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April 17th 2016 print

Chris Kenny

There Is No App for Budget Repair

While the political class obsesses over Tony Abbott, the promised plebiscite on gay marriage and other petty distractions, the budgetary challenge isn't going away. Do we manage it coherently or wait until external forces shock us with the force of a dramatic reckoning?

car brokenEurope’s political and monetary union has crashed hard up against its fiscal disparity. Its supranationalist altruism has underscored the absurdity of pretending away national borders. The United Kingdom, clever enough to have kept its currency, now might take the chance to walk away altogether. The economic and refugee crises continue against a backdrop of a Middle East war, global terrorism, Russian belligerence in Eastern Europe and global economic uncertainty hinging on China’s switch from investment to consumption. In the United States, hopes of steady economic recovery are constantly undercut by a presidential campaign sideshow that ventilates widespread isolationism, economic nationalism and disenchantment with the political establishment.

Australia is buffeted by these same forces when citizens are lost in an airliner shot down over Ukraine, when more than 100 of our citizens join Islamic State in the Middle East and inspire deadly attacks at home, and, most tellingly, when plunging commodity prices kill off a once-in-a-generation export boom, exposing a fiscal challenge left unaddressed for too long.

And how does Australia respond to these global and domestic challenges? With what has become a familiar plunge into divisive internal politicking, leadership turmoil, policy confusion and reform paralysis.

We have developed a tendency over the years to talk down the achievements of our most successful prime ministers; perhaps as part of the tall-poppy syndrome, we attribute their gains to good fortune. Bob Hawke had the benefit of bipartisan support for what could have been contentious economic reforms, we say, or John Howard rode a booming economy. Besides, both were blessed with exceptional treasurers. Maybe, given almost a decade of parlous performances, we ought to laud those leaders who have held a parliamentary team together, consolidated initial electoral victories and delivered reform; any reform. In other words, perhaps we should recognise that good government is harder than it looks and, therefore, it is a worthwhile goal in itself. Forget inspiration, forget rock-star popularity, forget excitement; give us competence.

At the moment, even the most elementary success at a federal level looks like a remarkable, almost unattainable achievement. After Howard was tossed aside by a comfortable, relaxed and bored electorate in 2007, Kevin Rudd dropped his signature climate policy reform, blew the budget and was assassinated by his party. Julia Gillard went on to lose her party’s parliamentary majority, destroy Labor’s credibility on climate, invite trauma and tragedy on our borders, lock in unsustainable spending and, likewise, was assassinated by her party. Tony Abbott’s central pledge was to restore integrity to government and then broke promises, thereby pulling a rug out from under his own feet. He also promised no surprises then pulled economic reforms out of his hat—not to mention the rubber chickens of knights and dames and a knighthood for Prince Philip. Poorly explained and advocated, his fiscal reforms hit a brick wall and (yes, it has a poetic rhythm) he was assassinated by his party.

No lesser judge than Paul Kelly, the nation’s pre-eminent political analyst and historian, has reckoned economic reform has become impossible:

Reform is a lost political art in this country. The voices of the aggrieved dominate the media and political debate at the expense of the public interest. The media weight given in the 1980s to national interest reform is long since lost. Australia is trapped between challenges that demand long-run brave policies and a political culture addicted to cynical short-termism and cultivation of votes on grievance.

The public debate is locked into juvenile jousting, politicians seem to lack advocacy skills, voters expect entitlements, communities resist change, and our fiscal and productivity challenges are kicked down the road budget after budget.

Yet the public seems to have had its fill of poll-driven spin and inauthentic politicians. It has given voice to this disenchantment by falling for the lure of the anti-politicians. Nick Xenophon and Clive Palmer have seized their chances, as Pauline Hanson did before them, filling a political vacuum that we see Donald Trump and Bernie Sanders exploiting in the United States and Nigel Farage in the United Kingdom.

Australia’s major parties have become frustrated by the stasis created in part by their search for instant solutions through messianic leadership. Yet their attempted solutions—in remarkable paradoxes demonstrating a total lack of self-awareness—have often involved leadership switches in desperate attempts to find a charismatic personality who can instantaneously turn around their fortunes. Even now, party operatives wistfully yearn for the next messiah.

For Labor the crucial moment was probably November 27, 2003, when caucus voted by a margin of one vote to eschew the stolid substance of Kim Beazley in favour of a bright shiny thing in Mark Latham. When that shooting star crashed to earth, they returned to Beazley but didn’t have the gumption to stand by him long enough to get to an election; they found a brighter, shinier and longer-lasting shooting star in Kevin Rudd.

For the Liberals, the crucial moment came the day after the 2007 election loss when, in opposition, Peter Costello declined the leadership he had coveted in government. A return to government seemed a long way off then, but Costello must now realise the prime ministership might have been his in 2010. He had warned about the global economic instability that manifested itself as the GFC and the times would have suited him. Instead, the Liberals never saw the successful treasurer at the helm and burned through three leaders before returning to government in 2013.

Now Malcolm Turnbull is poised at a tipping point. He has been prime minister for six months but his administration has no form. He must outline an economic reform plan, deliver a plausible budget, create a narrative and call an election—all within the next five months. If he fails he will confirm a national crisis of government and prolong Australia’s political purgatory; if he wins a mandate in his own right he will have a chance to establish good government as the new normality.

