Labor’s embrace of Liberal tax policies leaves poor worse off

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In July, Anthony Albanese announced a significant change of stance on Labor tax policy which was disappointing, if not surprising. An elected Labor government, Albanese promised, would keep the coming high income tax cuts he previously opposed. This decision to not oppose the government proposal to restructure the income tax system through reduced marginal rates is supporting a government policy that will lead to a significant redistribution of wealth towards high income earners.

In addition, the Labor agreement to align with the government by dropping its proposals to reduce negative gearing and to stop the discounting of capital gains for taxation purposes will continue to accelerate the redistribution of wealth and push up housing prices to levels inaccessible by low and average wage earners.

These recent changes in policy by the Federal Opposition demonstrate a noteworthy shift: the Labor Party recognises that policies which prioritise the marginalised are not electorally popular. Now, in significant policies that entrench systemic disadvantage for the poorer members of our community, there is arguably no difference between the Coalition and the Labor Party.

Such blatant decisions against Labor’s commitment to social equity affect those most vulnerable in our communities, and it is worthwhile looking at the impact of these policies in simple terms.

The argument for cutting marginal rates for high income earners assumes that the reduced taxation income will be countered by an increase in economic activity, thereby improving employment and income levels for all as demand for labour increases, putting an upwards pressure on wages. It is a form of trickle-down economics: if the rich benefit, all will. This argument has been proven to be marginally effective in America and has been criticised by Pope Francis as being inequitable.

Tax cuts of this magnitude mean that, amongst other things, we cannot build as many affordable homes as needed; we cannot improve Medicare rebates so that more people can afford to take themselves or their children to the doctor. There is less likelihood of improved mental health services or dental access or reduced homelessness. There will be continued reductions in the real level of funding to essential services.

 

'These changes put greater emphasis on non-governmental groups like churches and NGOs to be a voice for the poor and marginalised in our community by advocating against what are now commonly held policies.' 

 

The argument to reduce high income marginal rates, effectively making the income tax system flatter and therefore less progressive, flies in the face of economic reasoning. The proportion of extra take-home income that high-income earners will spend on consumption is quite low relative to that of lower income workers. The extra money earned by high income earners is more likely to go into savings or investment. Savings returns outside superannuation are very low, so investment is favoured, either directly or through contributions to superannuation.

Direct investment could be through shares, where there are tax benefits with capital gains being taxed at only 50 per cent of the profit but losses being fully deductible. Whilst there are arguments for the right to claim losses on investments against other income, it is hard to justify why $100 earned by investment (for example, on the stock market) is taxed at half the rate of $100 earned by labour. Our share index is pushed higher, not due to the increasing real value of the company but by the simple demand effect on share prices, exacerbated by current low interest returns for savers.

Alternatively, increased investment in real estate will push house prices higher. Investors can outbid those seeking a home because the potential gains are attractive, far higher than current returns on savings, and the risk of a long-term value drop is minimal. Again, capital gains are not fully taxed. Any losses are fully claimable and, as also in the case of shares, potentially spread across income periods.

On the other hand, giving the extra income to lower income workers would see more of it coming back into the economy more quickly. $10 billion dollars going into the pockets of high-income earners will have less impact than if that amount were used to, for example, increase the JobSeeker rate, or to allow wage increases for aged care workers, thereby attracting more to an occupation severely understaffed and underpaid. Lower paid workers will spend a much higher proportion of the extra income they gain from employment or wage increases. The increased demand for goods and services will generate employment and stimulate investment. The government gains increased tax revenue along with the benefit from reduced social security expenditure.

The decision to maintain negative gearing and capital gain discounts will continue the negative effect on house ownership levels for lower wealth households. The impact in real estate is that investors are chasing homeowners out of the market and forcing prices up. As prices to purchase rise, so do rent levels as investors seek to gain a market return on their capital investment. 

And we know which socioeconomic group has the highest proportion of renters: lower income and welfare dependent families. This group will continue to bear the brunt of the effects of these policies. 

Herein lies an opportunity for the voices of the churches and NGOs to be raised without fear of being seen as party aligned.

These policy changes, precipitated by Labor’s 2019 federal election loss, mean the Labor party is sadly not the voice of the poor and marginalised it once was. And these changes put greater emphasis on the need for non-governmental groups like churches and NGOs to be a voice for the poor and marginalised in our community by advocating against what are now commonly held policies. 

Usually, the Church is quiet in its commentary on political decisions. When seen to comment publicly on an aspect of government policy, the Church risks criticisms of being political, or of alienating a significant proportion of its membership. However, with both parties sitting in the one ideological corner, that risk is decreased.

