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There are measures in this Budget that rip the guts out of what remains of a fair and egalitarian Australia. These measures will not help people into jobs but they will force people into poverty.

You don’t help young people or older people or people with a disability or single mums into jobs by making them poor. You don’t build people up by putting them down.

This Budget is deeply offensive to the people who wage a daily battle to survive. The content of the Budget is offensive. The lies told to justify the Budget are offensive.

As philosopher Slavoj Zizek explains:  “…we are told again and again that we live in a critical time of deficit and debts where we all have to share a burden and accept a lower standard of living – all with the exception of the (very) rich. The idea of taxing them more is an absolute taboo: if we do this, so we are told, the rich will lose the incentive to invest and create new jobs, and we will all suffer the consequences. The only way to escape the hard times is for the poor to get poorer and for the rich to get richer.”

The government wanted us to believe that its first Budget was tough but fair. It has since explained that its outright cruelty to people living in poverty is actually good for them because by strengthening the economy everyone, especially the poor, will benefit. Wealth, you see, trickles down, when the wealthy are treated well and their privilege preserved. Thus goes the message it has been trying to dangle before us.

It is still trying.

But all we can hear is the sound of the excluded still waiting for the trickle-down to trickle down.

Budget 2014, you see, has the wealth trickling up! Not that this is all that unusual when market forces are allowed to trample on the lives of people who bear the brunt of inequality.

Even Pope Francis has something to say about this: “Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralised workings of the prevailing economic system. Meanwhile, the excluded are still waiting.”

When you’ve got a rich country like ours “unable” to afford to ensure that the more than 100,000 people experiencing homelessness or the more than 200,000 people on the waiting list for social housing have a place to call home, it is not a misfortune or a mistake. It is the sound of the excluded still waiting

When you’ve got more than 700,000 people unemployed and around 900,000 underemployed, on top of those who are set to lose their jobs due to company closures, the dismembering of the public service and government cuts to social spending, it is also the sound of the excluded still waiting. Let us not forget the woeful inadequacy of the Newstart payment, at only 40% of the minimum wage. Neither let us forget the single mums who were forced onto the Newstart payment at the beginning of last year, and let us not forget the working poor for there are some who would like to squeeze them even more by reducing the minimum wage and taking away what little rights they have.

When you’ve got David Gonski, not generally seen as representing the vanguard of the working class, working alongside his fellow review panellists to recommend a package of education funding reforms to address the outrageous inequality that besmirches education funding in Australia, and then the government does a triple back-flip and declares it is not committed to seeing this redistribution of resources through, you loudly hear the sound of the excluded still waiting.

The long, fruitless wait of the excluded for some of the wealth, some of the resources, some of the hope, to trickle down, is one of the most audacious and sadly successful con jobs in modern history. It is not misfortune. It is not a mistake. It is certainly not, as perversely asserted by those who put the boot in, the fault of the excluded themselves! Rather, it is an attack, sometimes by omission as well as by commission, against ordinary people, from the First Peoples to the most recently arrived asylum seekers and everyone in-between who has been residualised and demonised and made to bear the burden of inequality.  That is why there is absolutely nothing unusual about understanding this as an issue of class. And why Warren Buffett was quite correct when he said: “There’s class warfare alright, but it’s my class, the rich class, that’s making war, and we’re winning.”

The public response to the Budget reflects the deep feeling of injustice in the community. The powerful thing about the Budget response is that people are banding together to defend our egalitarian values of fairness and respect. People are saddened not only because the Budget affects them but because it hurts and humiliates the people they love and care about: young people, older people, people with a disability, single mums, struggling families. As we can see from the strength of the response to it, now is the time not to watch and weep but rather to stand and fight.

Dr John Falzon is Chief Executive of the St Vincent de Paul Society and the author of The language of the Unheard.

During the last two weeks a Professor from the Paris School of Economics, Thomas Piketty, has been touring the US speaking about his book; Capital in the Twenty-First Century. His audiences have been overflowing. Public television described the reception he has received as reminiscent of that given the Beatles, in their first visit to the US, fifty years ago. The book was briefly sold out on Amazon.

Capital is not an argument, a Manifesto. It is a proof based on research conducted over ten years, analyzing data from twenty countries, in the 18^th, 19^th and 20^th Centuries. It shows that when the returns to capital exceed the rate of growth in the overall economy, extreme inequality results. In the past, this has led to extreme political breakdown. It could do so again.

Amazing though it might seem, that a 685 page book of economic analysis should attract such popular attention, there are comprehensible and very serious reasons for this.

The global financial crisis of 2008 exposed, among many things, the massive and pervasive greed within the financial system called Wall Street. The standout winners in this system were a handful of financial industry leaders who took home annual pay in the hundreds of millions. The losers were tens of thousands of little mortgage owners who lost their homes.

