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OSMAN:

From Schwartz Media, I’m Osman Faruqi, this is 7am.

As governments around the world scramble to repair their economies after pandemic-induced recessions, they’re adopting a surprisingly progressive policy measure: tax hikes. Both the United States and the United Kingdom recently announced measures to increase their tax rates, and spend the revenue on new social policies. But so far Australia is bucking the trend.

Today, national correspondent for The Saturday Paper, Mike Seccombe, on what Australia’s economic recovery plan is, and who stands to benefit.

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OSMAN:

Mike, the global economy has been reshaped pretty dramatically over the past year. Most of the world has experienced a pretty severe economic recession. So how are governments approaching the task of recovery?

MIKE:

Well, I think what's happening right now is quite fascinating, because it feels like the start, at least, of a change of direction from the economic orthodoxy that has, you know, basically come to define so much of the developed world for the past half century. the idea of trickle down economics.

Archival Tape -- Ronald Reagan:

“It is time to reawaken this industrial giant to get government back within its means and to lighten our punitive tax burden…”

MIKE:

We're now 40 years on from when Ronald Reagan famously declared in his inaugural address that, quote, ‘government is not the solution to our problem’.

Archival Tape -- Ronald Reagan:

“Government is the problem. From time to time…”

MIKE:

Well if Covid showed anything, it's shown that competent government is actually a big part of the solution. You know, I mean, that's what saved us. And so people's confidence in government has come up and governments themselves have realised they have to intervene more. And so big government, I think, is back, or at least it's coming back. If we look at a couple of the very big economies, you know, the ones against which Australia most commonly measures itself, they've opted to rebuild their economies, not by cutting services, not by austerity, which is what happened after the GFC, for example, but by raising more revenue and by redistributing income and wealth and by taking on big social projects, you know, the environment, poverty, things like that.

OSMAN:

Yeah, right. So can you tell me more about what exactly they're doing?

MIKE:

Well, let's let's go to the United Kingdom first...

Archival Tape -- Undefined Speaker:

“Madam deputy speaker, our response to coronavirus has been fair, with the poorest households benefiting the most from our interventions…”

MIKE:

The U.K. budget statement last month said this, and I quote, ‘the fairest way to repair the long term impact of the crisis on public finances is to ask everyone to contribute with the highest income households paying more’.

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“Asking more of those people and businesses who can afford to contribute and protecting those who cannot.”

MIKE:

And the Johnson government also increased corporate taxes.

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“So the second step I am taking today is that in 2023 the rate of corporation tax paid on company profits will increase.”

MIKE:

In total, they're planning to bring in, in the order of 68 billion extra pounds over the next three years through tax increases. On the other side of the Atlantic, the Biden administration and the US has been even more ambitious on their tax and expenditure plans.

Archival Tape -- Joe Biden:

“Today I return as your President to lay out a vision of how I believe we do that, rebuild the backbone of America.”

MIKE:

First of all his administration plans to modestly raise personal taxes on the rich, a few percentage points, but more dramatically, it's taken a big stand on corporate taxes.

Archival Tape -- Joe Biden:

“We are gonna raise the corporate tax, just doing that one thing will generate one trillion dollars in additional revenue over 15 years.”

MIKE:

More than that. The US government is also planning to crack down on profit shifting companies, shifting their profits artificially to tax havens.

Archival Tape -- Joe Biden:

“Amazon and 90 other major corporations paying zero in corporate taxes? I’m going to put an end to that…”

MIKE:

So this week, and I think this was tremendously significant, Biden's Treasury secretary, Janet Yellen, declared that the US was actively working with G20 nations, to agree to a global minimum corporate tax rate.

Archival Tape -- Janet Yellen:

“It's about making sure that governments have stable tax systems that raise sufficient revenue to invest in central public goods and respond to crises.”

MIKE:

So so this is big. And the other big thing, of course, is what they're planning to do with this. The aim is to raise 2.5 trillion, trillion dollars in revenue over the next 15 years, which will be used to pay for increased spending on the United States, crumbling infrastructure, on aid to the poor, on education, on climate and environment.

OSMAN:

Mike, these are pretty significant steps both in the US and the U.K. And I mean, they feel relatively radical given how we've become so accustomed to budget cuts as a way to repair the economy. So what about what’s happening closer to home? What are we doing here in Australia?

MIKE:

Well in contrast to the U.S. and the UK which are finally moving to ditch the idea of trickle down economics and are increasingly trying to claw back more from the wealthy and from corporations. Australia is doubling down and doing the opposite, reducing the tax base and directing more money to Australians who already have lots of it.

So although it hasn’t been able to cut the corporate rate, it has put through some more tax breaks for corporations and it remains committed to implementing a huge new round of personal tax cuts, income tax cuts that would cost the budget 95 billion dollars over six years from 2023, 2024. And these tax cuts were something the government campaigned on at the last election. Since the election they’ve been trying to sell them as part of the COVID-19 Economic Recovery Plan. But the benefits of these cuts would flow overwhelmingly to high income earners. The top 10 percent of income earners would get 31 percent of the benefit, the top 20 percent would get more than half, while the bottom 10 percent would get nothing. So these are extraordinarily skewed to the richest people

OSMAN:

We’ll be right back.

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OSMAN:

Mike, the Australian government's economic recovery plan seems to rely very heavily on tax policies aimed at the richest Australians. Do we know more about who exactly this approach benefits and, perhaps more importantly, who it leaves out?

