What is the Hockey budget all about?

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Sunday, 17 August 2014 14:48 by Ad astra
Does anyone out there know? Does Hockey know? Does Cormann? Does Abbott know? Do his Cabinet and his backbench know? The commentators and the voters have their ideas, but do they really know what is behind the Hockey Budget?

Readers will not find a definitive answer here; I don’t know more than anyone else. Rather this piece presents some plausible reasons why Hockey would bring down such a budget. I will leave it to you, the reader, to reach a conclusion, and if you are so inclined to make your suggestions in the comments section.

There is a surprising consensus among political commentators, economists, the Federal Treasury and the people about the effects of the budget, namely that it disproportionately penalises the middle and lower income earners. Proportionately, the wealthy are penalised less. Why is this so? What ideological position finds this acceptable? What economic argument supports this approach?

A superficial answer to the question: ‘Why would Hockey bring down such a budget?’ — the answer the government has used from the outset — is that there is a ‘budget emergency’, that the nation’s finances are ‘in crisis’, a ‘debt crisis’, and therefore radical corrective measures are needed, and now. Yet from the outset this was seen as the charade it is by economists and all but the most sycophantic Coalition commentators. There is no crisis, no emergency demanding immediate and drastic action.

Politicians, economists and journalists alike do agree though that structural defects exist in the budget that have their origins with several previous governments, defects that need correction to enable the delivery of the services that Australians want to be continued into the decades ahead: universal health care for an ageing population, disability care, a good education for all, jobs for all who can work, and infrastructure to support our growing population. Almost universally, the same people agree that corrections need to occur over the years ahead. While some agree that the corrections might usefully be commenced now, the majority does not see that they need to be corrected urgently, in a single budget, and certainly not by draconian measures.

The ‘crisis’, the ‘emergency’, was no more than a political strategy devised by the Coalition to soften up the electorate for the punitive budget it intended to bring down. There was no emergency or crisis, but the strategy served to preemptively answer the question the people were bound to ask: ‘Why would Hockey bring down such a destructive budget’? The Coalition hoped the answer would be obvious.

For the history of the so-called crisis, re-read the excellent piece by 2353 Debt crisis: what debt crisis?

If any reader still needs convincing that the ‘emergency’, the ‘crisis’ was fictitious, read Hockey’s own words, uttered in a radio interview during his July visit to New Zealand: ‘…there is no crisis in the Australian economy, nor is it in trouble.’ He made no mention of a ‘budget emergency’.

Even Tony Shepherd, the hand picked chair of Abbott’s pre-budget Commission of Audit, whose task it was to find budget savings, said there was no budget emergency. Most economists agreed.

So let’s look for what might be behind Hockey’s budget. What would motivate him to bring in such a punitive one?

The possibilities canvassed here are:
 
1. The budget reflects the Coalition’s political ideology.
2. The budget reflects an economic position.
3. The budget reflects a political intent to reorient the social order.

Proposition 1: The budget reflects the Coalition’s political ideology
 
The Liberal Party website mirrors its ideology in the statements of beliefs in its Federal Platform. Among the many laudable beliefs listed there, the following are relevant to this discussion:

We believe:

‒ In the innate worth of the individual, in the right to be independent, to own property and to achieve, and in the need to encourage initiative and personal responsibility.

‒ In the creation of wealth, and in competitive enterprise, consumer choice and reward for effort as the proven means of providing prosperity for all Australians.

‒ In the principle of mutual obligation, whereby those in receipt of government benefits make some form of contribution to the community in return, where this is appropriate.

In the section on the economy, we read:
 
Liberals want an economy that provides quality jobs and high living standards across the nation. Achieving these goals in a competitive global marketplace means we must have on-going economic reform.

Liberals believe the best strategy for jobs and prosperity includes:

‒ giving priority to sound economic fundamentals, including responsible fiscal management, low inflation, low interest rates, rising employment levels, low net debt and high real business investment;

‒ supporting the role of small business
 
‒ encouraging workplace reform…

Note the words: ‘we must have on-going economic reform’ and ‘workplace reform’.

