Increasing Taxes, the fairest and most just solution to fiscal deficit

The current Federal Government and in particular, the treasurer, Joe Hockey, seem to have learnt nothing from the current leadership debacle and the opinion polls that helped precipitate it.  It is not so much about personalities as policies and the perceived lack of fairness in the government’s policies, particularly, the budget of May last year.  Today, Joe Hockey is once again pushing for and warning of, budget of cuts this year.

In Leigh Sales interview with the Prime Minister, Tony Abbott during the 7.30 pm Report on Monday 9^th February, Tony Abbott said that they were a pragmatic government and if one way did not work they could look at doing it another way.  Yet Joe Hockey’s push for budget cuts seems more of the same.

Despite the PM’s claim, the government seems incapable of a pragmatic approach given it is so ideologically driven.  An ideology that is incapable of addressing our problems in the twenty-first century.

The PM’s defines  who he and the government is: `Small government, lower taxes and greater freedom.  He leaves out the importance of equal opportunity and equity.

Surely a pragmatic approach to our current fiscal dilemmas whatever degree of severity they have is logically quite simple.

• What are the essential services in a just and fair democratic society particularly in terms of employment, education and health?
• What do these cost?
• What is our current revenue?
• If we do not have enough money, is there enough money in the commonwealth to fund these essentials in an equitable way?

If we say that there is enough wealth in Australia to fund these essentials and there is not enough money coming in, clearly we need to increase taxes.  As Thomas Piketty says of taxes, in his book on `Capital in the Twenty First Century’, it is the fairest way to raise revenue in a social democracy. (p 12)  This would probably mean going back to tax rates of the pre-mining boom times, that is prior to the Liberal and Labour governments’ tax cuts that resulted from the mining boom.

Would these cuts help the deficit?  If not raise the tax rate again or take the option that Thomas Piketty suggests in his conclusions, create a progressive tax on capital (wealth) to overcome the structural inequality inherent in Capitalism, which he expresses as r > (greater than) g.  Where r is the private rate of return on existing capital and is significantly higher for long periods of time than the rate of growth of income and output, g.  “The inequality r > g implies that wealth accumulated in the past grows more rapidly than output and wages.”  (p 572)  Hence inequality is growing and is unlikely to even out as many optimistic economists thought in the last century.  The exception to this was the impact in the twentieth century of the two world wars and the depression, where capital was significantly impacted.

This government seems hell-bent on cutting taxes then hitting the most marginalised by cutting services to pay for the tax cuts that benefit those who are better off.

Joe Hockey clearly is trying to solve the problem within an outmoded framework.

Income Tax increases together with the suggested progressive Tax on Wealth would mean that the wealthy, who do not, currently, do a fair share of the lifting, would have to do a truly proportional share of the lifting.  Surely a country with a high proportion of millionaires can do better at providing the services essential for our society and particularly the most marginalised.