenda in a more skilled and staged-out way. It is an attempt to improve the government’s standing with voters while also maintaining their profits-first approach. Underneath the populist veneer this budget firmly prioritises the needs of big business.
Attack on the banks?
Most of the capitalist press have focused on a few headline measures, most prominently the new $6.2 billion levy on the five biggest banks. While the overall figure sounds impressive, in reality it is a minuscule measure. The $6.2 billion is over four years so at the end of the day each bank will only be paying around $300 million a year. These banks collectively make around $30 billion a year in profits so this is only a drop in the ocean.
It should be remembered that the government guaranteed deposits in these private banks in the aftermath of the GFC, a measure that led to them making even greater profits. That they now have the gall to complain about this tiny levy highlights how arrogant they are. They consider it a right for their private profits to be protected by public funds and they do not even think they should pay for the privilege!
Making matters worse the budget includes plans to further cut company tax rates over a number of years. In time this would offset the bank levy anyway. Regardless of how minor the bank levy is, they have already made clear that they intend to pass the costs onto customers. As long as the banks remain in private hands they will continue to treat ordinary people with contempt.
In the lead-up to the budget there was much speculation that the government would introduce a raft of housing affordability measures. After denying that there was a housing crisis for years, they have recently changed their tune and now they are concerned that the housing bubble on the east coast could burst with ramifications throughout the entire economy.
Their dilemma is that while they would like to cool the market, any measures deemed too sharp could provoke a crash. At the same time the government is reluctant to undertake measures that would impact on their social base, many of whom are property investors.
So rather than implementing any serious measures they have just tinkered around the edges. Only the most insignificant changes have been made to negative gearing, while the capital gains tax discount remains intact. Incentives for managed funds to invest in affordable housing will do little to tackle the widespread problems that exist, while allowing people to use voluntary superannuation contributions to buy their first home could actually bid up prices.
Foreign owners of property who leave dwellings unoccupied for six months will be taxed $5000, but this measure is more about diverting attention away from government policies and scapegoating foreigners. It is also a populist attempt to undercut some of Labor and One Nation’s “Australia first” rhetoric. The fact is that foreign speculators only add to a problem that already exists as a result of profit-hungry developers and local speculators – which in a sense includes the major banks, who make enormous profits from mortgage repayments.
Increased taxes for workers
The real story of this budget is that, while it’s not as harsh as the 2014 budget, it does make cuts and it also raises taxes on working people in an attempt to bring the budget back to surplus over time. Primarily this is done by increasing the Medicare levy to 2.5% for every person earning over $21,000. This increase is expected to raise $8.2 billion over four years. While the Medicare levy has been increased, a special 2% tax on the incomes of the wealthy has been scrapped.
In order to soften the blow, the government has said that this increase is specifically to fund the National Disability Insurance Scheme (NDIS). The NDIS is basically a voucher system that will force people to access private for-profit services. While we desperately need investment in disability care this is an attempt to entrench a user pays set up and will result in a lower quality of care in the long term. It is a move away from a publicly run scheme and, in short, it’s a transfer of wealth away from wages to profits.
Figures show that there is only one job available for every 10 job-seekers, but despite this the government also plans to push ahead with a crackdown on welfare recipients. They want to implement a demerit system to penalise welfare recipients who miss appointments and strengthen so-called “mutual obligation” requirements for job-seekers. While this is not a direct funding cut, there is no doubt that the stricter regime is designed to push people off payments and reduce costs in the long term.
Continuing with their attempts to demonise welfare recipients there are plans in place for a drug-testing trial for 5,000 welfare recipients. Those who are found to be using illicit drugs will be forced onto a cashless debit card which will only allow them to spend money at specific places. This outrageous proposal highlights the real class bias of the budget. They regularly hand over billions of dollars in subsidies to corporations with no strings attached. In the case of the car companies the bosses took the money and then closed down the plants. These people were never even asked for an explanation, let alone a drug test.
Young people will be hit with plans to increase university fees by 7.5%. This could add up to $3,600 to a four-year course. In addition to a swathe of other cuts in recent years, a further $2.8 billion is set to be cut from higher education funding. These cuts will no doubt result in even bigger class sizes, less staff, and fewer courses on offer. Students will be expected to pay more for less.
The government also plans to lower the income threshold for student loan repayments from $56,000 to $42,000. This measure will actually apply to all people with current student loans. The government claims they need to make these changes to ensure student loans are more sustainable. But this debt that has been created is totally unnecessary. Higher education could be fully funded by the government if the major corporations were taxed at a higher rate.
