The Guardian 13 February, 2008
Editorial
Razor gang, inflation, debt bubble
The Rudd government’s razor gang has started work and is reported to have ditched expenditures allocated by the Howard government worth $643 million and affecting 44 programs. But this is only small-time compared to the billions of dollars of cuts expected to be announced in the May budget. The federal government will then cut expenditures by up to $4 billion, slashing major expenditures as part of its "war" against inflation. One expenditure adding to inflation is the huge military budget but this will not be cut by even one cent.
The government’s economic argument is that by cutting these programs and taking money out of circulation it will help stop prices from rising — the theory being that inflation is simply too much money chasing too few goods. This in turn, so it is claimed, causes prices to rise in a free market economy.
Wage restraint is another measure that has the same objective. If workers receive less money they will have less to spend, there will be less demand and there will be less opportunity for businesses to put up prices.
Other ideas being put forward to bring inflation down is the proposal to put half of the tax cuts promised by the Rudd government into superannuation and that the superannuation rate, at present 9 percent of wages paid, be increased to as much as 15 percent.
Inherent in all these ideas is that inflation is caused by workers’ wages: that there is too much money in the pockets of workers and their families which must be reduced.
There are as yet no proposals to put a cap on prices being forced up by businesses and corporations. The fact is that most businesses, banks and financial institutions are wallowing in super-profits.
It is the banks that are putting up interest rates irrespective of the consequences for home-owners and other borrowers. It is the oil companies that have put up petrol prices, not the wages paid to workers in the oil industry. Insurance companies have in the last year substantially increased third party and comprehensive insurance premiums on motor vehicles. It is the big stores that are forcing food prices up and up. It is BHP and Rio Tinto that have continually forced up the export prices of iron ore and other metals.
The authorities say that this is the market at work and that the government can do nothing about it. By privatising everything in sight the federal and state governments effectively handed over their powers to control the economy to the private sector.
From the cuts to be made by the razor gang the Rudd government is going to further build up the budget surplus, accumulating billions of dollars which will not be spent on infrastructure projects, schools, hospitals, public housing and other urgently needed expenditures which would also create many jobs.
The government’s cuts, running into billions of dollars, may dampen inflationary pressure but will also result in a jump in unemployment.
While the exploitation by which employers make a fat profit out of the labour of the workers they employ remains a main cause of the present capitalist economic crisis, there is another factor at work at the present time. It is the mindless extension of credit to both businesses and householders.
Figures provided to the government by the Federal Treasury in January showed that "Australian businesses and households are borrowing at the fastest pace since 1989.
"Households have amassed more than a trillion dollars in debt, almost the same size as the economy, while business debt burst the $700 billion mark for the first time, despite the credit crunch," said the Treasury report.
It is this debt bubble that has now burst in the US, resulting in many households defaulting on their mortgage repayments and the difficulty facing the banks themselves as they are finding it more and more difficult to borrow new money to stop the bursting bubble from turning into a major recession or even a long term depression.
The same debt problems face the Australian economy. It is a rampant tiger that neither the governments nor the corporations and financial institutions have the wit or the will to bring under control.