Shadow treasurer, Joe Hockey's
speech to the
Institute of Economic Affairs (London) in April, entitled (no pun intended) ‘The end of the age of entitlement’, is an ominous manifesto indicating that the political right has leant nothing from the failure of the neo-liberal experiment. The agenda is thinly veiled and the implications are dire for the poor and the disadvantaged.
Hockey bravely heralds the long overdue end of the era of popular universal state entitlement. Like some wise Yoda from
Star Wars, he feels a great disturbance in the Market. He feels its invisible force around us, and he, like a Jedi master, wants us to turn from the Dark Side ... that is: democracy and the evils of government. But in reality he sounds more like Dennis Denuto from
The Castle, who feels the vibe, but hasn’t quite done his homework.
When he assures us that
‘There is nothing much new in the debate’, he is right. This is the same neo-liberal ideology that has been in vogue for the last 30 years. I’ll address these point by point.
‘...action [austerity] has now been forced on governments as a result of the recent financial crisis. ... What we have seen is that the market is mandating policy changes’
It’s a little disingenuous to assert that the kind of public austerity Hockey is calling for - the complete dismantling of the welfare state - is inevitable, let alone that the market has 'mandated' it. In Europe, the policy of austerity is not demanded by the market. Markets, as a general rule, don’t like austerity because markets want growth, and growth cannot be sustained in times of austerity. If by 'market' we mean the
financial markets and political elites - technocrats and bankers, well then yes, they are calling for austerity - mind you, preferably somewhere else. Austerity is a policy response - a policy mechanism used by those in power - it is not wielded by the market and it is not the only policy mechanism available. When there are Nobel Prizewinning economists who are calling for the opposite, the alternatives are hard to overlook. [1]
‘…the entitlement system seems to be most obvious and prevalent in some of the most democratic societies’
This is a good point. People in democratic societies have a say in how they are treated. For business, the ideal level of ‘productivity’ is achieved by lowering cost to gain maximum profit. For this reason, without intervention, wages will tend toward subsistence. What incentive does a business have to promote subsidies to ‘non-productive’ members of the population - the unemployed, the pensioners, the disabled? None. So for a top-down, pro-cyclical, pro-business market fundamentalist, of course it makes no sense to give ‘entitlements’ to these people - it’s a waste to invest in non-performing assets. But in a democracy, people have a voice and they can fight for ‘education, health, housing, subsidised transport, social safety nets and retirement benefits’. But Mr Hockey clearly doesn’t believe in democracy:
‘As a parent I want to give my children everything they wish for. As a democratically elected legislator I want to give my constituents everything they wish for. The hardest task in life is to say NO to someone you care about. So perhaps what we are witnessing is a chronic failure of the democratic process. A weak government tends to give its citizens everything they wish for. A strong government has the will to say NO!’
If you are not disturbed by this statement, you should be, and not just by the patronisingly paternalistic tone. This is an overt call to abandon representative democracy. Let the government handle things, they know better. Or, more in line with Mr Hockey’s 'libertarian' values, let’s have small government, let’s deregulate everything and hand power to business leaders. Let’s see what BHP, Wesfarmers and the banks have planned for the average man on the street? I’m sure the principles of competition, the profit motive and self-regulation will allow companies to advance workers’ rights and conditions – just as they did before the struggles of the labour movement.
‘The entitlements undermin[e] our ability to ensure democracy, fair representation and economic sustainability for future generations.’
But Mr Hockey can’t have it both ways. He can’t assert that representative democracy is failing chronically, then appeal to it as some sort of shared social value that he doesn’t want undermined.
'Government spending on a range of social programs including education, health, housing, subsidised transport, social safety nets and retirement benefits has reached extraordinary levels as a percentage of GDP. … All of us would agree that there are some basic community entitlements. For generations we have all sought to define those basic rights. For example, in the United States constitution the founding fathers determined that citizens are entitled to life, liberty and the pursuit of happiness.’
Mr Hockey has forgotten the basic role of government. Government is not supposed to advocate solely for the interests of business. Government is supposed to represent the people’s interests. These things he has listed, along with national defence, law and order, human rights and so on, are the core responsibilities of government. But Mr Hockey does not believe this. He believes that the only entitlements that should be granted to citizens are,
‘life, liberty and the pursuit of happiness’. But what does this mean? Well, it means that apart from ensuring that you don’t die, and that you are not forcibly detained or otherwise controlled, the government owes you nothing more. Is this the new ‘social contract between government and its citizens’ that Mr Hockey seeks to ‘urgently and significantly redefine’? What kind of social contract is that? Well, it’s the classic libertarian drum beat that goes: me, me, me; everyone out for themselves and whoever gets left behind does not matter – they are unproductive assets.
