We’ve all heard it. The confident declaration by a friend, relative or work colleague that the country is being ruined by all the dole bludgers out there; people living all too well off the money we earn and they don’t.
The problem is, it’s just not true. You know the dole and other allowances paid to the unemployed are too low when the Business Council of Australia and one of the country’s leading conservative economists are in lockstep with the Australian Council of Social Services and even the Greens in insisting Newstart payments be lifted by at least $50 /week.
This week Chris Richardson of Deloitte Access Economics – yes the mob the Coalition parties regularly employ to do their economic modelling – had this to say about the Newstart and Youth Allowances.
“It is our standout failure as a nation…We don’t have a dole-bludger problem — what we have is a society that is unnecessarily cruel”
In 2012 the Business Council of Australia made a submission to a government inquiry in which it argued that
The rate of the Newstart Allowance for jobseekers no longer meets a reasonable community standard of adequacy and may now be so low as to represent a barrier to employment.
Given there has been no lift in the real level of the payment since then they are still arguing this. Last year, for example, the president of the BCA continued to make the case.
The inadequacy of payments was demonstrated by research at the UNSW. In 2017 the researchers identified the living costs of households where the adults were unemployed and found that in every case unemployment benefits were not sufficient.
So far from dole bludgers living the life of Riley on our hard earned taxes, the reality is stated by Cassandra Goldie of ACOSS
“If you cannot get paid work and you are relying on income support you’re living in poverty, you do not have enough to make ends meet, to cover even the basics,”
As the budget is handed down next week the BCA, ACOSS and Chris Richardson are not likely to agree on many things, but they all agree on this: unemployments benefits must rise and that we can afford it.
“In a country like Australia where we are overall one of the most wealthy countries in the world, none of us should accept that we cannot afford a social security safety net.
Is anybody else shocked by the revelations coming out of the Royal Commission into Banking and Financial Services? Our banks and financial service industries are amongst the most profitable organisations in the world and they handsomely remunerate their staff. Yet it seems that it’s not enough.
I find it extraordinary, because it is economically so unnecessary.
At the time of Jesus people lived within a premodern agrarian economy. Rather than finding ways to increase the productivity of their land, the rich grew richer by simply appropriating the profits of the poor. Israel’s peasantry experienced a double whammy. Rome demanded tribute, which sent many farmers spiralling into unsustainable debt. When they couldn’t’ repay their debts their wealthy creditors would demand their land, which they would then rent back to the farmer via sharecropping or add it to vast estates that were managed for them and employed the former owners as day labourers.
In this type of economy the way people got rich was literally by taking from someone else. The Old Testament Law tried to create safeguards: loans were to be interest-free; any amount that remained outstanding in a Sabbath year was to be forgiven; any land that had been forfeited was to be returned in the Jubilee year. Yet human greed proved too weighty. The laws were not followed and the rich continued to gobble up the land of the poor. So incendiary did this become that when the Jewish rebellion erupted in 66CE one of the first things the rebels did was to burn the land records held in the temple.
Against this background I can make sense of Jesus’s fierce denunciations of the rich and his continual insistence that the rich sell what they have and return it to the poor from whom they had taken it. Wealth in these type of economies was synonymous with exploitation.
Capitalism was meant to be different. It is built on the idea that the wealth is not fixed but can be grown. For example, if I can find better fertilising methods I can increase my crop yield without taking anything from my neighbour. Or if instead of everyone engaging in small-scale agriculture, we specialised labour, so that those with a mechanical bent built and repaired our machinery, and those with good carpentry skills specialised in building barns and houses, the same amount of effort would produce greater results than when we were all trying to do a bit of everything. Wealth can be grown through productivity gains. It doesn’t need to be stolen.
This is what makes the revelations out of the Royal commission so disturbing. We know how to build a society in which wealth is growing without stealing from others. But we don’t do it. By historical stands we are fabulously wealthy. Yet it’s never enough. And so we cheat and exploit to gain more. And it’s not only those in the banking industry. We hear a continual stream of revelation of people exploiting others, from the poker machine industry to 7-Eleven to exploitation of migrant workers.
The problem is we are susceptible to greed. Jesus put it this way:
“Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal. For where your treasure is, there your heart will be also…No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.”
For a long time I read this the wrong way around. I thought Jesus said, “wherever your heart is, there your treasure will be also.” That is that whatever we set our heart upon will become that which we treasure. But that’s not what he said. He said that wherever our treasure is, our hearts will follow. Whatever I spend my life amassing, no matter how much I tell myself I am detached from it, it will almost certainly capture my heart. That’s a difficult truth to hear in an age of accumulation.
Is it really any surprise then, that in a society in which we place so much importance on accumulating wealth and are so expert at accumulating, that instead of contentment it all too often creates an irresistible desire to have more, a desire that drives us to do terrible things such as those that have been exposed recently. We may have created an economic system in which exploitation of others is not necessary, but we have yet to create a human heart that can resist the allure of gaining more.