The State declared that the Banks were “too big to fail” and rescued them with taxpayer-funded bailouts. Let’s assume that this was a sound macroeconomic judgment, designed to head off a full-blown depression. What should then have followed, is that by state regulation and reformed behaviors by the Banks, this would not happen again.

Last week it was reported that the “bundling” of mortgages, for trading, is now at a level exceeding that of 2008 and the take home pay of senior Wall street executives is again in the $300-500 million mark. So, it’s happening again.

The larger picture continues to include these facts: 1% of Americans dispose of 35-40% of the national wealth; 20% live at the official poverty line; the minimum wage continues to be $7.25 per hour; 1%, some 3 million persons, are in goal.

Americans are aware of these disturbing realities and for this reason as well as their attachment to the idea of scientific proofs, as such, there is great interest in Piketty’s book. Indeed, he does suggest some rational solutions: regulation, taxation policies etc.

But, there is a deeper problem which must be addressed: the transformation of the original notion of liberty which was an important part of the establishment of the United States, from a political and communal notion, into an individualized, economic and selfish one.

Simply, today the word and term liberty now means the right to make as much money for yourself as possible. This is dignified by terms such as initiative, enterprise, risk taking. But, its major feature is outright hostility to taxation and government expenditures, and perhaps above all, regulation; for example, financial or environmental regulation. Public goods are to be provided voluntarily by citizens who care. The community is to rely on trickle down.

In this context, Opposition Leader Bill Shorten, speaking in reply to the Abbot/Hockey Budget, drew an accurate comparison between their approach and that of the Tea Party Republicans in the US.

The notion of the American Dream, advanced by James Adams in 1931, fired popular imagination. It was quintessentially optimistic and communal. Through hard work and because progress was inherent in the American way, our children could be better off than we were and our community would be too. This simplified picture, Norman Rockwell’s pictures, a dream, was to be disturbed by the coming to terms with the pervasive racism of America.  But, it is relevant that the political leader who did address racism, Lyndon Johnson, accompanied this with the economic egalitarianism of his Great Society programs.

Today, the term American Dream is recited as a mantra, particularly by conservative politicians, but now unambiguously means the right to be selfish. This is proving to be deeply destructive of America, where it counts: destructive of any acceptable level of belief in the political system; belief in fair reward for effort, or in distributive justice generally; and willingness to forego immediate gratification in favor of longer-term projects. A cursory look at America’s crumbling infrastructure demonstrates this, latter, awful failing.

Piketty’s possible solutions include regulation. But his means political action within a democratic system and the assent of the Courts in their role as referee. And, this is possibly the bleakest part of the present outlook. Conservatives within the US political spectrum are trenchantly opposed to any active or worse, interventionist role, of Government. They worship at the shrine of liberty defined as the right to personal greed. Indeed, they often say it is God’s way. Lest they falter, they are shored up by financial support of a previously unheard of magnitude from private groups themselves possessing transparently clear personal interests, such as the coal billionaires the Koch brothers, who reject the existence human made climate change.

And, keeping the most disturbing element to last, the ultimate referee, the US Supreme Court, in two recent judgments has interpreted the Constitution as meaning that Corporations are individuals and the dollars they spend, on political campaigns, are the exercise of free speech; and they have removed almost all limits on such spending. There is widespread alarm that the Court has sold the democracy.

While, Piketty may have proven that inequality is the inevitable outcome of a system of disparity between rewards to capital and growth in the economy and, as if this needed proof, will destroy any effective polity, the elemental American dilemma is in fact one of grasping reality rather than preferring a dream, a cartoon.

Richard Butler was former Australian Ambassador to the United Nations, Governor of Tasmania, now Professor of International Affairs at Penn State University.

Fundamentally there is a problem with the rhetoric from the government and its cohorts such as the Commission of Audit. They insist on describing taxation as a ‘burden’ that should be lightened at every opportunity; thus implying that taxation is somehow illegitimate. On the contrary, however, taxation represents our mutual obligation to one another as citizens. Instead of being a ‘burden’, taxation is what we should pay to ensure the sort of society that we want.

It is only by changing the rhetoric and accepting the legitimacy of taxation that we can hope to match the community’s expectations for publicly funded services and assistance with our willingness to pay for them. This inconsistency between our expectations and willingness to pay is the fundamental budget problem that I highlighted in my initial comment. Furthermore, the longer we delay the worse that problem risks becoming because there are good reasons why the public’s expectations will rise further and even faster over the next decade or more.

Future Expectations for Expenditure

The Government itself often refers to the impact on demands for public expenditure as a result of the population ageing; indeed the Treasury has documented these demands in its Intergenerational Reports. But the evidence is that population ageing is relatively unimportant as a source of future expenditure growth.