So is the budget a reflection of those beliefs and preferred strategies? Possibly, but the extreme nature of the budget hardly reflects these benignly stated beliefs.

To get a deeper understanding of Liberal ideology, take a look at the wish list of the extreme right wing think tank, the Institute of Public Affairs, which has an acknowledged and profound influence on Coalition thinking.

It is not afraid to state its views brazenly; it does not sugar-coat them as does the Liberal Party platform.

Among the first seventy-five wishes the IPA published are the following:

‒ Eliminate family tax benefits
 
‒ Legislate a cap on government spending and tax as a percentage of GDP

‒ Legislate a balanced budget amendment which strictly limits the size of budget deficits and the period the federal government can be in deficit

‒ Allow individuals and employers to negotiate directly terms of employment that suit them.

That comes closer to explaining Hockey’s harsh budget. The IPA loathes government spending and taxes, adores a balanced budget, hates deficits, despises the ‘nanny state’, and advocates economic and industrial relations reforms, born of its fervent advocacy of free markets, minimal government oversight and regulation, and industrial relations that favour the employer.

If you have any doubt about the influence the IPA has on the Abbott government, read the article in Crikey, which reported that the IPA has added another 25 items to its wish list, and that almost half of them are on Abbott’s agenda.

Abbott himself said at an IPA function: ‘So ladies and gentlemen that is a big “yes” to many of the 75 specific policies you urged upon me.’

Crikey reported that in a Sunday Age article last year, John Howard acknowledged the influence of the IPA: ‘…the IPA is a Trojan Horse for scorched earth neoliberals trying to “condition the public attitude on these [policy] matters.”’

It is reasonable to conclude that although the Liberal Party platform reads benignly enough, innocently enough to allay fears about its intent, the Coalition is really following the radical neoliberal free-market ideology of the IPA.

The IPA advocates lower taxes, especially for the wealthy. It wants a return of income taxing powers to the states. The preferential treatment given high-income earners in the budget, and the penalties imposed on the less well off, are consistent with IPA wishes. The Treasury analysis of the budget released early in August starkly revealed the extent of the imbalance between the treatment of the wealthy and the less well off.

It showed that the combined effect of the budget’s saving cuts which disproportionately penalised the lower income earners, and the changes in tax that benefit the wealthy more than the poor, is that ‘an average low income family loses $844 per year in disposable income (earnings after tax and government payments) due to the budget. Middle-income earners forgo $492; while a high income family is down by $517.’

Hockey’s angry response to this revelation in Fairfax Media was: ‘That story is wrong because it fails to take into account a range of things like the fact that higher income households pay half their income in tax, low income households pay virtually no tax’. He went onto say that each wealthy taxpayer pays for the benefits enjoyed by four on welfare — his ‘lifters’ supporting the ‘leaners’. In other words, he is saying that the progressive tax system that this nation has had in place for many years is unfair to the wealthy. Clearly he is opposed to progressive taxation, at least to what we have in Australia. Moreover, are his assertions correct? Do high-income earners pay 50% tax? No. For the current financial year, it is only when taxable income exceeds $180,000 that the taxpayer pays the maximum of 45c for each additional dollar over that figure. The ‘effective tax rate’ for such people is 30 to 45% depending on how much above $180,000 the total taxable income is. So Hockey is exaggerating and is therefore misleading, a misdemeanor for which he chides his own Treasury. Remember that these Treasury figures about the effects of the annual budget on taxpayers are the ones usually revealed in the budget papers, but not this year. With the assistance of ‘Freedom of Information’, we now know why.

In an online survey accompanying the Fairfax article, people were asked: ‘Does Joe Hockey's budget hit the poorest the hardest?’ The options were: ‘Yes’, ‘Yes, but that is fair because they pay less tax’, ‘No’, and ‘Not sure’. 90% answered ‘Yes’. The other figures were 4%, 3%, and 3%. Even allowing for the unreliability of online polls, this result is hardly equivocal; the people (17,292 of them) had made up their minds. Only 3 and 4% thought the budget was fair.

