Uh oh, alarm bells! Fiscal conservatives are talking sympathetically about young people again. That only ever means one thing: Australia, we’re in for another round of debt and deficit moralising.
We young ’uns are by now accustomed to advocates of “small government” suddenly developing concern for our futures whenever the debt-GDP ratio ticks up a notch. They periodically use us as a rhetorical prop to espouse the supposed evils of expanding public expenditure, for we shall supposedly be saddled with higher taxes or fewer services to pay the bills in years to come.
It might be believable if they showed a modicum of concern for, say, climate change or our unfair tax system — far greater burdens on our collective future. But given their preferred generational bargain seems to end right where their class interests begin, few of us buy the squawking about bogeyman creditors.
Keep the change
Except Sonia Arakkal. As far as I can tell, she was where this bogus generational debt narrative took flight, to be endlessly repeated by Tony Abbott, Joe Hockey and a deficit-obsessed media.
In 2009, aged 17, Arakkal caused a minor stir by writing a letter to the then prime minister, Kevin Rudd, likening his GFC package to a “drunken parent who spends the family inheritance then begs the children for their pocket money to cure the hangover”. Unsurprisingly News Corp lapped it up. Despite most of us being far more concerned about the heating planet, the press latched on to perhaps the sole Australian youth worried about the size of the stimulus.
Arakkal has since changed her tune, as most of us do in our teens, and has graduated to advising and lobbying the very ALP caucus she once likened to deadbeat drunks. But the narrative she legitimised is still with us more than a decade later, with Canberra’s economic dries screaming “Won’t somebody please think of the children!?” whenever either side forks out a few billion quid.
You’d have thought the Liberals’ Keynesian conversion would have dampened their verve, but conservatives and even Labor centrists are again advancing frugality to detonate the supposed COVID-19 fiscal time bomb.
This time, however, the mainstream economic view has shifted. The balanced budget brigade is on life support, and there is an active debate within the economics profession about the extent to which governments can print money or issue debt with fewer consequences than previously thought.
And it isn’t just Bernie Sanders’ advisers pushing more public finance. The veteran finance journo Alan Kohler is on board and the notorious socialists Deloitte argue the interest from public debt borne by future taxpayers will be negligible. Even Greg Sheridan in the Oz thinks the Libs need a new narrative that isn’t based on moralising debt, given they’re taking on so much of it.
Filling the war coffers
A powerful metaphor shifting the debate is that of war, with depictions of healthcare “soldiers” on the “front lines” against an “invisible enemy”. It is essentially true: the COVID-19 national mobilisation is requiring collective sacrifices we have not made since our Diggers fought Nazis.
When marshalling the troops, you don’t quibble over future interest payments. Australia racked up debt equivalent to over 120% of GDP through World War II (we’re about 20% now), and we got it under control in a decade due to enormous government-led economic growth.
We also introduced uniform income taxation to help, and around the world, the rich were taxed on an unprecedented scale.
Scholars Kenneth Scheve and David Stasavage have found that the only reliable driver of progressive taxation historically has been war. In major crises and their aftermath, nations have conscripted the elite’s savings.
We don’t need to do that today. As our odd bedfellows agree, we can go further into the red to pay what’s necessary to see us through this dark patch of history.
Conscripting the wealthy
Even so, we should tax the rich. Just as nations asked the fortunate to fund the Marshall Plan, we should seize this historically rare opportunity to conscript capital-owners into the national recovery effort.
This is precisely what the loathsome “debt and deficit” debates of the 2010s missed. Taxation isn’t just a regrettable necessity to balance the beancounter. It’s about distributing wealth justly and efficiently to create a better society.
It is now well established that too much inequality, such as our present level, is bad for economic growth, even for the rich. Inequality contributes to unequal inflation, whereby companies compete fiercely for rich people’s dollars, but a lack of competition sees lower- and middle-class consumers gouged by big players.
Inequality also distorts opportunity, leading to fewer potentially brilliant minds generating innovation and change that could benefit us all.
We desperately need growth, purchasing power and innovation. And astronomical top-end incomes are a barrier to that.
Refusing to address inequality through the tax system — or indeed exacerbating it — for fear it might damage growth is laughable. As Crikey has repeatedly noted, Trump’s inequality-fuelling tax cuts have done nothing for the average American, and would do equally little here.
