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OPINION
Downton Abbey - 20th century ideas about labour and capital still prevail in Australia.
by Michael Stutchbury
The final episodes of the Downton Abbey series now on free to air TV chronicle the decline of the British landed gentry as the advancing industrial revolution swept away the feudal vestiges of the aristocratic rentier class, its stately manors, domestic servants and wretched tenant farmers.
Along with estate taxes to help pay for World War One, the country lords and ladies were bulldozed by the industrialists' accumulation of machinery that redefined the central socio-economic relationship of the 20th century: the conflict between organised labour and private capital. This conflict was built into the institutions of the Australian federation, which proudly sought to discard the mother country's feudal overtones, personified by the fictional 7th Earl of Grantham, while embracing its own unsavoury exclusions such as a White Australia.
A century later, Australian organised labour is in similar decline from its high-water marks of the 1960s, '70s and '80s. The remaining vestiges of the faux class struggle appear in the absurdist industrial theatre of the Construction, Forestry, Mining and Energy Union, whose law-breaking business model is set to trigger Malcolm Turnbull's double dissolution election. Like the aristocratic feudalism of Lord and Lady Grantham, the concept of a noble class struggle has been rendered obsolete by the information age revolution of the late 20th and early 21st centuries. Even schoolchildren now hold more computational power in the palm of their hands than a 1960s IBM mainframe computer. These same teenagers can use this computer power to crowd-source the financial capital required to develop their own technology-based businesses.
It's no coincidence that Australia's political debate is flirting with the idea that cutting the statutory rate of tax on company profits would not only boost economic growth, it would mostly benefit labour, or what used to be called the working man and more recently working families. Even the Labor chief minister of the ACT, Andrew Barr, says "capital should be lightly taxed" – even more lightly than labour.
'HERESY'
In the context of Australian 20th-century debate, it is a startlingly heretical proposition: that labour can profit from lower taxes on capital. As Bill Shorten knows, it won't pass the Australian pub test. The labour movement's singular historical purpose is to protect workers being exploited by capitalism. You can't redistribute income to workers by taxing capitalists less!
Yet this very heresy is reputably detailed in the federal Treasury Working Paper 2015-01, "Understanding the Economy-Wide Efficiency and Incidence of Major Australian Taxes". The critical counter-intuitive economic concept is that those who are legally obliged to pay any particular tax are often different from those who actually bear its weight or incidence. The unqualified Treasury conclusion, affirmed by other mainstream studies, is that "company tax is largely borne by workers".
This is not ideology but a fact of today's globalised and internet-connected world, where capital is as agile as the ideas of computer-assisted humans. Capital moves around the globe, flooding to where returns are highest and trickling to where returns are lowest. Eventually, it will distribute itself round the global economy until returns level out, like water.
But capital will tend to flow less to economies where returns are depressed by relatively high capital taxation. Australia's company tax rate was internationally competitive when reduced to 30 per cent in the early 2000s. But now it is among the highest among advanced economies, well above the 17 per cent scheduled for Britain.
MORE CAPITAL FLOW
The Treasury analysis concludes that, in Australia, "company tax is largely borne by workers through lower labour productivity which causes lower after-tax real wages". If this 30 per cent company tax rate was cut, more capital would flow into Australia. That would provide Australian workers with more machinery to work with, making them more productive. Being more productive they would attract a higher wage. Some of this would be delivered through a stronger Australian dollar which, as ordinary Australians experienced before the commodity price collapse, increases the purchasing power of their pay packets over what the rest of the world's workers produced.
The left-wing Australia Institute concludes that a company tax cut couldn't conceivably benefit workers because the capitalists are the ones demanding it. And it demurs that, in practice, the early 2000s cut in Australia's company tax rate was followed by a falling, not rising, share of national income going to workers.
But the share of national income going to wages, or labour, fell because Australia's biggest- ever resources development boom made the economy significantly more capital intensive. Until commodity export prices collapsed, that still underwrote higher real wages and household incomes, because it allowed a given number of workers to produce more.
It confirms that, in today's globalised iPhone economy, the prosperity of ordinary people will largely depend on the amount of capital they have to work with and how profitably they can deploy it. The question will be whether Australia's political debate can grasp this, or remain captured by the romanticised labour-capital class struggle that has become as outdated as the nostalgic feudalism of the Earl and Countess of Grantham.
Michael Stutchbury is editor-in-chief of The Australian Financial Review.
