Waiting for the trickle down effect

Concluding the Senate debate on company tax changes which will allow a tax break to corporations with a turnover up to $50 million per annum, Senator Mathias Cormann, the Minister for Finance, told the Senate on 30 March 2017:

'Letting businesses keep a little bit more of their money to reinvest in their future success will help them hire more Australians and pay them better wages over time. That is what this reform is all about.'

More jobs and better wages, especially for the lowest paid, would be welcome outcomes, given that there are 714,000 Australians presently unable to find suitable work and a further 1 million Australians looking to increase their hours of work in order to improve their family lot.

Unfortunately the Treasurer, Scott Morrison, is not able to share with us any economic modelling to demonstrate how this round of corporate tax cuts will assist. He has urged that we use 'the pub test'.

The discerning drinker might like to consider also the government's submission to the Fair Work Commission's Annual Wage Review which was delivered the day before Senator Cormann successfully cut the deal with the Senate cross benchers. The government cautioned against any significant wage increase for Australia's lowest paid workers suggesting:

'Wage increases that are not supported by higher productivity or higher prices for customers and consumers will most likely cost jobs. Excessive increases in minimum wages are likely to reduce employment in award-reliant industries, particularly for youth, and especially when wages growth elsewhere in the economy remains moderate and inflation is low.'

The government argues the need to keep the national minimum wage low so as 'to help long-term unemployed people and other disadvantaged groups enter the workforce, noting that low-paid employment is an important "stepping stone" to sustained employment and higher paying jobs.'

The government concedes, 'Inequality has risen across the developed world in recent decades, driven in large part by strong growth in wages for high skilled jobs, and slower growth in wages for low-skilled jobs.' But it continues to boast that a job, even if low paid, is the best path to beating inequality.

"No doubt the electorate in time will have its say on whether the present government's economic recipe is the correct one for increasing jobs and growth, and for arresting inequality."


While the rich who can order their affairs through corporate arrangements get tax cuts, the poor who work shifts are losing their penalty rates and they are being unsupported by the government in claims for a substantially higher minimum wage.

No doubt the electorate in time will have its say on whether the present government's economic recipe is the correct one for increasing jobs and growth, and for arresting inequality. In the lead up to the next election, voters will have a fresh choice of options for equitable and sustainable deficit reduction. Meanwhile, as we prepare for the next Turnbull budget, those who continue to miss out in the short term have good grounds for thinking Pope Francis has a point when he says in his apostolic exhortation Evangelii Gaudium:

Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralised workings of the prevailing economic system. Meanwhile, the excluded are still waiting.

Of course, it is always a contest between the major political parties to convince the public that they have the balance right in the run-off between capital and labour and that they have the pressure right, encouraging individuals to join the job market while regrettably leaving others to receive less than adequate welfare assistance. The politicians' economic advisers will no doubt tell them how far they need to go in addressing the budget deficit and in priming the pump for jobs and growth. But any prescription needs to comply with a basic level of equity and sustainability.

Former Reserve Bank Governor Bernie Fraser has warned that the loss of $25 billion from revenue as a result of the corporate tax cuts will impact adversely on the poor: 'The main recipients will be the dividend holders — not traditionally a disadvantaged, vulnerable section in the community. And the other people who will benefit will be the senior executives of those companies giving themselves bonuses. All the while the vulnerable people are being squeezed at the other end.'

We Australians have moved a long way from the days when both sides of politics accepted: first, that every Australian worker should be paid a living wage sufficient for an average family to survive; and second, that every Australian is entitled to a basic level of welfare assistance when unable to work.  Families and work patterns are now more diverse than in the past: we must be more responsive to the positions of couple parent and sole parent families who are unable to provide a decent standard of living for their children because of low wages and part time, irregular and insecure employment. We need more coordinated policies to ensure that minimum wage rates, taxation policies and welfare payments provide every worker with a fair wage and guarantee every family what is needed for a decent standard of living. We also need more direct measures to stimulate and protect employment rather than the reliance on theoretical trickle down policies.

In an age of 'budget repair', social policy risks becoming just a sidebar to economic policy which is a contest of ideas about how best to grow the size of the pie thereby providing a slice for 'the deserving poor' without having to redistribute too much of the pie, while 'the undeserving poor' drop off the edge as they would have anyway. For those of us schooled in Catholic social teaching, the so-called 'undeserving poor' are the litmus test of our commitment to the human dignity of all persons. We believe human dignity is innate; it is not acquired by displaying socially attractive attributes like employability.

There is declining public trust in our major political parties which used be the primary spaces for negotiating and effecting the compromises necessary in the Australian democracy which is committed to the right balance between the popular will and the recognition of the due rights and entitlements of all citizens. These compromises are now rushed through back room deals with the growing Senate cross bench with its plurality of philosophies, or at least a variety of self-interested claims.

When the government finalised the corporate tax cuts in the Senate last month, the last group of crossbenchers to the table were Senator Nick Xenophon and his team. They made their agreement contingent on the government's concession on a raft of energy measures including a one-off payment for aged pensioners, disability pensioners and recipients of parenting payments to help them with their escalating electricity bills. A single recipient will receive a $75 payment and couples will receive $125.

Senator Xenophon thought this one-off payment would see these pensioners through to 1 July 2018 when changes to the National Electricity Market rules would 'bring everything to a head in order to ensure that there are lower prices for our electricity and security of supply'. After 1 July 2018, I daresay, those pensioners and parents will be left to ponder the trickle down effect of the tax breaks given to the top end of town while their power bills continue to go through the roof. They will be left confused as to how Senate horse-trading can deliver equitable, sustainable results for all Australians when the pub test on jobs and growth is clouded by a shattered hope that electricity prices would magically fall.

By Frank Brennan
First published on the Anglican Communion News Service website
17 March 2017