Category: Economy

Late last year I was approached by a friend who is very politically active about what I thought the ALP could do to renovate its policy platform.

I discussed this request with an old friend, Ian McAuley.  Together we prepared a paper ‘Principles to drive policies and programs – or – What does Labor stand for?’ It is dated 18 December 2012. Quite deliberately, this paper was not widely distributed. It can now be found on my website .  It is on the home page and also in the folder ‘democratic renewal’. It is also reproduced at the end of this blog.

The paper can also be found on Ian McAuley’s web site ianmcauley.com/academic/othpubs/laborprinciples.pdf.

Ian and I believe that this paper is still relevant to the reform process that the ALP must undergo in light of the defeat on 7 September 2013.

One concern expressed to me by many ALP voters was that the ALP campaign at the last election lacked an over-riding narrative or framework.

In the political process, I think there is general agreement that political compromises have to be made but they should only be made against a framework of generally agreed values. We like to know what our party and our leaders stand for, even if a few corners have to be cut.

We open our paper by drawing attention to the decline of the ALP primary vote from 45% to 50% fifty years ago to 35% to 40% today. In fact in the September 7 election, the ALP primary vote fell disastrously to 34%. In Queensland it was 30% and in WA 29%.  Tony Abbott on election night gloatingly described this primary vote for the ALP as the lowest for 100 years.

The current debate on the carbon tax illustrates how an approach based on principles can overcome a political problem. It is important that Labor is firm on principles but not positions. Unfortunately, politicians keep getting sucked into positions. Tony Abbott’s position is to ‘scrap the tax’. Labor’s is either ‘keep the tax’ or ‘move now to a European emissions trading system’. It would be better for Labor to stand for a more general principle such as ‘a strong market-based mechanism to reduce emissions’. It gives Labor more room to move. It reveals a flexibility in contrast to Abbott’s ‘position’.

In addition to the policy renewal, there must of course be major renovation of the ALP organisation and structure. Major issues in this area which need reform are.

• Building a national party from the long established confederation of six state-based parties.
• Widespread participation by ALP members from federal electorates in policy formation, selection of the parliamentary leader and selection of federal candidates.
• A reduced but fraternal link between trade unions and the ALP.

I hope you find the paper (below) ‘What does Labor stand for’ challenging.

 

1. Labor’s constituency

The Labor primary vote has declined from about 45-50% fifty years ago to 35-40% today. The Coalition vote is virtually unchanged. Labor has lost its clear identity with the ‘working class’ and what it stands for. Its natural constituency and membership has declined. To contain the loss, Labor has increasingly committed itself to focus groups, marginal seat strategies and ‘whatever it takes’. Values, principles and ideas have given way to marketing of products .Money has replaced membership as the driving force of campaigns. The trade unions remain the most important institutional Labor supporter but trade union influence is out of proportion to its role in the community and the ‘Labor constituency’.

1. Principles as the basis for policy
   If Labor is to differentiate itself from conservative parties, it needs to express that difference in a clear set of principles which accord with the best of Australians’ values. Otherwise the political contest is reduced to satisfying short-term materialist ‘aspirations’, appeasing vested interests and managing the media cycle. In such a contest, Labor is engaged in a futile struggle, for the Coalition is adept at conveying the misleading impression that it is the ‘natural party of government’, particularly because of its supposed competence in economic management.

   From community values a set of principles of public policy can be developed – principles which define Labor in contrast to other parties. Those principles can underpin a coherent set of policies and programs which implement those policies.
   Values > principles > policies > programs.

   Moving to the ‘right’ on issues such as refugee policy and health care simply legitimises the conservative position – a position from where exploitation of people’s fear is likely to drive out sensible and reasonable political debate. Selectively compromising – a little socialism here, a little free market there – as was the strategy of Britain’s New Labour – only confuses Labor supporters and the electorate because it presents inconsistent values.

