Speeches

Speech - Budget 2018 and Beyond

May 15, 2018

WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY

BUDGET 2018 AND BEYOND – ADDRESS TO SDA MEETING
BRISBANE
TUESDAY, 15 MAY 2018

 *** CHECK AGAINST DELIVERY ***

 

Good morning everyone and thanks for having me today.

Last week’s Budget and the ongoing Banking Royal Commission are a potent reminder and an insight into the type of Government we’ve got.

A Government which by its actions and at every turn, has set about pounding the lives of working people, and which exists solely to serve the demands of an overpaid and overpowered corporate elite.

These are strong words, but I’ve been shocked by their behaviour at every turn – nowhere more so than in their opposition to the Royal Commission into Banking, and their attacks on the fundamentals of collective action through the union movement, and now their attempts to undermine Australia’s progressive tax system and to manipulate wage growth forecasts,  in the Budget.

Income tax cuts

The income tax cuts in this Budget – and the cuts that the Government is proposing to deliver in seven years’ time – are a steamroller through Australia’s progressive tax system.

If the Turnbull Government gets its way – and is re-elected twice more – a checkout operator working full-time on $20 an hour ($40,000 a year) and a senior executive on $200,000 a year will pay exactly the same rate of tax on every additional dollar over a threshold.

More than 60 per cent of Turnbull’s tax cuts go to the top 20 per cent of income earners.

This means:

Someone earning $20 an hour gets a tax cut of 23c an hour.

Someone earning $100 an hour gets a tax cut of $3.60 an hour.

Now, you might say that someone on $100 an hour might get a bigger tax cut because they pay more tax to start with. But even though they earn five times as much, their tax cut is 16 times larger than someone on $20 an hour. That is, it makes the tax system more regressive.

Company tax cuts

Turnbull’s plan to impose regressive income tax cuts follows the same script as his company tax cuts farce – throw a few crumbs to the many, before delivering a feast to the wealthy few.

As you may recall, the first round of company tax cuts went to small and medium-sized businesses. But the company tax cuts were never just about small and medium-sized businesses.

The Government’s main objective was always to deliver a tax cut to the top end of town –businesses earning more than $50 million a year.

Labor has resisted this tranche of company tax cuts, which would bring their total cost to $80 billion.

And one-third of the benefits of the tax cut go to just 15 companies.

This includes Coles and Woolworths, who are no more likely to hire more staff if they pay less tax.

There’s simply no evidence to show that companies that pay lower rates of tax hire more staff.

In fact, the experience of the United States and Australia has shown that firms that pay less than the headline rate of tax are more likely to shed jobs than they are to create them – and we’ve got the research to back it up.

We know that tax cuts simply don’t “trickle down” to more jobs and higher wages.

Instead, the proceeds of company tax cuts stay locked in the boardroom – overwhelmingly funding share buybacks, which boost CEO salaries and boardroom bonuses.

After the Trump tax cuts in the United States, share buybacks increased by $171 billion, 30 times more than the amount that went to workers.

So when Turnbull says we need a company tax cut to raise wages in this country, he’s more likely talking about CEO salaries – not the wages of workers on the shop floor.

Everyone can cite their favourite example of corporate elites shoring up their share of income, whether through outrageous executive pay packages, rampant tax minimisation and tax evasion, or cosy collusive and monopolistic arrangements. We’re seeing it unfold in graphic detail at the Royal Commission into Banking.

But the moment that took the cake for me was a little over two years ago, when seven CEOs representing the Business Council descended on Parliament House to shore up support for a corporate tax cut.

The combined salary of these seven CEOs was $65 million.

And just last month, the Business Council assembled another motley crew of CEOs to write a letter to Senators – a letter consisting of just two sentences, effectively saying that if the tax cuts were made law, then maybe, just maybe, they’d consider hiring a few more workers. If conditions were right.

Not two days after this letter was released, an internal Business Council survey was leaked, where more than 80 per cent of companies made the damning admission that they wouldn’t use a cent of the tax cut to hire more workers or deliver pay raises. Instead, they’d use it boost share buybacks and jack up executive bonuses – exactly what happened in the United States.

Let’s be clear – these tax cuts are as unpopular as they are unfair.

An overwhelming majority of Australians, regardless of who they vote for, would rather see billions of dollars spent on health, education and public services, than see it gifted as a tax cut to big business, who we know from bitter experience – and now their own admission – that they don’t plan to share it on the shop floor.

Wage growth forecasts

The Budget’s forecasts for wage growth are truly misleading. The Abbott and Turnbull Governments have given Australia four consecutive years of “the lowest wage growth on record”.

Each year, workers have been getting smaller and smaller pay rises – to the point where workers’ wages are now going backwards, after accounting for inflation.

And now, the Government expects wage growth to rebound to its historical average within three years, which is the equivalent of someone today on $40,000 a year earning more than $45,000 by 2021.

And because the Government has capped public service wage rises at 2 per cent a year, the private sector will have to boost wages by even more than 3.5 per cent if the Budget’s forecasts are to be realised.

