Labor needs a policy ‘circuit breaker’ now

Speaking to Melbourne's 'Herald Sun' on June 18^th, Australian Prime Minister Julia Gillard seemed calm in the face of disturbing poll results. In an article titled, "Why I Rolled Kevin Rudd," the Prime Minister seemed to hold out hope for a Labor victory in 2013. (We will assume PM Gillard did not anticipate the choice of title used by the Herald-Sun, with the usual loaded language and negative connotations).

Specifically, Phillip Hudson reported how Gillard, "warned that poll numbers might not lift until after the tax begins in July next year and anxious voters "live it" and see the effect of the whole package and compensation on their daily life."

What is most crucial at this point is for Labor to implement some kind of policy "circuit breaker," to stop voters from 'switching off' before it is too late.

On 18th June 2011, "popular support for the Federal Government [had] fallen to its lowest level in 39 years, with a…Nielsen poll putting approval for Labor at only 27 per cent." This was a devastating result for Labor.

Gillard cannot afford for everything to hinge upon reception of the carbon, tax a whole year into the future (ie: mid-2012). Even if compensation (and overcompensation) does emerge as intended, voters may already have firmed in their judgements before then.

But a National Disability Insurance Scheme could provide the vital 'policy circuit breaker' needed so desperately by Labor. We will return to this issue later.

The carbon tax is perhaps the most problematic issue for Labor, as fear has been whipped up so effectively by Abbott and by sections of the media.There are also tensions between the Greens and Labor.

The Channel 7 website has published an article reporting a developing impasse between Labor and the Greens on the form any future carbon tax will take.

Specifically, Jeremy Thompson reported that: "It is understood the Greens are unhappy with the Government's preferred deal on industry compensation, including substantial assistance to coal miners."

Here assistance to coal miners seems pointless. Already low and middle income consumers, as well as trade-exposed industries, should be compensated for any increased flow on costs from coal-fired energy.

However, if coal-fired energy plants are directly compensated, then where are the 'market signals' driving a shift to renewables?

The other question, here, is what rate the carbon tax will be set at. Ross Garnaut has argued that a carbon tax at $26/tonne would raise $11.5 billion in its first year.

This author has argued in the past that there will likely be a rate of $20/tonne, a position that seems to be popular with Labor. But in the past the Greens have argued for a rate as high as $40/tonne.

Also notable, is Garnaut's argument that pensioners ought not be 'overcompensated' because of previous improvements to pensions. Garnaut had also argued for compensation to be phased out only for incomes "well north" of $80,000/year.

It's important to note here that even before carbon tax implementation, electricity prices have risen in Australia by about 30% in recent years, and already this has hit pensioners hard.

Melbourne University Researcher, Roger Darville blames this situation on the troika of renewable quotas, the need for new infrastructure, and increased demand. But privatisation is the real 'elephant in the room' with increased finance costs and profit margins for the private sector, and reduced market power for small consumers.

And in any case increased demand should not simply translate into higher charges pocketed by private companies in the form of profit.Pensioners are already absorbing these and other costs (eg: water), and so should not be 'left out of the equation.'

From this it's possible to draw a number of conclusions:

Firstly, a higher carbon tax rate could provide more scope for overcompensation for pensioners, as well as low and middle income working families.

As this author has argued elsewhere, Newstart recipients are 'doing it tough,' to put it mildly. Indeed, Newstart was $237/week as of April 2011, and has not kept up with a rising basic cost of living.

In light of existing punitive active labour market policies, there are no decent or valid arguments not to reform Newstart. Real increases to Austudy are also crucial to provide conditions where students can apply themselves fully to study, rather than risk failure or underperformance as a consequence of the pressures of part-time work.

Here a 'loans scheme' is neither equitable nor fair. If reform is not implemented here in the context of carbon tax overcompensation, then it needs to be achieved separately.

But progressive Labor figures on a cross-factional basis, and the Greens, need to demand reform one way or another during the current term of the Labor government. Ultimately carbon tax overcompensation may prove the easiest path to reform regardless.

But to achieve robust overcompensation for low and middle income groups, difficult decisions need to be made about 'cut off' thresholds.

