Tag Archives: Charities

Talking about Public Housing: Political Economy, Neoliberalism or Welfare?

This article is a background to political economy, and why it matters in policy advocacy – in this case, in an approach to public housing. But it is also about political messaging, channelling Henry Lawson into a 2-minute housing video, and calling out neoliberalism.

This piece began as a background to the making of a short SACOSS video on why public housing matters, but ended up trying to explain what political economy is and what it offers to (and challenges in) social change advocacy.

Public housing matters. South Australia needs more of it.
A link to the video is in the text below

Political Economy

The doyen of Australian political economy, Frank Stilwell describes the political economy approach as having four key features (in contrast to mainstream neoclassical economics). Political economy has:

  • A central focus on inequality
  • A pluralist method engaging different economic traditions
  • An interdisciplinary inclination
  • An ethical orientation in explicitly putting values, as well as facts, at the heart of analysis.

I plead guilty to all of the above. I would also note that the focus on inequality is a systemic one, not one based on individual differences, and that in a pluralist and interdisciplinary inclination, people’s stories matter. People are not simply economic actors or statistical units. They have unique stories and their representation matters.

This latter perspective is standard fare for advocacy in the charitable sector, but often at the expense of systemic analysis. This approach is encouraged by the demands of media and communications for powerful images and personal stories, but can end in disempowering “poverty porn” rather than social change.

But how do we do and communicate political economy, foregrounding the systemic nature of inequality, people’s experience and values?

Public Housing

This was the challenge for me at work earlier this year in developing a campaign call for a significant investment in public housing.

South Australia once had a national (and even international) leading public housing system, but over the last twenty plus years it has been diminished by aging stock and the sell-off of houses and land. Where public housing tenants made up 44% of renters in 1994, and 12% of the total housing market, in 2020 those numbers had reduced to 17% of renters and less than 5% of the total housing market (ABS data).

Unfortunately, the need for public housing had not diminished in that time. At 30 June 2020, the public housing waiting list was over 17,000 applicants – equivalent to 53% of total public housing stock (Productivity Commission data).

This decline and deficit was not an accident. It was driven by government policy and a significant ideological change in seeing public housing as a last-resort welfare measure (at best), or at worst simply overly expensive and counter-productive. This contrasts with the earlier vision of public housing as a market intervention at scale which reduces housing costs for all by increasing supply – a piece of public capital conditioning the private rental market.

In an era of neoliberal dominance where economists and governments had already decided that public housing is old-fashioned and a burden on the taxpayer, we were told it was best to highlight the waiting list and identify people/groups in need that were missing out. To appeal to sympathy in telling those personal/representational stories of stress and homelessness.

This approach ticks the box of a values-based policy, and it is a much easier policy and communication ask. With it, perhaps we could eek out some investment to house some more vulnerable people. But it would takes us back to the neoliberal frame of public housing as a welfare measure – the very approach which is part of the problem.

Economic Approaches to Public Housing

To develop this argument more, I again borrow from Frank Stilwell, in particular his categorisation of modern economic thought into conservative, liberal and radical schools.

In this framework, a conservative economic view sees a housing stress and homeless as an individual issue and government intervention in the housing market as counter-productive. Such intervention competes with productive capital and stops the market’s efficient allocation of housing. I know the theory, but personally, I just can’t see that the problem with Australia’s insane housing market is too much public housing!

A liberal approach might see homelessness as a market failure requiring intervention – for instance, subsidies or supports for individuals. While such interventions may be useful, by the nature of the underlying analysis, they are narrow in their focus and constrained within a market framework.

A more radical political economic approach would see housing stress and homelessness as systemic and relating to more than market supply and demand – a problem that also encompasses income, geography and infrastructure, cultural expectations, competing property rights, and entrenched and reinforcing patterns of inequality.

If this political economy analysis is correct, then it is easy to see how the provision of public housing at scale will help address the problem. Beyond just the provision of housing to those in need, it puts supply into the market creating downward pressure on all rents. It also provides for a different property regime (public rather than private ownership) where tenants have more rights through rent capping and tenancy protections. In contrast to fixed term private leases, public housing also provides a security of tenure and a permanency that challenges a cultural perception that renting is simply a pathway to the preferred status of home-ownership.

That is why public housing is important – and why ideology matters. The different ideological assumptions and analyses drive policy. And in this case, arguably the dominant schools of thought simply don’t have the breath of focus or the scale to address problems of housing stress and homelessness.

Henry Lawson and the video

And so, we arrived at the point of how to sell a political economy perspective on public housing. A short video would be nice!