‘Entitlement is a concept that corrodes the very heart of the process of free enterprise that drives our economies. You will remember it was Margaret Thatcher who interpreted community entitlements as the right for our children to “grow tall and some taller than others if they have the ability in them to do so”. [2] This broader and timeless conservative definition of our end game lays down some foundations for the role of government. Equality of opportunity rather than equality of outcome is my preferred model for contemporary society.’ … ‘The role of government must be to help people to the starting line, while accepting that some will then run faster than others. Everyone should know that they grow up in a country where it is possible, through hard work and diligence, to achieve their dreams. Naturally the Americans call this the American Dream, but it is similarly played out across the globe, including in emerging economies in Asia.’
This shows a profound lack of understanding of the concepts of ‘opportunity’ and ‘freedom’. Opportunity, as it is assumed here, is that everyone is given the same basic right: liberty. It assumes we are all born free, with the ability to achieve ‘success’, if we just work hard enough; heredity, class, background, sex, ethnicity, social context don’t matter. Mr Hockey reinforces this point with his a brief autobiographical anecdote:
‘As the child of a father who came to Australia in 1948 as a refugee from Palestine and built himself into a successful businessman, I know that being successful in Australia is not the product of belonging to rich and prosperous families, but rather is the result of hard work and diligence. In fact those stories are most often repeated in countries without extreme interventionist governments. For example, over 80 per cent of the millionaires in the United States are the first generation in their family to be millionaires.’
I note that the data regarding first generation US millionaires is not footnoted. Where is this data from? The quote from Thatcher is footnoted, which is a pointless exercise, so why not footnote this? (Note that this ad hoc approach to referencing continues.) The
lack of social mobility is strongly related to income inequality and the US has one of the highest levels of income inequality in the world. This statement about the millionaires in the US, if correct, is utterly inconsequential and again reinforces the right wing approach: only the wealthy count, the rest don’t matter. The reality is that the average American on the street has experienced stagnant real
wage growth since the late 1970s – the start of the neo-liberal renaissance. Despite being the wealthiest country in the OECD, it has one of the highest rates of poverty and elderly poverty.
This should be condemned, not celebrated.
But this whole argument is insidious and insulting. It essentially postulates that the daughter of an alcoholic father and an emotionally abusive mother, who was thrown out of home at age 16, who never finished school because she was homeless and depressed, has the same ‘opportunities’ as the private schoolboy, who has a million dollar trust fund, holidays in Europe and works for his daddy, an über-rich real-estate man. The reality is, they don’t have the same opportunities. (For more, see:
The Responsibility Assumption)
‘Thankfully the modern capitalist economy is centred around the satisfaction of personal wants and needs. Commercial transactions are at the core of the system. And it is a simple and proven formula for willing buyers to engage with willing sellers. If we want a product or service we go and buy it with the dividend from the fruits of our own labour. The producer is happy and the customer is satisfied.’
What a wonderfully simple minded encapsulation of ideological naivety. With the weight of the latest global financial crisis, in an age of high finance and globalisation, white collar crime and corporate scandal, toxic externalities and climate disaster, to utter such a simplistic, naïve and banal statement … I mean, if I was talking to a room full of year 11 commerce, politics or economics students and had to read this out with a straight face, I would die of embarrassment.
‘The problem arises however when there is a belief that one person has a right to a good or service that someone else will pay for. It is this sense of entitlement that afflicts not only individuals but also entire societies. And governments are to blame for portraying taxpayer’s money as something removed from the labour of another person.’
This is a classic libertarian argument: the Lockean labour theory of property. A person is entitled to property (and wealth) if it is the fruit of his/her own labour. There are several problems with this idea and it has been one of the most debated of all Lockean political concepts. It is not in the scope of this post to delve into these now, but I'll outline two briefly. Firstly, Locke's argument was conceived when individuals had limited power. But under our current legal system, multinational corporations have legal rights to property just as people. The grossly disproportionate power of corporations to apply labour and claim property creates an impossible imbalance in this libertarian conception. Second, the idea of natural law is nonsense. It does not follow that because I till the land, therefore I have the right to own it, or that if I dam the creek I own the lake. People may be entitled to certain property, power or income as basic human rights in a society that chooses to adhere to a humane social contract and does not abandon the injured, the disabled, the elderly, the unfortunate, even if they cannot participate actively in the labour force - and not merely because of a sense of empathy and a love for all humanity, but because they too could one day become lame, old or unfortunate.