RELATED ARTICLES
Read more: The class struggle that's as dated as Downton Abbey
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Downton Abbey - 20th century ideas about labour and capital still prevail in Australia.
by Michael Stutchbury
The final episodes of the Downton Abbey series now on free to air TV chronicle the decline of the British landed gentry as the advancing industrial revolution swept away the feudal vestiges of the aristocratic rentier class, its stately manors, domestic servants and wretched tenant farmers.
Along with estate taxes to help pay for World War One, the country lords and ladies were bulldozed by the industrialists' accumulation of machinery that redefined the central socio-economic relationship of the 20th century: the conflict between organised labour and private capital. This conflict was built into the institutions of the Australian federation, which proudly sought to discard the mother country's feudal overtones, personified by the fictional 7th Earl of Grantham, while embracing its own unsavoury exclusions such as a White Australia.
A century later, Australian organised labour is in similar decline from its high-water marks of the 1960s, '70s and '80s. The remaining vestiges of the faux class struggle appear in the absurdist industrial theatre of the Construction, Forestry, Mining and Energy Union, whose law-breaking business model is set to trigger Malcolm Turnbull's double dissolution election. Like the aristocratic feudalism of Lord and Lady Grantham, the concept of a noble class struggle has been rendered obsolete by the information age revolution of the late 20th and early 21st centuries. Even schoolchildren now hold more computational power in the palm of their hands than a 1960s IBM mainframe computer. These same teenagers can use this computer power to crowd-source the financial capital required to develop their own technology-based businesses.
It's no coincidence that Australia's political debate is flirting with the idea that cutting the statutory rate of tax on company profits would not only boost economic growth, it would mostly benefit labour, or what used to be called the working man and more recently working families. Even the Labor chief minister of the ACT, Andrew Barr, says "capital should be lightly taxed" – even more lightly than labour.
'HERESY'
In the context of Australian 20th-century debate, it is a startlingly heretical proposition: that labour can profit from lower taxes on capital. As Bill Shorten knows, it won't pass the Australian pub test. The labour movement's singular historical purpose is to protect workers being exploited by capitalism. You can't redistribute income to workers by taxing capitalists less!
Yet this very heresy is reputably detailed in the federal Treasury Working Paper 2015-01, "Understanding the Economy-Wide Efficiency and Incidence of Major Australian Taxes". The critical counter-intuitive economic concept is that those who are legally obliged to pay any particular tax are often different from those who actually bear its weight or incidence. The unqualified Treasury conclusion, affirmed by other mainstream studies, is that "company tax is largely borne by workers".
This is not ideology but a fact of today's globalised and internet-connected world, where capital is as agile as the ideas of computer-assisted humans. Capital moves around the globe, flooding to where returns are highest and trickling to where returns are lowest. Eventually, it will distribute itself round the global economy until returns level out, like water.
But capital will tend to flow less to economies where returns are depressed by relatively high capital taxation. Australia's company tax rate was internationally competitive when reduced to 30 per cent in the early 2000s. But now it is among the highest among advanced economies, well above the 17 per cent scheduled for Britain.
MORE CAPITAL FLOW
The Treasury analysis concludes that, in Australia, "company tax is largely borne by workers through lower labour productivity which causes lower after-tax real wages". If this 30 per cent company tax rate was cut, more capital would flow into Australia. That would provide Australian workers with more machinery to work with, making them more productive. Being more productive they would attract a higher wage. Some of this would be delivered through a stronger Australian dollar which, as ordinary Australians experienced before the commodity price collapse, increases the purchasing power of their pay packets over what the rest of the world's workers produced.
The left-wing Australia Institute concludes that a company tax cut couldn't conceivably benefit workers because the capitalists are the ones demanding it. And it demurs that, in practice, the early 2000s cut in Australia's company tax rate was followed by a falling, not rising, share of national income going to workers.
But the share of national income going to wages, or labour, fell because Australia's biggest- ever resources development boom made the economy significantly more capital intensive. Until commodity export prices collapsed, that still underwrote higher real wages and household incomes, because it allowed a given number of workers to produce more.
It confirms that, in today's globalised iPhone economy, the prosperity of ordinary people will largely depend on the amount of capital they have to work with and how profitably they can deploy it. The question will be whether Australia's political debate can grasp this, or remain captured by the romanticised labour-capital class struggle that has become as outdated as the nostalgic feudalism of the Earl and Countess of Grantham.
Michael Stutchbury is editor-in-chief of The Australian Financial Review.
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Read more: The class struggle that's as dated as Downton Abbey
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