Enter Henry Lawson. From my childhood I remember the great Australian poet’s “Faces in the Street”:

They lie, those who tell us in a loud decisive tone
That want is here a stranger, and that misery’s unknown;
For where the nearest suburb and the city proper meet
My window-sill is level with the faces in the street —
Drifting past, drifting past,
To the beat of weary feet —
While I sorrow for the owners of those faces in the street.

I wanted to channel that anger, the personalness of it, into a systemic ask that was not about poverty pornography or a charitable helping of the unfortunate. But I also knew that Lawson’s Red Revolution’s marching feet was probably not a winning argument!

So, I drafted words, and my colleague put music and images to create a short video. Thanks to her, it turned out to be much more than I anticipated.

It remains an amateur production with basic technology and limited resources. And it is a short piece which can’t do the full political economic analysis. But as a prototype, from my point of view it does a few things of particular interest/importance:

  • It uses the sympathy-inducing images and music of a charitable fundraising video to go in a different direction
  • The emotional sadness is not just about the plight of individuals, but about a loss of common wealth (named as such) and the implications of that
  • At the point where the “you can help” fundraising ask would normally come, it instead names and shames government strategies and calls out politicians, think-tanks and the ideology that is to blame
  • The warm inner glow of hope at the end is for government/community action, not an individual gift or act of charity.

You can view the video here.

It is for others to judge whether the video is successful in making its point, or ticks all the boxes of a political economic analysis, or is useful as a communications tool. But regardless of the video, I remain convinced that the key issues around housing and homelessness (and much more) are ideological and political-economic, not ones of charity or welfare provision.

With apologies to Mr Lawson:

And so ’twill be while e’er the world goes rolling round its course,
The warning pen shall write in vain, the warning voice grow hoarse,
But not until a city feels political economy’s beat
Shall its sad people miss awhile the terrors of the street —
The dreadful everlasting strife
For scarcely clothes and meat
In that pent track of living death — the city’s cruel street.

Thomas Piketty, Councils of Social Service and Equality Advocacy

This piece considers the implications of the writings of Thomas Piketty for the work of the Councils of Social Service in Australia, but it is also relevant to other organisations and individuals fighting inequality.

Picture of two books: Capital in the Twenty-First Century; and Capital and Ideology Implications for Councils of Social Service

I have summarised Piketty’s major work in a separate article, and those who are unfamiliar with his work may want to read that first. Here I draw on my understandings of Piketty to challenge some familiar assumptions, data and policy prescriptions.

WHO AND WHY

Thomas Piketty became a “rock star” economist after the publication of his ground-breaking Capital in the Twenty-First Century in 2013/14. The book provided a macro-economic analysis of issues raised by the political mobilisations of the Occupy movements of the previous decade, and it helped put questions of inequality on the cultural and political agenda around the world.

The book contains new intellectual and data tools (resourced and built upon by a team of academics across a range of countries and presented in the World Inequality Database). It is also highly critical of the official data produced by agencies like the ABS and relied on by many of us. For this reason, it is a body of work we need to engaged with.

Piketty’s work was decried by right-wing think tanks (e.g. the Free Market Foundation, and the Cato Institute), but also threatened to be banned in China. And perhaps most famously, alongside an obsessive array of data, he used the nineteenth century novels of Jane Austen and Honore de Balzac as evidence of inequality.

What could be more inviting?

FOCUS ON WEALTH

Much of the public discussion of poverty, cost-of-living, concessions and income support (including my own work at SACOSS) focuses on inequality of income. However, Piketty’s work demands a new focus on wealth accumulation and inequality. His data highlights inequality of wealth, while the famous r>g formulation focuses on the role of capital/wealth in driving income inequality.

A recent study by Lisa Adkins and others builds on Piketty’s argument to argue that asset price inflation means that capital gains, capital income and inter-generational transfers are the preeminent drivers of inequality. This is important because those gains are mostly within the sphere of capital ownership. They may not show up as income at all.

It is well-known that inequality of wealth is generally greater than inequality of income, but the above suggests that a focus on income inequality may underestimate the true extent of economic inequality and miss key drivers of it.

Beyond mapping inequality, a focus on wealth is important because ABS data shows that there are significant differences in where particular households sit on wealth and income stratifications:

  • Only 35% of households in the lowest income quintile are also in the lowest wealth quintile, 23% have average wealth (home-owning pensioners?) and 7.3% have high wealth;
  • 42% of households in the highest income quintile are also high-wealth households – meaning that nearly 60% do not have high wealth.

Some recent SACOSS work has also shown significant differences between the expenditure patterns of households on essentials like water and public transport depending on whether their position is measured by income or wealth.