   Social democrat parties, including Labor, were founded on an optimistic view of human nature and on recognition of the public sphere where people realise their full capabilities. These ideas can be expressed in consistent and coherent principles such as stewardship, the common wealth, including enhancement of social, environmental and institutional capital and protection of natural resources.

   In his emphasis on the ‘social question’, John Curtin gave effect to these principles, acknowledging that only a strong society, including a strong and respected government, can support a strong economy. And of course there is no point in an economy that does not serve social ends.

2. Curtin’s vision – ‘the social question’
   Curtin’s social democratic vision contrasts sharply with the Liberal Party platform ‘that only businesses and individuals are the creators of wealth and employment’, a view that reduces government to a burden rather than a contributor to the common wealth. Curtin’s vision contrasts with the notion that ‘a rising tide lifts all boats’, which legitimises destructive social divisions, which encourages people to separate themselves from society in physical or metaphorical gated communities (private schools, private health insurance), which allows the connection between contribution and reward to be severed, which encourages rent-seeking, speculation and protection of privilege rather than productive investment and which compensates the ‘losers’ with social security handouts.
3. Labor – the Party of strong leadership and values
   Just as Labor governments provided leadership to face greater challenges in the 1980s, so too today Australia faces even greater challenges – climate change, population ageing, dilapidated infrastructure, commodity based exports, deficits in human capital and a weak base for public revenue. The politics of ‘what’s in it for me’ discourages us from facing these challenges, for there will have to be trade-offs: some will have to pay more than others and some will have to forego benefits now for the sake of longer term benefits. Such transitions can be painful, but are more likely to gain support when people understand the principles underpinning public policy.

   When the Party is unified around a set of principles it can still have a robust debate about how to give effect to those principles. But it would be in  control of its message because its parliamentary representatives can engage with the electorate in a consistent and sincere voice, with less reliance on ‘talking points’ and spin and with less concern with the immediate reaction of focus groups. Labor supporters would be much more prepared to accept political compromise if they know that there is strong leadership and there is broad agreement on key values and principles. Labor leadership has to be patient and consistent around these values and principles – and never go backwards.  Authenticity and sincerity are then easily recognised.

4. Democratic Renewal
   At the same time as addressing overarching ‘Labor’ principles that could guide Labor policies and programs, there are two immediate issues which must be given high priority.

   The first is democratic renewal in our public institutions, including the ALP. We are increasingly alienated from our institutions. This suits the conservatives who implicitly seek to protect private corporate interests from public intervention. Loss of faith in parliament inevitably leads on to denigration and a loss of faith in government. Those that Labor has traditionally represented and the wider community are the losers. The Coalition has deliberately set out to destroy faith in our public institutions, public policy and politics. The government is ‘corrupt’. It is ‘illegitimate’. Mayhem is promoted in the parliament. The signs of democratic decay and lack of respect for politicians are everywhere. For example:

   1. Through domination of parliament, executive governments monopolise information flows and policy advice. Policy advice is increasingly given by ministerial advisers while the public service is co-opted  into providing political support to government.
   2. Governments are overly-influenced by powerful lobby groups and donors, e.g. miners, developers, licensed clubs and hotels
   3. The health ‘debate’ is not with the public, but between insiders – the Minister and the AMA/pharmacists/private health insurance companies.
   4. Because Labor does not have a consistent principle-based set of policies – some would say a ‘narrative’ – it has little capacity for defence or explanation when its policies are misrepresented or misinterpreted in the media.
   5. Labor is no longer representative of those that vote for it or have empathy with it.

The concentrated media does not properly expose abuse of power and directly skews the public debate towards personalities, the whims of proprietors, conflict and celebrities, rather than serious policies. We had an enquiry about the failure of our intelligence agencies over Iraq, but the greater failure was in the media.

Democratic renewal is urgent – reform of the parliament, political parties, party factions, lobbyists, donors and the media.

