Inclusive Prosperity Should Be Popular, Not Populist

Balancing the budget on the backs of those least able to bear it is bad economics as well as bad politics.

16/07/2016 6:00 AM AEST | Updated 16/07/2016 6:01 AM AEST
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As voters in the UK brace for the impact of Brexit and US citizens contemplate the candidacy of Donald Trump, in Australia Malcolm Turnbull's government has fallen over the line after a long and lifeless Coalition campaign.

Pundits predicting an easy, if reduced, Coalition majority have been confounded by the size of the swing against the government and the emergence of fringe parties preaching simple, if not simplistic, policy agendas.

But any commentator tempted to diagnose the electors of 2016 with a sudden outbreak of racism or stupidity might do well to consider the contract offered to the median voter -- indeed, to the majority of voters -- by conservative parties over the past three to four decades.

The near dead-heat of the 2016 Federal Election shows that Australians, like citizens of the UK and the US, remain deeply and justifiably unimpressed by the incessant drip of the trickle-down economics experiment, however it might be sold to them.

Malcolm Turnbull's incantation of "jobs and growth" is just another incarnation of an economic scheme that conservatives refuse to let die. The three-word mantra poorly masks a policy bereft of substance: the promised 'jobs' are little more than Treasury's business-as-usual employment projections, while the 'growth' hinges on a $50 billion company tax cut that Treasury's own modelling has torpedoed.

Thus, it should be no surprise that voters have yet again repudiated the trickle-down agenda and sought shelter in Labor and the minor parties. For all the promise that a Malcolm Turnbull Prime Ministership once held, for all of Mr Turnbull's talk of innovation and agility, his entire economic plan consists of cutting corporate taxes, crossing his fingers, closing his eyes and hoping for the best. It continues the legacy of Tony Abbott and Joe Hockey's deeply divisive 2014 budget, which at the time was sold as a pathway to surplus via expenditure cuts (and the customary reduction in the corporate tax rate).

Although the deficit has tripled under the Coalition's stewardship, most Australians have been unable to see any benefit flowing from an increase of government expenditure over revenue. Workers in ever more precarious employment situations, pensioners squeezed by the higher cost of living, young people struggling to gain a foothold in the residential property market all intuit the innate injustice -- and illogic -- in Mr Turnbull's policies of wealth concentration. With the recent threat to downgrade Australia's AAA credit rating, S&P corroborated what voters have been sensible enough to judge for themselves: balancing the budget on the backs of those least able to bear it is bad economics as well as bad politics.

Thankfully, there is an alternative. While trickle-down economics insists on drawing a dichotomy between the speed of growth and the spread of growth, the idea of inclusive prosperity acknowledges the empirical evidence that countries which grow more equally will grow more strongly. As Michael Cooney, Executive Director of the Chifley Research Centre, puts it: "If only ten percent of people win when the economy does well, ten percent of people will care if the economy does well."

The notion of inclusive prosperity, if not the phrase itself, has long been at the heart of Labor's policy agenda. The National Disability Insurance Scheme, the Gonski education reforms, and the preservation of Medicare are all important planks in this agenda. But at its foundation, inclusive prosperity must be about sensible and credible fiscal and monetary policy, targeted to macroeconomic conditions, in concert with a fair industrial relations system and a strong and progressive tax and transfer system.

For example, had Labor capitulated to the Coalition's arguments during the Global Financial Crisis, millions of Australians who had no role in the collapse of Lehman Brothers might have suffered irreversible losses to their incomes, their jobs, their businesses, or their houses. In the event, Australia emerged from the GFC with one of the best designed stimulus packages in the world -- one which benefited all Australians, and one which kept our AAA credit rating intact.

Similarly, when an inflationary breakout loomed from Australia's once-in-a-century mining boom, the Labor government sought to implement a resource super profits tax to at once dampen inflation, close the fiscal deficit, and to distribute the benefits of Australia's common mineral wealth among its citizens.

The role of fiscal policy has been used for decades now in a tired game to kick the idea of inclusive prosperity to the kerb, so let me address that first. Fiscal policy is not a recipe simply to expand the expenditure side of the budget with lots of goodies for various constituencies. If that were the secret to inclusive prosperity, John Howard and Peter Costello's "big government conservatism" spending explosion of the 2000s would have led us to nirvana a long time ago. In fact, inclusive prosperity can be entirely consistent with budget repair, especially if it focuses on restoring fairness and efficiency in the tax and tax expenditure systems. Cracking down on higher-income giveaways like superannuation concessions, negative gearing and tax avoidance all make the system more efficient and fairer for ordinary taxpayers, while helping the budget bottom line.

We did a lot of work on the tax concessions side while in government and Labor's campaign built on that in the areas of negative gearing and superannuation. It is very notable also that the Coalition scare campaign on negative gearing failed entirely, and while some of that was Scott Morrison's unique "reverse Midas" touch, plenty of it was that Australians -- to the surprise of many -- understood very well who benefits from negative gearing, and weren't unhappy to see it curbed.

To be sure, a commitment to inclusive prosperity does not denote budget deficits as far as the eye can see. But nor does it hold a surplus to be the single test of fiscal rectitude. Instead of the economy being used to balance the budget, the budget must be used to balance the economy. Or, as I have long argued: "If we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again."

The task now is for Labor to bring all these strands together in a bold agenda that both reflects budget repair (appropriate to the relevant point of the business cycle) and deploys resources into inclusive policies in infrastructure, education and health in particular.

That the benefits of inclusive prosperity have been demonstrated time and again should shift the burden of proof squarely on the shoulders of trickle-downers to justify the persistent failure of their program. Unsurprisingly though, a challenge to the ethos of wealth concentration does not sit well with the fortunate few who benefit. The rejection of Labor's tax policies by some corporations and individuals who have since been exposed as exemplars of tax minimisation and avoidance, shows that egalitarian policies need not only to be pushed, but to be pushed uphill.

While business councils have enjoyed unparalleled sway over Coalition policymaking, the alleged threat of trade unions is still accepted as the root of all distributional evil, from inflation threats, to productivity slowdowns, to the threat posed to the ABCC (the double dissolution trigger mentioned just four times during the 56-day election campaign). Never mind that union membership in Australia (and the UK, and the US) is at its lowest level on record, sinking in parallel with the share of wages in national income, or that over the past two decades more than half of labour productivity growth has been captured by capital. Meanwhile, corporate tax evasion robs an estimated $1 trillion from elected governments around the world.

Like the slow drizzle of water onto a rock, the trickle-down agenda has also worn away at the once sharp edge of media outlets (or at least the non-Murdoch ones), who proudly carried anachronistic arguments into the 2016 election campaign. Malcolm Turnbull's wonky transmission mechanism from tax cuts to economic growth was left unexamined by the ABC's Sarah Ferguson, who nonetheless demanded an explanation from Bill Shorten about how on earth investment in education might contribute to inclusive prosperity.

Despite the free ride given to his policies by most media outlets, Malcolm Turnbull's Prime Ministership has suffered a vote of diminished confidence, if not outright disillusionment, from the Australian electorate. As his term grinds on, he is likely to face further votes of no confidence from within his own ranks.

The fact that voters in Australia and around the world have rejected policies which entrench wealth concentration should compel conservatives to suffocate the trickle-down agenda once and for all. Similarly, the election result should prompt progressives to redouble their efforts in shaping the message of inclusive prosperity from being merely populist to deservingly popular.

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