Insurance is another example of where expenditure is regressive in relation to income, that is, a proportionately bigger imposition on low-income households, but different when looking at households based on wealth. When considering income, making insurance cheaper (for instance by removing stamp duty on policies) looks like a good policy – and one that has been contemplated by SACOSS. However, such a policy will primarily result in a windfall for higher wealth households who have more to insure and proportionately higher insurance expenditures. For this reason, SACOSS has opted to call for an insurance concession for low-income households.

Similarly, policies that provide grants or subsidies to landlords for energy efficiency investments (as advocated in ACOSS’ NLEPP) are good in the income frame as they can lower energy bills for low-income tenants. However, such policies may also increase wealth inequality by increasing the value of the property and the wealth of the landowner.

In short, with an exclusive focus on income, we may be advocating and getting benefits for those who are financially well off, or we may not be targeting supports to where they are most needed.

DATA ISSUES

Even where the focus is on income, Piketty’s work raises questions about the data we use to categorise and measure income inequality. He argues that the household survey-data used in official measures of inequality is flawed both in collection method and categorisation. For instance, he suggests results vary if weekly, monthly or yearly income is used, while ratios between percentiles are volatile and surveys tend to significantly underestimate the income and wealth of the highest percentiles.

For this reason, Piketty prefers tax data and expresses inequality as a share of total income/wealth, rather than as the percentile ratios or Gini coefficients (found in ABS data). As per my previous post here, I also think the income share methodology is more versatile in that it can be applied to other areas such as gender. Indeed, the World Inequality database now includes this as part of its Australian data.

Piketty also suggests that the classification of households into quintiles is flawed. It suggests an even stratification of households and significantly fails to account for the massive increases in income and wealth in the top 10%, 1% or even 0.1% – and the power they exercise as a class. Instead he proposes a classification of classes defined as:

  • Lower = bottom 50% of income or wealth
  • Middle = from the 50th to 90th percentile of income of wealth
  • Upper = top 10%, which includes the “dominant class” which are the top 1%.

He admits this is somewhat arbitrary, but the lower bracket accounts for very little of society’s income or wealth, and the definition of middle is close to common usage of people who are doing better than most, but not the elite.

ACOSS’ flagship inequality report uses similar categorisations for wealth, but not for income. Other work around the network of Councils of Social Service (e.g. SACOSS cost of living reports) also uses income quintiles which may hide the real distributional dynamics. This is often because of the limitations of the data published by the ABS, but where there is the opportunity to use microdata to produce our own statistics, we should not be bound by ABS categories.

POLICY

The final chapter of Piketty’s second great tome, Capital and Ideology, outlines policy proposals which arise from his analysis. All reflect a base understanding that inequality should be limited and that to do this, we need to think about wealth as temporary and social, not a permanent and inalienable individual right. He proposes a number of large-scale policies or directions to limit inequality, including:

  • Co-management and power-sharing within corporations
  • Progressive income taxes and a basic income provision
  • Progressive annual wealth tax
  • Progressive inheritance taxes
  • Universal capital endowments of $100k or more paid to 25-ish year olds (and taxed back over time)
  • A public register of assets to facilitate greater transparency of wealth
  • A constitutional principle of fiscal justice based on non-regressivity and the publication of information on how tax is apportioned among the population
  • A progressive carbon tax
  • A just distribution of educational investment
  • Replacing tax deductions for political and charitable giving with funding vouchers for people to allocate to their preferred charities.
  • Transnational democracy and new global institutions.

The tax policies are obviously difficult to achieve politically, but go well beyond the timid tax changes the Councils of Social Service often champion. Apart from some mischievous SACOSS mentions of inheritance taxes, changes to negative gearing and capital gains tax are about as bold as we get (see for instance, ACOSS Budget Priorities, Section 10). These proposals are certainly steps in the right direction – but they are a long way short of annual wealth taxes. However, the power of Piketty’s historical and comparative analysis is that none of the big tax policies are utopian dreams. They all have existed at different times and/or currently exist in different places.

The universal capital endowment is more speculative. While I can see how it flows from the analysis, I worry about the implications for those who through fate/sickness/whatever don’t make the most of that endowment. Having had their perceived chance, will they simply be left behind with no support/sympathy?

Similarly, while in a previous post I have recommended removing tax deductions for charitable donations, I fear the alternative Piketty proposes. He proposes a voucher scheme where everyone can vote an allocation of money. But based on some local examples of where South Australians were asked to vote funding for neighbourhood projects, it is easy to see that such a scheme may simply lead to a populist contest where money does not go to where it is most needed.

THE ULTIMATE QUESTION

However, the quibbles above are relatively trivial issues for what are big proposals for broad policy directions. And beyond the individual proposals, Piketty’s work prompts one big final question: in the face of the macro-processes that are driving inequality, is the scale of change we often work at really going to make a dent on rising inequality?

I suspect not, but that is the ultimate challenge of Piketty’s work. It is a theme I will return to in future posts.