1. The economic role of government
   The second immediate issue is the economic role of government. Those who would benefit from weak and distrusted government have undermined the legitimacy of the public sector.
   Australians have been encouraged to forget that their prosperity is based on both public and private goods. To many people government has become ‘invisible’, except as a vehicle for distributive welfare. Australians have lost sight of the contribution of the mixed economy, not only in providing public goods, but also in ensuring that the forces of greed and short-sightedness don’t lead to economic and social collapse. It is noteworthy that despite the continued denigration of government and the public sector, the three most trusted institutions in Australia are public institutions – the High Court, the ABC and the Reserve Bank. In this survey by Essential Research (22.10.2012) there was not a private group in the top eight most trusted groups and institutions in Australia. The three least trusted groups were business, trade unions and political parties.

   Even conservatives acknowledge that only the public sector can provide some services such as national defence and management of the money supply. In addition, however there are economic functions where private funding or provision is possible but only at high economic cost, with distorted incentives and with serious consequences for equity. These include education, health insurance, energy and water utilities and communication and transport infrastructure. In these and other areas there are market failures for which prudent economic principles require a strong government role in funding or provision. Unless Labor articulates and defends the proper economic role of government – a pre-requisite to improving Australia’s weak taxation base – economic growth will be restrained by inadequate public spending and investment.

   Of these investments, the most important is human capital to ensure that people can develop their capabilities so that they can contribute to their full potential through employment, business or unpaid work. In the competitive global economy of this century, human capital is a nation’s only secure asset. Scandinavian countries demonstrate this. A population with skills and with incentives which match rewards to contribution will draw less on distributive welfare, preserving public revenue for needed social insurance and public goods. The best antidote to disadvantage and low self esteem is not welfare but well paid and meaningful employment.

   Labor will find it hard to make these investments if it allows itself to be depicted as the party of big welfare spending. In fact conservative governments, because of under-investment in human capital and physical infrastructure, and neglect of economic adjustment, have spent strongly on distributive welfare to compensate for inequalities rising from a weakened economic structure. Over the last 50 years, social security assistance has risen from 5% of Australians’ household disposable income to 12%. Examples of this expanded social security assistance are baby-bonuses, family allowances and superannuation concessions for the wealthy. The government is moving to wind back some middle class welfare – subsidies to private health insurance and the second baby bonus – but the justification is more about immediate budgetary management rather than an expression of principles. Rather, Labor should be the party which ensures that Australia becomes less reliant on distributive welfare. Instead of referring to ‘the education revolution’ in isolation, it should present its human capital policies in the context of a unified set of principles in infrastructure, education, health, environmental and protection, underpinned by principles of investing in capabilities, nurturing individual freedom and autonomy and supporting social inclusion.

   There is an opportunity to differentiate Labor from what has emerged as continuity between Howard and Abbott in that both are strong on distributive welfare while ready to sacrifice other aspects of government which would strengthen the economy’s capacity to provide well-paid and productive employment with less need for social transfers.

A reframing of policy in terms of strengthening the economy in order to reduce the need for distributive welfare would not only neutralise the ‘right’s’ attack on Labor as the party of the welfare state but would also give a unifying theme to many policies. It would link policies in industry adjustment, infrastructure, education, health and social inclusion. It would overcome the false framing of a trade-off between equity and efficiency. It would give Labor parliamentarians an opportunity to engage more openly with the public without the need for spin and carefully prepared texts.

1. From values to principles
   The purpose and role of a Labor Government could be to give expression to the values set out below – to achieve as far as possible the ‘common good’.

   Values such as freedom, citizenship, ethical responsibility, fairness and stewardship would be generally accepted by most people. As the values are translated into practices Labor makes a choice that can be further defined as principles that then lead to policies, e.g. the value of fairness can be expressed in the principle of a stronger link between contribution and reward- a link which has become severed by hugely disproportionate executive pay, high returns to rent seekers and financial speculators and the long head-start of inherited wealth.

 

The following is indicative of a set of values and their expressions in principles which could underpin a Labor platform/policy statement.