One of the most thrilling moments I have ever witnessed occurred during the Live8 concert in 2005. A giant screen displayed footage from the 1980s famine in Ethiopia. It was distressing. Mothers with eyes evacuated of hope cradling emaciated babies; children too weak to play sitting quietly on the dusty ground surrounded by death. The camera zoomed in on one baby girl, gaunt, listless and just minutes from death. It was humanity at its most wretched and vulnerable. Sir Bob Geldoff stood on stage, pointed to the image of the little girl moments from death, and announced that the famine relief funds raised by the Live Aid concert meant that little girl had received life-saving interventions, had gone on to study agriculture, had just graduated and was at the concert. With that she walked out on stage, a vibrant, life-filled 20 year old woman, an emblem of hope and possibility. It made my spirit soar and my eyes fill with tears of joy.
The experience of that young woman has been repeated all over the developing world in the last few decades. From the wide open plains of Africa to the deltas of Bangladesh poverty is being wound back at an extraordinary pace. The number of people living on less than $1.90/day has fallen from four in every ten people on the planet in 1984 to just one in every ten in 2015. The number of children dying before their fifth birthday has plummeted from close to 19% of all live births in 1960 to less than 5% today. These are extraordinary outcomes that have come about due to the development and spread of technologies and knowledge; opportunities created for poor communities as they integrated into the global economy; and grass roots development initiatives.
Why then are we not dismayed at the state of the federal aid budget? In the space of just a few years it has been slashed. A few years back both major parties were committed to raising foreign aid to 0.5% of national income and we were on track to achieve this. Today the commitment to this target has lapsed and the aid budget has been raided in the name of budget savings. Yet there are few public investments that have better returns in terms of lives improved. Aid allows poorer countries to fast track access to education, medicine, and a range of resources they would not otherwise be able to afford. Australian aid sees children surviving and thriving, schools built and teachers trained, businesses developed, and communities strengthened. Yet our aid budget has fallen to its lowest level ever as a percentage of national income and we are lagging way below the average effort of other industrialised nations. In the chart below the red line represents Australia’s aid budget as a proportion of national income. The green line is the UK which has been increasing its aid at the same time we are decreasing.
People justify the cuts to aid on the basis that “we can’t afford it.” Really? The Credit Suisse annual Wealth report ranks Australia as the second wealthiest nation on earth in per capita terms. Yet at the same time we squeal that we cannot maintain our aid program, other nations such as the United Kingdom have increased theirs. Given our economy generates somewhere in the vicinity of $1.5 trillion a year, sparing less than 1% of that for the world’s poorest is certainly affordable. What we are really saying is, “We think other things are more important.” For example, Australians around $20 billion a year on recreation, which is five times more than we spend on foreign aid. Our government spends eight times as much on defence as it does on foreign aid.
The size of our foreign aid budget is not a question of affordability but of choices and priorities. And from a global perspective we’re looking pretty selfish. The former Prime Minister of Denmark called Australia on this when she appeared on the Q & A program last Monday. We are members of a global community, but right now, we are proving ourselves to be the spoiled brats of the global family.
Sandy and I have watched the last few seasons of House Rules, a TV reality show in which couples renovate each other’s homes. What strikes me is that the attraction of the TV show is not the quality of the renovations produced – if it was we would not be watching amateurs do their thing – but the human drama. Will the couple whose home has been renovated like what they see? Will the couple falling behind in the competition have a good week and catch up? How will the different personalities of the contestants interact?
It strikes me that this is a powerful metaphor. We live in an era of renovation and upgrade. Sandy and I often talk about what we would like to do with our very 70s kitchen. Whenever I visit the Sydney boat show as I did a few weeks ago I fantasise about upgrading my boat. Every time I hear the annoyingly loud alarm that my car emits when the engine has been turned off but the headlights are still turned on, I fantasise about upgrading to a car that was built in the era in which lights are automatically switched off with the engine.
But when I ask what any of these upgrades would add to the quality of my life and relationships the answer is none to very little. We would have a new kitchen that may be more aesthetically pleasing to look at, but at the end of the day we wouldn’t cook any more meals, refrigerate more food, nor spend any more time in the kitchen. If I upgraded my boat, I would not buy anything larger, for the boat I have now is manageable for one person to launch and retrieve. I would not spend more time out of the water and there is not one thing I would do in my new boat that I can’t already do in my current boat. And as for operating my car, I would still only drive to the same places.
The depth, value and meaning of my life is not found in my kitchen, my boat or my car but it is found in the relationships that I transact in the kitchen, in the boat, in the car and beyond. This I think is at least part of what Jesus was getting when he said that “life does not consist in the abundance of one’s possessions.”
