CPA - The Guardian

Last week’s mid-year budget review saw the federal government make further cuts and adjustments to its budget in pursuit of a budget surplus. The budget surplus has become a holy grail, an end in itself regardless of social and economic consequences. These latest cuts add to those of recent budgets which have reduced the living standards of the most disadvantaged and had a contractionary impact on the economy.

Treasurer Wayne Swan is desperately scrambling to produce a surplus.

There is little public support and no rational reason for the government’s fanatical pursuit of a budget surplus. The urgency is political. The Gillard government wants to go into the 2013 federal elections boasting that Australia is the only major western economy to run a surplus and counter Coalition and media taunts that Labor are poor economic managers.

The Labor government might think that the electorate will be impressed by its “sound economic management”. But there is nothing sound about slashing billions of dollars from education, health, welfare payments, or the sacking of thousands of public servants and axing of vital community services.

The Australian electorate will not judge the government by a budget figure. People want secure well paid jobs, hospitals, schools, public transport, public housing, affordable childcare, they want lower electricity prices. They want aged care now, mental health and disability services now, dental services now. They want free tertiary education and training with income support. They are concerned about climate change, the treatment of asylum seekers and Indigenous Australians.

Even sections of big business are querying the impact of the cuts and the rush to a budget surplus. Every week there are announcements of more businesses going bust and more workers being sacked and losing their entitlements. Last week retail group, Retail Adventures – owner of Go-Lo, Sam’s Warehouse, Chickenfeed and Crazy Clark’s – went into voluntary administration, joining a long list of retailers.

Why are these outlets closing? The answer is simple. Insufficient demand. The manufacturing sector and tourism are also feeling the effect of inadequate demand. People do not have enough money to meet their needs. Every increase in rent, electricity, petrol, water, gas, public transport fares, medicines, food, etc, without a commensurate increase in income, reduces the amount people have left over to buy other goods and services or to take a holiday.

The failure of the government to lift the level of unemployment benefits and the aged pension condemns hundreds of thousands of Australians to poverty. The forthcoming cuts to parenting payments will cause more hardship and further reduce demand. The failure of wages to keep up with the cost of living and the growing ranks of the unemployed, casual workers and under-employed add to the crisis of overproduction which is developing.

It is overproduction in the sense that more is produced than people have the means to buy – not necessarily more than may be needed.

Previous budget cuts are having a contractionary impact on the economy, and the situation is set to worsen.

Treasurer Wayne Swan is desperately scrambling to produce a surplus, despite a shortfall of billions of dollars in previously forecast taxation revenue for 2012-13.

Personal income tax revenue is affected by previous government cuts to social welfare payments, as has the loss of or casualisation of thousands of jobs, including public sector ones.

The plunge in coal, iron ore and other commodity prices has seen mining profits decline from their dizzy heights of recent years. Retail, tourism and manufacturing sectors are in crisis, with the number of businesses going into receivership continuing to rise.

Instead of taking the economically responsible approach and admitting the surplus is not achievable this year, Swan is making further, mostly regressive cuts.

TAFE and university courses and research programs will be cut by $1.6 billion. These cuts are nothing short of criminal. It makes no sense to slash billions from TAFE and universities and cry out that there is a shortage of skilled labour.

More targeted for cuts

The education unions fighting the cuts deserve the full support of the rest of the trade union movement and wider community. Nor is the already ailing tourist industry spared cuts. The baby bonus will be reduced after the first baby.

Swan plans to limit increases in the private health insurance (PHI) rebate to CPI increases. This is one area that warrants cutting. Instead of minor pruning, the government should be phasing out the PHI rebate, which at present provides an indirect subsidy to the private hospital system of more than $5 billion a year. That money should be directed to the public hospital system and the establishment of universal dental cover under Medicare.

The ABC is another target. Radio National will be cutting seven programs, making changes to others and axing 11 jobs to contribute a paltry $1 million to the surplus. The programs being cut include Airplay (radio drama program) and book readings, Movietime, Lingua Franca and Creative Instinct – cultural programs that commercial radio stations are incapable of producing.

The government plans to raid unclaimed superannuation savings after 12 months instead of waiting five years – raising $555 million immediately. It will rake in another $109 million raiding unclaimed bank accounts and life insurance policies after three instead of seven years.

In other areas the budgetary measures are more a slight of hand, either deferring expenditure a few months into the next financial year or shifting revenue collection forward by a few months (eg collection of income tax from large corporations on monthly rather than quarterly basis).

The government was lucky that the exponential growth in demand by China and India for Australia’s resources propped up the GDP when other western economies crashed. But, as previously pointed out in The Guardian, these rosy figures portraying continuous growth covered up the grim reality facing the majority of Australian workers and the more labour intensive sectors of the economy.

Depressed demand for goods and services across China’s major markets in the US and Europe, a consequential slowdown in China’s growth rate and the inevitable downward fluctuations in commodity prices, are taking their toll on the mining sector.

Even some of the leading neo-liberals are questioning the wisdom of Labor’s blind pursuit of a surplus in 2012-13 and reliance on mining. It does not make economic sense, even in their conservative framework, when so many businesses are going bust, demand is falling and a deep crisis of overproduction looming.

The government should be taking stimulatory measures now to try to soften the next economic crisis, not contractionary cuts and caps on spending which will deepen it.

The situation is compounded by the fact that the government still plans to resume cuts to corporate taxes in future years!

The private ratings agencies and financial institutions are behind the drive for budget surpluses. The budget surplus target provides the excuse for the sale of public assets and for the imposition of austerity measures. The aim is to wind back past gains of workers’ struggles such as social welfare, pensions and public services and to privatise anything that the private sector could make a profit out of. At the same time the surplus frees up more investment capital for the financial institutions to lend to the private sector to buy up public assets.

The opposition to budget deficits and public debt is rooted in neo-liberal mythology – looking after the interests of the big end of town.

Public debt can play, and has historically played, an important role in supporting economic development and sustaining public services, social welfare and public infrastructure. Of course it is important that the debt remains within limits that are manageable and that the money is used for progressive, constructive purposes.

The privately owned mining sector, no matter how large its profits, employing around 200,000 workers cannot sustain the Australian economy. The new mining tax on coal and iron ore has been revealed to be the farce it is. Designed by the mining corporations to replace the original super profits mining tax, it has so far delivered nothing. The people of Australia who own the resources being plundered stand to reap almost nothing from their assets as the profits are shipped offshore.

The industry should be nationalised, the opening of new mines planned and the profits returned to the public purse to fund social needs and public infrastructure.

There is no shortage of potential funding to expand and improve public services, to provide disability, dental and mental health and other services now and to raise the incomes of community workers and welfare recipients. Apart from nationalising the mining sector and phasing out the PHI rebate, a ten percent cut in military spending, and an increase in corporate taxes could raise billions more.

Every extra dollar paid in wages or pensions or spent on education or health services boosts demand for goods and services, expands the economy and saves or even creates jobs.

The Australian people will judge the government on the policies that it delivers, on the services it provides, on their living standards, not on a budget surplus with all its smoke and mirrors and cuts.

Next article – Editorial – Dusting off the accords

Back to index page