Proposal to Remove Tax Deductibility for Donations to Charities

This is a slightly longer and more generalised version of a presentation I made to the Reset arts conference (with a caveat that these are personal views, not a policy of my employer). My presentation was part of a series of seven-minute pitches of provocative ideas.

Reset: A New Public Agenda for the Arts

The Pitch

My provocative proposal today is to remove tax deductibility for donations to the arts, and to charities generally – because it will increase public accountability and fairness in funding.

Piketty

The idea is raised by French economic rockstar, Thomas Piketty, whose work has been pivotal in highlighting growing inequality around the world. Famously, in his best-selling Capital in the Twenty-First Century, he warned that processes of capital accumulation were leading western countries on a path to a level of inequality not seen since before the First World War. Yet while the argument, and the focus of the wealth of the top 1% has been celebrated, there has been less attention to or support for the policies he and his collaborators propose to promote greater equality. These proposals, contained in his later book, Capital and Ideology, are principally around controls on capital, taxation of wealth and progressive income taxation.

Most relevantly for the charitable sector, Piketty argues for the removal of tax deductibility for charitable donations because such donations empower and reward the preferences of the rich. He was focused on the large endowments to French and American elite educational institutions that promote inequality in education and opportunity, rather than on my $20 a month donation to whoever – but the argument is basically the same.

Tax deductions for charitable donations represent public money which is theoretically paid in taxes to the government, but handed back to be directed and expended by private individuals and corporations on programs which fit their personal priorities.

To be clear, in supporting this proposal, I am not suggesting that private donations to charities should be banned, just that those donations should not be tax deductible and that the extra tax revenue gained from this should be used to fund the same areas of activity through transparent public funding processes.

How Much Money?

Federal Budget papers suggest that the amount of tax forgone due to deductions for philanthropy in 2020-21 was around $1.6bn across all charities. That is about 32% of all Federal government grants to not-for-profit organisations.[1] In the arts, my back of envelope calculation is that it would be about $50m (based on the $132m donated to ROCO arts/cultural organisations in 2018-19). That is equivalent to around 20% of the funding of the Australia Council, or five times the Creative Partnerships program.

So, we are talking about a fair bit of money that could go into peer assessed, publicly funded programs.

Of course this assumes that the total amount of tax deductions simply switches from private philanthropists to public funding. Economists will tell us that this won’t happen, but the key question is, what is the net impact on funding for the not-for-profit sector as a whole?

It is possible that total funding could increase if donations do not drop by as much as the tax revenue gained. If donations drop by the same amount of the tax deduction, then there is net zero impact on overall sector funding.

But the bigger question is: if we oppose removing tax deductions because we think philanthropists will stop donating, what does that say about our view of philanthropists and about how we value art or the work of charities? Are we really just a tax avoidance plan? Are our donors really that self-serving – or is there a different value proposition at play? How confident are we in the public value of our work?

A side benefit

Removing tax deductibility for charitable donations also has an important side benefit. For the last 20 years, conservative governments and think-tanks have used the tax-deductible status of charities to threaten or curtail advocacy. This has been most prevalent in the environment movement where tree-planting is seen as charitable, but protesting is not.

However, the threat is broader, but it disappears if no donations were tax deductible. Organisations would then be freer to decide how best to pursue their charitable purpose without concern over government attacking their tax status or the need to fit into often arbitrary DGR categories. And advocacy/peak bodies would be able to fundraise on the same footing as the rest of the sector.

Caveats and Questions

Obviously, there’s devil in the detail of such a proposal.

  1. tax deductible donations would need to be removed for all charities (so nobody was choosing between charities with tax deductibility and others without [which is the current situation]);
  2. any extra tax revenue must actually go to the arts/charitable programs, not be “lost” to general revenue; and crucially
  3. government funding processes must be transparent and peer-reviewed (not a Catalyst for more sports rorts, dodgy car parks, or what seems like systemic corruption and pork-barrelling).

But these are implementation issues, not reasons to continue privileging the preferences of corporations and individuals over democratic public processes.

This proposal is radical, and for those who currently receive substantial philanthropic donations – don’t panic! It is not going to happen in the foreseeable future. But it should provoke big picture questions:

  • about the role of arts and charity,
  • about who we serve and are accountable to, and
  • it should challenge those neoliberal views that government funding is a social cost/dependency while private funding is somehow more worthy.

And mostly, we should be asking: are we happy that our sectors are funded in a way that reflects and increases inequality?

[1]              The 2020 Tax Benchmarks and Variations Statement shows deductions for gifts to deductible gift recipients (including private ancillary funds) at $1,655m. Budget Paper 1, Statement 10 shows total grants to NFPs at $5,198m.