Fairness/equity

1. A ‘fair go’ is primarily about economic opportunity.
2. People should be provided with a good education and those who put it to socially useful ends should be rewarded. Governor Lachlan Macquarie was no socialist but his ‘tickets of leave’ gave the outcasts and underprivileged of this country another chance. We built a nation from the underclass. We must give a chance for newcomers and all people to have another opportunity.
3. Fairness promotes social mobility and limits division and resentment.
4. Fairness should not be restricted to education.
5. The path to prosperity with fairness is through productivity and well-paid employment rather than government handouts. The Scandinavians have demonstrated that education and incentives for participation do produce fairness and economic prosperity.
6. Fairness implies that we are tough towards ‘bludgers’, whether they be tax-dodgers, the vulgarity and indulgence of  those with inherited wealth, protection from competition, government hand-outs and favouritism or cheating on social services.
7. Fairness implies full employment as a macro-economic goal to ensure human capabilities are not wasted.

Areas where we fall short in fairness include neglect of early childhood education, treatment of the needs of indigenous people and refugees, diversion of education funding to wealthy schools, neglect of public infrastructure and inadequate ODA.

Stewardship

1. We have inherited a stock of assets or capital; environmental (forests/water), public and private physical capital (roads/ports), human capital (education), family capital (family and friendship bonds), social capital (trust), cultural capital and institutional capital (government and non-government institutions). That stock of assets must be retained and where possible enhanced.
2. We must use our resources as efficiently and productively as possible.

Areas where we fall short in stewardship include placing a heavy strain on the planet which prejudices our future. Despite the overwhelming scientific evidence on climate change we are still influenced by the sceptics who ignore the facts and cling instead to ideology.  Many super funds and fund managers ignore climate change risk. We waste water and degrade the land. We are not skilling ourselves for Asia.
Freedom

1. We all have rights to the extent that they do not lessen the rights of others.
2. Except where the rights of the vulnerable are at stake, the government should not intrude into the private realm.
3. The potential abuse of power should be minimized by the separation of powers and the separation of church and state.

Areas where we fall short in freedom include the growing power of cabinet and executive which is not adequately balanced by parliament and the judiciary. We have an ‘elected monarchy’. We have no Human Rights Act. We have reduced freedom as a result of counter-terrorism legislation. The media increasingly fails to protect our freedoms and often facilitates abuse of power by lobbyists e.g. miners.

Citizenship

1. We are more than individuals linked by market transactions.
2. Our life in the public sphere is no less necessary than our private lives. As citizens we enjoy and contribute to the public good. It is where we show and learn respect for others, particularly people who are different. It is where we abide by shared rules of civic conduct. It is where we build social capital – networks of trust. We need to behave in ways that make each of us trusted members of the community. ‘Do no harm’ is not sufficient.
3. Citizenship brings responsibilities – political participation, vigilance against abuse of power and paying taxes.

Areas where we fall short in citizenship include our withdrawal into the private realm –There are growing gated communities, private entertainment, private rather than public transport, disregard of neighbours, opting out of community through ‘vouchers’, government subsidies, private health insurance and private schools that discourage the coalescence of socially mixed communities around shared public schools.. The discussion about health is reduced to managing the system rather than the principles which should drive a health service. There is a lack of respect in the language of denigration – ‘bogans’ and ‘losers’.

Ethical responsibility

1. Those in prominent office should promote those qualities which draw on the best of our traditions and the noblest of our instincts.
2. The duty of those with public influence is to encourage hope and redemption rather than despair and condemnation, confidence rather than fear. It is to promote the common good – to encourage us to use our talents. It is to respect truth and strengthen learning to withstand the powers of populism and vested or sectional interests. This would set a tone of public discourse which nurtures public institutions

Areas where we fall short in ethical responsibility include leaders who appeal to our worst instincts, e.g. dog whistling on refugees, ‘media-drenched commercialism’, executive salaries, undue influence of vested interests and corporate lobbyists. Those in public office should help the community to deal with difficult problems which may require painful adaptive change, such as climate change, rather than provide the false comfort of ignoring or downplaying them.