Based on previous modelling for a CPRS (carbon pollution reduction scheme, via emissions trading), it has been argued that a carbon tax at $30/tonne would cost families $863.20/year.

It's difficult to extrapolate a figure for single income earners from this, but it would be reasonable to assume the costs could be easily absorbed by individuals on $80,000/year. As well, the rate is unlikely to be $30/tonne.

Therefore, in order to maximise the scope for overcompensation for low-middle income groups, including pensioners and the vast majority of workers, compensation could begin to be 'phased out' at around $70,000/year (or maybe somewhat higher), dissipating entirely at $80,000/year. For example, for those who could reasonably be described as occupying that range from 'upper middle class' to 'wealthy.'

Robust overcompensation for low-middle income groups will be crucial if Labor is to retain government in 2013. But this must be paid for somehow.

Therefore after reconsidering, the author believes that to provide the scope for such extensive overcompensation, a rate of at least $26/tonne, as preferred by Ross Garnaut, and with the 'cut-off points' suggested here, is preferable. And of course the rate and cut-off thresholds would have to be properly indexed.

Finally, compensation might best be provided in the form of regular cash supplements (also indexed), as otherwise tax cuts could be 'taken for granted' and forgotten. With regular cash payments there would be a constant reminder of compensation provisions.

A 'circuit-breaker' for Labor

Labor has been taking 'hit after hit' in the polls and in popular media for a long time now. There are many publications that will put a 'negative spin' on pretty much anything and everything Labor says and does.

The danger is that voters will 'switch off', virtually determining the government's fate more than two years ahead of the next election. The carbon tax may turn out well ultimately, but a year from now it may be 'too late' for the government.

The government needs a 'circuit breaker' and needs it now. Labor needs to break the cycle of fearful speculation with an agenda of constructive and visionary reform with which to inspire and engage the electorate. The National Broadband Network (NBN) helped Labor 'across the line' last time, but the government needs new initiatives, as well as substantial progress on the NBN.

A National Disability Insurance Scheme has long been touted as an option by rising Labor parliamentarian Bill Shorten.

According to the 'Every Australian Counts' website, a NDIS would:

· Maximise employment opportunities for the disabled, with comprehensive support services and any necessary equipment;

· Provide similar support to assist in providing education opportunities;

· "Provide funding for home modifications and specialised equipment and support to ensure people are able to live as independently as possible in their own homes;"

· Provide support for family and carers;

· Provide "early intervention and support" for children with disabilities.

In addition to this a NDIS needs to provide substantial new funds (several billions every year) via a Medicare Levy-like mechanism rather than just a restructuring of the funding mix.

New funds are necessary to increase Disability Support Pensions and Carers' Pensions, extend support services and provision of necessary home infrastructure. and bring more crucial medications under the umbrella of the Pharmaceutical Benefits Scheme.

Specifically as a consequence of a NDIS, carers and disability pensioners should also receive a rise in their pensions of at least $25/week, indexed on top of existing pension formulae.

A NDIS could also source additional funds for improvement of mental health services, an issue which is resonating strongly with the electorate.While a NDIS could disrupt the cycle of fearful speculation about a carbon tax, it would also comprise a landmark reform. A genuine record of achievement for Gillard Labor.

Finally, the government could move onto the front foot regarding the 'equal pay' campaign being driven by the Australian Services Union. It should provide effective pay parity for workers (mainly women) in the community services sector.

As it is mainly women who are employed in this sector, this issue has been raised as one of effective gender discrimination. But not-for-profit organisations providing aged care and other services (as well as in the public sector) will need support from the government in adapting to any improved regime of pay and conditions.

Hence for these, and other vital reforms, the government needs to aim during this term for a sustainable expansion of social expenditure in the vicinity of 1.5% of GDP, backed by progressive tax reform.

Generous superannuation concessions for the wealthy could also be wound back and replaced with progressive collective capital formation.

But until the carbon tax is implemented, with accompanying compensation and overcompensation, some degree of fearful speculation will continue. Labor needs to finalise its carbon tax package soon, in order to put fears to rest.

But speeding up implementation could also be crucial and Labor could do well to aim for the end of this year, rather than allowing damaging speculation to continue until mid-2012. Again, by then it could be 'too late.'