More important factors influencing the demand for publicly funded services are

• rising living standards which tend to translate into a switch in consumer demand in favour of services such as education and health that are largely publicly funded, and
• technological change that has improved the quality of health care and to some extent education, but at increasing costs.

Beyond these factors, and more generally, Thomas Picketty has recently provided comprehensive evidence that over the last forty years the distribution of private incomes in capitalist economies, including Australia, has become increasingly unequal and that there are good theoretical reasons to expect that this trend towards greater inequality will continue. On the other hand, the evidence also shows that governments can intervene to maintain equality if they are willing to use the tax-transfer system pro-actively.

In addition, in Australia’s case over the last three decades we have significantly de-regulated the economy, and while the additional competition did increase productivity and living standards of the “winners’, the quid pro quo should have been a willingness to assist the “losers” to adapt. So those “parrots” calling for more economic reform need to also accept that not everyone will benefit and successful reform may well depend upon a willingness to support and assist those who are disadvantaged to adapt to the changes being imposed upon them.

Taxation and the risks to economic growth

Of course, those who are calling for lower taxes always claim that it will be in the public interest because it will lead to higher economic growth. But frankly where is the evidence?

Internationally the advanced OECD countries with the fastest rate of growth in per capita GDP, like the Scandinavian countries and Germany and the Netherlands, are not the countries with low rates of taxation revenue relative to GDP, while the US with a low ratio of taxation has had very low growth in productivity and participation over the last thirty years. In addition, the econometric evidence regarding individual behaviour does not support much impact from lower taxation on work or saving effort. Indeed some of us can remember when the top marginal rate of income tax in Australia was 60 per cent compared to 46.5 per cent now, but nothing much has changed in the savings or work patterns of the people concerned. In short any objective analysis shows that there is plenty of scope to increase taxation without damaging economic growth.

Taxation opportunities

So how should taxation be increased over time to achieve a sustainable budget? Fundamentally there is a choice between:

• Introducing more effective anti-avoidance measures,
• broadening a tax base, by removing a variety of concessions, or
• increasing tax rates.

It is to the discredit of the Coalition Government that they immediately scrapped the legislation introduced by the previous Labor Government to tighten up on avoidance where in particular many major foreign owned companies pay a ridiculously small amount of tax in Australia. But even strict anti-avoidance measures are unlikely to be sufficient, and more substantial action will be needed over time. In that case, many of the present income tax concessions operate like subsidies on the expenditure side of the budget, but they are subject to far less scrutiny, should be reviewed. So in the same way as expenditure should be closely examined for its effectiveness before resorting to increased taxes, the same is true of taxation concessions. Nevertheless, in the end some increase in tax rates may also be necessary.

Second, the two biggest sources of revenue are the taxation of incomes (company and personal income taxes) and expenditure (GST).  Given that all the GST revenue goes to the states, the balance between increasing the two may partly depend upon which level of government most needs assistance. But looking ahead both taxes will need to be increased over time.

This Budget and future revenue needs

This Budget projects a return to a budget balance in 2018-19, building to a surplus equivalent to at least 1 per cent of GDP by 2023-24, assuming that taxation revenue is capped at an average of 23.9 per cent of GDP. In other words the Government’s future fiscal strategy does not allow for any increase in revenue relative to GDP and expenditure will need to be further reduced relative to GDP despite the future demands identified above. Equally it also means that, like all previous governments, this government envisages that ‘tax reform’ will be revenue neutral, and will instead be limited to changing the tax mix.

Furthermore, considering what we know so far, this future change in the tax mix is likely to further re-enforce the trend to greater inequality. Already the Government’s first priority has been to cut the rate of company tax which principally favours the rich. The alleged justification is that we have to remain competitive with the rates of company tax in other countries, but this sort of simplistic comparison is not really justified. It takes no account of the fact that Australia is the only country that offers dividend imputation, so that effectively Australian residents pay no company tax on the majority of corporate profits because more than half are typically distributed as dividends. Quite frankly if the foreign shareholders are not benefiting from dividend imputation does that really matter, especially if as I have argued in a previous comment we should be saving more and relying less on foreign investment.

The two taxes that are actually increased in this Budget are

• the so-called “temporary Budget repair levy”, but this is temporary and thus provides no help in resolving our longer-term and more fundamental fiscal problems. And most importantly it is far too small an adjustment to income tax rates and consequently raises far too little extra revenue.
• a long over-due increase in petrol excise, which on scarcity and environmental grounds should never have been de-indexed in the first place. In addition, what revenue it does raise is to be hypothecated for investment in roads, much of which will not provide an economic rate of return, is therefore unproductive, and makes no contribution to ensuring fiscal sustainability.

Finally, the Government has given every indication in this Budget that it is contemplating increasing the revenue from the GST, but wants the States to wear the blame. Again, whatever, the merits of such an increase, and there are some, the fact is that it will further lead to a redistribution of spending power from the poor in favour of the rich.

