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John Passant

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May 2011



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Cut middle class welfare or tax the rich until their pips squeak?

The Australian Labor Government bought down its Budget and it attacked all the usual conservative suspects – teenage mums, the unemployed, disability pensioners, students, aborigines. On the other hand Labor did find an extra $222 million for the National Schools Chaplaincy programme.

Greens’ leader Senator Bob Brown in his Budget Reply highlighted one aspect of Labor’s attack on single mums. He said:

From January 1, 2013, the mothers of children aged 12-15 will be moved from the parenting payment single to the Newstart allowance, resulting in a loss of $56 a week. 

This is so whether they are working or not. In other words this change is not about encouraging people back into the work. It is about attacking the least powerful sections of society to make budget savings.

The Labor Government also attacked some aspects of what the bourgeois press calls  ‘middle class’ welfare. It made some cosmetic clamps to Family Tax Benefits A and B. According to Sue Dunlevy and Alison Rehn in the Daily Telegraph:

The loss of payments comes from a change to the indexation rate applying to FTB-A, which will be raised in line with inflation instead of growth in average weekly earnings.

Wealthy families earning more than $112,000 a year will lose on average $16 a week per child – $832 a year – for the next three years, as the Government freezes the upper income level at which families can claim FTB-A.

Families with a stay-at-home parent claiming family tax benefit B and families claiming the baby bonus will also be hit, with the income test on both payments frozen at $150,000.
These changes have sparked a debate in the mainstream media about ‘middle class welfare.’

The changes to both family tax benefits will save the Government $2.4 billion over four years.

It strikes a chord with many workers that well paid workers – families for example earning $150,000 – will lose some benefits. But this is just a softening up for attacking all workers. The average wage in Australia is just below $70,000 a year. Two working people on the average wage living together thus would earn $140,000, not much below $150,00.

Of course most workers (about 70 percent) earn below the average wage. Indeed many earn well below the average wage. According to We are all dead the median earnings of all full time workers is $54 750 per year.

It is this difference in workers’ wages, and confusion about who and who is not working class, that governments can use to wedge workers and attack so called middle class welfare today and working class welfare tomorrow.

Capital owns the means of production and workers don’t. A worker is someone who sells their labour power to survive, with little control over the work they do.   As Roz Ward in Socialist Alternative puts it:

Quite simply, the working class is composed of those people in society who work for a wage and do not own the means of production (productive land, factories, machinery, businesses, etc.). Workers do not have control over what they produce, over what they do in their workplace (in an overall sense as opposed to particular tasks), or the hours or location of their work.

Classes are in opposition to each other. In this sense there is a capitalist class and a working class.

Income per se is not always a good guide to class. Some families on $150,000 will be working class. Some will be ruling class.

And some will be part of the middle class – those sections of society which are for example managers for capital, senior public servants or small business or farmers.  They are the either or group.

So the idea that a family earning $150,000 is middle class is not correct. You would need to see how they earn their income and what role they play in society before making that judgement.

At these levels income is very poor guide to class. Indeed income or money hides a deeper relationship – workers creating value and bosses expropriating it.

What then should the position of socialists be? To deal with these issues in the context of a capitalist system and the exploitative relationship between capital and labour we are for universal benefits and a steep and progressive tax system taxing income and wealth.

If it is appropriate to pay benefits – for example a pension to those over 65, or in Labor’s case 67 –  then everyone who meets this criteria should receive it. The claw back occurs through a progressive tax system both in the person’s life before retirement and after retirement.

Similarly with students. There is enough wealth produced to pay every student a living wage. So too for the unemployed.

The benefits are then recouped through the tax system both on that benefit and other income at that time and over a person’s lifetime.

So the first debate is whether there should be the benefits. If there are to be benefits then the second is to pay them universally and have a tax system which taxes the rich until their pips squeak.

While Labor is busy attacking the poor and the powerless, its tax system, according to Treasury, gave $113 billion in grants through the tax system last year.  We will spend more – about $39 billion – on tax concessions for superannuation than we do on the pension – about $38 billion – in the next few years. If we abolished the concessions we could use the money to pay for increased and expanded pensions for all over 65.

The houses of the rich are not subject to capital gains tax. We could design a system that taxes them. There is no death or gift duty in Australia. That could raise billions from the rich.

There are other tax concessions both for capital gains and income that favour the owners of capital. Abolishing them would raise billions.

