May 12th 2007

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Articles from this issue:

COVER STORY: ANZAC DAY: A new dawn for Australian national pride

EDITORIAL: Labor's uranium policy: when 'yes' means 'no'

CANBERRA OBSERVED: Has Kevin Rudd made his biggest mistake?

WATER: Water crisis: farmers' warnings ignored

NATIONAL AFFAIRS: Why Kevin Rudd leads in the polls

LABOR PARTY: Australian union movement's last hurrah

STRAWS IN THE WIND: ABC's John Curtin - a missed opportunity / Labor conference a gold-plated flop / Melbourne's continuing transport fiasco / Ice man cometh

INTELLIGENCE CORNER: Terror Australis - will the public ever wake up?

FAMILY ASSISTANCE: Howard's cash benefits for families

SCHOOLS: Report slams school curriculum muddle

DRUGS POLICY: $150 million campaign against 'Ice' - too little, too late

MEDICAL: Oral contraceptive link to breast cancer

HISTORY: Wilberforce's epic battle to end slavery

Plight of Tamils in Sri Lanka (letter)

Sinhalese speaking up for Tamils (letter)

Religious vilification laws (letter)

General Monash (letter)

BOOKS: BETWEEN TWO WORLDS: The Inner Lives of Children of Divorce

BOOKS: THE OCCUPATION OF IRAQ: Winning the War, Losing the Peace

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Why Kevin Rudd leads in the polls

by Colin Teese

News Weekly, May 12, 2007
Australian families are entirely justified in instinctively disliking the Howard Government's deregulationist economic policies, which have resulted in a massive redistribution of income away from households and towards company profits. Colin Teese reports.

John Howard is behind in the polls. And, yes, it's happened before, and he has pulled up. But this time it is beginning to look different. It is beginning to look like a re-run of when Mr Howard beat Prime Minister Keating in 1996.

Whatever the Prime Minister says, the electorate does not seem to care. At the same time, whatever minor setbacks overtake Mr Rudd don't seem to matter.

Of course, voter intentions are notoriously fickle, and it remains true that nothing can be taken for granted - except that the only opinion poll which matters is the election itself.


There is no shortage of commentators attempting to explain the turnaround in Mr Howard's political fortunes. Most likely it is not any particular issue, but rather the cumulative adverse effect of a whole range of policy decisions which now don't seem quite as sound as they once did.

Looking back, the worst thing that happened to the Howard Government was winning control of the Senate. Some wise person once said: “Beware of what you wish for. You might actually get it.”

And so it may be with Mr Howard. Getting total control of the parliament was the one wish he may now regret having got. Ironically, it was the Labor Party which handed the Coalition the poisoned chalice: by fiddling with their preference votes in such a maladroit way.

The Government thereupon had the numbers enabling it, among other things, to pass legislation which it chooses to characterise as workplace reform. These so-called reforms were ones that the Liberal Party, at the branch level, if not the parliamentary party level, had long wished for.

Supporters of the new arrangements included numerous spokespersons for business, figures in academia and opinion-formers in the media, all of whom support deregulation and the operation of unfettered market economics.

They insisted that the Government's radical deregulation of the labour market carried no adverse implications for the rights and pay of workers. Illogical as this insistence was, for a time it seemed as if it might actually take hold within the wider community; but it now seems otherwise.

That these changes diminish the rights of workers - especially those with low skills at the bottom end of the pay-scale - now seems blindingly clear, not merely to that category of workers, but to workers across a broader spectrum.

To this end, a fairly effective campaign by the trade unions seems to have worked. A great many workers, who did not initially see themselves as threatened, now view the new legislation with concern. Thus far, all efforts by the Government to dispel workers' fears appear to have been unsuccessful.

Some believe that at least part of this concern arises from a growing scepticism about the material benefits of deregulationist policies and of free-market economics generally. This seems especially so, in respect of those groups which perceive that the economic tide is turning against them. While these groups may not fully understand the reasons why it should be so, the nature and extent of their disadvantage is becoming obvious.

Let's consider how they might be considering their plight. Without doubt, the boom in housing prices has conferred on many at least the illusion of wealth, as has, for the moment, rocketing share prices.

