The Federal Budget, Australian Finance and the Prospects For the Working Class
Written By: Giacomo Bianchino and Jack Johnston
On the 6th October 2020, Josh Frydenberg handed down his second federal budget as Australian Treasurer. Its outlook for the Australian economy is understandably morose, with an annual net loss in growth predicted for 2020-2021. In response, taxes have been cut, fossil fuels embraced, and business prudence encouraged as part of a concerted effort of supply-side stimulus by the LNP. All pretences of Treasury thrift have apparently been dropped, with deficits set to reach $213.7 billion by mid-2021. The government has effectively mandated a sacrifice of revenue to Australia’s bourgeoisie by way of corporate tax concessions. Whether the stimulus is enough, and suppliers feel sufficiently virile to ward off more calamity isn’t clear. Since the budget, the government has shown the ways it plans to stimulate this virility; they have announced further cuts for higher income earners and removal of the low-income tax concession, both due in 2024. In other words, a gift for the top and a punch to the guts of the working class.
This then, is to be a “business-led recovery”, distinguishing it from Labor’s approach to the financial crisis of 2007/2008. While the same basic Keynesian principles of stimulus motivate the budget, there are a suite of distinctly Liberal measures in the program. These “supply-side” initiatives basically amount to a shoring up of economic power in the hands of the larger bourgeoisie.
With the dust now settling at an economic level since the announcement of the budget, and the benefit of some hindsight, the Militant Monthly will outline who will stand to gain and lose in the 2020/2021 recovery. By reading the actual measures and the response of Australian finance, the Militant will lay out economic prospects for the working class and the coordinates of struggle in the coming couple of years.
Labour and Migration
The context of the FY2020/2021 budget hardly needs restating. It is a pandemic budget, responding to the needs of an economy which has only recently weathered a recession. It is designed to reconstruct demand and shore up jobs for the immediate future. One of the major impediments to this, however, are the interruptions that COVID has brought to the regular flows of labour. The almost total pause to international migration has left a gap in the labour market in the industries that rely on a yearly influx of low-wage labour: construction and agriculture.
“The government is sponsoring the growth of Australian agriculture, which has long been reliant on the use of hyper-exploited migrant labour, through incentivising certain kinds of immigration”
Construction is one of the main indices of growth in a modern economy; it is a means for realising finance capital and for accommodating a growing population. In many parts of Australia, however, it relies on cheap labour. For decades, labour-hire firms have used non-union migrant labourers for building and infrastructure projects. Meanwhile, the government has long subsidised apprentice labour in order to make it cheap for bosses to hire young tradies. In absence of migrants, then, the government has ramped up the latter approach. “Jobmaker”, the government’s labour-market stimulus, gives employers 50 percent of the wages of any newly-working apprentices.
This shows a deep contradiction in Australian construction. The sector can only continue to be productive so long as the wages of workers are depressed below what the market has “dictated” is the correct remuneration for such work. This is an accumulation of “relative surplus value” by the bosses, in which the same amount of value is extracted from labour while paying less than that labour is considered to be worth.
Such a phenomenon is equally visible in the agricultural sector. The government is sponsoring the growth of Australian agriculture, which has long been reliant on the use of hyper-exploited migrant labour. They are doing so through incentivising certain kinds of immigration. The budget raises the absolute roof of migration to 77,300 places. To direct which kind of migration this will attract, however, the government is waiving fees for Prospective Marriage, Pacific Labour Scheme and Seasonal Worker Programme visa holders. Applications to certain regional areas will also be “prioritised.” Again, a sector which cannot afford to absorb Australian labour because of differentials in average wages and amount of surplus value extracted is subsidised by the state to ensure profitability.
A Business-Led Recovery
In August, the Lowy Institute echoed warnings of a $160 billion loss in output at the hands of the pandemic. In response, the LNP has relied largely on their instincts; that of partnering with corporate investment using a few ‘Hail Mary’ measures. Inevitably, these measures focus on the ability of owners and bosses to continue to make profit. Unlike the Rudd stimulus during the GFC, the money is not going into the hands of consumers unless indirectly. The money will only find its way into pockets via pay packets or by trickling down through wage-growth; notoriously stubborn in Australia. This, in the words of the LNP, is a “business-led recovery.” The workers are, theoretically, to benefit from an increase in the job market and through personal subsidies through the tax system. But the measures that are supposedly designed to have a generally positive effect on the lives of Australians are actually skewed to favour the capitalist class.
There are many measures in the budget that are examples of what might be called “supply-side” economics: the idea that fiscal policy should be aimed at producers rather than consumers. This relies upon a belief that businesses will create their own demand and markets if their production is sponsored by government. It is true that personal income tax cuts can benefit both the low and high ends of the income spectrum; however, the loss in government revenue is ultimately passed on to the kinds of services working people rely upon. Beyond these personal income tax cuts, however, the tax system has been used to make it easier for businesses to accumulate capital. The government has introduced a mechanism by which the business portion of the value of newly purchased assets can be fully depreciated in the year they are first used. This allows businesses to purchase certain fixed capital (cars, computers etc) as well as other non-labour goods and to report a much lower taxable income come reporting time.