He also counsels me “do not store treasures on earth, but store up treasures in heaven”. Given I live in a culture which defines success in terms of accumulating treasures on earth I find this very arresting. With the rest of my Western fellow believers I do everything I can to try and make Jesus mean something other than what he actually said. Surely he didn’t mean “do not store up treasures on earth”? Surely he really meant something like “accumulate as much as you desire, but be a loving person at the same time”? Well, no. I think he actually meant I should invest myself, my time, and my money in people rather than possessions.
And as I reflect back on House Rules I think Jesus got it right. We live with the fantasy that renovated homes, upgraded boats and better cars will “make all our dreams come true”, when in fact it is the relationships and the drama of relationships that provide true satisfaction. The producers of House Rules trade on that. So should we.
It’s not uncommon to hear people in our society grumbling about excessive welfare payments to those on lower incomes nor to hear the opposite claim that “the rich are getting richer and the poor are getting poorer.”
Data just released by the Australian Bureau of Statistics shows that neither of these assertions is true. It shows total after-tax income for households adjusted for inflation and household size. It includes all sources of income whether that be investment income, wages, or some form of pension or welfare payment.
1. Those in the top 20% of income earners, even after they have paid their taxes, on average earn four times more than the bottom 20%, which is where the majority of those whose primary source of income is welfare are located. Moreover those in the top 20% have 40.8% of the nation’s household income as opposed to those in the bottom 20% holding just 7.5%.
2. The income of all segments has been growing. Remember the data factors out inflation. Every quintile shown is earning more in 2013-14 then they were in 1994-95. So it is not true that the poor have been getting poorer, at least not in absolute terms. What has been happening is the growth in incomes of the rich has outstripped the growth in incomes of the poor. So what we can say is that poorer are getting richer but the rich are getting much richer.
3. The greatest beneficiaries of the global financial crisis were the richest 20% of the population, from whose ranks ironically came the architects of the system that came crashing down.
Australia is one of the few countries that has managed to constrain the growing gap between rich and poor, primarily through government policies that have kept employment rates high (remember the wads of cash handed out by the Rudd government at the height of the GFC? It was the fact that people went out and spent that money that kept employment levels high and stopped the income trend for the lower deciles going backwards) and a tax and transfer system that redistributes income more equitably than many other countries.
Nonetheless we too are falling prey to the growing gap between the richest and the poorest in our community. This should alarm us, for there is a substantial body of research that shows inequality is detrimental to the well-being of all of us. It lowers economic growth rates, sees those at the bottom receiving poorer quality services including education, and creates the type of resentments that fuel the rise of populist nut jobs like Donald Trump and Pauline Hanson.
So if you’re up at the top of the tree, the next time you hear about an increase in the pension or the minimum wage, or one of those scandalous exposes of the tiny number of people rorting the system, perhaps think twice before complaining. You have four times as much in your pocket each week as those at the bottom end of our society and the potential for them to rort the system pales into insignificance compared to the tax minimisation anomalies that you’re able to avail yourself of.
And for those of us in middle deciles, be concerned about the growing gap between rich and poor but perhaps do so from a sense of thankfulness that we live in a society where, despite the fact that some are getting richer at a faster rate, the vast bulk of us have all been getting better off.
Our new treasurer, Scott Morrison, stated this week that “you can’t tax your way to surplus”. It’s become something of an orthodoxy on the conservative side of politics, but when you stop to think about it, it’s a ridiculous statement. The only way the government gains revenue is by taxing people, goods and services, and businesses, so the only way the government will ever pay Australia’s debt is through taxation. The question is not whether we will use taxes to pay debt but what is the correct level of taxation that will allow us to both provide the services we value and repay the debts we have accumulated.
By international standards, tax levels in Australia are exceptionally low. The chart below shows the latest data provided by the OECD, with the figures for 2012. As you can see, total taxes collected across all levels of government amounted to just over 27% of Australia’s national income, giving us the seventh lowest tax take out of the 32 OECD nations and putting us 6.4% below the OECD average.
Ever since the rise of industrialised economies, there has been a trend for citizens to expect more and more of their governments. For example, schools, hospitals and welfare services were once run by churches and other charitable groups but are now the domain of government. In this context it is not unreasonable to suggest that as we demand more services of government, that the share of national income collected by the government as taxation will increase. If, for argument’s sake, we increased our total tax revenue to the OECD average, we would have an instantaneous surplus of around 4% of GDP, or around $66 billion. This could be used to repay our national debt more quickly or to provide increased services.
This would not damage the economy. Given debt repayments are already planned into the budget, any additional taxation could be used to continue funding existing services and to increase expenditure on other areas. In other words, the money isn’t withdrawn from the economy but circulated through it in a different fashion, and so would stimulate demand, create jobs, and more.
Scott Morrison’s mantra is not economics but ideology. The question is not whether we will tax our way to surplus, but whether we will reduce, maintain or expand the services government provides as we do so.