 

John Menadue (former Secretary, Department of Prime Minister and Cabinet)

Ian McAuley (Adjunct Lecturer, University of Canberra)

December 18, 2012

The election campaign by the Murdoch media and the Coalition suggests that the Australian economy is in a mess. But almost all the facts suggest that we have one of the best performing economies in the world whether we measure it by economic growth, debt, inflation or employment.

Now a survey just released by the University of Canberra’s highly regarded National Centre for Social and Economic Modelling (NATSEM) tells us that Australian households have never been better off. The NATSEM report tells us:

• Australian households are 15% better off since 2008 when the Rudd Government was elected.
• ‘The gain in the last five years is a remarkable outcome, given the weakness of the global economy through the global financial crisis.’
• ‘The strongest contributor to the cost of living increases in the last year were utilities (+14%), health (+6.2%) and education (+5.5%) whilst costs were eased by mortgage interest (-14.5%) and audio-visual (-5.1%).
• The standard of living (disposable income less cost of living) has risen by 2.6% p.a. under both the Rudd and Gillard Governments, the same as under the Howard Government.

Whilst the ‘average’ household has been a lot better off, economic prosperity has favoured high income households. NATSEM said ‘The strong gains in the standard of living have not been equally spread across income levels.’ A particular reason for this is that the cost of living changes for the lowest quintile level over five years was 2.4% because of relatively high expenditures on rent and utilities. The highest quintile income group had cost of living increases of only 1.5% because it was particularly assisted by low mortgage payments.

This story of quite ‘remarkable’ increases in the standard of living of Australian households over the last five years is in stark contrast to the campaign of the Murdoch media, the Coalition and business interests.

Our economy is very strong. Our standard of living is rising steadily. But the government seems unable to make the case about its performance.

Its failure is overwhelmingly political.

 

For almost five years, Tony Abbott, Joe Hockey, Andrew Robb and Barnaby Joyce, have been giving us dire warnings about deficits and debt. You would think the Australian economy was a smoking ruin.

But the politicking over deficits and debt has changed remarkably in the last few weeks. Early this year Tony Abbott told us that he would provide a budget surplus in ‘year 1’ of an Abbott Government. Earlier this month, he said that his government would return the budget to surplus within his first three year term. Then he said that he would return the budget to surplus ‘some time over the next four years’.

He has now pushed it back even further by telling us at the Liberal Party launch in Brisbane on Sunday  that ‘we will deliver a surplus as soon as soon as we humanly can’ but he refused to give a  guarantee. But there is even more. .Joe Hockey has now told us that he will not commit to any deadline on delivering a surplus.

All the signs are that a Coalition Government will not deliver a budget surplus any earlier than the Labor Government promised for 2016-17. If anything, it is likely, on the basis of Tony Abbott’s and Joe Hockey’s comments, that the coalition would return the budget to surplus later than the Labor Government has promised. That is because we must take into account the increased expenditures that he has recently announced.

• A $5.5 billion a year parental leave scheme to be introduced in July 2015.
• An increase in defence spending from $24 billion p.a. currently, to $50 billion p.a. within ten years.
• Abolish the means test on private health insurance which would cost about $1 billion p.a.
• Additional funding for self-funded retirees via the Commonwealth Senior Health Card and more and more on roads on bridges for the National Party.

The consequences of all this is that he will not only be pushing back the time to realise his budget surplus pledge but he will be increasing public debt in the meantime which he told us was ruining the country.

