British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions
On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed…
A few things came up late last week which demonstrate the neoliberal Groupthink is alive an well at the highest levels of policy in Australia (and elsewhere). First, there was a story that a report from an Australian Broadcasting Commission (ABC) journalist on the Australian government’s corporate tax cuts was withdrawn after publication by the ABC after receiving several complaints from senior government ministers including the Treasurer and the Prime Minister. The story was not even radical. The journalist who I have had dealings with is a neoliberal herself when it comes to understanding macroeconomics. Second, one of the claims that the neoliberals make is that central banks are now firmly independent and not part of the political process. This is all part of the depoliticisation process whereby governments absolve themselves of political responsibility for policies that harm the citizens by appealing to ‘independent’ external authorities (such as the IMF, or central banks). Well we know that the claim about central bank independence is not true both in terms of the way the monetary system operates but also in the conduct of various central bankers over the last few decades. Last week, the Reserve Bank of Australia governor once again demonstrated how politically independent he is NOT by invoking key mainstream neoliberal myths about deficits and grandchildren. And then an old hack and largely failed British Labour politicians got in on the act. The Groupthink is powerful but becoming increasingly desperate under the increasing pressure from citizens for more accountability.
I won’t deal with this issue in detail.
The UK Guardian article (February 17, 2018) – Turnbull, Fifield and Morrison wrote to ABC boss before tax cut analysis was removed – reported that an article by an ABC economics reporter analysing “the Coalition’s proposed corporate tax cuts that was taken down” (the Australian government is the ‘Coalition’), after the Prime Minister, the Treasurer and the Communications Minister in one form or another wrote to the ABC demanding that the article be removed.
The ABC claimed it had:
… removed her analysis piece about the government’s proposed corporate tax cuts because the pieces did not meet ABC editorial standards.
They denied they had bowed (excuse my laughter) to “any pressure from outside the organisation”.
I have dealt with the journalist in question on several occasions. She is no radical. Her understanding of macroeconomics is limited and she continually rehearses all the usual myths – governments can run out of money, deficits are risky, a Job Guarantee would be inflationary, etc.
I was on a panel a few years back and she was hired to facilitate it. It took all my self control not to walk out of the function (which had hundreds in the audience) when she was ‘questioning’ me.
Her instance rejection of anything about Modern Monetary Theory (MMT) was appalling and she spoke over me continually with neoliberal statements that bear no scrutiny at all.
It was a difficult evening to get through and I only stayed out of respect for the organisers and the audience.
So the fact that the highest members of the Australian government feel the need to censor her story shows their elevated sensitivity to the lies they are putting out.
You can read the censored story on this blog – There’s no case for a corporate tax cut when one in five of Australia’s top companies don’t pay it.
The censored story basically said that:
1. Since “2011-12, profit margins have risen to levels not seen since the early 2000s but wages growth has been slower than at any time since the 1960s” – that is a fact.
2. “It’s also disingenuous to talk about a 30 per cent rate when so few companies pay anything like that thanks to tax legislation that allows them to avoid paying corporate tax” – that is opinion.
But it follows fact.
The Australian Tax Office has released evidence that shows that around 20 per cent of Australia’s top corporations have evaded tax completely in the last three years.
3. “And while the Treasurer and Finance Minister warn that Australia’s relatively high headline corporate tax rate means Australia remains uncompetitive and companies will choose to invest in lower taxing countries, the facts don’t bear that out. Business investment in Australia has been at historically high levels over much of the past decade despite our comparatively high headline corporate tax rate.”
Again, fact, although the business investment has been dominated by the Mining sector, which historically can evade tax obligations relatively easily (due to depreciation and exploration type let-offs in tax rules).
4. “There’s more to investment than corporate tax rates” – clearly true.
5. “Tax rates don’t matter if you’re not paying tax” – clearly true.
The article noted that QANTAS boss is at the forefront of the tax cutting push by corporations, yet his company “Qantas is about to clock its 10th year tax free”.
This has allowed the company to pay him and his executive team massive salary increases while his workforce has endured worsening pay and conditions.
