Preparing for austerity in Australia

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Last Tuesday’s Australian Financial Review carried an interview with economist Ross Garnaut.

In it, Garnaut gave just the latest of many public warnings from a senior Australian bureaucrat or policy advisor to expect ‘faltering incomes and living standards in Australia.’ There would be, he said, ‘restraint in government spending and wages growth for the rest of the decade’.

Two weeks ago, at a Canberra conference organized jointly by the Treasury Department, Reserve Bank and IMF, Garnaut discussed the consequences of slowing private investment, limited employment growth and lower government revenue.

He told his audience to ‘brace’ for a ‘difficult time adapting to a decline in living standards that’s going to be a necessary part of the adjustment’.

These remarks, like the others that have preceded them in recent months, have been reported exclusively by the business press. Though the media interventions are made publicly, outside the walls of any closed institution, they are not addressed widely to a mass audience.

Instead, publication of Garnaut’s comments, and of many others from figures like him, is narrowly aimed at:

  1. The governing elite, which is enjoined to exercise the ‘strong leadership’ required to impose such unpopular deflationary measures, while maintaining social stability; and
  2. Those forming the ‘General Staff’ of public opinion (‘responsible’ journalists, ‘sound’ academics, policy intellectuals, business-linked thinktanks and other influential groups), whose task is to prepare the population to ‘adopt the necessary attitudes for real reform and shared sacrifice’.

Tuesday’s Financial Review quoted Garnaut:

“We have to go through a long period of expenditure restraint” that could last “half a dozen years or more”, he said, referring to future government spending.

“The only comparable period would be from 1984 through to the rest of the ’80s.”

Convincing all Australians and sectoral interests of the need to build “a mood for shared sacrifice” was difficult without strong political leadership.

He compared the current challenges to those faced by Australia during the Great Depression, which resulted in the 1931 “Premier’s Plan” that included large cuts in government spending.

“There have been a number of periods of Australian history where we’ve entered circumstances like we are entering now and haven’t dealt with them. Which means we’ve had long periods of bumping along the bottom: you can include the whole of the 1920s and 1970s.”

“We bumped along the bottom, right through the ’70s and early ’80s until 1983 and we came out of it through a long period of restraint; public fiscal restraint and incomes restraint, again around a context of shared sacrifice.

“It was only politically possible because of that sacrifice.”

Throughout 2012, Treasury Secretary Martin Parkinson has repeatedly warned of ‘deep cuts’ to come in public spending.

He has appealed for ‘a sensible discussion on what we expect governments to provide… much of the debate over government provision assumes we can have it all’. He has noted, in this context, the increased ‘community demand for the government provision of what economists call “superior goods”, including aged care, health, disability, education and social welfare.’

Parkinson warned that ‘building pressures across a range of related fronts – health, aged care, disability’, would threaten ‘sustained growth in living standards, and it will also exert substantial pressure on fiscal sustainability.’

The Treasury secretary has therefore urged the beginning of a ‘national conversation’. As well as ‘significant savings’ on the expenditure side, ‘thoughtful decisions’ must be made about the sources of government revenue.

Specifically the tax base will have to shift away from capital income towards other sources like consumption spending.

The Henry tax review had advised that such an adjustment would be needed to ‘underpin growth’:

With continuing globalisation, tax settings will be of increasing importance for decisions about where capital will be invested, especially for small open economies like Australia. Many countries are reducing tax rates on business and capital income relative to labour income and consumption.

Hitherto, according to this Treasury version of reality, profligacy and indulgence have reigned. Now, though, accounts must be settled.

The only remedy for past exorbitance is for one or more unlucky generations to reduce their consumption in order to pay the bill.

Both the substance and rhetorical mode here may be compared to that of George W. Bush in his presidential State of the Union addresses.

In 2006:

We must… confront the larger challenge of mandatory spending, or entitlements… It is a national challenge. The retirement of the baby boom generation will put unprecedented strains on the federal government. By 2030, spending for Social Security, Medicare and Medicaid alone will be almost 60 percent of the entire federal budget. And that will present future Congresses with impossible choices: staggering tax increases, immense deficits or deep cuts in every category of spending.

And 2005:

Social Security was a great moral success of the 20th century, and we must honor its great purposes in this new century. The system, however, on its current path, is headed toward bankruptcy. And so we must join together to strengthen and save Social Security… By the year 2042, the entire system would be exhausted and bankrupt. If steps are not taken to avert that outcome, the only solutions would be drastically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs… I know that none of these reforms would be easy. But we have to move ahead with courage and honesty, because our children’s retirement security is more important than partisan politics.