Our income tax rates on individuals are among the flattest and most generous to the well off in the world.

The Tax Office has said 40 percent of big business paid no income tax in the the years 2005 to 2008. That percentage figure will be higher now.

And here are some profit figures from Bob Brown’s Budget Reply which makes the case for both a super profits tax on all businesses and more income tax on profits.  (Ignore his populist posturing if you can about Xstrata).

The companies that are posting record annual profits for 2010 begin in the mining sector: BHP Billiton with $14.9 billion; Rio Tinto, $14 billion; Xstrata, whose Anglo-Swiss parent company is based in Switzerland—it is not listed on the Australian Stock Exchange—net total profit in 2010 was $4.9 billion and operating profit $7.65 billion. Then there are the four big banks, which would take 12 per cent of a future tax cut to the corporate sector, which is in this budget: ANZ, $4.5 billion; NAB, $5.7 billion; Westpac, $6.4 billion; and CBA, $5.7 billion. The average worker’s salary in Australia is $65,161 a year while the average base pay of CEOs—it is higher in the companies I have just mentioned—across the sector is $2,040,892. That is 31 times higher than the wage going to the average workers in the same corporation. The average worker’s pay has gone up 52 per cent in the past decade whilst CEOs’ pay has increased 130 per cent. Compare the $65,000 of average Australian workers with the CEO of BHP Billiton—$11 million in one year; of Rio Tinto, $9 million; of Woodside, $8 million; of ANZ Bank, $10 million; of Commonwealth Bank, $16 million; NAB, $7.7 million; and Westpac, $9.5 million.

Gillard’s backdown on the mining tax will cost $100 billion over ten years. Extend the rent tax to the super profits of all businesses and the figure at least doubles.

That is a lot of money for public schools, hospitals, transport and renewable energy.

Labor’s focus for savings or taxes is not capital or the ruling class. It is the poor, the powerless and workers. We need to fight the Labor Party in government just as much as we need to fight the Liberals in government, and force them to implement a tax system that taxes capital and its profits and the income and wealth of the rich.



Comment from Arthur
Time May 14, 2011 at 10:42 pm

Come on.
A hypothetical.
You can take it the wrong way if you want to.

You’re in the job of being a rabble rouser in this entanglement of your own creation.
Ask anyone in this ‘nation’ about your sort and your games in the scheme of things.

They’ll tell you right up front.
The old farts don’t want those new-fangled black boxes over their TeeVees and workers don’t want anyone of self- importance stuffing about with their gripes either.

Go and tax the rich and see where that gets you.
The workers will probably abuse you for denying them funding for employment opportunities.

In the meantime leave us peasants alone to get on with the black and grey economies.

Oh yes. We know your sort reckons that you are the masters of the universe but when was the last time any of you stuck your head outside your door and nipped around the corner to buy a gallon of homemade moonshine or some ‘Ganja’ from your friendly neighbourhood dealer?

Give ‘em a break – them on the lowest deck.

How about their existence.
You seem to fail to recognize that there ARE Australians who have to compromise to exist.
If you refuse to recognize their plight there is no hope for the future.

PS – I’m not pulling your leg, Mr. Passant. About 30 percent of the Qld regional economy, plus, would be in the black or grey.
Might be best if you started addressing some Australian issues.

Comment from Auntie Rhoberta
Time May 15, 2011 at 7:36 am

Arthur is one of those people who thinks ‘I’m a fuckwit, therefore everybody’s a fuckwit’.

Comment from Dr_Tad
Time May 15, 2011 at 8:47 am

Excellent piece, John. I have written something along the same lines looking at the nature of class at Left Flank:

Comment from Ross
Time May 15, 2011 at 9:00 am

Arthur,there is a legitimate argument to tax the super rich ,but most of them don’t live here.What we should be taxing is the fractional reserve system of banking ,that creates money from nothing to equal our oncreases in GDP + inflation.This is the real theft that is keeping us all in debt slavery.30% of our mortage money is borrowed from OS Central Banks who just create it in their computers anyway.Tax all this new money and let the RBA take up the slack thus we will have new money in our economy that can be expressed as a tax credit or as debt free infrastructure.

Private Banks should only be allowed to loan out money that already exists.

Comment from John
Time May 15, 2011 at 10:32 am

Thanks Dr_Tad. I’ll have a read.