‘In our collective effort to win votes, political leaders deliberately portray a new spending commitment as if it is coming out of their own personal bank account. Political leaders rarely thank taxpayers for their funding of the policy.’
One of the basic roles of government is to manage tax revenue in accordance with the wishes and needs of the community. We’re not giving the hard earned ‘fruits of our own labour’ to the government as some sort of favour or act of charity; we’re not paying taxes so that politicians can fund their pursuit of some personal ideological ‘end game’ - they are public servants who should be doing their job for the benefit of the people. This rhetoric about thanking the people underscores that Hockey has no sense of public duty or any notion of the responsibilities of the government to serve – which form the basis of democratic governance.
‘The sovereign debt problems we are seeing in Europe and the US today are the outcome of countries wanting a lifestyle they cannot afford but are quite happy to borrow from others to pay for.’
This is a fraction of the story. The sovereign debt crisis in Europe was caused by short-sighted and reckless malinvestment on the part of major private banks who made bad bets. Governments are to blame for incentivising credit, socialising the debt by bailing out the banks, and some are to blame for taking on more debt than they could manage in times when credit markets dried up. But of course Mr Hockey is not arguing that debt is a bad thing, he’s arguing that sovereign debt is a bad thing. I’m sure that he would not apply austerity measures and balanced budgets on Australian businesses and for good reason – they would simply not be able to function and compete. Imagine telling the mining sector that it cannot rely on credit; it must use its profits to run its business. Let’s have a look at private and public debt and see which sector has relied more heavily on debt. Let’s use the two examples Mr Hockey refers to in his speech: France and Hong Kong for our comparison.
- France’s GDP is 2.8 trillion (2011), its public debt is ~2.4 trillion, and its private debt is ~3.2 trillion. Its total external debt (as % of GDP) is 182%.
- In contrast, Hong Kong’s GDP is 243.3 billion (2011), its public debt is ~96.8 billion, and its private debt is ~806.4 billion. Its total external debt (as % of GDP) is a whopping 334%. [2]
So clearly the private sector is far more leveraged in both countries, and if we consider total external debt, Hong Kong, the neo-liberal paradise that it is, is far more indebted. The agenda is clear: debt is only bad if the government has accrued it; when business is indebted, that’s acceptable.
‘Of course in recent months in some countries in Europe the “borrowings” have turned into permanent transfers of wealth as those countries have become unable – or unwilling – to repay the loans. Richer countries are either writing off the debt of poorer countries or they are subsidising the debt repayments with sophisticated transfer payments.’
Let’s not lionise the dominant powers at play in Europe and let’s not feel so sorry for the banks that have lent and gambled freely and irresponsibly, turned a blind eye to the risks, then, when the game was up, they wanted to pull their chips from the table - but of course still wanted to collect the winnings. Financial institutions and credit ratings agencies have to be held responsible as much as the countries that over-leveraged. Let’s not forget, for example, that it was German and French banks that had most to lose in the Greek crisis, so of course they were the ones ‘bailing’ them out – they were trying to ensure that their own banks got paid [
2]. Richer countries are not subsidising the struggling nations because they’re so generous. The power brokers of Europe are acting in their own interests by trying to keep the Eurozone together. Germany and France have prospered due largely to the devaluation of their currency as a result of economically weaker member states, as well as their comparative economic advantages. The austerity they have preached has the added benefit of achieving greater structural changes, like the accelerated privatisation of government assets and more foreign control of economic policy. Merkel made it crystal clear, the ‘
17-nation currency union must transfer control over national budget and economic policies to Brussels before Germany would consider common debt issuance. ... “Liability and control belong together,” Merkel said.’ [4]
‘Being profligate is easy and politically popular in the short term, particularly when the political cost of raising sufficient revenue is avoided by resorting to debt. But painless revenue makes for reckless spending.’
Profligate? Social spending on education, health, housing and the elderly is a waste? Of course it is when you view human worth through the narrow lens of economic rationalism. If you contribute to the GNP, you’re a human being, if not, you’re an un-person – you’re waste.
‘Since World War 2 western communities have enjoyed prosperity that has exceeded all expectations. This has been fuelled by innovation, materialism, globalisation, free trade and debt. Of course these are not malevolent developments. Rather they are the lauded natural outcomes of a free and successful society. Moreover these initiatives, which have fuelled a massive improvement in global economic productivity, have driven the age of prosperity. Arguably this has delivered the most dramatic improvement in the material quality of life since the beginning of humanity.’