Our pollies have learnt how to spend without fear. But both sides refuse to countenance taxing with the same courage.
They should ask us all to pitch in for this unprecedented recovery effort according to our means, whether Treasury requires it or not.
Let me repeat, THERE IS NO GOVERNMENT DEBT FROM THE CORONA STIMULUS PACKAGE THAT HAS TO BE PAID BACK, printed money is paying for it, not borrowed money, there is no country lending money to any other country at the moment, all sovereign nations are and have been for a long printing money and will continue to do say till inflation starts to rise.
What makes you think that they’re printing money.
Most of the money in circulation is electronic, in bits on a computer, transferred from one person to another with electrons.
The stimulus increased the number of bits, resulting in people having more of them in their accounts. But they’re still real, and can be transferred to other people in exchange for more physical items such as goods and services.
The extra bits sitting on a computer somewhere don’t cause any harm provided they’re not used. But once they’re used and spent, they’re inflationary, because goods and services are more difficult to create than bits.
The extra bits created will eventually need to be removed by taxation to prevent inflation. To pay off the debt created by the extra bits, which was borrowed from owners of capital (anyone with savings), by making savings worth less.
Nah, braddybear is right, there is no inflation fear in printing money, or doing it digitally. If inflation comes it can be removed from the top end, where money sits for no purpose than to see who has three biggest swinging d#&k.
But what causes inflation is still a complete mystery to everyone, especially classical economists.
Who cares what Greg Sheridan thinks?
Mrs Sheridan?
Probably not, she’d know him too well to take him seriously.
Well, we actually need to get more small and large businesses to actually pay tax. There are too many tax write-offs in our financial system (Negative Gearing, etc). Many companies who are actually paying the required 30% tax on their taxable Income, are working off a TI that is less than 1% of their yearly turnover (If the tax returns listed in Crikey were anything to go by). And the BAC wants them too pay even less! What a bloody shambles.
Benjamin, I generally agree with you. I most agree with the core, but tacit, point you make: Conventional bullish*t neo-classical market economics is not now fit for purpose. I has not been ever, but its unfitness is now glaringly obvious. The fact is that under the debt & deficit obsession, the only 2 things that have alleviated debt in any economy over the past century or more: 1) Inflation. 2) Straight out default.
Austerity has never done it.
Given that inflation has disappeared (mysterious to conventional economists), default or austerity remain the only solutions that will ever occur to the sort of hollow neo-liberal politicians masquerading as ‘leaders’.
Now is the time for vision and courage, absent in both major parties. Surely it is time to start exploring the benefits of a Green New Deal. 1) Economic growth whilst persistently improving the environment, not reliance on absurd limitless consumption of natural resources. 2) Persistently improving economic and social equity by fairly taxing wealth, rather than just income and expenditure (see Piketty).
I keep banging on about it. But Ross Garnaut proposes a viable way to address both: Rapid decarbonisation of Australian society by piling into renewables, hydrogen and R&D in those fields will certainly (says Garnaut) result in Australia generating the cheapest energy on earth. Cheap energy is the basis for re-industrialising Australia – producing the world’s cheapest steel and aluminium. Australian business has neither the wit nor the ticker to do it. So it must be government-led.
I suggest these sorts of prescriptions for recovery will create a more equitable and successful Australia. If I was a young person (I am not) that is the future to which I would aspire. Not a neo-liberal wasteland committed to no debt, no industry and no opportunity. Debt is not the issue. It is how effectively the government invests the debt.
Regrettably, this Muppet government and its owners have none of the necessary vision, intelligence, imagination or courage. And Labor is still so shell-shocked by the last election, it has little of those necessary qualities either.
the debt and deficit bullsh*t was just a pretence to stop giving the poor folk anything at all. Richard Denniss describes it beautifully: the right wing ratchet
Imagine being able to borrow for 30 yrs at 1%, a chance to transform the economy and save the planet at the same time and saying no
Australian business has neither the wit nor the ticker to do it. So it must be government-led. That isn’t quite fair, what business would take those risks with the current government and the past ten year’s parliamentary history?!
The tired LNP narrative won’t just die, it has to be killed Lies and disingenuous moralising along with it
We are Australia, not our government, choosing who to lead is also a game we’ve seen enough of, truth in political advertising , real time disclosure of political funding, ABC independence, quality journalism of all stripes, just some of our needs