Comment from John
Time May 15, 2011 at 10:34 am

Ross, this misunderstands capitalism and would destroy the whole system, without having an alternative that has been built out of the day to day struggles of working people ready to take its place.

Comment from John
Time May 15, 2011 at 10:41 am

Estimates are that up to ten percent of the economy is black. That’s about $130 billion a year. There are measures like ABN etc to try to deal with that. The ATO has in place mechanisms to address that, but they concentrate on only some areas, and can only do so. I am reminded of a builder who a former Commissioner got to quote on minor renovations to his place. $10,000 he said, 0r $8000 cash in hand. “Do you know who I am?’ came the reply. One time that question has seemed legitimate.

Comment from Tristan Ewins
Time May 15, 2011 at 10:58 am

Some of the figures John provides on superannuation concessions will relate to concessions for lower income groups and ordinary workers I think. But a HUGE amount *will* comprise incentives and tax breaks at the upper end. This is supposed to provide the rich with an ‘incentive’ to invest. And indeed it might do just that. But there are more progressive ways of spurring investment. For example: tax the wealthy and then invest the proceeds in a public pension fund; or for workers to collectively bargain for capital share to compensate for a reduced wage share… (like what the Meidner funds attempted in Sweden)

Although in response to John on the issue of the ‘middle class’: I do think there are significantly different interests at play even between wage and salary earners. A family on $150,000/year isn’t so likely in the real world to stand in solidarity with a hospitality or childcare worker on $25,000/year. So both a Marxist (structural) definition of class, and one based on levels of income – make sense in their own ways…

I’ve written my own response to the Budget at ‘Left Focus’ – and would appreciate your opinions there too. (if anyone is interested in a Labor Left repsonse)

Comment from Ross
Time May 15, 2011 at 11:05 am

John .You do it in stages.We used to have 4 Govt State banks and the enormous Commonwealth.

Initiate a new Govt Bank like the Commonwealth.China creates 80% of its new money for GDP + inflation via many Govt Owned Banks.They can grow at 10-12%.In our system our increases in GDP get expressed as debt.

The more growth we have, the more debt we incur,hence our economies will top out at 3%.Notice that inflation is almost always the same as growth.The reason for this is that without inflation there will be never enough money in our economy to function.Inflation is again theft from the people because the wage and salary earners are always paying catch up and thus fall behind.Right now we are seeing the attack on our middle class and once they go we will be no different from India etc.

Our present banking system is insane.We are letting a private select group own our increases in productivity and loan it back to us in the form of debt.The GST had to come in after the Sale of the Commonwealth to cover the debt owed to private banks.It is this system that is stifling real growth and prosperity for all Australians.

There is never enough money in our economy because Global Central Banks and constantly milking us.Money is not wealth and it costs nothing to produce. The US Federal Reserve loaned $54 Billion to our RBA in 2008.They also bailed out the NAB and Westpac for $ billions.This money was just generated in their computers.What is wrong with the RBA computers?

Taxing a shrinking economy will drive it further into recession.We have to attack the problem at the root cause.

Comment from John
Time May 15, 2011 at 11:50 am

Tristan, it is true that some of the tax concessions do go to less well off workers. But remember this forced superannuation – the superannuation guarantee – was built on the back of a wage cut for workers, something most discussion on this forgets. Many of the concessions relate to the true middle class and bosses pumping their pre and after tax income into superannuation, even within strict limits.

So I agree the concessions are still overwhelmingly beneficial to the really wealthy – people unlikely to be workers let alone well off workers. Similarly with CGT family home concessions – the really really rich get, from memory, four times th benefit ordinary workers do.

As to working families on $150,000 not standing in solidarity with a childcare worker on $25,000, there are a number of points. A family of two working people on $75,000 each – not much more than the average wage – can set the general wage standard. If their unions are strong and take action to improve their wages, then the wage of the lower paid rise as well. So people on the minimum wage have an interest in other workers winning real wage rises.

Second, it is not in the interests of teachers, mining or construction workers and the like to have a section of the workforce lowly paid. It drags down their wages, or can.

For example these groups actually support, at least verbally, community workers in their campaign for equal pay for equal work, something I note the Gillard Labor Government is equivocal about. Why? A sense of justice for a start. But that solidarity also reflects the fact that it is in their material interests to have other workers well paid so they can win wage rises like that too.