6. “The headline 30 per cent rate is misleading” because the effective tax rate (which “companies actually pay once deductions, depreciation and other tax minimisation strategies are considered”) are much lower.
The US Congressional Budget Office noted that “Australia’s effective tax rate, at 10.4 per cent … among the lowest in the world”.
7. “Can Australia afford to spend $65 billion?” – here the journalist reveals her poor macroeconomic knowledge by claiming that the tax cuts would compromise the government “protecting the surplus” aspiration.
It’s been 10 years since the Australian budget was last in surplus. With a debt of more than $600 billion, many are questioning the merits of prioritising a $65 billion giveaway to big business in the form of a tax cut.
The Australian fiscal balance has rarely been in surplus and when it has problems have followed (recession, excessive private sector debt buildup).
The historical norm is not a fiscal surplus.
Our external balance has been in deficit since the mid-1970s.
So for the government to aspire to a surplus, it equivalent to it wanting the private domestic sector to accumulate ever increasing levels of indebtedness.
That is not sustainable.
She appears to be oblivious to that reality.
The point is that the Government knows the only way it can give the corporate sector this windfall and still push its austerity plans is to dramatically cut spending in areas such as income support for the poor, education and training, transport and health.
That is the main issue. Not that the deficit might rise.
With broad labour underutilisation well above 15 per cent in Australia and household indebtedness rising each quarter to ever increasing levels, the fiscal deficit has to rise.
But a massive corporate tax cut is not the preferred way to achieve that necessary increase in the deficit.
The censored ABC article failed to make that basic point.
The Government’s motivation is clearly to play on the non sequitur that it can give this handout to the corporate sector (which will mostly go to shareholders and executive pay) while maintaining its claim that it will deliver a fiscal surplus by the end of this decade without other drastic cuts in public spending.
But the censorship might appal us but it is hardly new.
I regularly have given interviews to the ABC. But insiders have told me that they have had to ‘ration’ my input because they have come under pressure from Government officials (usually jumped up advisors in Ministerial offices) to not have me on at all.
There have been cases of Ministerial officials pressuring my University in the past about my input to the popular media.
So the latest censorship is just par for the course.
That is the way Groupthink works. Suppress anything that is critical or threatening.
Last week (February 16, 2018), the Governor of the RBA made a regular appearance at House of Representatives Standing Committee on Economics, to explain the central bank’s “thinking on the Australian economy” after the release of its latest – Statement on Monetary Policy – February 2018 (released February 8, 2018).
I referred to that Statement last week (February 13, 2018) in this blog post – Employers lying about the flat wages growth in Australia.
The RBA released the Governor’s – Opening Statement to the House of Representatives Standing Committee on Economics – and the full proceedings of the session were recorded in the – Official Australian Government Hansard.
You can also see a report from the ABC on the interchange (February 16, 2018) – RBA governor Philip Lowe warns lower corporate tax rates must not increase deficit.
The RBA Governor is only hired and paid to conduct monetary policy and is meant to be politically independent. But although we are told that the central bank is independent, the behaviour of its officials tells us that it is anything but.
I am only focusing on the way the RBA officials (and central bank officials in general) behavior in this blog, and do not discuss the ‘monetary’ reasons why a central bank cannot be independent in policy terms from the treasury/finance departments of government.
For this latter issue, Please read my blog – The consolidated government – treasury and central bank (August 20th, 2010) – for more discussion on this point.
Before presenting the ‘Opening Statement’, the Chair of the House Committee warned the RBA officials that:
I remind you that although the committee does not require you to give evidence under oath, the hearings are legal proceedings of the parliament and warrant the same respect as proceedings of the House. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament.
Which then raises questions as to the veracity of the Parliamentary scrutiny on the validity of the claims made. Clearly, it accepts ‘false and misleading’ statements, if they accord with the ideological sway of the ruling party.
So what did the Governor say?
The ‘Opening Statement’ was the usual stuff. This went up, that went down. Headwinds here, tailwinds there. China this, US that.