This again enforces a dangerously skewed view of the world. Have all countries benefited from globalisation? Have poor nations prospered under so-called ‘free trade’ agreements with the west? Why is Mr Hockey now arguing that debt is a lauded, natural outcome of a free and successful society? Oh, of course, I forgot; debt is not a bad thing, just government debt – government is evil.
A Tale of Two Systems - Hong Kong
‘Without a social safety net, Hong Kong offers its citizens a top personal income tax rate of 17% and corporate tax rates of 16.5%. Unemployment is a low 3.4%[4], inflation 4.7%[5] and the growth rate still respectable at over 4%[6]. Government debt is moderate[7] and although there is still poverty, the family unit is very much intact and social welfare is largely unknown.’
‘The system there is that you work hard, your parents look after the kids, you look after your grandkids and you save as you work for 40 years to fund your retirement. The society is focussed on making sure people can look after themselves well into old age.’
‘The Hong Kong experience is not unusual in Asia. Characteristics such as low inflation, low unemployment, modest government debt, minimal unfunded benefits and entitlements, and significant growth are powering a whole range of emerging markets and developing an Asian middle class that will grow to some two and a half billion people by 2030[8].’
‘The sense of government entitlement in these countries is low. You get what you work for. Your tax payments are not excessive and there is an enormous incentive to work harder and earn more if you want to.’
‘By western standards this highly constrained public safety net may, at times, seem brutal. But it works and it is financially sustainable.’
Firstly, if Mr Hockey wants Australia to be more like Hong Kong, maybe he should consider greater government debt. Australia’s public debt in 2011 was 20.4% of GDP, Hong Kong’s 34.6%.
Mr Hockey admits that ‘there is still poverty’ in Hong Kong, but that is a gross and disingenuous understatement used as a deceptive pre-emptive rebuttal. According to an Oxfam report published in 2012, ‘one in every six people in Hong Kong lives under the poverty line’. [5] According to the Hong Kong Council of Social Service, ‘poverty disparity in Hong Kong is getting more serious in the past ten years. There is 50% increase of low-income families / families in poverty in the last decade. 0.89 million are low-income families in 1995, where there is 1.25 million in 2005. Poverty rate has increased from 14.8% in 1995 to a 10-year high 18.3% in the first quarter of 2005.’ [
6] Income inequality in Hong Kong is one of the highest in the world and ‘social mobility is limited’. [7] This number may even be higher, as a large number of domestic servants and illegal workers are not on the books of social services. The Telegraph reports, ‘Hong Kong under pressure as poverty levels rise’; CNN that, ‘Hong Kong's poorest living in 'coffin homes'’; the Financial Times that, ‘Poverty blights the dream of Hong Kong’; Reuters that, ‘From bankers to cage-dwellers, HK feels property price squeeze’, and on and on and on. Let’s celebrate that Hong Kong has no safety net and that the poor Filipino, Indonesian and Chinese peasant slave workers are exploited for less than $500 a month – after all, they boost employment numbers - wonderful!
Mr Hockey claims the system in Hong Kong, ‘
is focussed on making sure people can look after themselves well into old age’. I guess that’s why the Hong Kong Council of Social Service is reporting that one out of three Hong Kong residents aged 65 or above is now living in poverty, and that during the neo-liberal renaissance of the 1980s and 90s, the number of elderly people living in poverty has jumped 14.3 percent. [8]
‘Contrast this with what we find in Europe, the UK and the USA. All of them have enormous entitlement systems spanning education, health, income support, retirement benefits, unemployment benefits and so on.’
Yes, let’s contrast them using the two countries Mr Hockey singles out. The percentage of employees earning less than half of the median income in 2010 was 13% in Hong Kong, [9] in France it was 7% [10].
‘In all these areas people are enjoying benefits which are not paid for by them, but paid for by someone else – either the taxes of those who are working and producing income, or future generations who are going to be left to pay the debt used to pay for these services.’
Again, if you’re a non-performing asset, you’re an un-person. You don’t matter, you don’t exist.
‘Despite tax rates much higher than in Hong Kong, government revenue in these economies still falls well short of meeting current government spending initiatives. … ‘You would have to say that this is a flawed formula. For western democracies the party is over. Our most deeply exposed western economies can no longer continue to accumulate debt without constraint. The ongoing credit crisis in Europe seems a very long way from resolution. Ultimately, spending on entitlements becomes a structural problem for fiscal policy.’ … ‘So where do we go from here? There is really only one solution in the long term, and that is for countries to live within their means. We must rebuild fiscal discipline. Budget surpluses must be restored, ideally until the debt is repaid. This can only be achieved by cutting spending or by raising taxes. And given the general acceptance that the increased drag from higher taxes would compromise economic growth, the clear mandate is to lower expenditure.’