Sometimes this disparity in wages reflects a disparity in struggle (at least historically). Lower paid workers are often lower paid because they have been unorganised, industrially timid and the like.

Third many workers are low paid because they work part-time or as casuals but want to work longer hours. This is hidden unemployment and if factored in actually probably doubles the real unemployment rate in Australia.

Comment from Tony
Time May 15, 2011 at 12:02 pm

John and Tad: Both good pieces.

Ross: Yes, I agree we have additional aspects to do with the credit system. David Harvey suggests one of the key problems, in addition to credit money, is that surplus value produced by our current system (necessary to keep modern crony capitalism going) has nowhere in the “real” economy to go, is being hoarded by capital and placed into secondary markets.

On the other hand, for a long time in Japan this surplus went into infrastructure. As I understand it, the “lost decade” was a consequence of a speculative property bust. The bust and these policies didn’t help neo-liberalism’s cause. Western bankers have been attempting, with some success, to get Japan to privatize state owned assets, in particular Japan’s largest saving bank, the Post Office Bank.

In Anglo-American influenced nations (this includes Australia) financial engineers spent a great amount of effort creating fantasy derivative markets. This is little more than a gambling den for the surplus. He talks of how these instruments really took off in the 1970’s.

Basically, Harvey argues we should abandon these fantasy markets as by their very nature they are unregulatable, ie. the only ones capable of doing it (ie. understanding it) are inside the industry and consequently there exists moral hazard, using IIRC Stiglitz’s term. As we saw with the GFC, bankers en masse cannot be relied on to regulate their behaviour to produce stability, even with regulations in place. Likewise, hedge fund managers fall into the same basket.

Comment from John
Time May 15, 2011 at 12:08 pm

Tony, I think derivatives are a different point to Ross’s. John Bellamy Foster has also written on this – what eh calls the financialisation of capital. Callinicos in His Bonfire of Illusions touches on it too. I quite like Harvey’s reclaiming of primitive accumulation – what he calls accumulation by dispossession – for today. somewhere in all of this fictitious capital gets a run too. Derivatives fit within that. Credit to capital creation – which Ross is describing – may not.

Comment from Tristan Ewins
Time May 15, 2011 at 12:17 pm

John, I think it depends what industry workers are involved in. Workers in mining and similar export industries won’t have the cost of their relatively high wages and salaries ‘flowing through’ to consumers in this country. But for other highly skilled workers providing services in this country -costs could flow through to less advantaged workers. At the same time even average workers have an interest in the exploitation of workers at the low end of the labour market. Low wages in childcare, hospitality and retail ‘flow through’ with cheaper costs to other workers… How would the childcare rebate work if the wages of childcare workers were doubled?

Also: In a competitive labour market lower wages for some unskilled workers will impact upon the wages of other unskilled workers. And lower wages within a particular (let’s say higher) skill bracket – or specific field – will flow through to similarly skilled workers. Hence an interest in solidarity. High unemployment will also hurt the bargaining power of all workers. But the complications I’ve listed here stand as well.

The conservatives, the capitalists etc – they know all this – and they play on these divisions… But most wage and salary earners (low to average incomes) still have an interest in progressive taxation hitting the rich and what I would call the ‘upper middle class’. (the Austro-Marxists actually thought those at the high end of the labour market were part of a ‘labour aristocracy’ – although for them this also included elements of the labour bureaucracy – how we commonly understand the term today)

That’s not to say it’s impossible to overcome these divisions by promoting a spirit of solidarity… In fact that’s just what I advocate… And all wage-earners have an interest against the logic of exploitation. But it’s true that sometimes economic self-interest helps the cause – But sometimes we need to move beyond it.

Comment from Tony
Time May 15, 2011 at 12:34 pm

Ross: Speaking of Japan, I’m guessing they were following the model describing the more classical (including the later Keynesian bent) Prof Michael Hudson describes in the history of US (and European) capitalism,

Japan may have been closer to the European model due to greater state ownership of financial assets.

Comment from John
Time May 15, 2011 at 12:39 pm

Actually Tristan I think low wages flow through to higher profits for capital in those industries. They will use higher wages as a rationale for increasing their prices to retain their profit rates. A comprehensive price control regime would be another demand of the Left under capitalism. And a comprehensive public child care system funded by taxing the rich.