It goes without saying that the Turnbull Government has no plan to increase workers’ wages or to improve conditions to vindicate its own forecasts. Future wage rises just appear out of nowhere, while the Government actively works against them, suppressing wages and conditions for workers across the country.

On top of the wage cap that it’s imposed for its own workforce, the Government has been the head cheerleader for the upcoming cuts to Sunday penalty rates in the services sector.

What’s disturbing about what we’re seeing – the destruction of the progressive tax system and the Government’s attempts to suppress the bargaining power of working people, by muzzling their unions and attacking their wage levels – is that the Government is seeking to fundamentally change the distribution and income and wealth in our society, making our economy more unequal and our politics more polarised.

In short, it wants to make our society more American.

Trickledown & Australian Exceptionalism

Across the developed world, and most obviously in America, trickledown economics – tax cuts and tax havens for the rich, deregulation for the powerful, the destruction of social safety nets and wage suppression for the rest – has produced rampant income and wealth inequality.

Today, the eight richest people in the world control the same amount of wealth as the poorest 3.5 billion. And if recent trends continue, in just over a decade the top 1 per cent will control two-thirds of the world’s wealth.

Inequality on such a grotesque scale eats away at the heart of society. It breeds disdain, resentment, envy, suspicion, arrogance and callousness. It polarises our politics and it leaves many working people feeling powerless to improve their lives.

One reason Australia has managed to avoid going down the American road – at least, so far – is because we’ve done a better job of looking after the working and middle class.

This chart shows that in recent decades – until about 2012 – you could be in the bottom 90 per cent in Australia and still see your income growing. The bottom 90 per cent in the US, the UK, Canada, France and Japan for at least part of that time saw their incomes go backwards.

Our record of economic growth has remained unbroken until now simply because we’ve recognised a fundamental economic truth – that working- and middle-class Australians are a source of growth. They’re not an afterthought, or a consequence of growth. They are vital to it.

One of Australia’s best defences against unmitigated inequality has been our system of penalty rates and our decent minimum wage, which is among the highest in the world. A high minimum wage delivers a reasonable standard of living to our lowest‑paid workers. And it’s not just good social policy – it’s sound economic policy as well.

Despite what parts of the business community might argue, we won’t be made poorer if our minimum wage is made fairer. And businesses themselves do better when their lowest-paid workers receive a wage high enough to spend right back into those very businesses.

We can fight inequality and deliver economic growth – Australia’s record is proof of that.

Not only have we delivered a decent standard of living for our lowest-paid workers, we’ve also fought hard against the hollowing out of the middle class, as has been seen in the United States.

Since 1995, while the wages of the average middle-class US household basically flatlined, the same middle-class household in Australia got an overall pay rise of more than 50 per cent.

It’s fair to say that no country in the developed in the world has done a better job over the past 100 years of matching strong economic growth and income growth with social equity than Australia. The public policy building blocks which have underpinned this growth with fairness are primarily the legislative work and achievement of the labour movement and past Labor Governments.

A fair industrial framework based on a decent minimum wage, universal health and education, prudent fiscal and monetary policy based on a targeted progressive tax and transfer system; a world leading superannuation framework that has strengthened the pension system and financial sector; and a series of reforms aimed at increasing competitiveness are the key building blocks of the Australian social contract.

But it’s not all good news. Despite our hard work to fight inequality in Australia, the past five years of conservative Government have set the scene for a rapid reversal.

The risk of the American road

Inequality is on the march again in Australia.

The middle 60% of households in the United States have just 20% of all wealth. In Australia, these households have 40% of wealth, but this number is rapidly shrinking. Without a change of direction, we’re fast on the American road to a hollowed-out middle class and an army of working poor. But here’s the crucial difference: we can still turn back.

Over the past five years of conservative Government we’ve seen a full‑time job crunch and a part-time job squeeze, with record levels of underemployment, much more insecure work, and the exploitation of vulnerable workers. At the same time we’ve experienced a full-frontal Government attack on penalty rates, attempts to dismantle the minimum wage, a savage attack on family payments supporting working families on modest incomes and attempts to wreck Medicare and trash the Gonski education reforms.

For all of his crowing about full-time work, the only full-time jobs that Malcolm Turnbull has “created” are those that he and Tony Abbott destroyed. The same share of Australians is in full-time work today as when the Coalition came to Government five years ago. Full-time employment growth is simply keeping up with population growth.

We have gone exactly nowhere under this Government – even when we use the statistics they want us to use.

As for part-time work, we now have a situation where 40% of the workforce is in non-permanent forms of employment – this means fewer rights, potentially lower pay and less economic security.

Underutilisation – that is, unemployment and people wanting more hours of work – is pressing up against record highs under this Government.

One in six people (16%) in Australia is either unemployed or can’t get enough hours. This is almost twice as many as in the United States.

And if you’re aged 15 to 24 in Australia, there’s a one in three chance (33%) that you’re either unemployed or you’re looking for more hours. That’s 650,000 young people, many of whom will be in the retail sector.

