Tax the rich
We've had the recession that we had to have and now, just when we thought it was safe to go out, Treasurer Willis, Prime Minister Keating and Reserve Bank governor Fraser are concurring with business economists on the tax increases we have to have. Us, that is, not them.
In the wake of the September quarter economic figures, the unholy trinity have come out strongly on the need to dampen consumer spending and increase public savings, probably by increasing income and indirect taxation.
Willis moved quickly to reassure business that these proposals wouldn't include them, despite booming investment and profits. He said depreciation measures and the lowered 33% corporate tax rate were entirely justifiable because companies need lower tax rates in order to compete with our major trading partners. What he didn't say was that this cry, like the demand for workers to become ever more productive, is one that virtually every government addresses to its own workers.
Business economists, including those in the federal cabinet, are hoping that they can smooth out capitalism's anarchic boom-bust cycle. The burgeoning current account deficit combined with the strong growth rate has set off their alarm bells amid fears of a return to high inflation.
The answer, they say, is to increase national savings by reining in the budget deficit. They say that with a lot of current investment funding coming from overseas, resulting in the blow-out in the current account deficit, and private sector savings difficult to increase, the savings must come from the public sector.
Australia already has a low level of government spending compared to other OECD countries, so increasing government revenue is put forward as option number one. A reduction in public spending will probably come in the next budget, in May.
The rejection of Hewson's GST at the last elections has pushed a broad-based consumption tax off the agenda for a while yet, but new, specific, indirect taxes are being floated, described as a "convenient, backdoor way of getting a partial consumption tax", by Fred Argy of the Committee for Economic Development of Australia. These include taxes on restaurants and hotel accommodation and energy in the form of a carbon tax. "A carbon tax would raise $2 billion or so without much effort, and could be sold as a 'green' tax", says Des Moore of the Institute of Public Affairs.
The only things economists are not talking about with interest are increasing corporate tax, raising the income taxation rates for the wealthy and introducing inheritance tax. Such measures would reverse the growing gap between rich and poor, and claw back for the public some of the excessive profits that business has enjoyed under Labor.
Labor has presided over an unprecedented transfer of wealth from workers to business. Over the last 11 years, it has raised the profit share at the expense of wages while reducing company tax from 49% to 33% and cutting the top marginal income tax rate from 60% to 47% — a gift of about $4 billion a year to a wealthy 5.6% of Australian taxpayers. Dividend imputation has freed shareholders from paying tax on dividends, a measure that gave $1.5 billion to 664,000 people in 1990/91.
The theory of "trickle down" (give private capital tax breaks and subsidies so it will invest more and maybe create jobs) lies in ruins before our levels of unemployment. The lesson of the period of federal Labor is that the only responsible investment is in a vastly expanded public sector, capable of providing desperately needed social services and jobs, and funded by taxing the rich and cutting dangerous and self-justifying defence spending.