Budget cuts with a human face

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In yesterday’s Australian Financial Review, Laura Tingle reported on recent budget deliberations by the Expenditure Review Committee (PM, Treasurer, Finance Minister etc.), as described to her by ‘senior sources’ within the Federal government:

Labor is pushing ahead with multibillion-dollar cuts in health, welfare and education to return the budget to surplus, even as it begins to rein in the blowout in the disability pension…

The May 10 budget is shaping up as one in which Labor will try to put to bed questions about its capacity to deliver a tough budget…

Welfare cuts are to be made in the budget on top of decisions taken in the past three years that have already carved more than $4 billion from the welfare bill.

Already, in recent months, the Gillard government has reduced access to the disability pension by toughening eligibility assessments, tightened means testing for several programs, deferred addition of new drugs to the pharmaceutical subsidy list, and prepared to extend the so-called emergency ‘income management’ (compulsory welfare quarantining) measures from Aboriginal communities in the Northern Territory to ‘vulnerable’ localities throughout the country.

In July 2009 the Labor government introduced ‘no show no pay’ compliance arrangements for welfare recipients.

Over the following year this resulted in over 1200 mentally ill and homeless people being denied ‘jobseeker’ payments for failing to attend, or behaving inappropriately during, some ‘required activity’. Overall, during the fourteen months to September 2010, over 35 000 unemployed people were given financial penalities for non-compliance with ‘activity tests’.

Most of these specific new welfare-pruning measures were contained in the programme of action provided for the incoming government in September 2010 by Treasury and Finance departments.

More broadly, cuts to welfare expenditure were always entailed by the ‘sound finance’ policies (i.e. swift return to budget surplus) advocated by all parliamentary parties, without exception, before last year’s Federal election.

Jenny Macklin, minister for Community Services, Housing, Families and Indigenous Affairs, declared that the government ‘will continue to reform the social security system to remove those roadblocks in the system which stop people from participating in the workforce.’

The twin aims are to cut public spending and create more slack in the labour market. These concerns stand behind the constant urging by the business press, ever since the last election, for the Labor minority government to undertake ‘unpopular reforms’ to increase productivity and workforce participation.

Recent opinion polls show that the Labor government is widely loathed. Further hardship is sure to produce more discontent. But the latter can be safely met with the orchestration of public mood music.

Many supposedly peripheral or ‘oppositional’ groups play a part in the ensemble. Had Tony Abbott’s Liberal-National Coalition been elected last August, the same swingeing welfare cuts would of course have been implemented. But, by now, these would have prompted pro-forma complaints from certain quarters about the conservatives’ “razor gang”.

Election of the Labor government has ensured cooperation from the public-sector trade-union bureaucracy, the Greens, the welfare and ‘community sector’ lobby, various activist groups and the ‘socialist’ organisations that presented the Gillard-led ALP as a lesser evil to Tony Abbott.

Even the conservative parties themselves, and their backers in the Murdoch press, play an essential part part in the crafting of Labor’s image as the ‘human face’ of fiscal consolidation.

Once the budget is announced in May, the Greens, and perhaps elements of the liberal Fairfax press, will venture to criticize some of the spending cuts as ill-directed and excessive. But both of these parties accept the phoney principles of sound public finance that impel the cuts (and beneath which, of course, sits the central policy priority of inflation management).

The Greens, as coalition partners of Labor’s Lara Giddings, are already helping to impose the Tasmanian government’s austerity drive.

In a multisectoral economy (made up of government, firms, households, and an external sector), one party’s thrift is another party’s borrowing. The Australian public debt thus constitutes an asset for the rentier class (local and international pension, mutual and insurance funds, and corporations that hold government debt as low-risk parts of their balance sheet).

For the Australian government to start saving, therefore, it must either eliminate its obligations to this rentier class through taxation, our induce another sector to start borrowing, i.e. to offload debt elsewhere.

Of course, the second option is the only option. Government borrowing is to be shifted on to the private sector. But, as the RBA observed today, non-financial firms currently show little propensity to borrow for investment. This leaves only one remaining branch: households.

The aim of the public-sector layoffs, foreshadowed for the May budget, is to increase indebtedness of the household sector. Newly-unemployed workers, and those no longer receiving welfare payments, will be forced to run down their savings to survive. The unemployed will no longer make contributions to their superannuation funds, reducing savings and thereby limiting holdings of government debt.

Of course, households have limited creditworthiness, are already heavily indebted, and are in the process of reducing borrowing and paying off liabilities (“deleveraging”). Rather than taking on more debt, the household sector will reduces its consumption.

Financial deficit will be shifted on to the company sector. Commercial enterprises themeselves have liqudity constraints, and will respond with wage cuts and layoffs.

In short, Australian government policy is a deliberate recipe for misery and recession of the sort now affecting Britain.

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2 Responses to “Budget cuts with a human face”

  1. Preparing for austerity in Australia « Churls Gone Wild Says:

    […] spending by business is currently limited and borrowing has become difficult, this means the household sector must become more heavily indebted. As employees are terminated and lose their income streams, they will cease to make superannuation […]

  2. Distributional conflict and technical change in Australia, 1963-2009 | Churls Gone Wild Says:

    […] This imperative is what lies behind the assertion – repeated quietly but assiduously by senior Australian bureaucrats, policy advisors and politicians over the past year – that ‘national living standards’ must fall following the federal election this Saturday. (The project, of course, had already long commenced.) […]

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