The Coalition has been telling us for years that there is a deficit and debt crisis. The attacks never stopped. The language was reckless, inflammatory and fraudulent There was a budget “emergency” that had to be urgently addressed. Barnaby Joyce, who may be our next Deputy Prime Minister, suggested that the gnomes of Zurich would soon be arriving in Australia to take over our financial management because of the debt that we could not repay. The Coalition effectively frightened the community about the state of the economy. If we listened to the Coalition and the Murdoch media, one would think that the Australian economy was a basket case. Yet it is one of the best performing economies in the world and admired by well-informed commentators across the globe, including the International Monetary Fund. We have had steady growth even through the global financial crisis, low unemployment, low inflation, rising productivity, very low debt and an AAA credit rating.

Yet despite the quite remarkable performance by the Australian economy, the coalition has succeeded in persuading many that the economy is in a mess. The reverse is true.

The government facilitated this absurd focus on deficit and debt.  The government has been unable to successfully make the case that the economy is sound.

The Government has performed well on the economy. But it has two glaring problems .The first is its failure to project a compelling narrative grounded in values such as equity and fairness, freedom, citizenship and stewardship. Second it has shown political incompetence and division

All this about the phoney war on deficits and debts is not to say that we don’t need to address our long-term structural t problems. This should be addressed by taking action on middle-class welfare like the subsidies to the wealthy in superannuation and private health insurance and increasing some taxes.

But it is very clear that the coalition’s phoney war over deficits and debts was political nonsense. It is now asking us to forget that nonsense. By pushing back resolution of the deficit/ debt problem the Coalition is telling us that it was never regarded as a serious problem in the first place.

In the run-up to the September 7 elections, we will hear a lot of misleading stories about the economy and deficits.

My contention is that with the good luck of the China boom, the government has managed the Australian economy well. Our economic performance is amongst the best in the world. But the public debate has been side-tracked by nonsense about debt and deficits.

Despite the political rhetoric and the flak from News Limited, the evidence on the economy is very clear.

• Australia has had six years of uninterrupted growth even through the global financial crisis. Few countries achieved that.
• Inflation is low, unemployment is low and economic growth has been above world levels.
• In May this year John Howard said ‘when the Australian Prime Minister and Treasurer and others tell you that the Australian economy is doing better than most, they are right.’
• The three major credit rating agencies have all retained Australia at a AAA rating.
• In April this year the IMF said that ‘Australia has the strongest economy in the developed world … we expect the Australian economy will outstrip growth over all other advanced economies over the next two years’.

But the government has allowed itself to be side-tracked over the populist nonsense that debt and deficit are the important measures on the economy. The previous Treasurer, Wayne Swann, contributed to these misleading stories by continually making pledges to get the budget back into surplus when it was neither possible nor desirable. In fact, debt and deficits, whilst not unimportant, are secondary issues. Sometimes debt and deficits are appropriate, as in a recession. Sometimes they are not, as in an economic boom.

Have we got a debt and deficit problem?

• In world terms our debt problem is very small. Total net government debt as a percentage of GDP has remained very low at 12%. This compares with such countries as Japan 134%, US 88%, France 84%, UK 83%, Euro area 72%, Germany 57% and Canada 35%.
• The CEO of the National Australia Bank told us only last week that we do have a debt problem but that the problem is that we don’t have enough debt. He contended that a country such as Australia needed to borrow more for infrastructure.
• With a mistaken mindset about debt, Europe has embarked on savage budget cuts that have caused great hardship particularly for young people and encouraged nascent right-wing, anti-immigration and racist parties. Europe is rightly now regretting its obsession with debt at the expense of other important issues.

There is a long-term and structural debt issue for Australia, even if it is a minor one. That problem was largely inherited by the government from the Howard and Costello years. The Howard government locked in tax cuts over eight years from 2004. The IMF in January this year reported that Australia’s most wasteful spending came in the Howard era. Without those tax reductions in the Howard era, budget revenue would now be about $26 billion p.a. higher after adjusting for inflation.

The Rudd and Gillard  governments should have done more to reduce the relatively small structural deficits. It did not address some key areas of wasteful and inequitable spending – negative gearing on property, tax-free superannuation income for those over 60 (like me!) and the subsidy to the private health insurance industry. Taken together, reform in these areas would quickly fix the small structural deficit we have.

