Tony Abbott's Austerity-Like Measures Will Hit Poorer Communities the Hardest

23 January 2014

Originally published by The Guardian.

Even more alarming than the news that our economy shed almost 32,000 jobs in December is the likely impact that extreme budget cuts would have on the communities where the labour market is already at its weakest, like my electorate of Rankin to the south of Brisbane.

Even more alarming than the news that our economy shed almost 32,000 jobs in December is the likely impact that extreme budget cuts would have on the communities where the labour market is already at its weakest, like my electorate of Rankin to the south of Brisbane.

To help us understand this issue, three academics from Griffith University, Charles Darwin University and Newcastle University have developed anemployment vulnerability index to identify the suburbs most at risk of future joblessness. Five of the 13 "red alert" suburbs in metropolitan South East Queensland identified for "entrenched disadvantage" are in Rankin, plus three of the nine suburbs identified for "emerging disadvantage". 

Perhaps the most troubling aspect of this new research into employment vulnerability is the warning that radical austerity would make the situation worse; causing already-vulnerable suburbs to be even more so. In this respect, thestudy finds that a lack of jobs necessitates a far less contractionary budget position than that flagged by the government – that is, less cuts.

The authors single out trades training, a measure already cut by the Abbott government, as crucial to combatting spatial patterns of unemployment. Cuts like these will affect already disadvantaged areas via a “double whammy” effect of job market inefficiency and a lack of region-specific information about job possibilities. 

So communities like mine have a lot of skin in the game when it comes to the likely recommendations of the Abbott government’s audit commission. And thanks to Campbell Newman and other state governments, we already have some experience of the pain inflicted on the most vulnerable communities by exercises of this kind, designed as they are to justify harsh cuts to jobs and services, particularly in education and health.

The odds are already stacked against those on low and middle incomes because the audit commission panel handpicked by the prime minister and treasurer represents a narrow part of society, in this case big business (a point well-made by my colleague senator Dastyari earlier this month). The problem isn’t the involvement of business, which is welcome, but that the panel lacks broader representation of working people and those on fixed incomes like pensions and payments.

From the Business Council of Australia’s last budget submission, we already know the areas likely to be targeted by the panel. Unsurprisingly, for example, they repeat their argument that the burden should be shifted away from businesses in the tax system towards more consumption taxes like the goods and services tax, which disproportionately hit the poorest Australians. Recommendations like these are the predictable but nonetheless disappointing outcome of a panel representing one narrow segment of the population.

The Abbott government will sit on this report for the three months between February and May, when the budget is brought down. And while they do, a very important debate is being unfolding in other advanced economies about a potential role for business tax reform in funding human capital improvement in the form of education and digital inclusion. Even the free-market The Economist publication has called for the winding back of business tax perks to fund a dramatic improvement in the tools necessary to build intergenerational social mobility.

Social mobility is important not only from a fairness perspective, but also from the perspective of future economic growth. With the institutional barriers to intergenerational mobility that currently exist, Australia is unable to fully take advantage of the dynamism and creativity of all members of our society.

The foundations of social mobility are providing people with the tools of their own success, so that they can become confident and self-sustaining actors in a more innovative economy. This involves reorienting public spending away from the grab-bag of concessions for those who least need them, towards more strategic investment in human capital and digital inclusion for those with the most to gain and the most to contribute.

To achieve these outcomes, those from the top end will need to pay their fair share. As another colleague, Andrew Leigh, pointed out in the Herald Sun this month, Australia is missing out on $700m of company tax revenue as a result of tax breaks to multinational companies. Leigh’s arguments follow the work done by former assistant treasurer David Bradbury on profit-shifting, for which he earned inclusion in the prestigious International Tax Review’s Global Tax 50. The G20 and the OECD have both also taken up work on profit-shifting, in recognition of the huge hit to a budget’s bottom line.

If the commission of audit report is to be anything other than a representation of the business community’s wish list, then it needs to take these sorts of ideas into account. It needs to spare those who are already most vulnerable in our community from harsh cuts that will make their chances of employment or their living standards much worse than they are already. It needs to recognise that the wealthiest in our community have a role to play when it comes to building the kind of budget capable of investing more in human capital and social mobility.

The portents are not good when you consider the budget decisions taken so far by the Abbott government: to ditch needs-based schools funding, to provide relief to those at the top while trying to slash the school kids bonus for those who need it most, to abolish help for low income earners in the superannuation system in favour of tax breaks for those earning the biggest incomes.

These types of spending cuts may provide budgetary relief in the short-term and satisfy an ideological agenda, but they are not about to address any of the key problems facing our economic sustainability in the future – like barriers to intergenerational economic mobility. If the prime minister, his treasurer and his panel were really concerned with long-term economic prosperity, they would be looking into these issues as a matter of priority.

First published by The Guardian on 23 January 2014.