The Morrison government tax cuts are not what they are claimed and will not help the economy

Photo AAP: Scott Morrison Australian Prime Minister

Contributed by Joe Montero

The Morrison government, like others before it, doesn’t hesitate to blow its own trumpet. So it is with the recent tax cuts.

The smug self-congratulating speeches are meant to convince us that Canberra has control of the situation, and that is all good on the road ahead

Australia is supposed to believe the spin that government generosity is putting more money in our pockets, and empowering us to go down to the shops and buy more. The spin adds that economic growth will be stimulated.

It’s a fairy tale of course. Much of Australia seems to recognise this, if latest released by the Melbourne Institute – Westpac Index of Consumer Sentiment is to be believed.

In the first half of July the Index fell by 4.1 percent. This is significant. If it continues on this trend, the fall will approximate i one month what it has taken a whole year to happen so far.

It adds more weight to the notion that the government is not believed and the tax cuts have not and will not change this one bit. And it implies, that there is a strong sense that the government must go in a different direction.

Although household expenditure went up by 1.8 percent, nearly all of this was for essential already being paid for. Almost nothing went towards new discretionary consumption. Australians are continuing to tighten the belt and spend less on new consumption.

GDP grew by only 1.8 percent. The figure is the same as it is for consumption, because output and consumption must balance in the aggregate, unless there is an over supply.

In real life this is not quite true. If we omit population growth, and factor out transactions that do not increase the cost of goods and services to the consumer and add real value, and factor in costs incurred by society in in the carrying out of business, there is a significant gap and Australia has dipped into negative growth. There is no sign of this trend reversing.

It is not only the ordinary person in the street that is suggesting change is needed. An increasing number of prominent figures and experts are saying the same. Even within the ranks of the business community. 

In June the Australian National Outlook 2019 report  involving more than 50 leaders in business, the community sector academia and the CSIRO, and chaired by the head of the National Australia Bank Ken Henry, concluded that Australia risks “drifting into the future.”  

The report pointed toward a need for significant change in a world where there is declining trust in institutions and business and a threat to “social cohesion.” The realities of climate change and technological change, are also high on the list of challenges mentioned.

Without change economic health will not be restored and this will have a major impact on Australian society.

A vision for the future is needed, the report says, and this must involve changes in industry, urban planning, energy transition, land use, as well as a shift to a more collaborative culture.

Although not directly challenging the Morrison government, Philip Lowe, the governor of the Reserve Bank, has called for the lifting of fiscal support. This means more government expenditure and consumption. He suggests that well chosen government infrastructure projects would stimulate the economy, by adding to its productive capacity and the resulting job creation would help to spread the benefit and grow the consumer market.

In addition to calling for more intervention of government in the economy, critics are saying that there must be a turning away from the budget surplus dogma.

A big part of the problem for the government is that the claim that it is in control of the economy are somewhat short of the fact.

In the first place, it doesn’t control the decisions made by the big players presiding over large corporations, and enjoying a great deal of monopoly power. This elite has an iron grip over the government, which is only too happy to do as it’s told.

Secondly, the process of deregulation bound up with some forty years of neoliberalism, has extended the autonomy and power of this elite.

As the economy stumbles along, instructions are passed on and obeyed. High on the list has been cuts company tax and personal taxation for the very wealthy. The Business Council of Australia has been a leading player in this.

Handing a few scraps to wage earners and a crumb to pensioners through a one-off payment to help cover rising energy costs, makes no real difference. It is not intended to. The objective is to cover up the core intent of making the tax system more regressive.

Beside increasing inequality, these tax handouts will fail to stimulate the economy. When low and middle income earners find that there has been no real increase in their income , the market will shrink further and GDP will decline along with it.

The application of neoliberalism over decades has proved wrong the theoretical assertion that financing the major investors leads to more investment. The opposite has happened.

Going down the present road is not only a habit. It occurs when the short-term interests of an elite are satisfied at the cost of the future economy and society. When individual self-interest prevails over what is best for all. In conditions where there are economic challenges, the opposite should be applied

Continuing the upward spiral of welfare for the top end of town, persisting with its tax cuts agenda, while doing nothing about the massive tax avoidance industry are is the standard.

Remember the Royal Commission into the banks? Its recommendations have already been buried and forgotten. This says a lot.

When the cuts fail to generate more government revenues through economic growth, the bill for them and the whole package of corporate welfare and tax evasion, will have to be paid form somewhere.

This will mean further cuts and higher user costs for education, health and a range of other services. The value of the small tax cuts for most will soon be wiped out.

The pessimism shown by most Australians about the future suggest that they know that what is in store for them is not good. The continuing growth of distrust, and there was plenty of evidence of this at this year’s election, shows that many feel betrayed by our political leaders. This in turn, implies a wish for an alternative direction.

By supporting the Morrison government’s tax cuts at the eleventh hour, Labor has done itself a disservice, and shown itself to be out of step with the growing distrust.

One major reason why Labor was not able to capitalise on the Morrison government’s unpopularity, is that Labor itself is not trusted. Many now believe it has capitulated, and this will come home to bite.

An opposition to the government should be putting forward an alternative.

1 Comment on "The Morrison government tax cuts are not what they are claimed and will not help the economy"

  1. Malcolm groves | July 29, 2019 at 2:57 pm | Reply

    For an industry to be viable and self sufficient, every essential enterprise in its chain of production that makes up the whole industry, must have a consistently fair and equitable margin of profit
    If this basic rule for viability is not observed, eventually that industry will fail.

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