How to fix the cost-of-living crisis

6 May 2022
Ben Hillier

Australian workers’ living standards declined by about $800 last year and will go backwards by another $2,000 in the first half of this year, according to the Australian Council of Trade Unions. If current trends continue, workers will be $4,000 worse off by Christmas.

The federal government says that Australia’s 5.1 percent inflation rate is lower than in many other countries and that the prices of many goods have been driven higher by things out of its control, namely the pandemic-related supply-chain bottlenecks internationally and Russia’s invasion of Ukraine.

While there is some obvious truth to this, the idea that the cost of living in general is out of our control is rubbish. There are two things that could be done immediately: raise incomes and cap or lower prices of essential goods and services.

The prime minister told reporters on 5 May that he doesn’t have “special magical powers” to lift wages. But he does. It’s called “legislation”. The idea that the economy is some power unto itself and beyond the realm of our control—or at least, that the Fair Work Commission is the only authoritative body that could possibly make a ruling on the minimum wage—is a total mystification.

Governments could simply make it illegal for wage rises to fall below the rate of inflation. That is, they could legislate that the capitalist class cannot reduce working-class living standards. They could also legislate that government payments such as pensions and unemployment entitlements be the equivalent of a living wage and increase with the rate of inflation.

The reason they don’t do these simple things isn’t that the economy is too complicated, or that it is governed by the natural and unalterable laws of physics (however much university departments attempt to give a scientific gloss to the ideological axioms of economics courses). It’s because doing so would reduce capitalists’ profits, either directly by cutting their margins or indirectly by applying higher taxes on their incomes to pay for government payments to workers.

A fundamental question of economic life under capitalism is the share of society’s wealth that goes to workers and the share that goes to bosses. Pretty much everything—every technical issue, every federal budget, every tax policy—is related to this question. And governments invariably rule in the interests of the capitalists.

So the wealthy are about to get their taxes slashed, while working people are desperately struggling. The Parliamentary Budget Office estimates that the stage three tax cuts supported by both Liberal and Labor will result in the richest 20 percent being almost $140 billion better off by the end of the decade. That’s less money for the government to spend on essential services and payments to workers.

Further, the company tax rate has dropped from 49 percent to 30 percent over the last 40 years. In reality, it is even lower than that due to “franking credits”, which return corporate taxes to company owners, and massive tax avoidance. Meanwhile, a goods and services tax has been imposed. That’s a 10 percent tax on consumption that is disproportionately paid by workers. One of the first things we could do about prices is abolish that 10 percent consumption tax.

But the key issue isn’t simply taxes. It’s that almost all essential goods and services are produced to make profits for private companies. If our starting point were how to satisfy human needs, rather than how to augment the bank balances of capitalists, it would be easy to address the cost of living: simply regulate the prices of the most important things or provide them for free.

For example, according to the Bureau of Statistics, one-third of Australian household spending goes on housing, utilities (gas, electricity, water), phone and internet, and health and medical expenses. The poorest people often spend more than 30 percent, or even more than 40 percent, of their income on rent alone.

The utilities and telecommunications networks, which are generally “natural monopolies”, could be put back into public hands (where they used to be) and provided free of charge (which they never were). That could be paid for by cancelling the proposed tax cuts for the wealthy, increasing the company tax rate and eliminating massive military spending. Even before that, there could be price controls to stop the energy companies ripping people off and to keep consumer costs down.

The same goes for health and medical expenses. No-one’s access to care should be dependent on how wealthy they are. Health care should be provided by the state, not by companies whose loyalties ultimately are to shareholders rather than patients. We need a huge expansion of public practices in which doctors are paid wages, rather than consultation fees, and from which medications are dispensed free of charge or are heavily discounted.

Housing prices and rents, which in capital cities are out of control, have been driven up by government policies favouring investors and speculation. They intervene into the markets all the time to help the rich grow their wealth: negative gearing, concessions on the capital gains tax and other incentives have driven up prices beyond the reach of entire generations of the working class and turned a basic human need, shelter, into a casino for privileged gamblers.

There should be rent caps, a huge investment in public housing and penalties for or restrictions on hoarding (i.e. owning multiple properties). According to accounting and consultancy firm KPMG, the major Australian banks made $63.5 billion in interest last year. There should be mortgage-rate caps for owner occupiers to stop this usury. Better, the banking system should be nationalised so that the resources of the country can be democratically directed and used to finance things like public housing, amenities, transport and infrastructure.

Dealing with these few areas of working-class consumption alone would save households tens of thousands of dollars a year. But the goal should be more ambitious: taking every necessity (not only water, power and telecommunications but also shelter, staple food production etc.) out of the private market. Every good and service that we need to survive and to thrive should be taken out of the control of people who see in them only a means to augment their own wealth. Production and distribution should be democratically planned so that the collective resources of the world provide for the majority of the planet.

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