Austerity is bad fiscal policy in times of recession and sometimes governments have to spend. Here in Australia, government stimulus was used to soften the landing at the onset of the GFC and has been widely recognised as a prudent and effective measure. Debt is the result of spending during a global downturn; but this is inevitable; the public debt crisis in Europe is no cause for irrational debt phobia in Australia. As Ross Gittins writes in his article, ‘
Why we should pay more tax’ or ‘
Don't judge government by its size’: from 2001- 2008, ‘taxes paid in Australia to all levels of government averaged 29 per cent of gross domestic product, compared with a developed-country average of 35 per cent. Only Japan and the United States pay less than us - 27 per cent - and that's because they run perpetual budget deficits.’ Total government spending ‘averages 34 per cent of GDP, compared with the developed-country average of 40 per cent.’ Net government debt is, ‘no higher than 13 per cent of GDP … "way below the level of almost every other developed country" [quote from economist, Ian McAuley].’ [11] Gittins also compares Australia with other nations using the World Economic Forum's global competitiveness index. He notes that those ‘profligate’ European nations, with high taxation and large government entitlements, are ranked very highly indeed. In 2011, Switzerland came in most competitive with the same tax to GDP ratio as Australia, at 29 per cent. Finland was fourth, ‘with a tax rate of 44 per cent and Sweden, on third, with a rate of 48 per cent. Denmark, the country with the highest tax rate - 49 per cent - comes eighth. Germany, with a tax rate of 36 per cent, comes sixth, while the Netherlands, with a tax rate of 38 per cent, comes seventh.’ Hong Kong was ranked 9th, and the US 7th, lower than Switzerland, Finland, Sweden, Netherlands, and Germany. Norway, for example, has a tax to GDP rate of 41% [12], with a GDP per capita (PPP) of US$53,400 [13] – higher than Hong Kong ($49,400) or the US ($48,300). The Netherlands have a tax to GDP of 39.1%, GDP per capita (PPP) at US$42,700 and are ranked fifth in terms of global competitiveness [14]. Clearly the tax rate is not an obstacle to the competitiveness and prosperity is not inextricably tied to the neo-liberal agenda of small government and low taxation.
‘In the United States for example, the excess of government expenditure over receipts is enormous. The Government has $15 trillion of Federal gross debt and it’s going up by $1.5 trillion a year because expenditure is $6.2 trillion a year and receipts $4.8 trillion. Obviously with interest rates at near zero levels the cost of debt is limited but sooner or later it must end in tears.’
Why do they have this debt? Firstly, the ‘Bush then Obama’ tax cuts, which amounted to 2.5 trillion dollars [14]; the dual wars in Afghanistan and Iraq, another 4 trillion dollars and rising [
16]; passing the private debt of the banks to the American public to the tune of $302 billion [
17], and the stimulus packages in response to the ensuing global financial crisis to the tune of $2.8 trillion, and so on. [
18]. Blaming the US debt on the ‘entitlement’ of the general public is hypocritical to the extreme – if we must point the finger at those with a sense of entitlement, let’s start with the banks that lobbied so vigorously to justify that they are just too big and too important to fail, and the politicians who felt entitled to ignore public opinion and oblige. There’s entitlement for you.
‘These entitlements have now begun to hang like a millstone around the neck of governments, mortgaging the economic future of many Western nations and their enterprises for generations to come. … I will give you a classic example. In Boston USA, there’s a certain former police captain who retired aged 55 some 20 years ago after a 32 year career on the force. During that period he managed to contribute some $73,000 to his defined benefit pension plan, a plan which gives you a percentage of your salary for life when you retire. On retirement he started receiving 100% of his retirement salary, namely $55,000. He is now 75, which means he has collected some $1.1 million in benefits. And it looks like he’ll live until he’s at least 90 or even older, so that’s almost another $1.0 million over 15 years. It’s more than he earned in 32 years and he contributed just $73,000 to help pay for it. Either taxpayers pay the bill or the government has to borrow to pay for the entitlement.’
This is a typically manipulative and dishonest argument. Selecting an extreme example of a rort (especially when unsubstantiated and not footnoted) is a disingenuous straw-man argument. According to the US Census Bureau, the US per capita money income in past 12 months (2010 dollars) was $27,334. The annual median wage is reported to be $26,400 [19]. So let’s replace that income figure with reality, not Mr Hockey’s straw-man figure.
