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Issue #1700      September 2, 2015

Another recession looming large

Treasurer Joe Hockey had economic commentators scratching their heads in bewilderment last week. “Why pick now of all times, to cut income tax?” asks Peter Martin under the headline: “Treasurer’s ‘bracket creep’ reasoning fails to add up.” (Sydney Morning Herald, 25-08-2015) Sixty billion dollars was wiped off the value of shares on the Australian stock market last week. Unemployment and under-employment continue to rise.

Abbott and Hockey
Abbott and Hockey are not about to increase corporate taxes, quite the opposite. They have no intention of cutting multi-billion subsidies to mining corporations or private health insurance funds.

The All Ordinaries Price Index (an index of the value of all shares listed on the ASX), usually referred to as the All Ords, plunged to a low of 5,014 last week before rising a little again. It has fallen almost 16 percent since April this year.

Prior to this collapse, the All Ords had still not fully returned to its 2007 – pre-global financial crisis – level and another recession is looming large.

This has prompted comparisons with the 2007-2008 global financial crisis and the deep recession that hit Europe and other economies.

It is not just the small “mums and dads” investors who bought a few shares in public companies being privatised whose savings are being hit. Superannuation typically holds around half their investments in national or international shares. International markets are just as volatile.

The Reserve Bank of Australia has deliberately driven the Australian dollar down with successive interest rate reductions and is considering whether to make further cuts in the official rate. This is a double-edged sword. It makes our exports cheaper but hurts retirees and others whose savings are in bank deposits.

Australia has been hit hard by the fall in iron ore and coal prices. Now oil prices have plummeted (although motorists are still to see any benefits at the bowser).

Wage rises, where workers are lucky enough to be receiving them, are in many instances falling behind price rises.

Sackings continue. Bluescope Steel is considering whether to close its Illawarra plant in NSW which would see 5,000 workers sacked. Public sector workers continue to be sacked. Workers waiting for their tax returns are feeling the effect of the sacking of around 1,000 employees from the Australian Taxation Office. Returns have been delayed by weeks or even longer as there are not enough staff to process them immediately as in the past.

Add to that the turbulence on stock markets around the world and a reduction in the rate of growth of the Chinese economy on which Australia is so dependent, it is hard to find the good news story. But it is no use blaming China for our economic woes. It is government policy. There is no future in an economy built around fossil fuels and turning Australia in to a quarry.

All of these developments are affecting the income the government is receiving from personal and company taxation that is set (yet again) to fall far below the government’s rosy predictions.

So what has Treasure Joe Hockey to say about the impending economic crisis?

He is still insisting the fundamentals of the Australian economy and the global economy are sound. They are so sound that he claims he can balance the budget at the same time as cutting income taxes!

Tax cuts

He is serious about cutting taxes and uses bracket creep as the excuse. (Bracket creep is where successive wage increases result in wages being taxed at a higher marginal rate.)

In an address to the Tax Institute and Chartered Accountants Australia and New Zealand on August 24, the Treasurer argued that around 300,000 Australians will move into the second highest tax bracket. Expressing feigned concern for these workers who would be hit by the higher rates, he argued for a reduction in personal income tax rates.

“Why should the reward for hard work and endeavour be swallowed up by higher taxes?

“The problem is that, right now, Australia relies heavily on personal income tax,” says Hockey. That is all too true. Over recent decades corporate taxes have been reduced and the largest corporations pay no tax whatsoever. The government has no intention of making them pay.

And, in Hockey’s eyes, there is another problem: “the top 10 percent pay almost half of all personal income tax.” How unfair! He doesn’t see a problem with huge income gaps – they must have all got there by hard work and endeavour.

“Reducing taxes will put money back where it belongs – in people’s pockets – and send that simple message I spoke of earlier: have a go!”

If wage increases fail to keep up with inflation, then real wages fall. So Hockey is correct, that in real terms wages are being taxed at a higher rate. There is a strong argument for adjusting the marginal rates so that income taxes are not eating into real post-tax wages.

It would put more money in people’s pockets and that is certainly needed if the economy is to be lifted from its recessed state. But how would the cuts be funded?

Abbott and Hockey are not about to increase corporate taxes, quite the opposite. They have no intention of cutting multi-billion subsidies to mining corporations or private health insurance funds.

Sleight of hand

No, the cuts will come out of the pockets of the people who will end up worse off as funding for public health, education, community and other services is slashed.

Privatisation will result in higher charges or introduce fees where they presently do not apply. The prime motive will become profits, not service, as recently seen with Medibank Private’s negotiations with a private hospital group.

The government’s aim is to ultimately reduce company and personal income taxes to zero.

He speaks quite openly about “the end of the age of entitlement” and has already started the process of cutting back social programs, sacking public servants and dismantling the public sector.

The government has a responsibility to plan and build an economy that is balanced, has a strong manufacturing sector and provides the public services that the community requires. Public education, health services, housing and public transport are key to any plan along with the development of sustainable renewable energy sources.

Such planning would result in a highly skilled and educated labour force while generating jobs and benefiting people – a big turn-around from the government’s pro-big business policies.

At the time of going to press it looked as though Hockey’s days as Treasurer might be numbered. It is no use throwing Hockey out, he will only be replaced by another ultra-reactionary neo-liberal cut from the same cloth. It is necessary to throw the whole government out and replace it with a government intent on serving the people.

Next article – Wik people in mine law fight

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