In sum we do need tax reform, but any such reform should start from a consideration of the revenue needed to meet Australia’s long-term fiscal needs. At present we are trying to provide an adequate social safety net and a decent cohesive society with just about the lowest amount of taxation in the OECD – for example, according to the latest OECD statistics, in 2011 total tax revenue in Australia was 26.5 per cent of GDP, compared to an average of 34.1 per cent for the OECD as a whole, and 30.4 per cent in Canada, 31.5 per cent in New Zealand, 35.7 per cent in the UK; all countries with similar traditions to us and with whom we readily identify. And while this ratio of revenue to GDP was only 24.0 per cent in the US, if allowance is made for the much larger Budget deficits in the US, our taxation is effectively lower than there as well. So in effect, and unlike the US, we are trying to maintain a decent social safety net with extremely low levels of taxation. We have been getting away with this because, as I explained in my second comment on Tuesday, we have the most efficient income support system in the world. But there is little more that can be extracted by efficiency of the welfare system, and looking further ahead into the future, it seems pretty certain that unless we increase our revenue we risk finishing up with the sort of inequality and rundown in social infrastructure that is too often experienced in the US.

It is therefore a matter for considerable regret that this Budget gives us little hope that the Government understands the risks to society that it presents, and the associated doubts about whether this government is capable of delivering the tax reform that we actually need.

In recent months we have been partly appalled and partly amused by the urgers and spivs from both sides of politics that have been paraded in Sydney before the Independent Commission against Corruption. Most recently we have seen developers and others using fronts to launder money to hand on to political parties. Even the Young Liberals have decided to get into the act with their ‘Black Ops’.

But there are other more serious problems with think-tanks that receive large amounts of money, seldom disclose their sponsors or donors and then conduct overt political campaigns, invariably on behalf of business and the conservative side of politics. These cash for comment think-tanks hawk themselves around as ‘independent’! They are often nothing of the sort. They are propagandist fronts for the laundering of money for special interests. Yet organisations like the ABC give them remarkable free time to espouse the views of their secret funders.

Consider the Institute of Public Affairs (IPA). In 2010 an IPA Director, Alan Moran, told the Productivity Commission ‘We’ve got about 4,000 funders … there are occasions when we may take decisions which are somewhat different from those of the funders. Obviously that doesn’t happen too often, otherwise they’d stop funding us, but it does happen occasionally.’  I could rest my case there but the IPA has a colourful record in fronting for special interests.

In his 2007 book on the PR industry ‘Insider Spin’ Bob Burton wrote ‘A little funding routed by a think-tank [like IPA] enables the policy agenda of corporate funders to be projected to a broader audience with more credibility than if it did it for themselves’.

In 2008 the IPA wrote an article “Big Fat Beat up” questioning the relationship between obesity and junk foods. We were not told whether the junk food industry was a funder of IPA

In 2010 the Gillard Government announced legislation to force all cigarettes to be sold in plain packages. With the help of the ABC, the IPA attacked the government at every opportunity on this issue. The ABC gave IPA’s Tim Wilson almost unending interviews. He also got a run on seven commercial radio stations. Asked by Media Watch whether the IPA received funding from Big Tobacco, Tim Wilson’s response was ‘The IPA does not disclose its membership list’.

IPA’s John Roskam argued last year for more investment in dams and roads in the Northern Territory together with special economic zones. What IPA did not mention was that its policy proposals on the Northern Territory followed very closely what Gina Rinehart had been saying. Interestingly she was the guest at IPA’s 70^th anniversary dinner last year. Asked if Gina Rinehart was a donor to IPA, James Patterson responded ‘The IPA is funded by voluntary contributions of our 3,256 … members and supporters. We are very grateful for their support and we respect their privacy’.

IPA’s major successful campaign has been to give a platform to client change sceptics. It funded two full-page advertisements in The Australian, costing about $100,000. The advertisements attacked the government’s climate change policies.  Who funded this campaign?  The IPA did not tell us. Was it the fossil fuel industry? Was it Exxon, Shell, Caltex and BHP Billiton? With a policy of non-disclosure IPA provides a front for powerful rent-seekers.

In the year to June 30, 2010, the IPA hosted forty events around the country against the carbon tax. I suspect that the polluters paid the cash and the IPA provided the comment.

The IPA told us in the Drum those pub lockouts and 3 a.m.  closing where a bad idea “because the Australian public consumes a large quantity of alcohol and gets into very few fights” How much does IPA receive from the alcohol industry.

A few years ago the IPA launched a sustained attack on NGOs as being unaccountable, unrepresentative and not worthy of charitable status. But the IPA enjoys charitable tax status. Has the Tax Commissioner examined the murky financial world of the IPA?

