The next Australian federal budget will be handed down on 9 May. It will include a company tax cut of 25 per cent over a decade for companies turning over up to $50 million.
Given long-running deficit issues, it is hard to work out how forgoing $24 billion over the next decade helps the bottom line, along with an estimated $8 billion lost in annual revenue from negative gearing and the capital gains tax discount.
To compare, net savings from welfare cuts in the February omnibus bill was estimated at $3.8 billion over four years. The crossbench and Labor forced the Coalition government to detach family tax benefits, paid parental leave and childcare from the bill, but the contrast between tax breaks and welfare is hard to miss. It amplifies certain dissonances.
Tax breaks are somehow never framed, at least in political discourse, as expenditure – despite having a similar impact as welfare on the budget. The Tax Expenditures Statement released by Treasury in January reveals 25 tax breaks that together cost nearly $150 billion. The 2016-2017 estimate for social security and welfare is $158.6 billion.
Is it possible that welfare expenditure wouldn’t cause such consternation if medium-term revenue adequately covered at least some of its components? What if lower tax receipts –due to tax breaks, flattened wages and consumption, commodity price fluctuations, and even abolishing the emissions price mechanism – were as much a part of the deficit story?
But the story is left incomplete to set up welfare cuts as necessary savings. This is misleading. Cutting assistance doesn’t cut the need for it; it just means that the cost turns up elsewhere, perhaps in the form of homelessness or overburdened public health and criminal justice systems.
Companies earning up to $50 million deserve a break; individuals relying on social security somehow do not.
Welfare cuts in a marginally weakened economy could also widen inequality – which in turn curbs growth, according to OECD and IMF analysis. In other words, preserving social supports is not just a bleeding-heart agenda. It makes good economic sense. It is insurance against instability, as political ruptures in the UK and the US last year suggest.
According to the Australian Council of Social Service (ACOSS), 13.3 per cent of Australians live below the poverty line, defined internationally as less than half the median household income. Around 36 per cent – more than a third – of those receiving social security payments live below this line. Such precarity demands a certain level of care from those with power.
The long-term impact of poverty on children underlines this obligation. ACOSS reports that 17.4 per cent of Australians under the age of 15 live below the poverty line; that is more than 731,000 children. Poverty has an established association with low educational achievement, poor health outcomes and limited lifetime income. This has flow-on consequences for productivity and growth; again, an economic case for a robust welfare system.
So how has fiscal responsibility come to mean slashing or shaving welfare? Why does social security loom so large as a cost but tax breaks do not?
These questions strike at the core of myths about who are deserving and undeserving. Companies earning up to $50 million deserve a break; individuals relying on social security somehow do not. This makes sense only under the anachronistic view that wealth signals virtue and that impoverishment is some form of cosmic justice.
Trickle-down theory may be now widely discredited but it remains persistent.
There is also the assumption that tax cuts pay off for everyone. Trickle-down theory may be now widely discredited but it remains persistent. Let the rich “keep more of their money” is how it is often put, reward for the mere expectation that they would employ more people or pay employees better, rather than convert tax cuts to executive bonuses and dividends for shareholders.
The imperative for business, however, is to create profit – not to reduce unemployment figures or improve wages. It is disingenuous to suggest that cutting taxes would somehow free up companies to do what government wants it to do, when the goals are not remotely the same.
Governments do us no favour in perpetuating the idea that companies are benevolent, or that the rest of us owes them a tax cut. Private wealth is generated under public conditions. Taxes help build human capital, via education and training. They build roads and transport systems that bring workers to work, and ensure the flow of goods and services. They pay for quality healthcare that enables workers to continue or return to work. They also go toward the police force and courts that keep business and community environments safe.
What this all means is that a complex mutuality animates our economic relationships, rather than transaction. Cutting company tax at a time of depleted revenue, while also cutting welfare, corrodes that dynamic – at great risk to our shared future.