In short, the economy is performing well. We do not have an unmanageable deft and deficit problem.

Unfortunately the Treasurer Chris Bowen has now confused the issue by promising a wafer-thin budget surplus of $4 billion in 2016-17. Revenues are too volatile for a promise like that in three years’ time to have any credibility. That promise will play into the hands of the economically illiterate in the media who have persuaded themselves and others that the budget is the same as the economy. It is not.

 

The Europeans may at last be breaking free of the debt and deficit trap that has caused so much social and economic damage across Europe. Even the IMF is at last challenging the austerity mindset that took hold in Europe. There is a lesson for Australia in this.

The Australian Government has allowed itself to be manipulated into a debt and deficit trap set by the Coalition. To head off Coalition and media criticism, it foolishly decided that it must get the budget into surplus this financial year. It succumbed to this pressure despite the fact that Australia does not have a serious debt and deficit problem.

There is a risk that if the Coalition becomes the Government in September we will have established a mindset that favours austerity. That same austerity mindset has got Europe into a terrible bind with unemployment across Europe at over 11%. Youth unemployment, for people under 25 years of age, is double that general rate. In some countries youth unemployment is appalling – Spain 56%, Portugal 38%, Italy 38% and Cyprus 32%. These levels of unemployment amongst young people not only bring great personal hardship but also present the possibility of major social and political upheaval. At this stage, most of that social and political resentment has been directed against foreign workers, Muslims and outsiders. We have seen it particularly in the UK in recent days with anti Muslim clashes.

The austerity drive, bringing with it the disillusement of the young is undermining liberal democracy and spawning a whole range of populist, nationalist and neo fascist parties across Europe; the Golden Dawn in Greece, the anarchist Five Star movement in Italy, the anti Arab National Front in France and the europhobic United Kingdom Independence Party.

A great deal of this push for austerity in Europe has been supported and underwritten by conservative economists.  Rogoff and Reinhart, American economists sold us a bill of goods that once debt exceeded 90% it would trigger major economic collapse. It turned out that Rogoff and Reinhart made some major errors in their methodology, but conservative economists supported them and indulged their political ideology to try and rebut the Keynesian thesis that the boom is the time for austerity and not recession.

The right wing of the Republican Party in the US joined in the clamour for austerity. Their argument was supported by ideologues who asserted that booms encouraged moral laxity and that it was necessary to ‘purge the rottenness from the system’ as President Herbert Hoover was advised in the lead-up to the Great Depression in the US. That moral judgement is fine for people who have little to lose. But many people suffer badly..

Tony Abbott and the Coalition have been continually telling us about the perils of debt and deficits. With the Australian economy weakening as the OECD has just warned there is a risk that the Coalition will seek to imitate the austerity drive of the Europeans. That austerity drive has not reduced deficits and it has caused untold personal and social harm.

There is a clear lesson to be learned from Europe about obsessions with debt and deficits in times of recession or a weakening economy. Beware on the austerity mindset.

 

 

 

One after another, the opinion polls tell us that the Liberal and National parties are much better economic managers than the ALP. This is despite Australia having one of the best performing economies in the world by almost any measure; debt, economic growth, employment and inflation.

Unfortunately for the Liberal and National parties and John Howard and Peter Costello in particular their records as economic managers have recently been taking a beating.

First the International Monetary Fund.

In January this year, as reported by the SMH on January 11, 2013, the IMF

“identifies only two periods of Australian ‘fiscal profligacy’ in recent years, both during Mr Howard’s term in office – in 2003 at the start of the mining boom and during his final years in office between 2005 and 2007. The stimulus spending of the Rudd Government during the financial crisis does not rate as profligate because the measure makes allowance for spending needed to stabilise the economy. … The key finding is that Australia has few examples of economic recklessness compared to other developed states like Canada and Japan.”