Mr Hockey assumes that the retiree has saved $73,000 for their retirement. We’ll accept this, despite the reality, as reported by the US Federal Reserve, that median household debt in America has risen to $75,600, [20] and so I’m not sure how many middle Americans will retire with this handsome sum. Mr Hockey also assumes that our subject retires at 55 and passes away at age 90, despite the fact that the average retirement age for men in the US is 64 years [
20a] and US life expectancy is more like 78 years [
20b], but we will concede this. On the other hand, we will be a little more factually accurate with the retirement guidelines for Boston police officers. According to the Boston Globe, ‘
with more than three decades in the city’s Police Department’, a person, ‘
is qualified for the maximum pension: 80 percent of the average of his average three highest years of pay’ [21]. Since Mr Hockey’s unsubstantiated example seems more like a convenient anecdote, let’s take the Boston Globe’s word for it. So here goes:
Subject retires at 55 and passes away at 90 = 35 years of retirement
Annual median wage = $26,400 at 80% of their salary: $21,120
$73,000/35 years: $2,086
Total of: $23,206 annually or $446 per week
US Minimum wage: ~$7.50/hour * 8 hours * 5 days: $300 per week
Now, if the minimum wage is $300 a week, (and remember that we have been very generous in terms of our retiree’s savings) should we begrudge his/her $146 more than the minimum wage per week? Is this extravagant for an elderly person, especially with the high cost medical and old age care in the US? If Mr Hockey thinks so, maybe he should try to live on $446 a week.
‘This has already reached dangerous levels with some OECD countries like France spending close to 30% of their GDP on public social expenditure. Other countries get by with much less. Korea only spends 10% of GDP on public social expenditure with Australia at 16% of GDP, the USA at 20% and the United Kingdom at 23%.[10] … According to a study commissioned by the European Central Bank[11], 19 EU countries had almost 30 trillion Euros of unfunded entitlement obligations for their existing populations. Of this 30 trillion Euros, France has liabilities of 6.7 trillion and Germany 7.6 trillion.’
The document footnoted does not contain these values. What it does contain is the data shown on this graph:
What is a pension liability? It’s simply the amount of money that will have to be accounted for in making future pension payments. The paper states in its introduction:
'The project focuses on a standardized estimation of accrued-to-date liabilities (ADL), i.e. the obligations that would have to be paid if the systems were phased out immediately.' [22]
Here is the summary of the facts:
France pension debt liability = = €6.4 trillion
France GDP 2006 (OECD): €1.798 trillion [23]
France GDP 2006 (IMF): €1.751 trillion [24]
France GDP 2006 (avg.): €1.7745 trillion
France’s pension liability 2006 (ECB): 362.2% [25]
€1.7745 trillion * 3.622 = €6.4 trillion
Employed people in France (2006): 26,600,000 (
tradingeconomics.com)
Ratio of over 65-year-olds to the labour force: 36.6% [
26]
= ~9,735,600 people dependant on the pension
€6.4 trillion / 9.74 million on pension / 35 years = €18,770 / annum or €361 / week
2006 Historical exchange rate avg: 1.256 (www.oanda.com/currency/historical-rates)
€361 * 1.256 = US $453 / week ($23,578 p.a.)
So realistically, in these ‘profligate’ nations (US and France), the average person gets a pension of under US $450 per week. But this seems wonderful compared with what Aussies are getting. The government's Pension Review found that Australia’s 2.5 million pensioners are worse off than their OECD counterparts. [27] The report found that ‘
13 per cent of pensioners had no private income to draw on and the "vast majority" had less than $20 a week in addition to their pensions’ and ‘
30 per cent report having bank balances of less than $1,000."’ [quote: Community Services Minister Jenny Macklin] ‘
The report also found that the average length of time for a person to be receiving the age pension was 13 years. The single pension rate, at $273 a week, is only 60 per cent of the combined couple rate of $456 a week.’ So how much lower does Mr Hockey want to go? Are the lives of the elderly not matter? Can someone with medical needs live with dignity on less than $273 a week? Shame on you Mr Hockey!
Here is the most recent data from the OECD, it's grim:
 |
| Australia's elderly poverty rate is alarmingly high when considering its proserity. OECD (2011), “Old-Age Income Poverty”, in Pensions at a Glance 2011: Retirement-income Systems in OECD and G20 Countries, OECD Publishing. http://dx.doi.org/10.1787/pension_glance-2011-28-en |
 |
| OECD (2011), “Public Expenditure on Pensions”, in Pensions at a Glance 2011: Retirement-income Systems in OECD and G20 Countries, OECD Publishing. http://dx.doi.org/10.1787/pension_glance-2011-30-en |
‘These liabilities will continue to grow without significant reform. And, by the way, I don’t see how a debate in France about lowering the retirement age from 62 to 60 will help address these challenges.’ … ‘The [Australian] government is … gradually raising the age at which government benefits can be accessed, from 60 to 67 for women and from 65 to 67 for men from 1 July 2023.’ … ‘People need to work longer before they access retirement benefits. When the age pension was introduced in Australia at age 65, life expectancy was 55. Today life expectancy is in the 80’s.’