Comment from Tony
Time May 15, 2011 at 12:39 pm

John, I understand what Ross is getting at and I agree with his point.

My intent is to indicate there is more to the malaise than just credit money and bailing out crony capitalism. Harvey’s point is that the money that could exist in the real economy and address need simply doesn’t do so.

Comment from Tristan Ewins
Time May 15, 2011 at 12:57 pm

John; Although even in the co-operative and local government sectors child care workers have shocking pay…

And while I agree with ‘taxing the rich’, even they do not provide a ‘magic pudding’ of resources that goes on forever. Even then we’d have to prioritise. And even then we’d need a tax base broad enough to sustain the welfare state.

I don’t think taxing the multi-millionaires and billionaires alone would provide a broad enough base… Though I would be very interested in seeing any statistics that demonstated what scope there was to increase tax, and how broad the tax base would need to be by necessity…

Remembering that most of wealth of the very rich is re-invested; and would need to be reinvested were that wealth expropriated anyway; So you would still have a limited pool of funds to redirect into social services and welfare…

Comment from Tony
Time May 15, 2011 at 1:27 pm

Ross: I’d like to comment on the statement about India, for clarification, not to be critical. It has a super rich elite, as in the US, Mexico, etc. However, as I understand the situation, India’s middle class of up to 150 million and growing, in some part due to foreign capitalists outsourcing, but also due to domestic developments as they still apply local content joint venture rules. It also has an increasing industrial labour force, not declining as in the US, UK and Australia.

White Australia dispossessed indigenous Australians many years ago, more recently gave some back as titled land trusts and later the Federal Government, under the veil of the Intervention, decided they want the mineral rights back again. India differs to this in that in some regions India still has the original form of a customary peasant class being dispossessed of customary land. See John’s comment on primative accumulation above, whereas modern western dispossession is of “acquired” assets is a more advanced stage called concentration (by financiers through M&A’s and more sophisticated dispossession such as foreclosures) that are not siezed from peasants through the same process as customary land. When Australia was labelled ‘terra nullius’, that was the phase of original primitive accumulation, dispossessing the customary owners.

It should be noted, even the CPI (Marxist) Government in West Bengal were allegedly dispossing peasants of land in an effort to advance industrialisation.

Due to the above, it suggests our situation more likely would resemble that in the US with a collapsing middle class, falling into the working class, particularly if the housing bubble bursts abruptly. The code of landed property rights would remain unaltered, people would literally be left with nothing and no legal right to (say in a contrived way) “camp” to survive, whereas in India this is still done on mass in the “slums”.

Comment from Tony
Time May 15, 2011 at 1:37 pm

I should qualify the Indian “slums”. My understanding is they are technically not legal, but only demolished on occassion as a show of strength to the wealthy. Usually they are quickly rebuilt unless a building project is intended for a site. They were demolished in Delhi for the Commonwealth games for similar reasons, but also for media display purposes.

In the big cities, they are well aware much of their labour force lives in the “slums” and must live somewhere.

In western nations, the decline of the need for a large industrial labour force means these concessions are unlikely to apply and coercive measures such as the english Poor Law Amendment Act of 1834 are more likely to apply.

Comment from Ross
Time May 15, 2011 at 2:13 pm

Tony I agree with you about Japan.Govts too can create too much credit.Notice that China does not raise interest rates much.It uses the variation in the fractional reserves held by banks to regulate the money supply.This gives businesses and individuals more stability in planning for future costs.

Money is the only thing that we buy and then have a variability in price.This is not sound monetary policy.I think the Chinese using the fractional reserve system is a better way of regulating the money supply.

HAVE A LOOK AT THIS! Satoshi Nakamoto has invented the first cyber money called Bitcoins which he says cannot be forged and allows for computer to computer exchange of money without bank/credit card fees. Satoshi has used computer cryptology to ensure the security of transactions, privacy and eliminating counterfeiting.This could be a saviour for the US economy as the US Federal Res continues to trash their currency.

Bitcoins are presently being used as medium of exchange and not a store of wealth. Satoshi will limit the number of coins to 21 million and allow for fractional coins to be traded also. If this takes off in a big way the credit card companies are stuffed.Senator Jay Rockerfeller said in 2009 that it would have been better that the internet had not been invented.Jay can see the power slipping from his hands. Computers and the internet may free us all yet.

Have any of you used this Bitcoin system?

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