Why is Mediabank’s profit good news?

The Age reports: Tough new hospital contracts and better claims management underpinned a 58 per cent jump in Medibank Private’s interim profit to $227 million ahead of the insurer’s unveiling of a new chief executive.

Domino man

Smiles all round. A nice healthy dividend for shareholders.

But hold on.

Why is this windfall profit not being returned to policyholders?

Because that’s the point of privatisation. Someone makes a profit out of the premiums that ordinary Australians pay to ensure that they have adequate health cover. And that’s on top of the Medicare levy and the income tax  that all Australians pay.

Every time we privatise a government owned business, we reinforce the inequalities of wealth in this country. The profits from privatisation go to the people with money to buy shares. So the rich, get richer, at the expense of the not so rich.

Writing in The Age, Gareth Hutchens cites an International Monetary Fund report, called Causes and Consequences of Income Inequality: A Global Perspective, that argues “that income inequality and income distribution both matter for economic growth.   

It said widening income inequality had become so bad in advanced economies that policymakers need to focus on ‘‘the poor and the middle class’’ if they want to boost economic growth globally.

It said reducing tax expenditures that benefit high-income groups the most, and removing tax relief – such as low taxation of capital gains – would ‘‘increase equity and allow a growth-enhancing cut in marginal labour income tax rates in some countries’’.”

Yet, Treasurer Scott Morrison is arguing for tax cuts to avoid the problems of bracket creep. In a sign so typical of the Turnbull government, Finance Minister Mathias Cormann said that wages growth was the lowest since 1960, so bracket creep wasn’t a problem.

The  first problem for the Turnbull government is that all the viable solutions for solving the deficit problem involve decreasing tax concessions to the wealthy, their natural constituency.

A little bird has said that when it comes to ideas of tax reform, the question that is asked in the corridors of power is “How would this affect Malcolm?”  If the answer is “badly” then the idea is dropped.

The second problem is that the Labor Party and Bill Shorten have capitalised on the Government’s inertia and captured the high ground in the tax debate. Any action now by the Turnbull Government on will look as if it is adopting Labor’s’ policies.

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Treasurer Scott Morrison: both hands empty on tax reform  (photo  Andrew Meares)

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