I’m a regular visitor to the US and each time I come, I’m horrified anew at the state of the infrastructure; public schools that look like buildings out of the Gulag; LA freeways that are an endless pathway of overlapping pothole repairs; footpaths that are downright dangerous.
When I mention this to my American friends, the response is always the same, “Well, nobody wants to pay more tax.,” usually said in a condescending tone suggesting a subtext along the lines of, “Don’t you dumb Aussies understand the basic laws of nature?”
And my reply is always the same, “Well nobody wants to go to the dentist either, but I’m willing to if it gives me good teeth into my old age.” (Which, by the way, is where I almost am – my old age).
Yesterday we had lunch with a couple who are independent film makers. The have a house half way up Mt Washington – ie serious dollars, of which they are inordinately proud. He told me he does the maintenace on the home himself and spares no expense.
In the same conversation, she told me their maid had commented that the street out front reminded her of the street in front of her home back in Guatemala.
I asked if it couldn’t be fixed. Both said, simultaneously… you guessed it, “Nobody wants to pay more tax.”
This smart and capable couple appear not to see a disconnect, and that blinkered vision about taxes is almost stereotypically American.
The more I think about it, the more I actually do want to pay more tax. If I could be sure that it would result in better hospitals, schools and infrastructure, all of which I or my grandkids will use, I’d think it quite a good deal.
Just as long as the wealthy, the corporations… oh and the Prime Minister, all pay their fair share that is.
Oh, wait… Now I see the problem.
Michael Keenan MP, at the best of times not the sharpest blade in the Turnbull Government’s disturbingly blunt knife drawer, has proposed that corporations should be able to buy their way out of prosecution.
There are several reasons why this is very bad policy.
First, if you’re Ms/Mr Average Josephine/Joe, just try buying your own way out of prosecution. “Gee officer, was I speeding? Oh, I accidentally handed you a folded up $100 note with my driver’s license? Tsk, Tsk,” all said with a hopeful smile.
You’ll immediately be charged with offering a bribe. So, our Justice Minister is proposing one law for the rich and one for everyone else. Do I detect the ugly stench of The Institute of Public Affairs? I fear so.
The second reason – and this demonstrates that Keenan has no clue about how business works – is this. Let me use an example.
Suppose a corporation can save half a million a year by lowering food quality standards below legal levels. And suppose it transpires that the price of buying one’s corporate way out of prosecution is about half a million dollars.
Every CFO in this country will do a quick calculation and go to the MD with the following, “Look boss, we should do this. I’ll simply build a provision into our annual budget of $42,000/month. If we get caught, well there’s the money for the fine already set aside. If we don’t get caught, I’ll pull the half a mil back onto the balance sheet and we’ve got all that extra profit at year end.”
It’s called a “Win/no Lose” situation.
So, what’s your MD going to say?
Answer? Some variation of “Shit yeah!”
And that, boys and girls, is why this is both an immoral and a stupid idea.
When we’re all done with yelling at each other, it turns out that most Australians, and by most I mean upwards of 90%, are Social Democrats.
At one end of the spectrum of political belief, on a good day, in the whole country you might find about a dozen true Communists. If you do find one, be kind; it’s probably not their fault and they’re mostly harmless.
Rather more scarily, you’d find quite a few more Unregulated Free Market Crazies from the spectrum’s other end. Sadly, Ayn Rand’s garbage hasn’t all been swept into intellectual landfill where it belongs.
If you do encounter one of them, cross the street, for your own protection. Almost always, these are seriously not nice people.
Here are a few questions to help you figure out if you’re with the majority:
- Do you believe that democracy is the best form of government?
- Do you believe that a prudently regulated free market is the best way to organise an economy?
- Do you believe that society has a moral obligation to provide help and support for those among us who truly need it?
- Do you believe that our governments should act to reduce poverty?
- Do you believe that excessive inequality is dangerous?
- Do you believe that there are a few functions in our society, for example, Defence, Public Health, Law Enforcement, Prisons and Corporate Regulation in its varied forms, that should be in the hands of government and not private enterprise?
If you answer, “Yes” to all of these questions, then raise a beer and congratulate yourself on being a full accredited member of the sanest political group on earth.
Now all we have to do is to convince governments to pay attention – seeing as we are – it may surprise many to learn – still a democracy.
Oh, and here’s a caveat: Social Democrats are NOT the same as Democratic Socialists.
One accusation that is guaranteed to earn a company board a good smacking from shareholders, especially institutional shareholders, is to be accused of having a, “Lazy Balance Sheet”
This is when a company has plenty of equity but isn’t borrowing enough. That’s right, when it isn’t borrowing as much as it should be.
This is because companies grow by borrowing to invest; maybe a takeover, a new product development, a new factory or launching into another market. Shareholders expect that their board will invest the borrowed money wisely, i.e. in ways that will enable the company to repay the debt with extra profit left over for dividends and even more growth.
A debt equal to 40% to 50% of equity, (assets), is considered healthy.
But imagine if a company decided to borrow a big lump of money and simply give the money to shareholders in the hope that it will stimulate said shareholders to buy more of the company’s products.