Church leaders would do well to grasp this opportunity in Australia and to state clearly where the priorities lie for a Church concerned for the poor and disadvantaged. They should make clear statements regarding the rights and welfare of those least well-off, with logical arguments and clearly expressed alternatives.

Disenfranchised Christians and young people may then come to see that the Church can be a force in bringing about positive change through advocacy and an active and outspoken commitment to what is right.

Perhaps they will then be inspired to be part of such a Church.

 

 

Chris Smith is an Economics graduate and former Catholic school Principal and national Catholic education administrator. He resides in Hobart and is Deputy Chair of Concerned Catholics Tasmania.

Main image: Question time as Parliament continues (Sam Mooy/Getty images) 

Topic tags: Chris Smith, taxation, Labor Party, Federal Opposition, social equity, economics

 

 

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"Perhaps they will then be inspired to be part of such a Church"
Of course the risk is that others will be inspired to leave such a Church. I left, in 1970, because the Church was very loud in the political sphere - it was against decriminalising abortion, homosexuality etc. etc. and it has never stopped being political. But I'm not sure that I would want to hear a priest, in Church, saying anything much about politics, even mine. Maybe a bit more spirituality in Church is the way to go. You can always set up Catholic institutes, study groups etc. to pronounce on political matters. When I left the Church I couldn't detect any trace of the spiritual life there - if the Church could find some spirituality, that might be more of an attraction than politics. There's an awful lot of politics around, not much spirituality.


Russell | 31 August 2021  
Show Responses

Thanks Russell, finely argued. When Christians are urged to "do justice" that is a personal response to a complex scenario. There are a striking variety of pictures of Christ in the New Testament. Christians have a particular identity and what unites us is faith, not party politics. It's healthy to have diversity in the political views of Christians however our spirituality is
not of this world.


Pam | 01 September 2021  

Thanks Russell.

I think you may have missed the point I was making. I am not arguing for the priest in the pulpit to make political comment, rather that the Church as a whole, particularly through its national and diocesan leadership, can make strong comment on issues such as measures exacerbating the inequality of wealth without being accused of being anti-liberal now that the two major parties have the same policy. Our arguments will not be about party politics.
Jesus was not backward in speaking and acting out against inequity and discrimination. I am sure that he was not any less spiritual, human or divine because of that.
If we believe in working together to bring about the kingdom, as is our baptismal responsibility, I don't think that shying away from opportunities such as that currently presented in the federal policy arena is the correct approach. As for priests in the pulpit, I well remember them in the 1960s pushing for state aid to schools - again, arguing against the policies held by both political parties at the time. It seemed to work!


Chris | 01 September 2021  

Hmmm... it was but February of this year the Honorable Albo graced Eureka Street during troubled times (and a chance of government collapsing) to plead his humble beginnings, Rabbitoh's support and the Labor alignment with the Papacy; the good Samaritan wandered into the article then kinda staggered off directionless into a mist of clichés like "fair go", "common good" and sentmental warm-fuzziness. As a politician he understands the value of identifying as a battler, too. He's been there... and seems that he has every intention to allow today's poor to play that same hardship card, unchecked by government welfare interference or largesse to make their own appeals without the stigma life wasn't that tough. Battler made good: the Labor opportunity promise. I suppose it'd be a bit of a liberty to legislate nobody had to do the hard yards, huh? 'Scuse my scepticemia (sic) but it seems counter-intuitive the Labor party would plan to reduce its constituency by eliminating poverty. I'm not sure that church or religious groups and affairs of State is necessarily the logical step; aren't the Beatitudes enough anymore?


ray | 01 September 2021  

Thank you Chris for your thoughts on the ALP and its betrayal of ordinary Australian battlers. One could say that its federal leadership has also sold out on the environment by supporting the proposed Adani coal mining venture in the Galilee Basin in Queensland and the Coalition's so-called "gas led recovery". Both these ventures will contribute to the environmental crisis humanity faces and result in the increase of more premature deaths from pollution and increase the pace of climate change.

And to make matters worse, despite the fact that many ALP members have worked for international peace, human rights and social justice, the ALP leadership has continued to sell them out by supporting US wars and US moves to undermine democracy in other countries eg East Timor, West Papua, Palestine Iraq, Afghanistan etc.

There certainly needs to be the development of a third force in Australian politics that - a type of political spirituality that is dedicated to making positive change for social justice, environmental responsibility and human rights .

It seems to me that all people of goodwill who want to make the world a safer and fairer place who are imbued with the politics that promote these values need to make their voices heard.

