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The Only Thing We Need To Cut Is Our Misguided Faith In Trickle-Down Economics

We can’t trust the winners to compensate the losers.

30/09/2016 5:18 AM AEST | Updated 30/09/2016 5:18 AM AEST
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Australia's Treasurer Scott Morrison.

In the 1890s, US economists first offered up the 'horse and sparrow' theory. It went along the lines of 'if you give a horse more oats then there will be more to pass through for the sparrows to enjoy'.

Sound familiar?

With different waves of enthusiasm across generations since, policy-makers have been fed the same foodstuffs as the sparrows: tax cuts to the wealthiest trickle down for the benefit of the masses. Apparently we all win if the richest have even more money to play with.

But the evidence tells a different story and leave trickle-down economics exposed as a naked claim used to shore up the position of those already enjoying wealth and social position. History shows that the wealthiest do not tend to direct their new found tax cuts into more consumption. Instead, they either increase savings or plough it into tax-advantaged investment vehicles like superannuation or negatively geared investment properties.

Those lucky enough to be trickled-upon are in effect a narrow group of financial planners, land conveyancers, luxury car salesman, real estate agents, and banks sourcing low-cost deposits.

There is an active and growing consensus around the world that the trickle-down theory should be expunged and never again exhumed. The OECD said earlier this month that policy measures were needed "to make sure that the benefits of trade and investment reforms are widely shared." In other words, we can't trust the winners to compensate the losers.

This new consensus is lapping upon our political shores. The last few months has seen Labor MPs join with the Greens in attacking trickle-down theory with gusto during Senate debates. We've seen their economic spokespeople shifting from being past advocates of tax cuts to staying silent on who benefits from cutting taxes.

It even culminated in Opposition Leader Bill Shorten claiming on the eve of the election that Turnbull's government 'want Australians to embark upon a radical, expensive experiment and trickle-down economics. We know how this story goes. Reagan tried it, Thatcher tried it. A generation later, we got Trump and we got Brexit."

These are strong words. But the real test of belief for us legislators is how we vote when presented with a change in the law. One such law from Treasurer Morrison's first budget has just entered the parliament, but has gone almost entirely unnoticed by the Australian public because both the government and opposition agree.

Despite rallying against the Trickle-Me-Elmo school of economic thought, the Shorten Opposition is about to gift the top 20 percent of income earners a reduction in their taxes. This will cost the budget $4 billion in lost revenue and wipe out two-thirds of the $6 billion in spending cuts that Labor agreed to in the Omnibus Bill.

Putting these two measures side-by-side paints a very dire picture for those of us trying to destroy income inequality in Australia.

The Omnibus deal cut family assistance for 383,000 households, charged higher interest on Centrelink repayments, lumps more lifetime debts on students and stripped half a billion dollars from clean technology deployment and research.

But the income tax cuts will put $315 a year into the pockets of members of parliament, banking executives and property developers. If the measure is truly targeted only for those facing bracket creep, then we should be recouping revenue from those earning above $180,000 by making the temporary two-cent levy for the budget emergency (whatever happened to that?) permanent.

It is not too late for the Shorten Opposition to stand against top-end tax cuts and vote down this law with the Greens and crossbench. Treasury modelling has shown that, left alone, income tax collections will drive down the deficit from $39 billion to $6 billion in four years' time.

Not only do these tax-cuts damage equality in Australia, but they also deteriorate the budget position, which this government has time and time again presented as its number one priority.

Now is not the time for tax cuts. Now is the time for the Shorten opposition to match its media releases with its actions and stand against the expansion of income inequality in Australia.

Now is the time for our Parliament to give momentum to the global discrediting of the horse and sparrow theory which, by any other name, smells just as bad.

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