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July 2005   
F E A T U R E S

Interview: Battle Stations
Opposition leader Kim Beazley says he's ready to fight for workers right. But come July 1, he'll have to be fighting by different rules.

Unions: The Workers, United
It was a group of rank and filers who took centre stage when workers rallied in Sydney's Town Hall, writes Jim Marr.

Politics: The Lost Weekend
The ALP had a hot date, they had arranged to meet on the Town Hall steps, and Phil Doyle was there.

Industrial: Truth or Dare
Seventeen ivory towered academics upset those who know what is best for us last week.

History: A Class Act
After reading a new book on class in Australia, Neale Towart is left wondering if it is possible to tie the term down.

Economics: The Numbers Game
Political economist Frank Stilwell offers a beginners guide to understanding budgets

International: Blonde Ambition
Sweden can be an inspiration to labour movements the world over, as it has had community unionism for over 100 years, creating a vibrant caring society, rather than a "productive" lean economy.

Training: The Trade Off
Next time you go looking for a skilled tradesman and can’t find one, blame an economist, writes John Sutton.

Review: Bore of the Worlds
An invincible enemy has people turning against one another as they fight for survival – its not just an eerie view of John Howard’s ideal workplace, writes Nathan Brown.

Poetry: The Beaters Medley
In solidarity with the workers of Australia, Sir Paul McCartney (with inspiration from his old friend John Lennon) has joined the Workers Online resident bard David Peetz to pen some hits about the government's proposed industrial relations revolution.

C O L U M N S

The Soapbox
State of the Union
Unions NSW secretary John Robertson lifts the lid on ‘The Nine Myths of Modern Unionism’

The Locker Room
Wrist Action
Phil Doyle trawls the murky depths of tawdry sleaze, and discovers Rugby is behind it all.

Culture
To Hew The Coal That Lies Below
Phil Doyle reviews Australia's first coal mining novel, Black Diamonds and Dust.

Parliament
The Westie Wing
Our favourite State MP, Ian West, reports from Macquarie Street that the Premier is all the way with a State Commission.

E D I T O R I A L

After the Action
After a National Week of Action that has had everything from mass rallies in all capital cities to IR chat rooms opening on the Vogue Magazine website it’s fair to say that the first objective of this campaign – to raise public awareness – has been achieved.

N E W S

 Don't Get Angry, Get Organised

 Feds Threaten Hardie Battlers

 Beasts of Bourbon Play Dog

 Churches on Workplace Mission

 Unions Are The New Black

 Muster Has Bosses in Fluster

 Workers Flood to Protests

 Official: Libs Don’t Know Own Laws

 Schools Out For Uni Bosses

 IR Campaign Taxing Andrews

 Air Safety at Risk

 Carr Runs Over Lib Laws

 Aga Khan Workers Gaoled

 Activists Whats On!

L E T T E R S
 Workers Give In FNQ
 Power and the Passion
 Mao and Then
 The Third Way Hits A Dead End
 Unfair For All
 What Is To Be Done?
 Black Hawk Up
WHAT YOU CAN DO
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Economics

The Numbers Game


Political economist Frank Stilwell offers a beginners guide to understanding budgets

*************

When I hear a government announcing its annual budget I usually ask the following questions:

1. How appropriate is it for the macroeconomic conditions?

The primacy of this question reflects the standard 'Keynesian' view that budgets should contribute to macroeconomic stabilisation - ironing out the cyclical pattern of booms and slumps to which capitalist economies have always been prone. On this reasoning, when economic growth is slowing (as is currently the case in Australia) one would expect the government to budget for a deficit (or at least a reduced surplus) in order to stimulate the economy. The problem now is that deficits (or even reduced surpluses) are seen by the orthodox (non-Keynesian) economic commentators as indicative of inefficient government economic management. That throws effectively the whole of anti-cyclical macro policy onto monetary policy - the periodic adjustment of interest rates by the Reserve Bank. This is unfortunate because monetary policy is the 'heavy blunt instrument' in the armoury of economy policy, tending to cause much social damage when rising interest rates impact adversely on house-purchasers and business investors.