My hope is that the school kids who have been striking for climate action when they come of voting age will vote for political groups that show a lot more responsibility to the challenges we are facing.


Andrew(Andy) Alcock | 01 September 2021  

Russell. You've vocalised the failure of Vat II in simple terms. The 1970s Church you left was the new enlightened Church in which a vibrant living spirituality was replaced in the name of entering the modern world by abandoning a deeply spiritual and devotional practice and replacing it with secularism.


john frawley | 01 September 2021  
Show Responses

John, I never personally felt any 'vibrancy' from Paul VI. If we're talking about a political Church you can't ignore J-P II and Benedict - very political popes! And, judging by the record, support from the Church for any issue is the kiss of death. They campaigned against no-fault divorce, abortion, homosexuality, gay marriage, safe access zones around abortion clinics, banning gay conversion therapy .... they are currently losing on the issue of voluntary assisted dying. They seem to be absolutely hopeless at persuading anyone to support their ideas. And then, if you spend your resources campaigning against, say, gay marriage, while preaching about your concern for the marginalised, I think young people might see that as hypocrisy. No, the Church hierarchy needs to be less political (they're not good at it) - leave that to lay Catholics like the excellent John Falzon.


Russell | 01 September 2021  

Not so sure about the tax on investment/income analysis vs. lower wage earners, nor does this support flatter rates for high earners, but reflects demographic change in Australian society.

Not only are more Labor voters nowadays in well paying occupations i.e. $100K + p.a., but many growing sectors and occupations have become more skilled and better remunerated e.g. tradies, parts of health care, FIRE or finance, public sector etc.

Further, our median age has been increasing in the permanent population of voters with many baby boomers already in, or in transition to, retirement, focusing upon retirement income, house values, super, pensions, health care delivery and then taxes and/or perks; median age and over are the most influential and more conservative voters in Australia (and elsewhere).

Unfortunately it also reflects the success of base Anglo (radical right) libertarian economic ideology since Thatcher/Reagan, imported from the US via think tanks supporting the top 10% of earners aka the nebulous and unsupported 'Laffer curve' or 'trickle down effect' (parroted by media) from lower taxes for high earners and wealthy looking down upon 'welfare wastrels'; backgrounded by even low earners spruiking materialism, property values etc.., or worse the Evangelicals' 'prosperity gospel'.

Not only does this have societal impacts on income support, disability payments but e.g. support for action on climate and/or environment inverts to opposition if any cost, tax or constraint is involved (easier to us eugenics in blaming immigration and/or population growth or pray....)....... we witness this with confected opposition to Covid19 measures; 'whatever it takes' to avoid constraints on income streams.


Andrew J. Smith | 04 September 2021  

Thanks, Chris.

It seems that Luther's sola fide is alive and well in Eureka Street contributors.

For some balancing of the scales, let's remember St James's Chapter 2 prescription " 14 What does it profit, my brethren, if someone says he has faith but does not have works? Can faith save him? 15 If a brother or sister is naked and destitute of daily food, 16 and one of you says to them, “Depart in peace, be warmed and filled,” but you do not give them the things which are needed for the body, what does it profit? 17 Thus also faith by itself, if it does not have works, is dead."

Had Albo focused on "common good", "human dignity" and "solidarity" he would have had my encouragement. However, it seems the notion of egalitarianism has been jettisoned by Labor in favour of "neo-liberalism" light. By elimination, I will be left voting Green. Good for asylum-seekers perhaps!


Kimball Byron Chen | 05 September 2021  

Our society has fallen a long way since the 1960s, when a single breadwinner, be it tradesman or clerk, could pay off the home mortgage and privately educate the children.
Since then, the so-called doctrine of liberalism, which has produced, inter alia, no-fault divorce and single parenting and wrought havoc on families and society, is strangely still regarded by many as an enlightened doctrine.
Before he died, Senator Ted Kennedy wrote to Pope Benedict XVI asking for his prayers and stating, “I have done my best to champion the rights of the poor.” Interestingly, that letter implies that personal salvation can be achieved through progressive policies rather than by individual acts of contrition and charity. And yet it is arguable that those progressive policies have done nothing more than create a permanent underclass, dependent on government handouts, and created a modern dystopia of fatherlessness, crime, and homelessness while bankrupting the nation ($29 trillion debt)
Conversely, Archbishop John Joseph Hughes turned a society of impoverished, violent, illiterate drunks and prostitutes into the nation’s finest citizens, without government help, by first instilling Christian virtues into his charges.
How Dagger John Saved New York’s Irish | Irish in American Mainstream (city-journal.org)


Ross Howard | 06 September 2021  

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