It is reasonable to conclude that political ideology is behind the Hockey budget, an ideology shared by Abbott, Cormann and most of Abbott’s Party Room, and that the more strident version of it, the IPA version, is the real ideology rather than the party platform so soothingly replete with motherhood statements. They seem unaware that the people do not approve of the budgetary manifestation of their ideology, if the above online poll and other polling feedback is any indication.

Proposition 2: The budget reflects an economic position

This follows from the Coalition’s ideological position. It favours free-markets, private enterprise, light government regulation, industrial relations that favour the employer as grossly exhibited in WorkChoices, low taxes for the wealthy, and ‘mutual responsibility’ for those receiving benefits, crudely captured in the words: ‘dole bludgers’ must work for the dole, should be forced back to work, should receive no support for six months, and, more recently, must apply for forty jobs a month. The ‘lifters’, those hard workers who have been doing so much laborious heavy lifting for so long, can no longer support the ‘leaners’, the bludgers who sit around all day watching TV and boozing their welfare money.

What is Hockey’s preferred economic model? We don’t know. We hope he has given it serious thought.

From what we can see, he is not Keynesian. He opposed the second and larger tranche of the stimulus during the GFC, all the time lambasting expenditure on the Home Insulation Program, which the Coalition classed as a catastrophic disaster that killed people and burned down houses, as well as roundly criticizing the Building the Education Revolution Program, which was labeled as a grossly mismanaged, overly expensive and an unnecessary exercise. Clearly Hockey would not have used such stimulatory measures.

If you asked him whose economic model he prefers, which would he chose? Is he a follower of the Chicago School of Economics, a neoclassical school of economic thought that rejected Keynesianism, (which favours higher government spending in a recession to help the economy recover quicker, rather than waiting for markets), in favour of Milton Friedman’s ‘monetarism’, (which emphasises the importance of controlling the money supply to control inflation). Monetarists criticize expansionary fiscal policy arguing that it will cause inflation and therefore will not help. Does Hockey subscribe to the thinking of Friedrich Hayek from the Austrian school, who advised Margaret Thatcher, and later joined the Chicago school? His seminal book, The Road to Serfdom, became widely popular among those advocating individualism and classical liberalism, a position close to Hockey’s.

Does Hockey subscribe to the trickle-down theory of economics that proposes that supporting the wealthy with tax breaks and incentives will create jobs and grow the economy, the benefits trickling down to those at the bottom of the pile? If so, does he realise that ‘trickle down’ has been debunked by hard data that shows that it increases inequality? The poor get richer along with the wealthy, but at a slower rate, so that the gap widens. John Quiggin has shown this in his book Zombie Economics: How dead ideas still walk among us (Princeton University Press, 2010), described in the TPS piece Joe Hockey should read about John Quiggin’s Zombie Economics.

Ronald Reagan and his economics adviser David Stockman were ‘trickle down’ believers. Renowned economist John Kenneth Galbraith rejected it, noting that ‘trickle-down economics’ had been tried unsuccessfully in the United States in the 1890s under the name ‘horse and sparrow theory’: 'If you feed the horse enough oats, some will pass through to the road for the sparrows’.

There is ample evidence that inequality results in discord, civil dispute, and when gross, revolution. Nobel Laureate Joseph Stiglitz has documented this in The Price of Inequality, reviewed in the TPS piece Focus on political ideology: Joseph Stiglitz More recently, Thomas Piketty, in Capital in the Twenty First Century traced the path of inequality as far back as the eighteenth century, proposed that it results from the growth of income from capital exceeding the rate of economic growth, and described its adverse effects.

Does Hockey think inequality, increasing inequality, is acceptable in this country?

Already in Australia we are seeing the harmful social effects of a budget that is bound to increase inequality, one judged by a large majority of the people as simply unfair.