The board would be sacked before you could say, “Where’s my bonus?”
And yet, this is exactly what Right Wing governments do all the time. The current Turnbull government during a time when our government debt is rising, want to give tax cuts to the wealthy and corporations instead of investing borrowings wisely.
You may well ask why. Treasurer Scott Morrison would tell you that such tax cuts stimulate the economy.
That would be, oh, what’s the word I’m looking for? Oh, right, that would be a lie.
How do I know it’s a lie? Because all the evidence, not just some of it, all of it, tells us clearly that Trickle Down is what’s technically know as Bullshit, and corporate tax cuts do ZERO to stimulate the economy; they merely stimulate corporate profits.
But let’s look at what happens when a government increases debt, (always accepting that it remains within that healthy debt range), and instead of making a gift of it to corporate government sponsors, it does what companies – and btw, what you and I would do – use the money to invest in projects that will increase our country’s wealthy down the track.
If a government, especially during a time of economic challenge, instead of madly rushing to surplus or giving tax cuts to the rich, borrows for infrastructure projects:
- Jobs are created. This immediately reduces the government’s welfare bill. See? We’re making money already. Wheeee!!!
- Creates profits for the, (Construction, Engineering, Fitting Out, Equipment Supply), companies that win the projects, on profits from which the government gains company tax, making more money already. Double Whhheeeee!! And the projects haven’t actually started to earn the nation anything from their functions yet already the government, (and we), are benefiting;
- The Infrastructure projects perhaps create new industries, e.g. building a technology park, which leads to new inventions and production output for us to sell to the world;
- The infrastructure projects perhaps make Australia more competitive internationally, e.g. a high speed rail to get agriculture output to shipping terminals more quickly and cost effectively.
And so it goes on.
And, just as an aside, as long as it stays within prudent inflation levels, a country can print money, thereby offsetting some of the debt. And if you think a country can’t create money out of thin air, then ask yourself how the US government has funded Quantitative Easing for a decade while paying off trillions in wasted wars.
So, bottom line? We should stop banging on about debt and demand that the government borrow and invest wisely. (Yeah, I know using the words, “government” and “Wisely” in the same sentence is always problematic.)
Now Morrison and his economically illiterate cronies will tell us that, “Governments shouldn’t be in the business of picking winners.”
To which I reply, Why not? Companies do it all the time. They pick winning strategies, borrow and invest in them.
And insisting on that being done, boys and girls, is what Shareholders can teach Voters.
Taking a leaf from the GOP playbook, the LNP is planning to raise the GST and use much of the additional revenue to cut corporate tax, the theory being that this will increase jobs.
So let’s play out two small scenarios and you decide.
Nat is Managing Director of Australian Kitchen Widgets Ltd. He’s making a presentation to the company board:
Nat: “Mr Chairman, Board members, as you know the government has reduced the corporate tax rate. I propose that we use this windfall to hire ten new employees.”
Chairman: “And what will these people be doing?”
Nat: “Well, nothing. We’re skilled managers. We already employ exactly the number of people we need to run our business.”
Chairman: “Meanwhile, I note that our sales are falling, so I would think we actually we need less people. Nat, PLEASE EXPLAIN OUR FALLING SALES.”
Nat, (now sweating a little): “Well, as you know the government also raised the GST, so working families have less money left over for luxuries like buying a widget.”
Chairman, speaking to other directors: “I propose that, instead of accepting Nat’s proposal, we use the tax savings to prop up our falling profits, thus keeping our shareholders happy and maintaining the value of our own shares.”
Enthusiastic nods of acceptance around the boardroom table
Chairman, (sternly): “Nat, I’ll be speaking with you later. You are dismissed.”
Nat: “Mister Chairman, as you know, the government recently reduced income taxes on working and middle class families…”
Chairman, (angrily) : “Yes, but they also increased the corporate tax rate, which is going to cut into our company profits. Our share price might fall.”
Nat, smiling broadly: “Let me put your mind at rest, Mr Chairman. Because millions of families have more disposable income, they are more easily able to afford little luxuries like having a widget in their kitchens. Some even have two. So, I’m pleased to report that our sales have increased steadily, enough in fact to more than cover the extra tax we have to pay. Not only that but we’ve had to hire ten additional employees to handle the increased demand for our products. I can confirm that we will meet our profit target for the year. Moreover, our staff and the local community are delighted that we’ve been able to create more jobs. We’ve even had a very positive story in the local media about our expansion.”
Chairman: “Congratulations, Nat. Our shareholders will be delighted – our share price will probably rise. Well done.”
Chairman, to fellow directors: “Well, Ladies and Gentlemen, whatever were we worrying about? Our profit target will be met, sales are growing, we’ve created more jobs…” Chairman smiles, “and those new employees now have disposable income and may buy even more widgets. Everybody wins! What an excellent board and management team this company has.”
Now, you, dear reader, tell me if the Turnbull government’s absurd plan to punish working and middle class families while giving a profit gift to corporations is sensible.