Hello again!
I have certainly been true to my word. I promised my revived newsletter would never come out more than weekly, and it certainly hasn’t. The last one was pre-budget, weeks ago.
Ahead of the budget, I wrote that Australia needed an honest conversation about spending tax in a column that has aged well.
Referring to Freydnberg’s infamous pre-COVID “back in the black” budget, I said:
That 2019 budget forecast increasing surpluses as far as the eye could see (which was ten years, the limit of the graphs presented in the budget papers). The Liberal Party began selling “back in the black” celebratory mugs at A$35 each.
The trick was that from then on, government spending would grow more slowly than the rest of the economy. As a proportion of GDP, it would slide from around 25% to 23.6% by 2029-30.
It meant just about every fairly foreseeable crisis couldn’t be responded to… not even by raising more tax. A separate “tax cap” set out in the budget said the government would never collect more than an arbitrarily chosen 23.9% of GDP.
Frydenberg tied his own hands in a way a treasurer who wanted to take charge of the nation’s finances would not have.
The demands on future budgets will be enormous. Not only paying for the National Disability Insurance Scheme and aged care, but also Medicare, hospitals, defence, education, rent assistance, boosting the scandalously low rate of JobSeeker, and dealing with increasingly frequent floods and climate change.
The solution I liked is close to the one Chalmers is talking up.
A former head of the prime minister’s department, Michael Keating, wants an expert committee (“not a royal commission made up of lawyers”) to prepare a bottom-up estimate of the extra revenue we will need to guarantee the essential services we are likely to need.
After the committee has developed the estimate, Keating wants a second inquiry to work out how best to raise it.
Keating’s proposed second (tax) inquiry wouldn’t be at all like the Henry Tax Review, which was about the embroidery – the design of the tax system – rather than how to raise more. It would be about what workhorses to saddle up to raise more.
One of the workhorses would be super. When asked why he robbed banks, the notorious US bank robber Willie Sutton is credited with saying: “That’s where the money is”. Super is where the money is, and as Chris Richardson explained in an excellent AFR column this week
Super was introduced as a flat tax of 15 per cent, meaning it over-taxed those on low incomes while delivering turbocharged tax breaks for higher incomes.
That original sin explains much of the past decade.
There are other ways to get more money – land tax, wealth tax, a windfall profits tax, more GST (even though this creates problems with the states). We will need to find money where it is. But we will need first to work out how much we are likely to need over the next few decades. Then to work out how to raise it – not straight away, but as needed in coming decades. Or not. Australia is lightly taxed, and we might want to keep it that way and provide for ourselves poorly.
Next year’s intergenerational report can inform the discussion. If it properly discusses the extra spending demands likely to come from climate change (as I think it will) it will become apparent that the extra demands are big. None of this is to say we should spend any more than we will have to, but we might have to spend a lot.
And no, the government can’t just print money. Governments can (and should) print and spend or borrow and spend more when the economy is running cold. But right now the economy is running hot and is likely to run hot into the future as workers and other resources become more scarce. We will need to tax more to divert those resources to the things we will really need.
Now (the year ahead) is the best time to start talking about it.
Imagine you were trying to design a system that would hold back wages. You would design one pretty much like the one we’ve got today.
Those of us on enterprise bargaining agreements get our wage rises locked in only every three or so years. If we didn’t lock in enough in last year’s agreement to cover this year’s sudden outbreak of inflation, there’s nothing much we can do about it for another two or so years.
It’s a built-in inertia identified by financial services firm JP Morgan in its attempts to explain to foreign clients why Australian wages growth is so low.
Australian enterprise agreements, JP Morgan explains in a note to clients, both delay wages growth and trim its peaks.
It gets worse.
By the 2010s employers became good at stringing out negotiations or letting agreements expire, which meant they rolled over as “zombie agreements” without an increase.
As the Business Council explained in a report on the state of enterprise bargaining in 2019, agreements that had lapsed but were still operational came to act “like a wage freeze for some employees”.
How many employees are on ‘zombie’ agreements, lapsed but still operational? In 2019 the BCA reckoned it was more than one-third of those on federally-registered enterprise agreements.
When I attempted to update their calculation, using the same sources, I came up with more than 50%, which sounds high. Regardless, anything that can get wages moving would be a good idea.
In the US, wage rises are high enough to be regarded as fueling inflation. Not here.
Sure, I recommended Brad DeLong’s Slouching Toward Utopia, but Chokepoint Capitalism by Rebecca Giblin and Cory Doctorow is my biggest Christmas recommendation of all.
One of the cool parts about my job as business and economy editor at The Conversation AU is I get to commission and edit and publish great pieces from academics.
Rebecca and Cory begin by telling a story:
In 2020, the independent authors and small publishers whose audiobooks reach their readers via Audible’s ACX platform smelled a rat.
Audiobooks were booming, but sales of their own books – produced at great expense and well-reviewed – were plummeting.
Some of their royalty statements reported negative sales, as readers returned more books than they bought. This was hard to make sense of, because Audible only reported net sales, refusing to reveal the sales and refunds that made them up.
Suddenly, the scam came into focus: the Amazon-owned Audible had been offering an extraordinarily generous returns policy, encouraging subscribers to return books they’d had on their devices for months, even if they had listened to them the whole way through, even if they had loved them – no questions asked.
Encouraged by the policy, some subscribers had been treating the service like a library – returning books for fresh credits they could swap for new ones. Few would have realised that Audible clawed back the royalties from the book’s authors every time a book was returned.
It was good for Amazon – it helped Audible gain and hold onto subscribers – but bad for the authors and performers who created the works, who barely got paid.
It’s the same at Spotify, where the three big record labels, who might be thought to be negotiating on behalf of their artists, get extraordinarily bad deals for the artists and good deals for themselves. They operate chokepoints (and part-own Spotify).
And it’s the same in music publishing, live music ticket sales, and beyond the arts.
Wherever there’s one dominant middle-person (and it’s in an increasing number of places) it can screw the supplier, especially in the arts, cos people feel compelled to make art, and the economics of superstars means there’s more supply than demand.
What’s great about the book is it offers solutions - doable ones. One of the simplest is declaring void the secrecy clauses imposed when a label settles with an artist after underpaying.
Here’s Rebecca and Cory on a podcast.
Chokepoint Capitalism. I love the inscription at the front:
For Joan Robinson,
who understood and explained
monopsony first.
If only we’d listened to her.
What else to discuss? Lots probably. To tell you the truth, I’m tired at the end of the year. The new year should be calmer – a single ordinarily-timed budget, more sane inflation, better wages growth, a cracker intergenerational report, and COIVD… who knows.
I’ll leave you with my nephew’s magnificent new single. I was at the launch.
My nephew is Kid Dingo.
His latest is Not Cool Anymore (featuring Possum), It’s on triple j Unearthed.
Here’s an earlier hit. Good, isn’t he?