By Joe Montero

Coming into office, the new Albanese Labor government faces some formidable challenges. The two most all-encompassing ones are an economy in poor health and the threat of climate change. This government will be remembered by how it takes on both.

Contrary to the beat-up during the period of the Morrison government, the economy is not booming, and few new real jobs are being created. This is mostly because of structural problems associated with corporate dominance over the economy and the fact that the ability of most Australians to spend is shrinking in real terms. On top of this, Australia is importing the problems of a dysfunctional global economy, dislocating the flows of goods and money, and contributing to a rise in inflation.

Inflation in Australia is widely tipped to rise to 4.6 percent by the end of the year, and this may well prove to be an understatement. The word is that the Reserve Bank is expected to lift the interest rate by another 0.25 percent in June.

Graph from Roy Morgan Research

How does Labor propose to deal with this economic reality? There is nothing in the policies to take on the structural problems. The approach is strictly Keynesian. Increase market demand through government spending. The $5.4 billion committed to subsidise childcare, a $25 billion to create new agencies to channel in investment into energy, skills, and jobs creation, and support for a rise in the minimum wages will do this. The intention to criminalise wage theft will make a further contribution.

A commitment to more for public and other forms of social housing will add to it by contributing to housing affordability and allowing more discretionary spending by households.

At the same time, the reality of a government deficit heading for over $1 trillion this year, imposes a huge constraint on how far the government can go, unless it finds ways to increase government revenues by a long way. There is nothing in Labor’s policy to say how this will be done.

There is a way. Action against corporate tax evasion can be taken. This alone will fill a large part of the hole. A tax can be put on large financial transfers overseas. A public investment bank can be established to raise funds for key government projects. This can be supplemented with a public savings bank that will bring some order, responsibility, and honesty into the banking industry. Doing these things can help to kick start the economy and if handled well, avoid inflationary pressures.

The image above from the Australian Taxation Office shows the tax breakdown and the little tax paid by large corporations, high wealth, and medium sized businesses. Given that they account for a large part of the wealth generated by the economy, their share of the tax burden is low and that paid by others much higher. Most government revenue comes from wages, the GST, and other taxes on consumption. There is still a tax gap of $33.5 billion. This is the source of the government deficit.

The revenue for the government’s intended spending can easily be raised through a top end recovery of tax revenue.

Even if all the above is achieved, it is still about paying attention to the symptoms and not dealing with the cause. The requires an effective anti-monopoly policy that will outlaw cartel behaviour. The existing economic dictatorship ensures that the needs of a few prevail over those of the many. Democracy must be brought to the economy.

Economic democracy means that all citizens have a voice through new representative institutions within enterprises and the community.

Structural changes like these are not bring contemplated, and unless support is won for them, there is going to be little change.

Climate policy is tied to the economy. A climate policy designed to build the economy as it works to eliminate carbon emissions and other forms of pollution, must be tied to an overall economic development plan, transitioning not only energy generation but also the technology and economy, towards sustainability. Without such a comprehensive approach, effective climate policy will not exist.

The intention to hold a climate summit later this year, where unions and employer organisations will be brought together to discuss wages and productivity, can be either productive or destructive. It all depends on the real objective. Will it be used to bring about the economic change just described or maintain what exists now?

On the foundation of economic change and effective climate policy and action, will exist the best conditions for the other needed changes. Ensuring equal opportunity and reward for women, s greater sense of the importance of social justice and equality, respect for all at work, the effectiveness of any anti-corruption commission, and a voice with genuine self-determination for Australia’s First Nations peoples.

This is taking matters further than Albanese and Labor have ever claimed to support. Nevertheless, its own ambitions depend on it. Failure will set the ground for a return to a Liberal National party government and a reversal of gains made.

The solution is developing the groundswell shown at the ballot box into a stronger force that puts pressure on government to take Australia along the new road.