(MintPress)–With the United States and European Union caught in a battle over the effectiveness of austerity measures, Australia’s Prime Minister Julia Gillard announced Tuesday the nation had officially worked its way out of a deficit — a move made possible through a new carbon tax, paired with cuts to defense, foreign aid and pensions among high income earners.
Boasting a projected $1 billion surplus, Australia became the first major world economy to show signs of economic recovery from the global recession, calling into question whether the country’s tactic of cutting services to the wealthy and taxing the nation’s largest polluting companies could actually work. Just last year, the nation was facing a $30 billion deficit.
While critics have compared Australia’s measures to European austerity measures that have incited havoc among citizens, the way in which Australia pulled itself out doesn’t exactly mirror the EU’s plan, where the approach has largely been to cut social services and drawback spending as a fiscally responsible way to save and repair the budget. The same measures are being carried out in the U.S., where Tea Party Republicans have gained popularity on a platform that calls for tax cuts, especially among businesses, and slashes to social services.
Targeting the wealthy
While Australia’s new budget does cut spending and services, it also includes taxes on some of the nation’s wealthiest corporations — specifically, those most rampant polluters. The move is expected to generate an estimated $10 billion, according to Get Carbon Policy Right.
The projected $33.6 billion in budget cuts comes in three specific forms:
– $2.46 billion drawback in superannuation (government retirement) funds for the nation’s wealthiest
– $5.4 billion cut in planned defence funding, and
– $2.9 billion reduction to foreign aid.
The spending cuts are seen as the nation’s largest in 25 years.
The new carbon tax, introduced in May and set to be implemented in July, tackles the nation’s economic woes, while also combating greenhouse gas emissions. The tax will force companies to pay $23 per ton of emitted carbon — half of the revenue will be given back to residents through tax credits, cash bonuses and pension increases, with proportionately greater services passed down to the nation’s low-income earners.
“ … The entirety of the revenue taken in by the carbon tax will actually be put towards compensating taxpayers and affected companies,” the website carbontax.net.au states. “So much so, in fact, that there is an impact of approximately $4 billion to the Federal budget bottom line.”
Offering assistance to Australia’s low-income is seen as a way to offset any moves by large electrical corporations that could attempt to pass down carbon tax costs to consumers, placing some families in a tough spot. But the goal of Australia is not to tax the rich and give to the poor, at least not forever. The government is hoping that by taxing polluters, companies will, in turn, find more environmentally-friendly ways of doing business, which would help Australia achieve its goal of reducing carbon emissions.
Australians have recognized themselves as the highest carbon polluters-per-person, warning that if the nation doesn’t act now, it will experience devastation in the future with flooding and rampant bush fires.
According to carbontax.net.au, $13 billion generated through the tax will also be used to fund green energy initiatives, through wind, solar and green farming practices.
Not everyone is thrilled
While cuts in spending aren’t set to put a dent in Australia’s government healthcare system or other widespread social services, some are concerned with the cuts to public sector jobs, which are expected to diminish by roughly 2,000.
The Australian Broadcast Corporation (ABC) reports Public Sector Union National Secretary Nadine Flood addressed the concern that jobs could “go across other agencies,” while admitting that figures could change with government subsidized care for the elderly and disabled.
Also included in the budget plan is a partial cut to welfare systems that provide assistance to unemployed single mothers, cutting back stipends when children reach eight years of age. The ABC reports it will impact 100,000 parents, but would save the government $700 million in four years. The Gillard government argues that tax breaks and handouts to low-income families through the carbon tax credit will offset that concern.
Others claim the government’s projected surplus is based on, just that — projections.
“This is a cooked-books surplus based on fiddled figures and yet again no one should take this Government seriously,” Opposition Leader Tony Abbot said in an ABC report.
While surely linked to the global market, Australia hasn’t seen the economic devastation experienced by EU nations and the U.S. Unemployment rates have remained around 5 percent — compared around 8 percent in the U.S. — and interest rates, along with inflation, remained relatively low and steady. But, the country did see a deficit — a claim the EU and U.S. can relate to. How to handle it, however, isn’t a method shared among the Western nations.
Challenging EU style austerity measures
Days after Gillard announced Australia’s projected surplus, German Chancellor Angela Merkel warned against the abandonment of the country’s strict austerity measures, claiming it would devastate the nation.
Meanwhile, in the UK, protesters, which included police officers, took to the streets Thursday to protest the austerity measures in the nation that have largely affected government workers and low-income earners, creating what opponents see as a larger divide between the poor and wealthy.
It’s the same in France and Greece, where citizens showed the power of the vote in electing leaders who ran on anti-austerity platforms. The victory of Socialist President Francoise Hollande over Nicolas Sarkozy sent a strong message to the entire EU — one that showed citizens suffering under austerity measures were ready for a new turn, one that took them back to socialistic principles absent in the country for 20 years.
Hollande ran on a platform that favored cuts to the wealthy over social programs — a plan playing out now by Australia’s Gillard with a budget proposal that would scale back government-funded retirement services to Australia’s wealthiest earners, not those at the bottom. Taxing 500 of Australia’s largest companies is also seen as a move to target the wealthy, passing on half of such tax revenues to low-income earners. Such measures counteract Gillard’s plans, however, to scale back on some welfare programs.
Hollande also said during the campaign he would seek to drawdown on spending — a move Gillard has done by compensating through cuts to foreign aid and defence.
The battle isn’t lost on the U.S., where Tea Party conservatives have emerged as major players in the political process, leading to Republican sweeps in state governments and showing overwhelming power in the lead to this year’s presidential elections. The issue of extreme tax cuts and drawbacks to social programs has divided the nation, with some claiming moves have left the country’s most vulnerable out to dry. Conservatives, on the other hand, claim reducing the deficit through harsh measures is necessary to secure a solid future. Shifting the tax burden to large corporations and the wealthy, they say, would stint job growth, sending the economy into even deeper into a recession.
With deep divides in the nation, the U.S. is unlikely to implement a budget similar to Australia’s — not only have the U.S. historically not taken an active fight against climate change (it’s not a party to the Kyoto Protocol), but it has also proven difficult to implement policies that tax the nation’s largest employers.