Uh oh, alarm bells! Fiscal conservatives are talking sympathetically about young people again. That only ever means one thing: Australia, we’re in for another round of debt and deficit moralising.
We young ’uns are by now accustomed to advocates of “small government” suddenly developing concern for our futures whenever the debt-GDP ratio ticks up a notch. They periodically use us as a rhetorical prop to espouse the supposed evils of expanding public expenditure, for we shall supposedly be saddled with higher taxes or fewer services to pay the bills in years to come.
It might be believable if they showed a modicum of concern for, say, climate change or our unfair tax system — far greater burdens on our collective future. But given their preferred generational bargain seems to end right where their class interests begin, few of us buy the squawking about bogeyman creditors.
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Keep the change
In 2009, aged 17, Arakkal caused a minor stir by writing a letter to the then prime minister, Kevin Rudd, likening his GFC package to a “drunken parent who spends the family inheritance then begs the children for their pocket money to cure the hangover”. Unsurprisingly News Corp lapped it up. Despite most of us being far more concerned about the heating planet, the press latched on to perhaps the sole Australian youth worried about the size of the stimulus.
Arakkal has since changed her tune, as most of us do in our teens, and has graduated to advising and lobbying the very ALP caucus she once likened to deadbeat drunks. But the narrative she legitimised is still with us more than a decade later, with Canberra’s economic dries screaming “Won’t somebody please think of the children!?” whenever either side forks out a few billion quid.
You’d have thought the Liberals’ Keynesian conversion would have dampened their verve, but conservatives and even Labor centrists are again advancing frugality to detonate the supposed COVID-19 fiscal time bomb.
This time, however, the mainstream economic view has shifted. The balanced budget brigade is on life support, and there is an active debate within the economics profession about the extent to which governments can print money or issue debt with fewer consequences than previously thought.
And it isn’t just Bernie Sanders’ advisers pushing more public finance. The veteran finance journo Alan Kohler is on board and the notorious socialists Deloitte argue the interest from public debt borne by future taxpayers will be negligible. Even Greg Sheridan in the Oz thinks the Libs need a new narrative that isn’t based on moralising debt, given they’re taking on so much of it.
Filling the war coffers
A powerful metaphor shifting the debate is that of war, with depictions of healthcare “soldiers” on the “front lines” against an “invisible enemy”. It is essentially true: the COVID-19 national mobilisation is requiring collective sacrifices we have not made since our Diggers fought Nazis.
When marshalling the troops, you don’t quibble over future interest payments. Australia racked up debt equivalent to over 120% of GDP through World War II (we’re about 20% now), and we got it under control in a decade due to enormous government-led economic growth.
We also introduced uniform income taxation to help, and around the world, the rich were taxed on an unprecedented scale.
Scholars Kenneth Scheve and David Stasavage have found that the only reliable driver of progressive taxation historically has been war. In major crises and their aftermath, nations have conscripted the elite’s savings.
We don’t need to do that today. As our odd bedfellows agree, we can go further into the red to pay what’s necessary to see us through this dark patch of history.
Conscripting the wealthy
Even so, we should tax the rich. Just as nations asked the fortunate to fund the Marshall Plan, we should seize this historically rare opportunity to conscript capital-owners into the national recovery effort.
This is precisely what the loathsome “debt and deficit” debates of the 2010s missed. Taxation isn’t just a regrettable necessity to balance the beancounter. It’s about distributing wealth justly and efficiently to create a better society.
It is now well established that too much inequality, such as our present level, is bad for economic growth, even for the rich. Inequality contributes to unequal inflation, whereby companies compete fiercely for rich people’s dollars, but a lack of competition sees lower- and middle-class consumers gouged by big players.
Inequality also distorts opportunity, leading to fewer potentially brilliant minds generating innovation and change that could benefit us all.
We desperately need growth, purchasing power and innovation. And astronomical top-end incomes are a barrier to that.
Refusing to address inequality through the tax system — or indeed exacerbating it — for fear it might damage growth is laughable. As Crikey has repeatedly noted, Trump’s inequality-fuelling tax cuts have done nothing for the average American, and would do equally little here.
Our pollies have learnt how to spend without fear. But both sides refuse to countenance taxing with the same courage.
They should ask us all to pitch in for this unprecedented recovery effort according to our means, whether Treasury requires it or not.