Joe Hockey attempted to rebut the IMF report. Perhaps he misunderstood what a ‘structural deficit’ is.

Second, the Parliamentary Budget Office.

In its just-released ‘Estimates of the structural budget balance of the Australian Government 2001-02 to 2016-17’ it outlines first what a structural budget balance is. It says

“The structural budget balance (SBB) is a partial measure of the sustainability of the budget. It shows the underlying position of the budget after adjusting the actual budget balance for the impacts of major cyclical and temporary factors. The SBB reflects the impacts of underlying budgetary trends and discretionary fiscal policy decisions.”

It then goes on to crunch the Howard Government’s economic performance. It says

“Over two thirds of the five percentage points of GDP decline in structural receipts over the period 2002-03 to 2011-12 was due to the cumulative effect of the successive personal income tax cuts granted between 2003-04 and 2008-09. A further quarter was the result of a decline in excise and customs duties as a proportion of GDP. Significant factors driving this trend included the abolition of petroleum fuels excise indexation in the 2001-02 budget and the decline in the consumption of cigarettes and tobacco over the period.”

Treasury reported very much the same on the structural deficit but Joe Hockey suggests that Treasury has become political and it cannot be relied upon for the figures it presents. So I have highlighted independent reports by the International Monetary Fund and the Parliamentary Budget Office.

As Laura Tingle put it in the AFR on 23 May this year

“All up, these reviews put the blame for much of the budget deterioration on the Coalition in government and credit at least some of the forecast improvement on savings Labor has implemented in office. As such, they don’t sit comfortably with many of the critiques of Labor’s budget management, nor does the Parliamentary Budget Office endorse the view that Australia’s debt position is of major concern.”

Despite the evidence, the partisan business commentators and the opinion polls continue to tell us that the coalition is a better economic manager. The evidence is just not there to back up that view.

The myths continue.

 

Friends overseas are amazed that with a world class economy such as ours, the Australian Government faces a rout. I try and explain that the government’s difficulties are self-inflicted; that it is tone-deaf on many political issues; that the Prime Minister is not being listened to and the public will not accept what she did to Kevin Rudd.

How could Australia’s longest-established and most reputable political party be behaving like a suicide cult? Where are the wise men and women in the ALP to stop the Party going over the cliff?

Australians are genuinely concerned about the prospect of Tony Abbott as Prime Minister. If he wins it would be by default. He has proved himself an effective political wrecker, but credible policies are hard to find.

The government’s policy performance is far from ideal, but it has a lot going for it.

• We have had six years of uninterrupted economic growth, even through the Global Financial Crisis.
• The pre-eminent international mining advisory consultancy, Behre Dolbear, has rated Australia as the top country in the world for investment in mining and mining activity.
• The roll-out of the NBN in more expensive, but it will give Australia a top-ranking technology compared with a fourth-ranking technology that the Coalition offers.
• The carbon price which will be followed by an Emissions Trading Scheme is superior to the direct action and “soil magic” which the Coalition proposes.
• The government continues to improve superannuation. The coalition opposes
• It has launched the National Disability Insurance Scheme.
• The Gonski school reforms are underway which the Coalition opposes.
• The overall cost of living is growing at a slower rate than inflation. The National Centre for Social and Economic Modelling tells us “right across the board our research shows Australian households on average are better off. We really are a lucky country”

The main policy disappointments of the government have been in health where we continue to muddle through and on asylum seekers where the government has failed to show courage and act decently.

But it is not only policy differentiation. There is also the quality of the rival front benches.

Beyond the present leaders, the Government has a very strong front-bench; Combet, Shorten, Butler, Clare, Wong and Dreyfus. Compare that with Brandis, Joyce, Bronwyn Bishop, Andrews, Abetz, Pyne and Morrison. By comparison it is talent-free at best and in some instances, a very ugly front bench.

Is the ALP prepared to disappoint so many of its supporters and allow Tony Abbott to win by default?

John Menadue