ANZ LitLovers LitBlog

In the wake of the latest ‘gotcha’ moment from Minister Dutton and Prime Minister Abbott, it is easy to feel depressed about the state of Australian politics.  Cynical, insensitive jokes about the poignant fate of our Pacific Island neighbours under climate change, suggests that that moral leadership is in short supply.  So it was refreshing to pick up Two Futures last night and to begin reading the ideas of two young politicians who are exploring the long-term future of our country…

These two politicians are only backbenchers, so you’ve probably never heard of them.  Tim Watts is the member for Gellibrand in the western suburbs, and Clare O’Neil is my local federal member for the seat of Hotham in the House of Representatives.  But (like most Australians when it comes to politics) I wouldn’t have remembered her name if I hadn’t gone to a recent event organised by the Australian Republican Movement.  Along with Angela Pippos and Clare Wright, Clare O’Neil was one of the speakers,  and I was impressed.  So even though books about Australian politics get almost no shelf space chez moi, and books by Australian politicians get no space at all, I bought her book…

The book begins by analysing why it is that politicians are under pressure to engage in short-term issues rather than tackle serious long-term matters that are going to affect us whether we like it or not.  It explains the pitfalls that beset thinking about the future, and how the authors have tried to avoid these, by:

• taking an approach that relies on facts and data rather than emotion
• exploring broad trends rather than specifics
• focussing on the next 25 years rather than trying to predict too far ahead, and
• ignoring small-probability events with vast ramifications because it has to be assumed that there will be massive unpredictable events and the best hope for dealing with these is to have strong institutions and a resilient population.   (What they mean by this is that no one could have predicted the events that defined the 20th century – two world wars, the Depression, the Holocaust, the end of colonialism, the rise of communism, AIDS or the growth of the internet.  They just had to be dealt with as they occurred.)

Then there are six chapters, exploring issues that matter, and suggesting creative ways to solve big picture problems that we have:

• Democracy
• Inequality
• Technology
• Climate
• Growth, and
• The World

I’ve only read the first two chapters so far, but already I am excited about the ideas that are presented here.  In the first chapter about the health of our democratic processes, for example, I was shocked to see the statistics about how cynical most Australians are about the purposes of government.  What’s more worrying is how disengaged our young people are, how little they care about voting, and how gloomy they are about having the capacity to change anything.  When I compare this to how my generation felt in the 1970s, how empowered we were and how much ground-breaking change we achieved, I find that my first instinct is to think that they should do what we did – but of course that isn’t a solution.  The world is different now…

One idea that I like the sound of (with a couple of reservations) is the concept of participatory budgeting. This is a way of giving citizens a say in the prioritisation of public spending, by allowing them to vote on which projects or programs proposed by the community should be supported by the government.  (p. 39)   This sounds like a good way of helping people to see where their tax dollars go, and to be realistic about what can be achieved with the size of the pie that’s available.  But I’d want to see safeguards to ensure that minorities aren’t marginalised and to make sure that we don’t spend even more money on populist items at the expense of other things that matter too.  (An obvious example of this is government spending on sport compared to literature, art and music.)  It goes without saying that citizens would need to be involved from the beginning so that the pros and cons are properly canvassed, and that safeguards reflect the values we hold.

Amongst other possibilities, there are clever ideas about increasing participation in political parties, about improving the charade that is Question Time in parliament, and about citizen juries to debate political reforms.  However, the important thing about these ideas is that they start a conversation that goes beyond the usual negativities about our political processes.

The chapter about Inequality is inspirational.  There are some sobering statistics about how – despite our professed values and our history of egalitarianism – we have let ourselves drift into becoming less equitable over time.  There is also a really clear explanation about how there are structural features of our economy that reinforce these inequalities and make them grow.  There are some basics which we all need to understand if we are to do anything about it:

A person’s income is derived from three possible sources: labour income from work, capital income such as rent or dividends from assets, and government income such as the aged pension. (p.45)