Of interest was his noting:
… most households are experiencing only slow growth in their incomes and many expect that this will continue for some time yet. The lowering of expectations about income growth is likely to be affecting spending, especially in an environment of high levels of household debt.
Household debt is at record levels and endangering economic growth, especially given the austerity bias in fiscal policy, the relatively weak private investment spending and the on-going current account deficit (draining net spending out of the economy).
The Governor did not bring these sectoral elements – government, private domestic and external – together in any coherent way. If he had have, he would not have made the subsequent statements under questioning.
The real issues emerged when the Committee (Lower House politicians) started questioning the RBA officials.
I won’t go through the questions in chapter and verse – just highlights.
First, the Governor (Dr Lowe) was asked by the conservative Chair of the Committee (starting page 6 of the Hansard record):
CHAIR: … could I just ask you about the ratings agencies? They’ve indicated that should fiscal consolidation not proceed as outlined that this would put pressure on Australia’s AAA rating. What would be the macroeconomic consequences of a credit-rating downgrade? And what would be the implications for monetary policy, including the impact on households?
Dr Lowe: I think a credit-rating downgrade is more of a political event than an economic event. Bond spreads would go up a bit, but not very much, and those higher bond spreads wouldn’t be particularly problematic for the economy.
It wouldn’t have any implications for monetary policy, but what could happen in that scenario is that we all run around, saying: ‘Oh, this is the end of the world! Australia has been a AAA country for a long period of time, it was fantastic and we’re no longer fantastic. We’re on the road to ruin!’ We shouldn’t …
say that, but people in the media-at the political level, the media and the business community-might say, ‘Look, were on a bad track here!’
In other words, the whole AAA rating thing for government debt is irrelevant.
Please read my blog posts (among others):
1. Ratings agencies and higher interest rates (April 26, 2009).
2. Time to outlaw the credit rating agencies (December 23, 2009).
3. The moronic activity of the rating agencies (October 1, 2012).
4. Ratings firm plays the sucker card … again (February 25, 2015).
5. A credit rating agency spinning its usual nonsense (June 1, 2017)
And a call out to the media – stop beating up stories about AAA ratings and doing the work for the conservative politicians who just want to use this ruse as a depoliticised tactic to cut support to the disadvantaged Australians who are on income support.
We never hear calls about the rating agencies when the government is dolling out billions to the corporate sector. Then the net public spending is fine!
In my current book (with Thomas Fazi) – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – we provide a detailed discussion of the way depoliticisation works.
Later on during the proceedings the conservative MP Trevor Evans grilled the RBA officials about tax cuts.
Things got interesting.
Evans mentioned that last time the Committee met with the RBA officials, the Governor had said that “headline tax rates matter less than their relativities” but that the “international tax competition discussion seems to have gone away a bit”:
Mr EVANS: … Obviously that turned out not to be the case. The US has indeed passed those tax cuts. So, consistent with your comments then, do you agree that the fact that the US has now passed those tax cuts means that that competitiveness debate in Australia is now more relevant than it was last time we met – that other countries around the world are now more likely to follow through on their proposals and, equally, that increases the importance of Australia making adjustments to maintain or improve its competitiveness?
This was in the context of the Australian government’s ridiculous plan to cut the corporate tax rate in Australia, which was the topic of the censored ABC story (noted above).
The RBA Governor then joined the ‘cut corporate taxes’ chorus and the ‘neoliberal deficits are bad’ chorus by saying (pages 13-14 of the Hansard Record):
Well, you’re right: the debate here has moved on internationally, and it does look like there is a form of international tax competition going on. The US has moved. The UK has plans to lower its corporate tax rates, and a number of European countries do as well. And you can view this competition as good or bad. If you want lower taxes it’s probably good. If you need to fund a budget then maybe it’s not so good. So, whatever side of that debate you come down on, it is actually occurring, and it’s hard to ignore. In the last IMF annual review of Australia they noted that relative tax rates were something that did influence capital flows. So, it’s going on, and we can’t ignore it. We mightn’t like it, but we can’t ignore it.