Real wages in the private sector grew by just 0.02 per cent last year, while corporate profits at one stage grew by more than 20 per cent.

All of this adds up to an Australian economy in which the rich are now taking the lion’s share of growth, tilting the balance of power at the bargaining table further towards themselves and away from working people.

Since 1961, the profit share of income has nearly doubled, from just over 20 per cent of national income to almost 40 per cent, while the wage share has collapsed – from a peak of more than 60 per cent to levels not seen in more than 50 years.

Despite what we’re told by the trickledowners, the historically high level of business profits has yet to translate into meaningful growth in secure employment.

Inclusive Prosperity

Last week’s budget gave Malcolm Turnbull and Scott Morrison a chance to stake out their priorities, but they’ve made it perfectly clear that they have no plans to increase the minimum wage, to combat insecure work, or lift a finger to fight rising inequality.

Instead, they want to drive a stake into the heart of the fair go in Australia.

There’s simply no indication that the Turnbull Government – or the overpaid and overpowered corporate elite they represent – are going to come to grips with the fundamental problem in the Australian economy –the problem of insufficient demand, which is caused by a real squeeze on the incomes of low‑ and middle‑income earners in Australia.

The audacity of the campaign for a corporate tax handout in the face of growing wealth concentration and wage stagnation is a reminder of why we must be relentless in defending the economic interests of working people and advance a bold alternative agenda.

An agenda that rejects trickledown economics, that beats back inequality and that provides a decent standard of living for all.

An agenda of inclusive prosperity.

Let’s start talking about inclusive prosperity by first discussing what it’s not about. It’s not exclusively a tale of Robin-Hood-style redistribution, that old story of “dividing the pie” more equally. It’s about making a bigger pie by ensuring working people have a more decisive role in baking it.

Inclusive prosperity involves everything that a Government can do, even before it changes the tax mix or makes welfare payments. It’s about how a Government can change the rules – and change them to the benefit of working people.

By focusing from the outset on changing these rules of the game, we avoid falling into the trickledown trap of thinking that the working and middle class are a consequence or an afterthought of economic growth.

Instead, the inclusive prosperity agenda empowers us to boldly assert that a strong working and middle class is the chief source and engine of economic growth.

Inclusive prosperity starts from the idea that stemming the growing tide of wealth and income inequality is the defining economic, political and social issue of our generation.

One of the reasons why inequality is a handbrake on growth is very, very simple. You give more money to those who are already well off, and they are much more likely to save rather than spend it.

If you’re in the top 1%, you’re saving 40% of your income and when more and more money goes to the top 1% the money pumping through the economy dries up.

If you give working people less to spend, we see even less growth. What follows from that? Greater inequality, accompanied by political and economic instability.

Wealth isn’t just created in mahogany-lined boardrooms.

When we go into workplaces we need to explain that nurses, builders, teachers, construction site labourers, hairdressers, shop assistants, waitresses and truck drivers are all generators of growth as much as bankers, investors, businesses and multinational companies are.

Across the lunchroom we need to meticulously explain that one worker’s wage is a support for another worker’s job. Every dollar earned and then spent by an Australian worker drives sales and boosts jobs throughout the economy. We create a feedback loop, from decent wages, to more spending, to more jobs, to decent wages, and so on.

The union movement and the Labor Party are the two institutions in our society that have the power to advance an inclusive prosperity agenda and deal with growing inequality in wealth and income.

The radicalised right-wing of the Liberal Party and the increasingly dominant corporate sector seek to change the distribution of wealth and income in our society. And that demands, from both the union movement and the Labor Party, new responses to change the rules.

I suggest that the inclusive prosperity agenda, with its emphasis on changing the rules, is the best way forward. Underpinning this agenda are what I’ve called the four pillars of Australian Laborism. They should be as much pillars for the labour movement as they are for the Labor Party. These pillars are:

  1. Sustained full employment.
  2. A stronger voice for workers, codified in new rules and institutions.
  3. Taming corporate excess, from oligopoly power to executive pay.
  4. Defending and advancing our progressive tax system. 

All of us here today have a sense of the inequality challenge – from the erosion of worker bargaining power, to the scourge of not getting enough hours, through to the constant threats to penalty rates and the minimum wage. We face an uphill battle in terms of money, resources and media megaphones. So we have to be smart.

We have to win the battle of ideas.

Labor has already outlined a set of policies with a clear and bold message about how we can strengthen growth and spread opportunity. And the union movement has a vital role to play.

We have to make the economic case that less inequality and good wages and working conditions for low and middle income earners will promote economic growth.

We have to make the case that working- and middle-class Australians, not just rich people, are also true job creators; that a broad middle class is a source of prosperity, not a consequence of it.

We have an economic agenda which drives growth and lifts productivity and we have a message that says clearly and unambiguously whose side we’re on: the side of working people.

We must never let vested interests divert us from the core message and never operate under the illusion the corporate elite operate in the national interest.

Protecting working people and spreading prosperity is the Labor Party and the union movement’s shared and sacred mission. Let’s honour that mission and build a stronger and more equal Australia.

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