Archival Tape -- Scott Morrison:

“Welcome to this first cabinet taskforce on women's security…”

MIKE:

Well, not at all by coincidence, the same week as Scott Morrison got together his, you know, think tank on how to empower women and give them greater economic benefits.

Archival Tape -- Scott Morrison:

“As we gather together here in this place as we often do as a full cabinet with a particular focus and lens on our challenges as a country to ensure that women have, at least, equal opportunity…”

MIKE:

The same week, the Australia Institute put out a new report called ‘Rich Men and Tax Concessions’, which looked at how Australia's system of tax concessions would disproportionately benefit men. The report went to four policies in particular, four loopholes in particular that collectively cost the government about 60 billion dollars a year. And they go to the way superannuation is taxed, to discounts on the capital gains tax, to negative gearing and franking credits. The detail is pretty complex in each case but basically they're all policies that function as tax breaks and 70 percent of that 60 billion dollar benefit, the report found, flows to men.

OSMAN:

Right. And Mike, is that because those policies overwhelmingly benefit wealthy Australians and men are more likely to be wealthy?

MIKE:

Yeah, that's exactly right. It's not that these tax breaks are designed specifically to benefit men. They're designed in a way that benefits high income, high wealth people. It just happens that in Australia, well, probably everywhere. But in Australia, these people tend much more often to be men. In the case of superannuation, which is by far the biggest of these concessions, it's worth around 41 billion dollars a year. It's design favours those on high incomes because super contributions are taxed at a flat rate of 15 percent. So the more money you earn, the higher is your income tax rate and therefore the greater benefit you get by putting money into super instead of paying the full freight on it.

OSMAN:

Mike, we're talking about a lot of money here in terms of these tax concessions and the tax cuts the government is relying on to try and get us through this economic crisis. If the government is going to spend tens of billions of dollars, is there a better way to do it than these tax breaks that, as you've outlined, benefit not just the richest Australians, but disproportionately benefit men as well?

MIKE:

Well, there are many better ways, I mean, if we go back to what Biden's doing in America, for example, spending on infrastructure, on education, on electric vehicles and home insulation and, you know, measures to reduce greenhouse gas emissions, programmes to reduce poverty, that sort of thing. But just to take a view from this country, if you remove the superannuation tax break, for example, you could fund a universal pension scheme sufficient to keep all of Australia's retirees out of poverty with billions and billions of dollars left over. And for just a fraction of the cost of these planned tax cuts for high income earners, you could properly fund the NDIS, the aged care system, more on climate change adaptation, etc..

The other thing, of course, you could do is and this is particularly pertinent to this moment, you could fund childcare. Indeed, for a few months in the middle of last year, we did have free childcare. It's not hard to do, but the government stopped doing it, of course, once the worst of the pandemic was over. As things stand right now, childcare is so prohibitively expensive that it's barely worthwhile for many women to actually work, you know, which in turn exacerbates gender inequality. So if you made childcare free or at least made it much more affordable, it would be beneficial in terms of creating jobs and stimulating growth far more so than tax cuts. Many, many more jobs are generated through childcare than just by giving tax cuts to the rich.

OSMAN:

Mike, it’s not really a secret that the Coalition has an ideological preference for tax cuts. They’re not just a response to this pandemic, they reflect the government’s worldview. So do you think that’s likely to change given the scale of the economic challenges facing us?

MIKE:

Well up until the pandemic all of these governments, the UK, US and Australia, were pretty committed to cutting tax. Then Covid-19 forced a reassessment, at least in the UK and US and they’ve changed tack. But here in Australia we haven’t seen that, the government is framing its ideological commitment to tax cuts as a recovery measure. When times are going well, i.e. before Covid, the prescription is tax cuts. When the times are going badly, after Covid, the prescription is still tax cuts in this country. So the short answer to your question is no.

On the current forecasts, when our nation recovers from the pandemic and the pandemic recession next financial year, the federal government's total tax revenue is expected to be significantly lower than it was before the economic downturn. Projections from the Independent Parliamentary Budget Office show deficits just as far as the eye can see, for at least 10 years. So the fear here is that the government will try to fill that hole by cutting services. Quite unlike the UK, which, by the way, is like the coalition. It's a conservative government. But the Morrison government appears determined to stick with its current sort of trickle down plan that will give more money to the top end in the hope that they can somehow stimulate everybody and, presumably, at the same time will have to wind back on the services and programs that will benefit the less well off.

OSMAN:

Mike, thank you so much for your time today.

MIKE:

My pleasure.

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OSMAN:

Also in the news today…

The former head of Australia Post, Christine Holgate, has blamed Prime Minister, Scott Morrison, for driving her out of her position. Holgate told a Senate inquiry yesterday that Morrison had humiliated her Parliament, and said she was unlawfully stood aside. Holgate resigned as the CEO of Australia Post last November after telling a Senate hearing her office had purchased 20,000 dollars worth of Cartier watches for employees.

And doctors have confirmed a second case of a rare clotting disorder linked to the AstraZeneca vaccine in Australia. The new case was found in a woman in her 40s who had received the vaccine. The Therapeutic Goods Administration said that the two cases in Australia so far equated to a frequency of 1 in 350,000.

I’m Osman Faruqi, this is 7am. See ya tomorrow.

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