Why should the ABC which the IPA so desperately wants to get rid of, give the IPA extended coverage to its ‘scholars and fellows’. The ABC does this on a wide range of its programs – The Drum, TV Breakfast, Radio National and more.

Businesses are attracted to front organisations which will espouse and promote their views. The IPA and others are part of a rigged and prejudicial public debate. They are doing more to damage our democratic life than the shifty developers we see parading before the ICAC.

The Free Enterprise Foundation of the NSW Liberal Party and Joe Hockey’s North Sydney Forum are small beer compared with the IPA which fronts for rent-seekers who hide behind the scenes.

Professor Ross Garnaut has spoken of the ‘diabolical problem’ of conducting in Australia a balanced and informed debate on important public policy issues. We had such a debate during the Hawke and Keating periods of the 1980s and the early days of the Howard Government. The IPA and their ilk are a major part of the “diabolical problem” that Ross Garnaut refers to. They are debasing public debate. They will not disclose who funds them and organisations like the ABC give them an armchair ride.

Surely at the least, the ABC should not put to air anyone from a “think tank” that does not disclose its donors because the assumption must be that they are a cash for comment enterprise.

Think tanks are important players in the battle of ideas but this battle needs to be conducted honestly and transparently

I was founding Chair and am a Fellow of the Centre for Policy Development. We disclose our major supporters and donors.

I will be writing further about the corruption of public debate; the role of lobbyists, the influence of News Ltd, a rogue organisation and the public influence of “independent” business economists who are employed by vested interests and particularly the banks. Where are the independent and informed public commentators? They seem to have abandoned the field and their public responsibilities.

Each day this week I will be running a series of blogs by Michael Keating on the Budget and its repercussions. The posts will be 

• Australia’s Fiscal Challenge
  
• The Budget and our Values
• A Better Alternate Budget Structure
• Taxation
• Federalism

I am sure that these five posts will make a substantial contribution to our understanding of the Budget and its implications for Australia. Mike Keating was formerly Secretary of the Department of Prime Minister and Cabinet. Perhaps more relevant to his comments on the Budget is that he was Secretary of the Department of Finance under the Hawke/Keating governments, during which time real outlays were reduced in three successive Budgets. This has never happened before or since. These reductions in real outlays occurred while still introducing many of Labor’s major reforms of social welfare that led to substantial increases in assistance to the poor. Much of the credit for this of course belongs for the Cabinet, particularly to Paul Keating and Peter Walsh. But I know that quite a few of the ideas that were implemented came from the Department of Finance when Mike Keating was Secretary.  John Menadue

Mike Keating. Part 1. The Budget and what it means for Australia’s Future

In the run up to the last election Tony Abbott told us that the nation’s finances were in a mess, but notwithstanding that mess he promised to match all Labour’s new spending initiatives, protect education and health, increase defence spending, and all without any increases in taxation.  Frankly none of us, not even the fawning Murdoch press, should have believed him.

Understandably Labor is now tempted to harp on about the broken promises. But that would be to miss the real point.  The real point is that for several decades Australia, like many other developed countries, has had a continuing problem of meeting the public’s expectations for publicly funded services and how to pay for them.   Trust in government will not be restored until one or other political party offers a credible way forward that reconciles these conflicting public expectations of government.

So what is the immediate fiscal challenge that this budget needed to address and how well has it responded to that challenge? In this series of comments I want to consider:

1. how bad is our fiscal situation and the fiscal strategy required from  here on
2. the choices before us in terms of the values that we espouse and what the Budget decisions and Audit Commission recommendations imply for the future nature of our society
3. the consequences and efficacy of many of the specific policy decisions in the Budget

Australia’s fiscal challenge

Is public debt a problem?

The Government has talked incessantly about Australia’s debt problem, and government debt is undeniably higher than when the previous Coalition Government lost office in 2007. The Commission of Audit for its part thought that low or even zero debt is such an important objective that the first priority for the fiscal strategy should be the achievement of an arbitrarily chosen debt ceiling.

Others, however, have noted that Australia has a triple AAA credit rating, whatever that is worth. More pertinently general government net financial liabilities in Australia in 2013 represented only 11.8 per cent of GDP, compared to an average of 69.1 per cent for the OECD as a whole, including 81.2 per cent in the US, 40.4 per cent in Canada, 65.4 per cent in the UK, and as high as 137.5 per cent of GDP in Japan, and all these countries have low interest rates and no particular difficulty in financing their debt. Furthermore, although low debt is properly seen as providing increased scope to intervene in the event of an economic downturn, each of these countries had much higher debt than Australia in 2008 and they were still able to intervene and further increase their debt in response to the Global Financial Crisis (GFC).

