Extract from The Guardian
Former RBA governor says Coalition pursues low-tax road to jobs and growth despite lack of evidence to support it
Neoliberalism has caused “misery and social polarisation” yet remains
in vogue with the Coalition government, according to the economist
Bernie Fraser.
The former Treasury secretary and Reserve Bank governor has made the comments in a presentation circulated to participants of the Australia Institute’s revenue summit to be held in Canberra on Wednesday.
Michael Keating, a former secretary to the Department of the Prime Minister and Cabinet, will also use the summit to raise doubts about the Morrison government’s budget forecasts.
In the background notes for Fraser’s speech, seen by Guardian Australia, he says that Australia’s 27 consecutive years of economic growth is a “standout”, “Winx-like” performance.
But the record deserves only “qualified applause” because “too many Australians remain unemployed, under-employed, underskilled, underpaid and lack job security”.
Fraser warns that society has become “less fair, less compassionate
and more divided” and “more devoid of trust in almost every field of
human activity” in the past 20 years.
“As a disinterested player in climate change negotiations and a miserable foreign aid donor, we have slipped well down the list of good global citizens.”
Political ideologies appear to have contributed to inequality and disadvantage in Australia in that time, he argues.
Fraser in large part blames neoliberalism and its influence on policymaking for the “disconnect between Australia’s impressive economic growth story and its failure on so many markers to show progress towards a better, fairer society”.
“Favouring the market system ahead of the state system, and individual interests ahead of community interests, can lead to profoundly unfair social outcomes.
“Those unable to afford access to decent standards of housing, healthcare, and other essential services have to settle for inferior arrangements, or go without.”
Fraser says charitable organisations see the effects of “real poverty” that result in “misery, anxiety and loss of self-esteem of mothers unable to put food on the table for their kids, of old and young homeless people, and the victims of domestic violence and drug overdoses”.
Fraser summarises the key thrusts of neoliberalism as “the pursuit of the lowest possible rates of income and most other taxes and the maximum restraint on government interventions and spending programs”.
Evidence in Australia and overseas shows the influence of neoliberalism on fiscal policy “and the misery and social polarisation that has come with it”, he says.
The global financial crisis “should have” marked a tipping point, when the “idealised view of financial markets being self-regulating” was shattered. While Australia “avoided the worst traumas of the GFC” with prompt fiscal and monetary policy responses, in Europe “taxes were increased and spending programs slashed”, resulting in a further five or six years of severe recession.
Fraser says that all political ideologies – taken to extremes – can be divisive and cause damage, including an ideology “based on a state system”.
But the former Reserve Bank governor focuses on neoliberalism because it “remains in vogue”. The Morrison government “continues to reaffirm its over-riding commitment to lower taxation, and to assert that this is the best way to increase investment, jobs and economic growth” - despite the lack of evidence to support the theory.
Although Fraser recognises that politics never can or should be taken out of policymaking, he suggests the best course is to “hammer away” at flaws of particular approaches.
For example, Fraser praises “the avoidance of costly tax cuts accruing to large corporations” as a positive development – referring to the Turnbull government abandoning the big business component of its $50bn 10-year company tax cut plan.
He suggests the “quick done-deal” of Labor signing up to the Coalition’s proposed acceleration of the cut to taxes on small and medium business was an example that “political interests are always lurking nearby”.
In a separate presentation Keating – who headed PM&C from 1991 to 1996 – warns the government’s promise to cap expenditure while simultaneously cutting taxes and returning the budget to surplus is based on overly optimistic assumptions of growth in GDP, wages and productivity.
According to Keating, the government must stop assuming there have been no structural changes in the relationship between unemployment and the rate of wage increases.
He notes that predictions of a tightening labour market leading to higher wages are predicated on assumptions of growth averaging 3% or as much as 3.5%.
He will also say a sustained return to past rates of economic growth will be impossible unless we can ensure a reasonably equitable distribution of income, involving a faster rate of wage increases, especially for the low-paid.
The former Treasury secretary and Reserve Bank governor has made the comments in a presentation circulated to participants of the Australia Institute’s revenue summit to be held in Canberra on Wednesday.
Michael Keating, a former secretary to the Department of the Prime Minister and Cabinet, will also use the summit to raise doubts about the Morrison government’s budget forecasts.
In the background notes for Fraser’s speech, seen by Guardian Australia, he says that Australia’s 27 consecutive years of economic growth is a “standout”, “Winx-like” performance.
But the record deserves only “qualified applause” because “too many Australians remain unemployed, under-employed, underskilled, underpaid and lack job security”.
“As a disinterested player in climate change negotiations and a miserable foreign aid donor, we have slipped well down the list of good global citizens.”
Political ideologies appear to have contributed to inequality and disadvantage in Australia in that time, he argues.
Fraser in large part blames neoliberalism and its influence on policymaking for the “disconnect between Australia’s impressive economic growth story and its failure on so many markers to show progress towards a better, fairer society”.
“Favouring the market system ahead of the state system, and individual interests ahead of community interests, can lead to profoundly unfair social outcomes.
“Those unable to afford access to decent standards of housing, healthcare, and other essential services have to settle for inferior arrangements, or go without.”
Fraser says charitable organisations see the effects of “real poverty” that result in “misery, anxiety and loss of self-esteem of mothers unable to put food on the table for their kids, of old and young homeless people, and the victims of domestic violence and drug overdoses”.
Fraser summarises the key thrusts of neoliberalism as “the pursuit of the lowest possible rates of income and most other taxes and the maximum restraint on government interventions and spending programs”.
Evidence in Australia and overseas shows the influence of neoliberalism on fiscal policy “and the misery and social polarisation that has come with it”, he says.
The global financial crisis “should have” marked a tipping point, when the “idealised view of financial markets being self-regulating” was shattered. While Australia “avoided the worst traumas of the GFC” with prompt fiscal and monetary policy responses, in Europe “taxes were increased and spending programs slashed”, resulting in a further five or six years of severe recession.
Fraser says that all political ideologies – taken to extremes – can be divisive and cause damage, including an ideology “based on a state system”.
But the former Reserve Bank governor focuses on neoliberalism because it “remains in vogue”. The Morrison government “continues to reaffirm its over-riding commitment to lower taxation, and to assert that this is the best way to increase investment, jobs and economic growth” - despite the lack of evidence to support the theory.
Although Fraser recognises that politics never can or should be taken out of policymaking, he suggests the best course is to “hammer away” at flaws of particular approaches.
For example, Fraser praises “the avoidance of costly tax cuts accruing to large corporations” as a positive development – referring to the Turnbull government abandoning the big business component of its $50bn 10-year company tax cut plan.
He suggests the “quick done-deal” of Labor signing up to the Coalition’s proposed acceleration of the cut to taxes on small and medium business was an example that “political interests are always lurking nearby”.
In a separate presentation Keating – who headed PM&C from 1991 to 1996 – warns the government’s promise to cap expenditure while simultaneously cutting taxes and returning the budget to surplus is based on overly optimistic assumptions of growth in GDP, wages and productivity.
According to Keating, the government must stop assuming there have been no structural changes in the relationship between unemployment and the rate of wage increases.
He notes that predictions of a tightening labour market leading to higher wages are predicated on assumptions of growth averaging 3% or as much as 3.5%.
He will also say a sustained return to past rates of economic growth will be impossible unless we can ensure a reasonably equitable distribution of income, involving a faster rate of wage increases, especially for the low-paid.
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