Sure. Make them work until they’re 90. It’s good for productivity.
‘A lower level of entitlement means countries are free to allow business and individuals to be successful.’
Translated: by not investing in non-performing human capital (poor, disabled, elderly), we may allow the elites to thrive and prosper. Welcome to Gattaca, and have an elite day.
‘An economy that impedes individual ambition - whether through higher taxation, the lack of opportunity in employment, or restricted social mobility - is one that enforces the barriers of class, rather than reduces them.’
Plain wrong. See the post on neo-liberalism, inequality, social mobility and social stratification entitled, ‘
Inequality is not the Father of Prosperity’.
‘Another aspect of the problem is that credit is no longer easily accessible for the private sector or the public sector. And the credit market no longer automatically favours the public sector. Ironically more and more sovereigns are seen as a greater credit risk than many international companies. I would think the experience of the past few years has been something of a reality check. Lenders now know that even today advanced western economies can default on their debts. … It is also worth noting that the system of regulation of banks and other deposit taking institutions is artificially boosting demand for sovereign credits with mandated liquidity requirements generally emphasising a prominent role for government securities. Governments have been too prepared to exploit the resultant lower borrowing costs. And whilst securities issued by sovereigns have traditionally been viewed as the safest and most liquid assets, I am not sure that it is still the view of investors in Europe today.’
Here Mr Hockey is explicit. Debt is not bad, only government debt. It’s not so much hypocrisy as ideological obstinacy. Also let’s not forget that the GFC did not start as a sovereign debt crisis. It was a housing market bubble. It was the result of banking malpractice, of regulatory malpractice, of too little regulation, of unscrupulous financial transactions and junk financial instruments. Let’s get this straight, it was a crisis due to weak government intervention, not too much of it. Most countries made it a sovereign debt crisis when they decided to bail out the banks. After socialising the debt and passing it on to the unwitting or unwilling tax payers, they now have the audacity to claim that austerity is needed because the people have been profligate? That the people have been irresponsible? That it’s the pensioners’ fault?
Regarding government bonds, Mr Hockey is right to point out that the market has always seen government bonds as a safe investment. Since mid 2010, despite the gloomy economic outlook, the volume of US treasury securities has been growing stronger than ever, and even the troubled Eurobond has been making strong gains. This is also true of Asian and Australian bond markets. The New York Times has reported earlier this year that, ‘
Even though American stocks have doubled in price in the last three years, investors and traders large and small keep giving the market the cold shoulder. … The shift is partly attributable to the growing number of seniors moving from stocks to bonds, which is typical in retirement. But surveys by the institute [The Investment Company Institute]
have shown that investors young and old have grown less willing to invest in domestic stocks, even with interest rates on bonds at record lows in recent years.’ [28]
‘Eventually lenders will cry enough is enough and turn off the credit tap. And when that happens the economic, financial, social and political dislocations are likely to be catastrophic.’
The lenders will have enough? The bankers have the moral high-ground here? I’m sorry, but they have committed serious white collar crimes and deserve to be prosecuted and stringently regulated. The unemployed, the elderly, the homeless, the students with no hope for a job, the family with no hope for a house – they are justifiably angry. They have the moral high-ground, not the criminal banking syndicates and the politicians who allow them to get away with it. If you want to look for entitlement, look at them.
‘It is also worth noting that the system of regulation of banks and other deposit taking institutions is artificially boosting demand for sovereign credits with mandated liquidity requirements generally emphasising a prominent role for government securities.’
It’s incredible. It’s as if Mr Hockey has not lived the last five years. Too much regulation of the banks is the problem? This is like being in the twilight zone. Oh, the poor banks!
‘In today’s global financial system it is the financial markets, both domestic and international, which impose fiscal discipline on countries. A country which is viewed as approaching its safe limit for debt will find it increasingly difficult to borrow additional funds at an affordable rate. Eventually the capital markets will close.’ … ‘Adam Smith’s free hand is perfectly capable of forming a fist to punish nations who ignore the fundamental rules. Unfortunately I think Adam’s down at the gym right now and in training for one almighty whack.’