Instead Australia’s problem is not so much the financing of its government debt, but the extent to which we rely on foreign capital to finance total investment in Australia. Essentially our national savings from all sources, both public and private, fall well short of the investment opportunities. In particular, Australian households increased their borrowing very substantially during the Howard Government years up to the onset of the GFC. Consequently by the end of 2013 the amount that Australian households owed was nearly 1.8 times the amount of household disposable income received in that year. Moreover this level of household debt in Australia was not only high by Australian standards, but also by international standards, with household debt in Italy and Germany, for example, being less than a year’s worth of disposable income.

So on balance the Government’s fiscal target to achieve budget surpluses on average over the course of the economic cycle seems a worthwhile goal, but it is not an absolute imperative and should not be pursued at all costs.

How quickly should the Budget return to surplus and how?

The Government acknowledges that at present the economy is soft, although some improvement is expected through the next financial year. Accordingly something close to a neutral budget in terms of its impact on the economy might have been the best strategy, with monetary policy left to fine tune the level of economic activity. By contrast, Treasury project that the structural Budget deficit will decline by about 1 per cent of GDP. On the face of it this is a fairly rapid rate of contraction of government support for the economy, although probably not devastating. Furthermore, the projected rate of fiscal consolidation over the next four years – 0.6 per cent of GDP – is reasonably well paced, so overall in terms of its impact on the economy this Budget seems to have got it broadly right.

How fair is the fiscal strategy

In the current financial year, 2012-13, government payments are expected to represent 24.1 per cent of GDP; a bit less than their long term average over the previous twelve years since 2000-01 of 24.5 per cent. By comparison, government revenue represents only 23.1 per cent of GDP compared to an average of 24.3 per cent over the previous twelve years. In other words if we have a fiscal problem it does not seem to have been caused by excessive expenditure, but by a drop in taxation revenue, and the prime cause of that was miscalculations by the Howard/Costello Government when they embarked on their 2001 tax reforms, which have turned out to cost more than expected at the time.

So in the first instance it might have been expected that restoration of a fiscal surplus would have been sought primarily by way of increases in revenue. But consistent with government rhetoric and the demands of its supporters, 80 per cent of the projected budget consolidation  is from net savings in expenditure, and only 20 per cent from increased taxation. This in itself raises basic questions of fairness, which will be explored in the next comment.

Joe Hockey talks endlessly that the days of entitlement are over. They may be over for the unemployed, students, the sick and pensioners – in fact the majority never had days of entitlement. But they are certainly not over for the miners and the financial sector. These two sectors survived unscathed from the budget. This tells us a lot about who is running this government.

For the miners, the mining tax and the carbon tax will end at a cost to the taxpayer of at least $10 billion per annum. The rebate on diesel fuel will remain. The government tells us that it had to honour these promises.  The same commitment to honouring promises was easily discarded in the case of the unemployed and the sick.

And then there were the promises to the financial sector and particularly to the superannuation industry and the private health insurance industry. Promises to them had to be honoured. There was no attempt to scale down the tens of billions of dollars in rip-offs in these sectors that benefit the rich. Not only is the government determined to protect the privileged position of the financial sector, but it is also trying to water down the Future of Financial Advice (FOFA) legislation to advance the position of the banks and AMP. Senator Sinodinis and the government are obviously determined to allow the conflict of interest by the banks and the AMP and their financial planners to continue.

The $5b p.a. corporate welfare subsidy to private health insurance sector will continue. But not content with this corporate handout PHI will seek to get a foothold in the new Primary Health Organizations, formerly known as Medicare Locals.

Just look at who is untouched in this budget – the miners and the financial services sector. That tells us a lot about who is pulling the strings. This is crony capitalism. As Paul Keating put it the Liberals are about business, not markets. Or as Tony Abbott put it on election night – ‘Australia is open for business’ – the business of the miners and finance sector. Their entitlements will continue.

There was a real risk that Tony Abbott and Joe Hockey believed their windy rhetoric of the last two years about debt and deficits. Having won the election they have had to face the reality that they have been grossly exaggerating our economic problems.

The real risk was that Tony Abbott and Joe Hockey would act on their own exaggerations and savagely attack the economy. Fortunately, the Budget tells a very different story. In terms of managing the macro-economy, the government has got it about right in the budget. It hasn’t cracked down in the way many feared.

But what the Budget has done is to inflict pain on the poor and the vulnerable in our society; the unemployed, young people, the sick and the poor. Unlike Robin Hood, Joe Hockey robs the poor to protect the rich. And more pain is to come for the disabled and pensioners. The $80 billion cutback in health and school funding for the states will also result in severe problems. State Premiers are already protesting. This hit on the states will probably force them to press for a broader and/or an increase in the rate of the Goods and Services Tax. Perhaps that is what Joe Hockey intends.

The most glaring example of cruel policies is the cut in our overseas development assistance program.  It is the largest single saving in the Budget. The political logic must be that the poor in the world that we should help can’t vote in Australia and can’t protest. They are an easy target, like vulnerable asylum seekers. As a wealthy country we should hang our heads in shame.