If the economy does slip towards recession then the budget tends to go into deficit anyway (as the government's tax receipts fall and its expenditure on unemployment benefits rise). So budgetary policy does interact with the macroeconomic conditions, one way or the other. Better to make the policy explicit and purposeful rather than incidental. At present, the economic situation is on a bit of a knife-edge. Much depends on whether the US economy shifts from boom to slump: many economic commentators are warning that its current trade deficit is not sustainable, and therefore that something has to give. Only about 2% growth in the Australian economy is forecast for the year ahead, but even that modest rate of growth is uncertain.

2. What impact does it have on the distribution of income?

Budgeted changes to either taxes or expenditure patterns always have distributional consequences. So 'who gets what?' is an obvious question to ask about a budget, although it is sometimes difficult to discern the net effect of multiple changes. Some aspects are clear enough though. Reductions in income tax, for example, reliably benefit the higher income groups. This even applies to raising the tax-free threshold or cutting the tax rates on low levels of income because such cuts actually have much greater benefits for people on the higher marginal tax rates. Cuts in income tax rates for lower incomes are always worth more, in absolute dollar terms, for higher income earners. So this invariably causes more inequality in after-tax incomes.

Incidentally, there is no evidence that income tax cuts have a positive impact on work and productivity. As every economics textbook points out, the net effect of a tax change depends on the relative size of income effects (ie. less work needed to generate the same income after tax) and substitution effects (people substituting work for leisure as a result of the tax cut). Policies claiming to increase 'incentives' are usually more about redistribution (from poor to rich) in practice.

3. What social priorities does the budget embody?

Budgets reflect the government's social agenda. So, first and foremost, how much does the government want to divert spending from individuals to society as a whole, ie. by prioritising better social services over tax cuts? Second, what are the public spending priorities? Defence spending or university funding? Expenditure on child care or pensions? Public housing or business subsidies? A budget is an essentially political document. It impacts not just on the distribution of income, but also indicates which groups are to be socially encouraged and which will be subject to more authoritarian control by government eg. as the result of tighter eligibility requirements for people dependent on social security payments.

Fiscal policies also reflect ideological commitments. The privatisation (sell-off) of Telstra for example, is likely to impact adversely on the prices and the quality of services to non-metropolitan users of communication services if commercial criteria swamp community service obligations in the privatised corporation. How much weight is put on those social costs affecting rural communities is a political judgement.

4. How will it affect the relationship of the national economy to the rest of the world?

Budgets are primarily about managing the national economy, but they also have the capacity to affect external trade and capital flows. This is very important in the modern Australian context because the policies pursued by both ALP and Liberal-National governments over the last 33 years have reduced barriers to international trade and capital movements. So, if the budget boosts domestic consumer spending (eg. by cutting income taxes) that predictably increases spending on imported goods and thereby increases the current account deficit. Australia's ballooning current account deficit is a major problem. It requires massive capital inflow - and therefore ever growing dependence on foreign investment - to produce a 'balance of payments'. A government concerned about this problem could introduce selective industry and trade policies. But such policies are apparently unacceptable to governments imbued with an 'economic rationalist' belief in the virtues of the free market.

5. Will it contribute to a better quality environment?

Budgets can be used for the pursuit of environment goals, if governments are so inclined. The introduction of a 'carbon tax', for example, would tax goods according to the amount of non-renewable energy resources that go into their manufacture. That would discourage production and consumption of those goods. It would be preferable, from an ecological perspective, to a 'non-discriminatory' tax such as the Goods and Services Tax (GST), for example. Adjustments to petrol excise can have similar effect. Governments can also steer investment into more ecologically-sustainable forms, eg. through subsidies to industries developing and using solar-power technology. Therein lies an opportunity to link environmental goals with policies to increase exports and reduce the nation's current account deficit. Whether a government implements such a policy is a political choice.


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