Let’s stop the charade. Let’s stop talking about markets as all knowing oracles of wisdom. Markets get it wrong again and again – particularly financial markets. What was 2008? It was a market failure. Let’s face reality, without regulation markets fail. Market forces are not immune to a sheep mentality; financial markets are prone to overinflate through speculation, markets can be manipulated, investors can follow trends and place wrong bets, markets are notorious for ignoring harmful externalities and negative social impacts. Markets are just that – people buying and selling things – that’s all they are.
‘Lenders [should] have a more active role to play in policing public policy and ensuring that countries do not exceed their capacity to service and repay debt. This is playing out most dramatically in Europe where the European Commission and the European Central Bank are either directly or indirectly heavily influencing public policy in Greece, Italy, Spain and Portugal to name a few.’
Well that’s wonderful. The bankers who caused the crisis should be in charge of public policy. Let’s let the technocrats take over and tell the population of Europe that they have no future, because the banks want their pound of flesh.
‘It will involve reducing government spending to be lower than government revenue for a long time. It is likely to result in a lowering of the standard of living for whole societies as they learn to live within their means. The political challenge will be to convince the electorate of the need for fiscal pain and to ensure that the burden is equally shared.’
This is the ultimate insult. Whole societies have to suffer. They have to be punished for being screwed. And by the way, as their elected representatives, it’s not our job to listen to them, no, we have to convince the people that they deserve the pain and their lower standard of living; and although it was the bankers and the wealthy (who else can afford to invest and gamble in the market) who have caused this social and economic disaster, let’s spread the burden equally. Note it’s the only time we have to share things EQUALLY – when we’re spreading burden! When we’re sharing wealth, equality is the enemy. Despicable.
[1] Krugman, Paul, 'Europe’s Austerity Madness', The New York Times, September 27, 2012; Stiglitz, Joseph, 'Austerity not the way to go for Europe', BBC Business, 3 October 2011
[2] The CIA World Factbook, United States Central Intelligence Agency
[3] 'Greek crisis: which banks are most exposed?', The Guardian, guardian.co.uk,16 June, 2011
[4] Giuseppe Fonte and Gavin Jones, 'Euro’s big four agree growth boost, split on bonds', Reuters, June 23, 2012
[5] Oxfam Hong Kong Poverty Report: Employment and Poverty in Hong Kong Families (2003-2012)
[6] Hong Kong Council of Social Service, Family & Community Services in Hong Kong, Background Information, Updated June 2009
[7] Lubin, Gus, 'This city has by far the most inequality in the developed world', Jun. 26, 2012
[8] Hong Kong Council of Social Service, Social Indicators of Hong Kong
[9] ibid.
[10] OECD iLibrary, late 2000s
[11] Gittins, Ross, Sydney Morning Herald, March 14, 2012
[12] OECD, 200
[13] CIA Factbook, 2011
[14] Schwab, Klaus, 'The Global Competitiveness Report 2012–2013', World Economic Forum
[15] Citizens for Tax Justice, Source: Institute on Taxation and Economic Policy Tax Model, August 2009
[16] costsofwar.org
[17] Stimulus Watch: Government Responses to the Financial & Economic Crisis
[18] Isidore, Chris, 'Stimulus price tag: $2.8 trillion, CNN Money', December 20, 2010
[19] Berman, Jillian, ‘U.S. Median Annual Wage Falls To $26,364 As Pessimism
Reaches 10-Year High', The Huffington Post, 20 October 2011
[20] Riley, Charles, ‘Household wealth down 23% in 2 years – Fed’, CNN Money, March 28, 2011
[20a] Munnell, A., 'What is the average retirement age?', Boston College, Center for Retirement Research, August 2011
[20b] World Bank, as of Oct 31, 2012
[21] Fernandes, Deirdre, ‘Fired police chief could receive large pension’, Boston Globe, October 31, 2012
[22] Müller, Raffelhüschen, Weddige, 'Pension obligations of government employer pension schemes and social security pension schemes established in EU countries' Final Report, Research Center for Generational Contracts, European Central Bank, January 2009
[23] http://stats.oecd.org/Index.aspx?DatasetCode=SNA_TABLE1
[24] http://www.imf.org/external/pubs/ft/weo/2006/01/data/index.htm
[25] Müller, Raffelhüschen, Weddige, op.cit.
[26] OECD Private Pensions Outlook, 2008
[27] Nolan, Kellee, 'Two million elderly Aussies on pension', The Sydney Morning Herald, August 11, 2008
[28] Popper, Nathanael, 'Stock Trading Is Still Falling After ’08 Crisis', The New York Times, May 6, 2012