I have written before about the need to address our revenue shortfall and the enormous advantages that flow to rich taxpayers in Australia. Our tax as a percentage of GDP has fallen steadily since 2002 from 30% to 28%. This is well below the OECD average of 34% of GDP. We need to fix our revenue base and not punish the poor and vulnerable.

A major reason for our revenue shortfall is not so much our low tax rates but the high level of tax expenditures or tax deductions that we have. In 2012-13, Treasury reported that there were 363 ‘tax expenditures’ under our tax system. Those tax expenditures had a total value of $115 billion. These tax expenditures range across the field – deductions for charities, religious, scientific and community organisations. The largest of all tax expenditures is for superannuation. This ‘tax expenditure’ costs the Budget over $30 billion per annum. About 30% of these superannuation tax deductions or concessions go to the top 5% of income earners.

The IMF has reported that Australia forgoes more revenue as a proportion of GDP from tax expenditures than all other OECD countries. It is in this area of tax expenditures that we need to direct our attention.

Quite apart from the scale of these tax expenditures or deductions and loss to revenue, there is very little transparency. Direct welfare payments for example are easily identified. The IMF points out those tax expenditures are often granted as a result of secret lobbying. The IMF recommends regular and systematic reviews of tax expenditures in the same way we review direct government expenditures, like unemployment benefits. Parliament and the Parliamentary Budget Office would do a great service if they conducted and published such a regular review. If they did, a large number of these expensive tax expenditures like superannuation, negative gearing and subsidies for private health insurance would be brought to public attention and curbed or abolished.

The ‘welfare cheats’ and ‘dole bludgers’ which are so much part of the stock in trade of tabloid newspapers and talk-back radio are easy game. The real rackets are run by vested interests that reap enormous benefits from tax expenditures which are often largely hidden from view.

We badly need revenue reform and of tax expenditures in particular.

Taxes are the price we pay for a civilised society. We need to face up to the need for adequate tax revenue to ensure that all Australians can live in a civilised way.

​Lobby groups and community organizations have provided their take on the Budget – some with a “what’s in it for me” approach, others with a more analytical line.  My contribution from the stands is to draw attention to a few aspects which aren’t getting a great deal of attention.

1.  Pension indexation.

I’m surprised that this hasn’t been the subject to outrage. Perhaps people don’t appreciate the difference between indexation to average earnings and indexation to consumer prices.

As a rule of thumb, earnings rise about one percent faster than inflation. That’s why, over the last 50 years, our material living standards have more than doubled.

Currently the two person age pension is held to around 42 per cent of average male earnings. If real earnings continue to grow as they have in the past, while pensions are held to CPI, in 30 years time the age pension will be only around 30 per cent of earnings. Someone now 40, contemplating retiring at age 67, and who holds only a small superannuation balance, has suddenly been told his or her retirement living standards will fall by almost a third from what was expected.

The notion that relative standards don’t matter is bunkum. Social inclusion is about not being left behind.  If you’re old enough, or if you know someone who can recall the 1950s, ask yourself how you would enjoy what in the 1950s was a reasonable standard of living.

2. Inequality.

As so many are pointing out, this budget entrenches and extends inequality. Besides the moral aspect of inequality there is a problem well-understood by hard-nosed economists.

In a few words, if people do not see that the rewards from economic activity are being shared fairly, they will reject the economic system. That rejection won’t be a 1917 revolution – we live in a democracy and people have to be driven to starvation levels before they storm the Winter Palace or the mansions of Mosman.  But the reaction won’t be a move to sensible public policy either, particularly when we have a Labor Party lacking an economic vision and  a Green Party which just cannot understand the needs of anyone living more than a train stop away from the CBD. The reaction will be a move to populist policies – protectionist, anti-enterprise, anti structural change (ironically leading to economic stagnation and therefore worsening inequality).

3.  Wages.

The government is determined to get more people into the labour force. Hockey says it’s about getting people into work, but it’s really about getting people into the labour force.  There’s a difference between being in the labour force and having a job – just ask someone who’s unemployed. This policy is on three fronts – making it much harder for young people and people with disabilities to get government benefits, restricting  family tax benefit  B (thereby encouraging women to re-enter the labour force), and incentives (carrots and sticks) for older people to stay in the labour force.

Unless there is a corresponding demand for labour, the inevitable consequence of an increase in labour supply is a compression of wages.

If that support for participation were accompanied by investment in skills and education, it would provide a sound path to future prosperity, because while there are few jobs for the unskilled, there is an economy-wide shortage of skilled labour, and as our receipts from coal and iron ore fall away, we will need to rely more on our human capital as a source of competitive strength. But the budget measures, in increasing the burden on young people seeking either trades or university qualifications, and its foreshadowed cuts to school funding, go in the opposite direction. The only compelling explanation for this policy combination is that it is a response to those businesses which see their interests in terms of suppressing wages rather than in innovating and improving productivity.