I think another point I’d make is that if we were to respond to this competition by having lower corporate tax rates here then it’s really important that that doesn’t come at the expense of higher budget deficits. And in the US what we’re seeing at the moment is exactly the reverse of that. The budget deficit in the US got to two per cent of GDP just a couple of years ago, but the official estimates at the moment are that for the next five or six years the budget deficits are going to average almost five per cent of GDP. In an economy that’s growing very strongly, with low unemployment, they’re going to have budget deficits of five per cent of GDP. This is largely on the back of the tax cuts. I think that’s very problematic, and if we were to go in the direction of having lower corporate tax rates then I think it would be a big mistake to do that on the back of higher budget deficits.
The RBA governor also followed up with this:
… the MYEFO projections for the government to be on track to get back to balance in 2021. It’s important that we stay on broadly that track – from two perspectives, really. One is from the perspective of generational equity. As the father of three teenage children, I don’t like having to explain to them that we’re racking up debt and they’re going to have to pay it back. The other perspective is that running sensible, restrained budgets is a form of insurance, and we saw that during the financial crisis. Because of our history of fiscal discipline, the government was able to respond, and that helped the economy. One day we will have another downturn in Australia and it’ll be in the national interest to have a fiscal stimulus to offset that. We’ll be able to that effectively only if we’ve run a sensible budget policy in the interim. We saw during the financial crisis that those countries that had not run good budget policy actually had to contract fiscal policy in the crisis, making it worse. So, from an insurance perspective we need to make sure that we kind of remain broadly on that track.
How many neoliberal myths can you pickout of those two statements by the central bank Governor?
It is appalling that you can pick one much less many.
First, the central bank governor basically provided depoliticised cover for the highly contested fiscal policy decision by the government to cut corporate taxes, in an environment where many of the top corporations have been revealed to be not paying any taxes at all – it is hard to justify the policy on the grounds that there will be a boost in investment and higher pay for workers.
The reality is the Government is cutting spending (or spending growth) in vital areas such as education and health while handing out massive amounts of corporate welfare to the top-end-of-town.
The RBA Governor should not become part of this scam.
Second, the fiscal deficit fetish is pure neoliberal.
On what grounds does the RBA Governor conclude that “higher budget deficits” are bad and undesirable at this point in time, especially when earlier he had talked about the idle labour resources and the record levels of household debt?
There is nothing in the discussion to justify the throwaway line that the “lower corporate tax rates … [do not] … come at the expense of higher budget deficits”.
Why are lower fiscal deficits desirable now?
Third, the RBA Governor gets personal and desperate when he tells the Committee that he would not like having to explain to his three kids that “we’re racking up debt and they’re going to have to pay it back.”
This is the classic argument.
Future generations will choose whatever tax and spending regimes are in place through the political process at each point in history.
The public debt now has no necessary bearing on that choice.
Further, by trying to reduce debt now through austerity the future of the next generation(s) is always undermined.
They inherit compromised education, health and infrastructure systems.
They bear higher unemployment and underemployment and lower wages which undermines their future choices and prosperity.
I have written about this several times in the past (including):
1. Democracy, accountability and more intergenerational nonsense (May 22, 2009).
2. The rising future burden on our kids (August 2, 2009).
3. Another intergenerational report – another waste of time (February 2, 2010).
4. When 50 per cent youth unemployment is (apparently) protecting the grand kids (June 18, 2012).
5. Australia – the Fourth Intergenerational Myth Report (March 5, 2015).
6. Austerity is the enemy of our grandchildren as public infrastructure degrades (December 14, 2016).
Fourth, the RBA Governor is not correct when he says that running fiscal surpluses now will increase the capacity of the national government to respond to a recession in the future.
That is completely false.
The fact is that the national government can always purchase anything that is for sale in the currency it issues, including all idle labour, irrespective of its past fiscal position.
A fiscal surplus today provides no further net spending capacity to the government tomorrow.
There is no ‘storage’ of government spending capacity generated by running surpluses now. The idea that the national government is ‘saving up’ to build buffers, which it can then spend later is completely false.
Today, tomorrow, and next year, the Australian government can increase its deficit if it chooses to combat a downturn in non-government spending.