Unfortunately, in some measure, those gains are part of what economists call a zero-sum game. The gains enjoyed by one section of the community are real enough, but they come at the expense of others less fortunate. Some relatively well-to-do families, while participating as beneficiaries, are, at the same time, beginning to see some of the shortcomings.

They now believe that their children, even those in relatively well-paid employment, will never be able to afford to buy their own home - particularly if they have children.

Even more is this so if soaring house prices are put alongside the amount of income which will have to be set aside for educational purposes - both for school and university. And the cost of health care is yet another expense which must be provided for.

As to education expenses, it is true that, except for a short period after the Whitlam Government came to office in 1972, Australian families have always had to pay for university education. Perhaps that was, and remains, no bad thing. But don't forget that after World War II, while we had fees, we also had a generous and easily accessible scholarship system which more or less guaranteed that able children from ordinary families could get to university.

Not now. Either families must find the money up-front, or else students themselves must pay for their university education. In the latter event, they start their working life with a debt to work off.

In addition, families must pay for school education unless they are prepared to send their children to what are, in many cases, poorly-resourced government-operated schools. This latter responsibility is relatively new. In the past, families could avail themselves of good quality state-funded and operated schools deemed to be offering a community service.

Now these and other changes have been served up to us as part of a market-driven economic policy program which carries with it the idea of “user pays” for various services which were once recognised as a community responsibility. And the “user pays” policy, in turn, is part of an idea that the individual is more important in a society than the community.

Unfettered market

In the days before unfettered market economics, a wide range of services related to education, health and welfare were deemed necessary to be available to all in the community - rich and poor alike - in equal measure, with tax revenue the source of funding for these activities.

Wealthier groups were perfectly entitled to make their own arrangements outside the community-provided services, but this would be at their own expense; and it did not excuse them from the obligation to contribute, through taxation, to the provision of the community services.

The new economics, which praised the virtues of market above all else, condemned these arrangements. Government intervention was deemed to be an impediment to the smooth functioning of the market. In particular, it despised the notion of using taxation for the purposes of redistributing income. The better way, it contended, was to collect less tax, and allow individuals to earn larger pay packets out of which they could fund their own activities in the way they chose.

Well, they got their way: the system they wanted has held sway for the last quarter of a century. Public utilities have been privatised, and users have had to pay their way for community services.

But the biggest fallout of all from these changes has never been discussed. Market economics itself has operated to produce its own massive redistribution of income away from households and towards company profits. Whereas in 1960 wages and profits took about equal shares of GDP, by 2004 wages enjoyed about 15 per cent of GDP and profits about 27 per cent.

More important still, according to AMP investment strategist Dr Shane Oliver, while all of this has been going on households have been hit with a second whammy.

Income tax, far from falling, has been going up. From a level of about 6 per cent of GDP in 1960, it rose steadily to about 16 per cent in the late 1980s before falling to about 12 per cent in 2004. In other words, the tax take from households has doubled since 1960, while householders' share of GDP in wages has halved. Some system!

And remember, the additional tax burden borne by households is actually understated. Consumption tax collections (such as the goods-and-services tax), now enormous, are an added burden on households.

All of this, as Dr Oliver further demonstrates, impacts directly on debt levels. Government debt has been paid off largely by soaking households on income and consumption tax collections. Business debt is now very low, because profits captured from wages are now able to fund business expansion.

As a consequence, whereas household debt was non-existent in 1960, it is now between 6 per cent and 8 per cent of GDP.

Faced with ever-higher taxes and levies, households have gone into debt to keep afloat. Contrary to popular belief, consumer spending percentages have not changed much in the last 20 years. Their increased borrowing has been used to keep up with their needs.

Economic rationalism, and its attendant idea of user-pays, has not been kind to families.

Families are getting a smaller proportion of GDP into their pay packets than at any time in the last 45 years. They now pay tax at twice the rate of 45 years ago, and yet are required to fund privately more of the essential community services.

As Shane Oliver explains, the only way out is for taxes to fall and wages to increase. Is it any wonder that households are beginning to lose patience with a Government which seems determined to take exactly the opposite tack?

It may be that ordinary households are not able identify precisely why they are in their current unhappy circumstances, but they certainly know something is wrong.

Perhaps the point has been reached where they may now regard the policies currently being pursued by the Howard Government as a greater threat to their future security than anything they might fear from Labor.

- Colin Teese is a former deputy secretary of the Department of Trade.

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