So what is Hockey’s preferred economic model? Does he have one? Does he know what it is? We can judge only from his actions, and they point inexorably to a belief in trickle down economics. We seem to be headed for another version of Reaganomics, this time Hockeynomics. That is what his budget advances: more inequality and more unfairness, unless his extreme budget can be stopped in its tracks.

Proposition 3: The budget reflects a political intent to reorient the social order

This is a plausible proposition. We know how vindictive Abbott is. We know how he delights in punishing his enemies. In the piece, Say no, no, no to Tony Abbott , it was predicted that if elected he would be vengeful and weak. We have now seen both attributes on display. His vengefulness has been exposed in his Royal Commissions into the HIP and unions, and more recently the Bill Scales inquiry into the NBN. He is determined to pillory his political enemies. Is this budget another act of vengeance against his traditional enemies — the workers, those on lower incomes, those on welfare? It looks like it.

Abbott operates in George Lakoff’s ‘Strict Father’ mode, as it seems does Hockey and Cormann too. Even when Hockey seems reluctant to do so, he goes along with Abbott — his future depends on it!

Take a glance at the TPS piece about Lakoff’s book Moral Politics: How Liberals and Conservatives Think titled The myth of political sameness to check the words used habitually by those who use the Strict Father model of political morality: ‘discipline, tough it out, get tough, tough love, strong, self-reliance, individual responsibility, authority, competition, earn, hard work, enterprise, property rights, reward, freedom, punishment’, and so on. Recognise this language?

Look at the Hockey budget and ask yourself if it is an act of vengeance, an act of retribution against those who are not traditional Coalition voters: the workers, the less well off, those on welfare; and a leg up for those who are: the wealthy, the elite, the business people. It looks that way.

It looks like this Hockey budget accomplishes the Abbott agenda of hurting those he despises, those who don’t support him, those who are not in his camp. Is this at least part of the answer to ‘What is the Hockey budget all about?’

Where does all that leave us?

I don’t know. I don’t know why Hockey brought down the budget he did, and why he continues to defend it so strongly despite opposition from much of the Senate, disapproval among commentators and economists, and dismay in much of the electorate? We can only surmise.

Does Hockey himself know why he has produced such a budget?

Is it partly because of his Liberal political ideology, one influenced by the extreme neoliberal position of the IPA? Is it partly influenced by his preferred model of economic thought, perhaps the views of Friedman, Hayek or the proponents of trickle down economics? Is he familiar with these economic models? Has he studied them closely? If so, has he reached a rational conclusion about the most appropriate for this nation at this moment in time? Or is he wedded to one no matter what the nation’s economic situation, like so many mainstream economists?

We hope he has studied economics. We hope he knows about and understands the various models that exist. We hope he has selected one rationally after careful consideration. We hope his actions are not ad hoc, carelessly adopted to match his political position, or his prime minister’s agenda.

Is Hockey’s budget partly the result of the intent to reorient the political order to one more in tune with his and Abbott’s political philosophy? Where everyone works hard for whatever wage is available? Where those who don’t, the bludgers, the leaners, are punished, forced into work or suffer the consequences of their reluctance, their resistance? Where those who provide employment, the lifters, are held in high regard, and supported with tax breaks and enticements?

I don’t know the answers to the questions I pose. I can only surmise, only hypothesise. But I suspect that all these propositions are valid, and operate in varying degrees.

I do hope, perhaps vainly, that Joe Hockey — not your ordinary Joe — has thought deeply about what his budget is all about, that he has arrived at his budget conclusions after searching his mind and his soul about what his budget is intended to achieve, why this is so, and whether his fashioning of it is likely to achieve its purpose.

I hope too that he has reflected deeply on his budget’s fairness, and whether it is consistent with what the majority of the electorate appears to want for this nation, an egalitarian society where the ‘fair go’ reigns supreme, where opportunity is available to all, where harmony pervades and unites our people.

What do you think Hockey’s budget is all about?