If nothing else, the upcoming budget week shows us the priorities of the government. We all know by now that this government is increasingly laying its political fortunes at the feet of a budget surplus and hoping that this will continue to drive down interest rates. It is one way that are attempting to deal with the feeling that the cost of living is continuing to rise.
There are rarely any major surprises on budget night: sure, the occasional announcement captures us off guard but after weeks of leaks and warnings about ‘tough decisions’, we all know what to expect. Then the sales job begins and we continue on our merry way.
The problem is, however, that a treasurer will never look us in the eye and tell us unpleasant truths. Sure, we are told that it is time we tighten out belts, but never will one admit to the limitations of both their projections or the very flawed models they are working with.
Here are four items that the treasurer should include in the budget but will, like all his predecessors, ignore.
The first is that the standard economic model is fatally flawed and we need to rethink ‘growth’. If you ever studied economics, you learn about the way of the world using the economics model of ‘perfect competition’ and ‘economic man’. This model is beautiful in its simplicity: supply equals demand, points of equilibrium, we all know what we want, firms are perfectly competitive and so on.
At the core of the model is the basic economics challenge: how to distribute finite resources in a world of unlimited demands on these. This is where the law of supply and demand plays out. This law, however, has one fatally flawed assumption: that continued growth will ensure that more and more of our demands will be achieved.
The problem is, however, that we cannot grow forever. In a world of seven billion people (and predicted to be almost 10 billion by 2050) not everyone can have a three bedroom house on a quarter acre block, a four-wheel drive, plasma television, a games console and so on.
There are simply not enough resources in this world. In fact, estimates show that if everyone lived like we in Australia do, you would need 3.8 Earths to support the current population.
The solution here is to rethink what we mean by ‘growth’. That is, we need a growth measure that includes the world’s natural assets, our education and many other social indicators, not only GDP.
This is not arguing for zero growth, but rather one that reflects the reality of what is possible and measures things that count beyond economic outputs.
The second point the treasurer should make is that increasing income is not the answer to our social problems. Studies consistently show that beyond a certain point, income adds nothing to human well being and satisfaction.
Yes, we all need to eat, have somewhere comfortable to sleep, feel safe and have various luxury items, but beyond this, any increase in income adds little to our level of satisfaction or fulfillment.
The answer is for the budget to be as much about social economics as about finance. Some of the greatest social challenges facing Australia at the moment include social isolation, mental health, and entrenched working poor. While there may well be an announcement here or there about dealing with some of these issues, these are seen as side issues rather than being endemic within our current economic system.
The third point is that societies inequity and disparity results in social problems that have tremendous economic consequences. As Richard Wilkinson and Kate Pickett showed in their important book, ‘The Spirit Level’ societies with smaller gaps between the wealthiest and the poorest do much better in all sorts of areas: lower levels of crime, drug use, suicide and depression.
In societies such as ours where we are seeing increasing levels of inequality, all these issues are intensifying.
The way to address such levels of inequality brings us to our taxation system. Taxes, when appropriately designed and targeted, implemented and transparent, allow a society the opportunity to build the appropriate social and economic infrastructure to thrive.
There are many taxes and subsidies in our society which do not meet these requirements and should be scrapped, and there are others that need to be designed and implemented with the aim of targeting growing disparities and wealth.
A capitalist system relies on hierarchies to both reward those that work hard and provide incentives for that hard work. There is nothing wrong with this except when it turns ruthless and brutish: two words that can describe the way the current system works. It must be addressed.
The fourth element is for the treasurer to ensure that the economy, and the many units that make it up including corporations, are there to serve the needs of society, not the other way round. Our current system rewards short term economic gains: from the CEO and board of directors whose fiduciary responsibility it is to maximize returns to shareholders, to the stripping of natural resources. There is little in the way our economic system which demands that the needs of society take priority over the economy.
In theory, we can all afford to be neoliberal economists demanding economic growth regardless of the social and environmental consequences, but centuries of experience show us that unfettered capitalism leads to destruction.
The treasurer should address these issues. Unfortunately, no treasurer will until the social and economic consequences become much too big to ignore - and this may be closer than we think.
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