To say otherwise is to lie.
Apart from all that, why aren’t the neoliberals jumping up and down about the central bank governor making ‘political’ statements about fiscal policy given they claim the central bank is ‘independent’ of the political process and claim virtue for that ‘status’?
The reality is that the central bank is not independent and has never been. Here, there and everywhere.
Think about the ECB’s role in the Eurozone crisis, if you want further evidence.
Neil Kinnock was Labour leader in Britain between 1983 and 1992 following a 3-year period when left-winger Michael Foot was the leader.
Kinnock moved on some time later to become a European Commissioner (1999 to 2004), so he has taste for the good life as a senior official at the European Commission.
He also continued the promotion of neoliberal ideas and policies within Labour that James Callaghan had started in the 1970s and as Labour leader he ratified Britain’s membership of the European Economic Community, reversing the policy under Michael Foot’s leadership to withdraw from the EEC upon election.
So Kinnock is part of the Labour tradition – Callaghan, Blair, Brown – who were neoliberal to the core and set back the British Labour Party and allowed the likes of Cameron and May to rule in chaos.
Kinnock’s latest entreaty into the public debate shows he should is intent on maintaining the neoliberal myths about macroeconomics that are blighting governments around the world.
He told the UK Observer at the weekend (February 18, 2018) – Neil Kinnock warns Jeremy Corbyn: ‘Stop Brexit to save the NHS’ that:
… we should stop Brexit to save the NHS …. Meanwhile – vitally – Brexit has already diminished, and will continue to depress, the revenues on which the NHS depends …
The truth is that we can either take the increasingly plain risks and costs of leaving the EU or have the stability, growth and revenues vital for crucial public services like the NHS and social care. Recognising that, we should stop Brexit to save the NHS …
Note his use of the word ‘vitally’, to give his statement some gravitas.
Hey, everyone, I know what I am talking about, listen to me, it is vital – or else you will die sort of emphasis.
And also the well-worn strategy of politicians with nothing valid to say – repeat the lie a few times (“stop Brexit to save the NHS”).
And while on the topic of the ‘non sequitur’, the neoliberals continually create them to hide their true motives.
Kinnock is no exception.
He knows British people cherish the NHS – understandably.
So tie in something they voted for (Brexit) for something they cherish (NHS) and set them up as competing ends. That is a non sequitur if ever there was one.
As I wrote in this blog post (November 23, 2017) – The lame progressive obsession with meaningless aggregates – the idea that the NHS is intrinsically dependent on the revenue that the British government takes out of the economy via taxation is a base neoliberal lie.
The British government could, at its indulgence, make whatever monetary resources are necessary to restore the long-term viability of the NHS as a first-class, public health system available to all no matter what their own circumstances.
It might have to alter a few voluntarily-imposed accounting rules that stop it spending before there are pounds in some account (earmarked with the accounting entries from the taxation authority).
But if it wanted to oversee a first-class, public health service it could – as long as the real resources were available to achieve this goal (staff, equipment etc).
To claim that Brexit will alter that is a base neoliberal lie.
I note that the Remainers in Britain try to occupy the ‘high ground’ by claiming that the Brexiters lied about various things in the lead up to the referendum in June 2016.
But with guys like Kinnock still parading around trying to remain relevant and spreading these sorts of myths, the ‘high ground’ is more like an underground sewer.
When an article by a fellow neoliberal traveller in the media provides a threat to a government then you really know how sensitive the prevailing orthodoxy is to external scrutiny and criticism.
And in the same week, a central bank governor discloses he is part of the neoliberal Groupthink.
What this tells us is that it will be a long haul. Root-and-branch changes are required.
At my talk in Melbourne last Friday (I should be able to publish audio soon), I emphasised that progressives have to first reeducate themselves to avoid falling into the neoliberal frames and to be able to refute them.
Not one Labor or Green member on the House of Representatives Economics Committee questioned the RBA Governor’s neoliberal leanings about fiscal deficits etc.
They played along with the folly just as the conservatives did.
Root-and-branch changes are required.
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.