(Of course Australia had, under Hawke and Keating, already taken the path of privatizing retirement provision – a prospect that Bush’s favourite Marty Feldstein called the ‘$10 trillion opportunity.’)

Parkinson’s statements may also be compared to Mitt Romney’s recent remarks, addressed to a private audience but secretly recorded and publicized. Romney pointed dismissively to that large proportion of the US population ‘who believe that they are victims, who believe that government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it. That that’s an entitlement. And the government should give it to them.’

Similarly Garnaut, interviewed on ABC television this week, noted that ‘elements in the community [who] are recipients of tax cuts, of government expenditure, have come to expect a continuation of what could be delivered in the short term in the salad days.’

But the salad days, he said, were now over.

Garnaut, Parkinson, Romney (and Barack Obama) thus declare in concert, and in the name of ‘expenditure restraint’, that ordinary people are not entitled to ‘have it all’.

Public provision to citizens of non-market welfare services and social programs must be reduced and, where possible, eliminated entirely. So-called unfunded liabilities in the form of retirement provision and disability insurance must be repudiated. All this, alas, will lead predictably to a durable fall in living standards for most of the population.

Though elected officials are reluctant to express it so candidly, the entire parliamentary spectrum (in Australia, the United States and elsewhere), regardless of political party, has shown its willingness to impose these policies.

The agenda is shared across the world’s developed economies, and is pursued in nonpartisan fashion by the entire state leadership (high-level civil servants and elected politicians) of each country.

This fact owes little to ideological orientation. It follows ultimately from the obligation of state leaders to act on behalf of the propertied classes, whether or not they consciously identify with the latter’s needs.

A ‘conversation’ on these matters, having hitherto been restricted to a semi-exclusive elite audience, is about to be unleashed publicly on an unsuspecting Australian population.

As it has elsewhere, a phoney media campaign will ensue. ‘Serious’ commentators will insist that elected politicians put aside their narrow party interests and personal ambitions, and work together for the good of the nation. (The US ‘debt ceiling’ charade provides the template here.)

The general population, ill-equipped to resist, will be urged to ‘adopt the necessary attitudes for real reform and shared sacrifice.’

And, as I’ll show in the next post, many apparently ‘critical’ individuals and groups, even ‘radical’ ones, will play a useful part in all this. Even as senior state officials declare in unison that existing living standards cannot be maintained, these ‘activist’ circles will imply that salvation may yet be won under the prevailing order. Basing their political strategies on that premise, they will forestall any kind of widespread break with capitalism, the parliamentary state or the status quo.

For the moment, though, what’s the purpose of this broad elite program?

The first aim is to weaken the ‘fallback position’ of employed workers. Reducing (for example) the level of unemployment payments, relative to wages, will raise the relative worth of getting and keeping a job. This will thereby lower the ‘reservation wage’ or minimum salary level that employers find it necessary to offer workers. (Restricting eligibility for disability payments will have the same effect, by expanding the pool of available labour.) And, by increasing the riskiness to employees of shirking or rebellion (raising the ‘threat point’ of job termination), it will motivate more diligent, obedient and intensive work. Productivity and profit income will therefore be higher than otherwise.

Secondly, and more urgently, the aim is to shrink the liabilities entered in the government balance sheet (which had swelled massively from 2007) while preserving the financial assets of the rentier class (banks, financial corporations, mutual and pension funds and wealthy individuals). This means offloading debt (government’s obligations to its creditors) on to the broader population.

The only way for government to start saving, and to become a surplus sector in a country running an external deficit with the rest of the world (like Australia, Britain, southern Europe or the US), is for the thrifty to save less and start borrowing. If the government wishes to save more than it spends, then as a matter of accounting the domestic private-sector financial balance must become negative. Since investment 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 contributions and will be forced to run down their savings.

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3 Responses to “Preparing for austerity in Australia”

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    […] For these writers and academics, the task of applying a ‘progressive’ gloss to the political establishment presents, as Hecate wrote in 1976, an opportunity for new sources of earnings and career advancement. In return for the anticipated rewards of clientelism, they provide a reliable constituency or voting bloc. Their elite patron finds this support useful not just for partisan electoral purposes, but more fundamentally as a guarantor of social stability at a time when Australian authorities are preparing for a decade-long decline in popular living standards. […]

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    […] 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 […]

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