Generally, this allows businesses to lessen their tax bill by granting years’ worth of depreciation-expense upon the first use of the asset. This stimulates “capital investment” of a particular kind: assets instead of workers. Thus the “organic composition” of a given capitalist’s production can be skewed towards constant capital (machinery; from which value is only transferred by depreciation) and away from variable capital (labour; which transfers value via the expenditure of waged time). While this allows for an immediate uptick in profitability, it also contributes to a reduction in profitability over time, as the amount of value transferred by constant capital is negligible compared to that of labour.
As treasury administers adrenaline to a depressed supply side, it then turns its increasingly drained attention to Australia’s indebted households, with particular care given to those already comfortable. New personal income tax cuts are expected to divert $50 Billion back into low and middle income pay packets over the forward estimates by way of increasing the low income tax offset and the top thresholds of the lower and middle brackets. The LNP have reassured voters that most of this benefit will accrue to workers earning less than $90 000, however it’s important to keep an eye on the LNP’s free hand. Further cuts unveiled in this year’s budget will scrap the low income tax offset in 2021 and seek to bring a majority of taxpayers under the 30% threshold by 2024. As noted in The Age, this means that a $60,000 and $120,000 pay packet will receive the same marginal tax rate, and low and middle income earners will be $1,080 worse off annually. Should the LNP return to performative policies of deficit-revulsion, one can only wonder at how the other (already modest) gains for workers will be walked back.
Of the sectors affected by this year’s budget, energy emerges as a particular favourite, especially fossil fuels. Though the treasury’s left the light on for $223.9 million previously allocated to Australian Renewable Energy Agency over the next four years, hope of fiscal recovery has been placed on the shoulders of fossil fuels. As part of the government’s ‘gas-fired recovery’, gas supply targets will be raised, gas infrastructure not yet worked by the private sector will be state funded and companies’ access to key pipelines will be made easier. Additionally and perhaps crucially, the government will explore a new gas reservation scheme to lock in Australia’s gas supply, place downward pressure on prices and ensure the fossil fuel industry retains all current benefits of market dominance.
Looking Outwards
Amid the pandemic, as collective attention is paid to domestic tragedies, state responses to geo-political instability have continued if not intensified. Far from satisfied with tickling the fancies of the domestic bourgeoisie, the government has seized on a diplomatic and financial opportunity abroad. $550 million is bound for South-East Asia as announced by Scott Morrison at the ASEAN-Australian summit on the 14th of November. This funding ought to be considered with a politician's cynicism. In the words of the Prime Minister: “this is what we do as neighbours, and as strategic partners”.
“The ruling class has often waged bloody war on us as workers in times of economic strife and this budget is a letter of full confidence from the state to those who do the owning”
Alongside the capital injection, Australia will join the world’s largest economic alliance; the newly created ‘Regional Comprehensive Economic Partnership’. Countries allied with the RCEP account for over half of Australia’s trade and will consist of 16 member states including China, India, Japan, Korea, New Zealand and all ten members of ASEAN. Our government will no doubt be eager for a return on it’s altruism, whether by better terms of trade in the future or by commanding greater political fidelity among our neighbours in the face of China.
In the midst of the recent volatility, the long-term welfare of Australians has received some attention in the form of changes to the Superannuation Industry. Following changes introduced by the budget, super companies deemed to be underperforming will be barred from taking on new members and existing members will be notified of the poor returns via a new government web tool. Taken alongside the increasing of the retirement age to 63 by 2023, the running of budget deficits, and the spectre of lacklustre growth in the wake of the GFC, attempts to mandate better performance by our private providers of retirement income arrive with an ominous tone. Frankly put, grim economic circumstance and their ideological side-arm, neoliberalism, are jeopardising our retirements. It might not end here either; further state interventions may be used to squeeze utility out of a super system which was itself introduced partly as a substitute to governmental modes of welfare provision.
In Summary
Amongst the human suffering and market chaos of the pandemic, the 2020 budget has been a means of fortifying bourgeois class rule. Australian policy makers have kept an eye abroad whilst planting their feet firmly on the accelerator of liberal ideology with any past fiscal hand-wringing thrown out of the window. The trades have been bandaged with subsidies following interruptions in the flow of exploitable international labour. Corporate taxes have been cut in such a way as to jump-start capitalist investment. Personal income tax has been cut to make room for a further, more radical upper-income tax cut, alongside the coming removal of tax concessions for low-income workers in the near future. Australia’s gas supply will be increased by the state as part of an energy policy wedding the nation to the fossil fuel industry rather than renewables. Abroad, Australia will seek to shore up its influence with our near neighbours amid growing competition and represent the interests of the United States regionally. Our super companies will be submitted to the same state scrutiny that brought unions to their knees under the ABCCC.
The ruling class has often waged bloody war on us as workers in times of economic strife and this budget is a letter of full confidence from the state to those who do the owning. The existing advantages of the Australian working class in its quality of life must be fought for lest they be stolen from under us. Indeed, “growth” must include the expansion of the purchasing-power of the working class, via the growth of the wage. The left must fight against both a return to the status quo and against the threat of greater economic barbarism.