Chinese business is under constant suspicion of trying to peddle influence in Australia, yet 15 out of Australia’s biggest 20 listed-companies are majority owned by US investors. Michael West asks who are the benefactors of the biggest bailout in Australian history?
29 April 2020 | Michael West, Michael West Media ( Image: Alex Anstey)
We’re all socialists now. Or are we? There was the grande dame of the big business lobby Jennifer Westacott alongside trade union supremo Sally McManus on ABC morning radio. Sisters-in-arms united in a rally-cry for Stimulus Mark IV.
Rupert Murdoch’s The Australian and the big business junta at the Australian Financial Review too; eschewing their normal welfare vitriol for adulation.
A month ago, this from Finance Minister, Mathias Cormann:
“No, we will not look at a UK-style system [of income support] because in an Australian context that just wouldn’t work,”
One week later: “But we are going to do it in an Australian way”. Kaboom, income support for six million Australians.
How rapidly, and radically, things have changed. Same deal from Prime Minister Scott Morrison, an heroic backflip as he unfurled the biggest hand-out in Australia’s history, a $130 billion income package.
It is detente in the culture wars as ideological foes of left and right confront the common threat of coronavirus. Yet the esprit de corps will not last long.
A good package but flawed
The good news is, in the face of the most momentous economic disaster in living memory, the Prime Minister and the Government have realised they are here to govern, not to outsource.
The latest stimulus is tacit admission that the previous stimulus, Stimulus III, was a dismal attempt to privatise the bail-outs to the banks. They have since, quickly, realised that there was no point shelling out $90 billion to the banks (via QE) and pleading with them to lend it to small business.
What business needs is customers, not debts.
And so it was they they are giving money straight to the people, rather than simply showering the world’s most mollycoddled banks in more liquidity, banks incidentally whose apparently benevolent mortgage holidays are quietly an excuse to profit from compound interest.
This is a supply AND demand side shock after all, not merely a financial crisis like the GFC and the solutions to the Corona Crisis are quite different. With the benefit of “going second”, having watched the massive stimulus measures unfold in the US, Ireland, Germany, the Netherlands, New Zealand and the UK, the package has its merits; it will stimulate, it will save jobs.
Ugly corporate welfare demands
The bad news is that, inevitably, Stimulus Mark IV has its flaws; millions will fall through the cracks of the JobKeeper package. Their cries will rise. The landlords are already up in arms. Everybody wants in. The challenges for governments are immense.
Even Virgin Australia, a company owned by state corporations in China, Singapore and Abu Dhabi – a company founded by Richard Branson, a bloke who lives in a tax haven, and which never pays income tax – demanded Australian taxpayers bail out its shareholders. That mess is now in the hands of administrators.
And in the most juvenile response yet, Alan Joyce, the chief executive of rival airline Qantas, demanded $4.2 billion in taxpayers’ finest should Virgin have got its bail-out.
Aside from the ugly jousting for taxpayer support from corporations which pay little or no tax, aside from the hypocrisy of the newly minted caste of post-neo-conservative socialists who once derided regulation but now crave hand-outs, the Government has structured a scheme to entrench the status quo once the coronavirus blows over.
In this, Australia may miss the chance for vital reform, this historic opportunity to address rising inequality and the dominance of large corporations over democracy.
Reward for dependency
What the Government has done here via Stimulus IV is to set up a scheme to reward both employers and employees. If you are a boss, have a boss, or had a boss and are keen to get your boss back, you get money.
Sole traders and casuals had to find out via the legislation and how the Tax Office deals with various applications. Sole traders, who earn less than $75,000 per year, are legally entitled to opt out of the GST tax system, yet the sole trader eligibility for JobKeeper is assessed by the Tax Office on the basis of GST lodgements.
Regarding casuals, Assistant Treasurer Michael Sukkar said, “It depends on your employer relationship”. “If you are a casual who has multiple employers you can nominate one employer and if that employer nominates you, you are eligible.”
However it plays out, the stimulus is designed to entrench the employer/employee relationship. It does encourage employment and it does rescue millions of Australians with income support. Yet it also encourages dependency, and a system which has failed to cope with external shocks. This is the second set of corporate bail-outs in 12 years.
After the GFC and the bail out of the banks, inequality rose and large corporations and billionaires emerged wealthier and stronger than ever.
Meanwhile the gig economy has left millions vulnerable. The casualisation of the workforce, which has arisen from deliberate government policies of deregulation over the past two decades – and is turbocharged by technologies of automation – has left millions stranded, disenfranchised. Some will scramble into JobKeeker, if found eligible, but the structural problems with the system will persist.
The mechanics of it
Many are asking how this cool $130 billion will be funded. Where will they find the money? Who will pay for it? The quick answer is Quantitative Easing (QE), that is, they will create money out of thin air.
To elaborate, and there is not a lot of detail about to shed light on who will pay for Stimulus IV, Federal Treasury is likely to issue billions of dollars worth of Commonwealth bonds on debt markets overseas. The banks will buy them, other investors too, then the Reserve Bank will stand in the market and buy from them. In this way, new money is created.
The danger here is that more money can mean inflation but under the circumstances – record low interest rates and a comatose economy – that is a bet central banks are more than willing to take globally.
The political mechanics are interesting as well. Australia may well have had the best unemployment figures in the world when the March numbers were announced. The Jobkeeper allowance has been backdated to March 1 and has been set at $1,500 a fortnight. That compares with $1115.70 a fortnight from the recently doubled Newstart allowance, renamed JobSeeker.
So, shifting from JobSeeker to JobKeeper will net an applicant an extra $384.30 a fortnight, definitely worth the effort of a recently unemployed worker asking for their boss to fill out a form to get their job back. Politically, it is clever because it will pull a lot of people off “unemployment benefits” whether they are working or not.
Apart from the assorted state government stimulus initiatives, the Federal Government has been notching up stimulus at the rate of more than one per week.
- On March 12, a $17.6 billion stimulus – a $4.76 billion doubling in Newstart allowances, now dubbed Jobseeker, and $6.7 billion for business wage subsidies. The former an extremely welcome relief for the poorest Australians and economically sensible as they are sure to spend it. The latter, a “trickle down” initiative as businesses but only partially effective as businesses were dropping customers and closing doors by the day.
- On March 19, a $90 billion three-year funding facility was declared by the Reserve Bank to help banks continue to lend to business, and another $15 billion aimed at second-tier banks and other lenders. Another trickle down initiative, essentially a liquidity fillip for the banks who are more likely to lend it to large corporations more likely to pay it back.
- On March 22, a $66 billion package, including a $550 coronavirus supplement to Jobseeker and a second $750 payment to welfare recipients. This was designed to keep small business keep their workers but it was flawed in that it incentivised employers to keep higher paid workers and discard those on lower incomes.
- On March 30, the big $130 billion income support package followed income support measures in other countries. This is very welcome and benefits some six million Australians but is designed to entrench the employer/employee relationship and fails to support the millions of Australians who fall through the eligibility cracks.
This op-ed was first published as Cufflinked Comrades: neo-conservative socialists and the victims of the big bail-out by MichaelWest.com.au, Michael West is widely regarded as Australia’s leading investigative reporter into corporate affairs and mulitnational tax avoidance.