There is a strong resemblance between the agenda that Joe Biden intends to implement in his first, and probably only, term as president of the United States and the policy manifesto that Bill Shorten took to the last federal election.
It is a big tax-and-spend agenda, which like Labor’s at the 2019 election, seeks to shift resources away from the private sector towards the public sector.
Biden proposes to spend $US 1.9 trillion on immediate Covid recession relief payments and then an additional $US 2 trillion over the next ten years on what has been called the ‘Green New Deal’. This entails expenditure on infrastructure, green energy, healthcare and communications, particularly fibre to the home.
He intends to finance this by increasing federal corporate taxes to 28% from the current 21% legislated by Donald Trump. This means that when U.S. state corporate taxes are taken into account, American corporations will face the highest company tax rate in the developed world, which will make them uncompetitive with companies from elsewhere, particularly Asia.
To counter this Biden is proposing to introduce protectionist measures such as ‘Buy American’ legislation, carbon tariffs, and a minimum corporate tax rate for all OECD countries. The negotiation of the last of these will be Mathias Cormann’s first real challenge as OECD director-general.
If Australian Labor wants to emulate the Biden progressive agenda, there are a number of things that need to be borne in mind.
The first thing is that there is no evidence of popular support for it among voters. President Biden won the election because people were fed-up with Donald Trump and his approach to the pandemic, which was an unmitigated disaster. On the other hand, Trump’s economic policies were generally popular.
There is no doubt that Trump was a hopeless politician, which is why the Democrats now control both houses of Congress, but a number of commentators believe that Biden’s policies could lose Democrats the House of Representatives in two years’ time. That is why Biden is in a hurry to get legislation through as soon as possible.
The second thing Labor should take into account is that while some economists such as Joseph Stiglitz and Paul Krugman welcome the Biden agenda, a large cohort of American economists believe that pumping a huge amount of public money into the economy at the present time will unnecessarily increase debt, lead to inflation and a fall in the value of the US dollar. While this will improve American competitiveness, it will erode the standard of living.
Biden’s advisers are aware that reliance on the public sector to lead the economy out of recession will mean lower growth rates than would occur otherwise. This is why they are relying so much on taxation rather than allowing growth to take care of debt, as the government is doing in Australia.
Finally, high levels of corporate taxation will lead to lower corporate savings and lower innovation. In America, corporate savings are what drive investment and innovation is what has kept the country ahead of everyone else when it comes to the development of technology.
Labor has said it wants Australia to have a 21st century economy but it seems to be reluctant to trust the private sector to deliver one. There is no doubt that a thriving private sector often leads to inequality, but it also leads to opportunity. It is amazing that in Australia a thirty-year-old woman can be the tenth richest person in the country, all on the basis of her own entrepreneurialism.
It would be a pity if Labor decided to adopt policies that stopped this sort of thing from happening.