Economics Opinion

Australia can afford to fix the damage done by interest rate hikes

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(Cartoon by Mark David / @MDavidCartoons)

While interest rates and the cost of living continue to cripple us, rethinking our economic system might shine a light on the solution to the crisis, writes Gerry Georgatos.

THERE IS NO justification for Australia’s Reserve Bank Board to increase interest rates. The banks making more in profits does not make the economy robust. Australia is not in a recession, but we are misled to believe Australia is on the cusp of a recession. This diabolical predicament has become routinely cyclical.

The interest rate spikes are an obviate opportunity for the recalcitrant banks to increase their profit yield. Had the interest rates not been increased even once since the contrived pandemonium of a looming recession, the banks would still be in profit. Further, cost of living pressures would have been much more manageable for the everyday Australian.

Therefore, if the Federal Government better understood the economy, it should have legislated a mortgage interest rate freeze — a moratorium. The mortgage interest rate freeze should have been concomitantly in addition to a nationwide rent freeze.

Spending would have kept down inflation, which has also been unnecessarily bloated to keep big retailer profits up and real wages stagnant, which has been the uninterrupted nightmare four decades long since 1983.

I have regularly written about the socioeconomic hits to the general Australian population during the first two years of the pandemic. I have written that in that two-year stretch, Australia’s 47 billionaires doubled their combined wealth to $255 billion. I have written that the world’s ten richest individuals during that two-year stretch doubled their combined trove to $1.9 trillion.

So, how is it that we are increasingly protecting the world’s richest individuals in times of presumed austerity?

Ten million Australian workers continuously struggle. It has been four decades of a race to the bottom for the Australian worker. For the poorest, the underemployed and the unemployed, it has been a brutal public spectacle, with suicides on the increase. For too many there is no living wage, just sacrifice and effective beggary.

Since 1983, real labour costs have been reduced by 24%, while the net share of national income consigned to profits increased to its present record high of 32%.

The most recent investigations by researchers into the impacts of underemployment and unemployment have found 9.5% of the increasing Australian suicide toll is directly attributable to unlivable wages and unemployment.

We have long known about the links between unemployment and low wages to suicide. The lowest quintile of income base comprises the most significant proportion of suicides. Well-regarded researchers published their findings in Science Advances in a report titled, ‘Unemployment and underemployment are causes of suicide’

They estimated in Australia, from 2004 to 2016, more than 3,000 Australians died by suicide, directly attributable to unemployment and underemployment. The researchers argue their findings may galvanise governments to new understandings. I will believe this when I see it.

In my view, the last four decades of indenturing Australians to lower wages and longer working hours, masking unemployment at around 5% of eligible working-age Australians instead of more than 20% and disregarding substantive increases to the paltry Centrelink payments while the top few per cent run away with what once upon a time was unimaginable profit-making, tout clearly what has perniciously occurred.

As of May 2023, Forbes reported there are nearly 2,700 billionaires, with the top ten individuals each worth more than $100 billion. The richest individual is worth nearly $250 billion. The barbarous ludicrousness of such coveting of wealth, greater than sovereign nations, damns humanity. If an individual were to save $10,000 each day for 70,000 years, one would still not accumulate as much as the world’s richest individual, who is aged 51.

Where is the taxation system that is needed to ensure a society where people are not the serfs of the rich? We cannot continue to sit idly by and allow gutter economics to humiliate us all.

We must not disaggregate income base to quartiles or quintiles. Even deciles are inadequate for taxation purposes. Deciles of income base do not reflect adequately the ranging variable socioeconomic stressors. We need ventiles — divided by 20.

Percentiles would be ideal, the fairest taxation system, but it is not likely there would be an uptake. So, for now, I argue the case for “ventile” economics, where income base is tax bracketed to 20 income tax brackets. However, I do note that the highest two ventiles of income base should be disaggregated by deciles, as the income in those two ventiles, particularly the top ventile, wildly varies.

Nearly 30% of mortgage holders, because of the Reserve Bank’s unjustifiable interest hikes, have been put in an at-risk precariousness and not just merely in mortgage stress. That’s nearly 1.5 million at-risk Australians looking ever more likely to lose their home or sell.

Roy Morgan research has identified mortgage stress has increased by thereabouts 540,000 Australian mortgagees in the last year during the laggard Reserve Bank’s 12 interest rate hikes of the last 14-monthly meetings. Suddenly, Australia now suffers the highest interest rate – 4.1% – since 2012.

But the sliver which is the top end of town is persistently accruing record profits. The combined wealth of the world’s billionaires – 15 trillion dollars – can end all abject poverty worldwide.

Australia’s national net wealth, if redistributed, can end the crushing poverty which accounts directly for at least 10% of the suicide toll.

Australia’s GDP per capita rank is 12th in the world. This nation’s total wealth is around $14 trillion and steadily growing. In recent years, national net wealth, the treasure trove, hovered between $11 trillion to $15 trillion.

Australia can afford to build all unmet public and social housing – 180,000 homes – at less than $100 billion. Australia can afford to substantively increase Centrelink and Aged Pension payments and ensure a living wage. Australia must courage up to the big end of town employers, redress real wages and put people first. Australia must raise the minimum wage by more than that gold coin nonsense.

A moratorium must be procured on rents and mortgage payments, and the 12 interest rate hikes by the Reserve Bank must be rescinded. Why? Because we can. Because it is the right thing to do. We deserve fairness and a saner world.

An unjust society is beyond words but it kills.

Gerry Georgatos is a suicide prevention and poverty researcher with an experiential focus on social justice.

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