4. Foreign aid

By cutting foreign aid we’re reducing flows to poor foreigners, but in abolishing the mining tax we’re being generous to rich foreigners.

5. Bulk billing

The $7 medical co-payment isn’t just about $7. It’s also about removing any incentive for medical practitioners to use direct billing (disparagingly called “bulk billing”).  The attraction of direct billing is that it removes the cost of handling and accounting for cash transactions.  Even a dollar co-payment removes that attraction.

There is a campaign underway to cut weekend and holiday penalty rates particularly in the restaurant and hospitality industries. True to form the Australian Financial Review says that weekend penalty rates are a relic of times past.

A report leaked to the ABC indicates that the government will ask the Productivity Commission to undertake a comprehensive review of workplace laws. This will include penalty rates, pay and conditions, unfair dismissal, enterprise bargaining flexibility and union activities. It is proposed that this review by the Productivity Commission will consider the performance of the Fair Work Act. The Commission is expected to report to Joe Hockey by April 2015. He is ministerially responsible for the Commission. He makes the references to the Commission.

What is of concern is the political relationship between Joe Hockey and John Hart, the CEO of Restaurant and Catering Australia who is pressing for a review of penalty rates by the government. John Hart is also the Chair of Joe Hockey’s North Sydney Forum which has featured prominently in Fairfax media in recent days.

According to the SMH of May 5, 2014, membership fees are paid to the North Sydney Forum, chaired by John Hart, as part of the North Sydney Federal Electorate Conference. Joe Hockey is the Member for North Sydney. A full member pays $5,500, a corporate business member $11,000 and a private patron $22,000. Depending on the package, there are membership benefits which include board room events, end-of-year receptions, private VIP board room functions and policy forums and receptions. There is also provision for memberships of “Friends of Joe”.

John Hart is clearly a key man for Joe Hockey and John Hart wants action by the government on penalty rates.

Most of us would agree that we would rather not work at weekends, but if there is a need for such work, people should be fairly compensated for loss of time away from friends, family, recreation or church. Even God rested on the seventh day. Having forced governments to extend shopping hours and arguing that penalty rates were necessary compensation we now see a campaign by the same vested interests to wind back penalty rates.

Restaurants and catering businesses say that many are going out of business because of weekend penalty rates. But how much of the problem of those businesses is due to bad business decisions rather than penalty rates? John Hart, Joe Hockey’s fund raiser tells us that there is a 20% annual turnover of restaurant businesses.  I suspect that many of them close because they have made bad business decisions and not because of penalty rates. It is tempting to blame the “system” rather than admit a business mistake.

With changes in lifestyle, higher incomes and with two working parents, we do eat out more. Statistics from the industry reveal that restaurant business income has grown at a rate of 5.6% annually over the last five years. The Bureau of Statistics has just told us that while total retail sales were up by only 0.1% in the March quarter, restaurant sales were up by 1.8% It is an industry that is growing rapidly despite the alarm about penalty rates. There seems to be a lot of special pleading when John Hart says that we should freeze minimum wages or restaurants will shut down.

As Ross Gittins has pointed out, many of us see the benefits of living in a market economy, but we don’t want to live in a market society. There must be limits to anti-social intrusions by markets. We should reject any suggestion that market are supreme and can invade our private lives on a 24/7 basis. Do we really need to have so many businesses open all weekend? Clearly we need people like nurses to cover for illness seven days a week, but do we need the same access to restaurants and shops?  And if we do, employees should be properly compensated.

If the last twenty years has taught us anything about industrial relations, it is that continual change is costly for all concerned.  In 1993 the Keating Government abandoned our centralised IR system. In 1996 Peter Reith downgraded the role of IR tribunals. In 2005 John Howard gave us Work Choices. Then in 2009 Julia Gillard gave us the Fair Work legislation. Now Tony Abbott, Joe Hockey and John Hart want more change. We need more stability in our industrial relations framework because in the end good relations at the work level depend on effective local management and employee participation.

Industry leaders tell us that we need to lift productivity. And we need to do this. But a lot of the productivity slow-down is a statistical mirage reflecting the massive mining investment which is just now beginning to show results in increased mining production.

The vested interests that want to cut penalty rates claim that we have an inflexible labour market which results in high wage costs. Yet at present, the annual pace of wages growth has slowed from about 4% p.a. three years ago to a record low of 2.6% in recent months. Our labour market is showing considerable flexibility.

Clearly we need to review penalty rates and all industrial relations from time to time, but we seem fixated with the problem, mainly for ideological reasons. . We don’t want the market to intrude into all aspects of private life. Markets are to serve people and society, not the other way around.