Wage rises in the neoliberal new world order. Bad policy and bad politics.

A living wage. Siân for London. flickr cc.

Neoliberals are often wrong but never in doubt. In pursuing its corporate tax cut agenda the Government is attempting to shift the industrial relations paradigm – linking private sector wage rises to public sector funding cuts, despite the fact corporate coffers have rarely been in better shape.

It is difficult to put into words just how fundamentally bereft and indefensible the Government’s corporate tax cut agenda is. It is not my intention to go into the myriad faults in the policy here.  My piece of 9th March this year, posted on John Menadue’s Pearls and Irritations site, touches on just a few elements of the ideologically driven and fiscally reckless policy.

Apparently, everybody wants wage rises to happen.  Mr Turnbull says he wants them. Mr Shorten, as usual, is ‘me too’ when it comes to wages rises. Even Reserve Bank Governor, Phillip Lowe, says he wants them. Lowe recognises stagnating demand is a risk to the economy. He actually wants workers to walk into their bosses offices and demand wage rises, fair dinkum, real wage rises, right now, just like that. On the other hand, Turnbull thinks, despite corporate coffers rarely being in better shape, tax cuts are absolutely and obviously essential for wage rises to occur.

Last year the Treasurer directed The Treasury to undertake research on why wages growth in Australia has been subdued – as if it is some kind of mystery. The Treasury Report, Analysis of Wage Growth, November 2017, manages to stretch its analysis and discussion to about 70 pages. In typical Treasury fashion it loves getting lost in complexity and it is full of charts showing all sorts of data on wages and incomes.

Two things stand out. Firstly, the Report doesn’t even mention the issue of corporate taxation, let alone whether Australia’s rate of corporate taxation is holding back wages growth – perhaps this was an oversight or perhaps it was considered an irrelevancy.

Secondly, its discussion of the institutional arrangements, including the industrial relations system, is left to the last chapter. In this chapter there is at least some discussion on how the industrial relations system has been systematically pulled apart over the past few decades and re-engineered in favour of business by governments of both political persuasions, but the Report doesn’t say it quite like that.

Treasury concludes long term trends in wages growth are based on productivity and inflationary expectations, but evidence on why wages growth has stagnated recently is unclear and it is difficult to draw firm conclusions.  The Treasury could have saved itself a lot of time and effort. Page 28 of the Report refers to observations by Bank of England economist Andrew Haldane.  The Report states Haldane noted “…that there is evidence that trends towards self-employment, flexible working, zero-hours contracts and de-unionisation – whether voluntary or involuntary – may have affected wages.” That pretty much sums it up, in a typically British understated fashion. Treasury could have just used Haldane’s statement for the Australian experience and left it at that.

Recently I was watching a televised interview of a former CEO of one of Australia’s major corporations. This individual was effusive about the general healthy state and profitability of the corporate sector. When asked about how these good times might flow on to decent wage rises this individual said that would only be “affordable” if the Government was visionary enough to cut corporate taxes.

stolen-wages. Rae Allen. flickr cc.

Apparently, despite being awash with funds, by the time shareholders take larger dividends, share buy backs are fully exploited and bosses have gorged themselves on very much deserved salary increases, higher bonuses and assorted emoluments, there really isn’t enough left over for actual workers. Tax cuts are necessary to give corporations the “incentive” to spend real money on improving productivity of employees so they could, eventually, all things being equal, offer workers a reasonable pay rise. Without tax cuts their hands were tied. The purely indefensible stupidity of this argument is palpable.

[In March] the Business Council of Australia delivered a letter to Parliament imploring the Senate to pass the Government’s corporate tax cuts. Apparently, the letter’s 10 corporate signatories promise (sort of) the tax cuts will be used to fund investment in their enterprises in Australia. I don’t know whether the letter explained how the additional funds arising from the corporate tax cuts would be quarantined for investment purposes only and not spent on further executive excesses. Maybe it’s just a ‘trust’ thing.

At the same time ACTU Secretary, Sally McManus, was speaking at the National Press Club.  McManus provided an account of how business has been dudding employees in Australia for decades. She spoke about rising inequality, low wages growth, technological change, globalisation, casualisation of work, the rise of the gig economy, wage theft, deregulation of industrial relations and active disempowerment of labour in the work place.  The fact these two events occurred at the same time exquisitely juxtaposed the parallel universes within which business class elites and everyone else exist.

In pursuing its corporate tax cut agenda the Government is attempting to shift the industrial relations paradigm. The implication of its argument is private sector wage rises should be contingent on public sector funding cuts. This is the inevitable consequence of further erosion of the revenue base, unless offsetting tax increases are being planned elsewhere or the Government actually believes in supply side magic puddings and trickle down economics. If it believes in these fantasies it should have the courage to explicitly say so. It hasn’t.

The implications are clear. If the tax cuts are passed there will either be offsetting increases in taxes elsewhere in the economy or cuts in public spending in areas such as education and health, or both. If the tax cuts are not passed and you don’t get a pay rise, don’t blame your boss, blame the Labor Party. Forget the fact these are salad days for the corporate sector. Forget that in the past factors such as productivity, profitability and company growth were key indicators in determining affordability of wage rises in industrial and enterprise bargaining. These factors are no longer enough, that’s all in the past – we now live in the neoliberal new world order.

Neoliberals are often wrong but never in doubt.  However, it is important to distinguish neoliberal theory from fact. In theory neoliberalism is about: getting government out of the way of business; the public sector is a dead end drag, the private sector does everything better; taxation is theft; there are winners and losers, lifters and leaners, whingers and doers; the rich are deserving and the poor are disgusting; democracy is over rated and economic freedom is king.

Neoliberalism in fact is a very different thing. It wants the government to play a big role in the economic realm, but only in serving the interests of corporate elites. It is about: privatisation for the poor but socialism for the rich; tough love and wage cuts for the precariat but huge cash bonuses for the rich; jail for the poor but fines for the rich; corporatisation for persons and personhood for corporations; tax cuts for the rich and funding cuts for the poor.  It is only within the context of neoliberal fact that the corporate tax cut agenda can be understood.

Hypothetically, assume the corporate tax cuts are passed and over the next year or two wages rise slightly in real terms. Then that’s that, it’s over. After all the huff and puff and heat and argument it’s done. Now, assume the corporate good times continue but real wages start stagnating again. How will another real wage increase happen?  Perhaps, the government of the day, be it Coalition or Labor, will argue a further corporate tax cut is required because Singapore, Ireland or Chile has just dropped its corporate tax rate to 5%.  If this happens it will be “obvious” “economics 101” that Australia must also drop its corporate tax rate again. This will be because, in the age of globalisation and mobile capital, governments have no choice but to continue to keep cutting corporate taxes otherwise all our businesses will simply up stumps and bugger off.

This is a pure and simple neoliberal lie and it represents the aspirations neoliberals have for democracy  –  there is no such thing as society, no alternative, no choice. Now envisage the same government arguing the GST must be increased from 20% to 25% (yes, currently it’s 10%) because we have a fiscal crisis, it’s a debt and deficit disaster, we are living beyond our means and the government must get the money from somewhere. It’s a totally hypothetical scenario of course.

Rob Stewart is a retired economist and former Senior Executive in the Australian Public Service, with experience primarily in the Department of Foreign Affairs and Trade (AusAID), and The Treasury and The Department of Infrastructure, Transport and Regional Development.

This article is republished from John Menadue’s excellent blog ‘Pearls and Irritations’ at www.johnmenadue.com – check it out and subscribe for free to receive regular emailed articles.



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