But focussing on the top 1% of income earners doesn’t help ordinary Australians adapt to tectonic economic shifts, so the authors unpack the changes so that ordinary readers (like me) can understand what’s going on.  One example given is a comparison between Kodak, the photography company, and Instagram, the social media application.  Kodak once had a 90% share of the photographic market and employed 145,000 people.  Months after it went bankrupt, Instagram was sold for one billion US dollars.  Instagram had just thirteen employees.  Its market is global and the cost of serving each new customer is practically nothing.  The wealth it generates isn’t shared through wages with thousands of employees, it is held by a miniscule number of people.  While this may be an extreme example, the story of contracting workforces in manufacturing is well-known, and people are only too well aware that people who work in low-skilled jobs that can’t be outsourced to poor nations, are badly paid and don’t have safety net conditions like sick leave.  Technology and globalisation are holding down wages at the bottom, and pushing them up at the top. (p. 48)

What’s also interesting is how Australia’s system of redistributing wealth to make our country fairer has lost touch with our values.  According to the authors, research shows that:

Australia targets welfare spending at the people who need it most, and it does so better than almost any other country in the world.  This though, is a two-edged sword.  It means that when we cut welfare, we cut the living standards of the poorest people in the country, and inequality rises, instantly. (p. 52)

[LH: That’s not what you might hear in the media and from some of our wealthiest politicians, is it?  This might be why there was outrage over the first Hockey budget.  No one I knew could tolerate the idea of taking away the already low unemployment benefit for the first six months.]

But there’s more to Australia’s income distribution systems than the welfare issue.  The authors analysed the impact of tax cuts on teachers (like me) and bankers over recent years:

Assuming that both were equally successful in their professions, in addition to earning a good deal more, the banker has been the great beneficiary of tax changes over this time.  For every dollar gained from tax cuts by the teacher, the banker received about ten dollars in additional benefits.  (p. 53)

This analysis is confirmed by research done by the Australia Institute in 2013.

Part of the problem is that our tax system privileges holders of capital:

We have argued that capital income is a growing part of the inequality problem because an increased share of Australia’s prosperity is flowing to holders of capital. Our tax system is exacerbating this problem.  Today, more than a third of superannuation tax concessions go to the top tenth of income earners.  That same group yields approximately 70% of capital gains concessions and one-third of negative gearing concessions.  These federal policies provide far more preferential treatment to the dollars earned from capital than to the dollars that workers earn from labour.

Imagine two people earning eighty thousand per year.  One receives his money in wages and owns no investment properties; for every additional dollar he earns, he pays one-third in tax.  The other gets her income from capital: superannuation, share dividends and rent from several investment properties.  Her super earnings attract only 15% tax, and her investment properties attract further perks.  Negative-gearing entitlements mean tax on income from shares or rent can be offset using interest payable on loans for investment properties.  Expenses on the properties can also be used to further deduct tax.  And if she decides to sell a property, she’ll receive a 50% discount on the tax she would have paid if she’d earned the same money through wages.

Combined, federal concessions on superannuation, negative gearing and capital gains constituted around forty billion dollars in 2013-14. That is roughly the cost of the aged pension.  We need to take a clear-eyed view of how capital income is taxed in Australia and consider whether there are policy justifications for each tax break. (p. 67)

The chapter then goes on to look at how the housing market has fuelled inequality as some harvest tax-beneficial assets while others can’t get into the market at all.  There is special mention of Aboriginal disadvantage (in 2010 Clare O’Neil lived in North East Arnhem Land in an Aboriginal community) and there is also a frank discussion about the role of unions.  But what I liked about this chapter was this summary of the complexities:

First, those who have considerable means to contribute towards the public good should contribute.  Second, social mobility is important and inheritance can entrench inequalities across generations.  Third, people have a legitimate desire to save and to pass on inheritances to their children, and they should not be penalised for doing that.  In Clare’s electorate, many first-generation migrant families commit their lives to ensuring that their children will be more financially secure than they were – and there’s nothing wrong with that.  And finally, a reality check: we face global competition to attract and retain talented people in Australia.  We shouldn’t create a tax system that deters wealthy people from living in our country. (p. 68)

If these two chapters are anything to go by, this book is a must-read for thinking Australians.  I am sorely tempted to skip ahead to the final chapter, which ‘bookends’ the two futures of the title that Australia might have.  But I’m going to resist that, to give what I’ve already read time to percolate.

Highly recommended, especially if you are not interested in politics!

PS You can hear Clare O’Neil in conversation with Marius Benson at Soundcloud.

Authors: Clare O’Neil and Tim Watts
Title: Two Futures, Australia at a Critical Moment
Publisher:  Text Publishing Company, 2015
ISBN: 9781925240214
Source: personal library, purchased from Readings $29.99

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