While the budget talks about a few billion here and there for social services, this pales into insignificance when considering the amount of money they plan to spend on defence. Over four years an immense $150 billion will be spent on the military which includes imperialist ventures in the Middle East. While very minor savings were announced, these are offset by the plan to increase spending on defence to 2% of GDP. This feature of the budget was largely ignored by the mainstream press.
The other headline measure that was pushed by the government was some $75 billion in infrastructure spending over the next decade. The package will directly fund a number of major road and rail projects as well as the building of a second international airport in Sydney. While the package is significant, it speaks more to the deep problems that the Australian economy is facing.
The nation has now entered its 26th year of continuous economic growth. This was largely fuelled by a boom in the mining sector and high commodity prices. Mining investment has now fallen off a cliff and commodity prices have dipped, and are expected to fall further. In the past few years the housing boom has filled the gap left by mining but there are now big concerns that this too is at the end of its days.
The government’s major turn to infrastructure spending represents an attempt to stimulate the economy and put a floor under things in the absence of any new engines of growth. This is an ironic turn of events in many ways, as for years the Liberals have championed the free market and claimed the best thing to do was to not interfere with capitalism. They told us that, left to their own devices, capitalist markets would flourish and we would all benefit from the profits that big business made.
After 26 years of continuous growth, the gap between rich and poor has worsened. And now, left to their own devices, the capitalists are refusing to invest, despite the fact that they are able to borrow money at record low interest rates. They cannot see any profitable outlets, so they are holding onto their capital. If this situation was allowed to proceed, the economy would unravel, and in next to no time Australia would be facing a situation close to that faced by the crisis prone European economies.
In an attempt to avoid all that, the government has been forced to retreat somewhat from its “free market” orthodoxy and engage in some state intervention. While this point has been glossed over in most of the mainstream press, it really highlights the failure of the capitalist system. Unlike previous forms of state intervention however, the Liberal’s version is slightly different. They do not envisage investing in large infrastructure projects and leaving them in public hands to be used by the taxpayers who paid for them. Instead, they see themselves as building infrastructure, taking all the risks, and then handing them over to the private for-profit sector. In other words, it’s ‘fairness, security and opportunity’ for the rich while the rest of us are forced to cover the costs.
Return to surplus?
On the basis of all this the government projects a return to surplus by 2020-21. This however presumes that there will be no resistance to any of the measures, and that the Australian and world economy will chug along smoothly until then. This would be a very risky bet to make.
In relation to economic perspectives, the government expects GDP to increase and for unemployment to drop. This is unlikely especially given the current international context. The Trump presidency in the US has built in a new set of international risks in addition to the problems that exist in China, our biggest trading partner. Even if global factors were kept at bay, we still face the risk of the housing bubble bursting. This in addition to the closure of the car plants would impact significantly on unemployment.
Another presumption made by the government is that wage growth will accelerate to 3% within two years, giving Australia one of the fastest wage growth rates in the world. That would require a major shift in the attitudes of the trade union leaders, who for years have refused to struggle for a bigger share of the wealth created. The government also expects household consumption to rise but that will be difficult to achieve with wage growth flat and personal debt levels at record highs. In essence the government’s presumptions are wildly optimistic and are unlikely to come to fruition. Unless challenged they will continue to ask ordinary people to shoulder more and more of the burden.
While being solidly pro-big business this budget was also designed to neutralise the government’s opposition, both the Labor Party as well as the smaller right-wing populist parties on the crossbench. While they did it disingenuously, Labor went to the last election saying that they would protect Medicare, build infrastructure and curtail the big banks. On every front the Liberals have tried to outflank Labor and therefore put themselves on a stronger political footing.
The Liberals hope to wedge the opposition parties and force them to pass the bulk of this budget. They may well succeed at that, but they will still have to deal with the right-wing opposition within their own ranks, many of whom will be unhappy with some of the more populist measures they have undertaken. While this budget may give the government some breathing space, it will not resolve the big problems that the Liberal party faces, let alone the problems with Australian capitalism more broadly.
In many ways, this budget highlights the similarities between all of the capitalist parties that exist. Their differences are only of a secondary nature. No major political force is out there arguing for a budget that genuinely puts the needs of ordinary people front and centre. That’s why we desperately need a new workers party that promotes democratic socialism and mobilises people to fight against pro-big business measures and the profit-driven system. The development of such a force would transform the political landscape in Australia and prepare the way for the wealth created to really be used to benefit the majority.
Editorial comment from The Socialist