From this juncture, good governance looks like the exception. In the fifty years since Robert Menzies retired we have seen Harold Holt, John Gorton, Billy McMahon, Gough Whitlam, Malcolm Fraser, Paul Keating, Kevin Rudd, Julia Gillard and Tony Abbott struggle to deliver stability, sustainable reform or public confidence from the prime minister’s chair. Only Bob Hawke and John Howard’s governments can claim, incontestably, to have been competent and reformist governments—that’s about nineteen years out of the past fifty.

We are left to wonder, as debating points only, whether Labor would have been better to stick with Hawke in 1991, and if the Liberals might have profited from a pre-election switch to Costello in 2007. We need to comprehend that good, stable and reformist government is a rare beast. We should look to nurture it where there are signs of promise, and we should be reluctant to eject it from office if we ever again become blasé about our own success.

So here we are, after a succession of record budget deficits, with spending stuck at stimulus levels (26 per cent of GDP) and every cockatoo in every pet shop in the nation (to borrow from Keating) talking about the need for budget repair but dismissing any policy that will deliver it. In a world of instant information and services it is as though neither the politicians nor the media and the public have any appetite for hard decisions and sacrifice to fix compelling problems. Repair the budget? Isn’t there an app for that?

This matters. While low interest rates mean debt is cheap, the mounting deficits are generating a sizeable burden for future generations. Commonwealth debt has topped $400 billion and is approaching post-war record levels as a share of GDP. It is expected to top around 19 per cent of GDP in coming years but if state and local government debt is included this figure almost doubles. This is a long way short of the millstones weighing down European nations, but as some economists have pointed out, this is how Greece’s decline looked in its early years. With an ageing demographic and permanent spending increases locked into the budget, we need to get our fiscal house in order rather than allow it to deteriorate.

The Treasury Secretary, John Fraser, zeroed in on this inter-generational responsibility in a sobering speech in January. “Why should the living standards of future generations be compromised just because we were not willing to make sacrifices to address the unsustainable growth of government expenditure?” he asked. “The Commonwealth’s interest bill has reached over a billion dollars a month. This is projected to more than double within the decade, unless action is taken to improve our budgetary position,” he warned, suggesting our credit rating could be under threat.

So, for all the excitement about gay marriage, safe-schools campaigns and gender equity in the armed forces, economic reform and fiscal repair remain the main game. Whatever your hopes for environmental, social, health or defence policies, they will be dashed on the altar of fiscal rectitude if the budget cannot be restored to a sustainable surplus. Cutting spending is crucial. “Expenditure restraint will allow resources that would otherwise go to interest payments to be allocated to other priorities, like reforms to the tax system and Commonwealth-state financial relations,” said Fraser. But restraint is politically difficult. Our politicians have repeatedly shown either a lack of courage or a lack of ability in delivering tough but necessary policies. There is no app for this.

Malcolm Turnbull knows the importance of competence from an economic point of view and from a political perspective. His pitch for the leadership skilfully identified the black hole in Abbott’s prime ministerial performance. “Ultimately,” said Turnbull, declaring his challenge, “the Prime Minister has not been capable of providing the economic leadership our nation needs. He has not been capable of providing the economic confidence that business needs.”

But apart from starting a broad-ranging discussion about taxation reform that would not rule measures in or out, then getting into the game of ruling measures out, Turnbull has not done much. His innovation package was a familiar government intervention to try to pick, or at least encourage, commercial winners that has the appearance more of a campaigning prop than a transformative policy. Tax reform, federation reform, industrial relations reform and expenditure reductions through changes in welfare, health and education remain the likely areas to generate savings, growth and an economic narrative. Yet they all remain blank spaces.

We are entitled to ask whether, six months ago, the prime ministerial challenger’s thinking on the missing economic purpose of the government had progressed beyond identifying it as a justification for his coup. Did Turnbull have a plan beyond seizing the job? And if not, why hasn’t he cobbled one together yet? He can eradicate these doubts and answer these questions with one major announcement, soon, or even on budget night. But the later he leaves it the harder it will be to convince the public that it is a prescription whose imperatives are of substance rather than politics.

In Western liberal democracies voters are sick of talk. Too much spin, too many promises and too much blather have desensitised us. We need action. We need achievements. And Turnbull’s tardiness means he cannot actually demonstrate much at all before the election. At best he can outline a plan and ask voters to endorse it, which is a lot to hope for in these cynical times.

It is surprising that Turnbull has left himself in this position. There was a clear alternative plan available to him. At the end of last year the Registered Organisations Bill, which holds union executives to the same standards as company boards, was already twice rejected and available as a double-dissolution election trigger. The bill to reinstate the Australian Building and Construction Commission was ready to be rejected again to provide a second trigger. The Turnbull government should have been arguing robustly on union corruption, the royal commission findings, embarrassing revelations about Bill Shorten and the trigger measures since before Christmas, threatening an early double dissolution. It could have tried to force the ABCC bill to a vote within days of parliament resuming. It could have called the double dissolution for March, outlined some reforms on tax and spending, taken advantage of Turnbull’s honeymoon and Shorten’s vulnerability and been ready to start a new term with a fresh mandate. Turnbull could have been swearing in his new ministry this week.

But, like Rudd in early 2010, he baulked. Since missing this option Turnbull has dropped a putative GST reform plan and shown indecision over negative-gearing reforms. He has raised expectations and dashed them. He has allowed Labor to recover credibility, with its clutch of tax increases providing a contrast of policy certainty against government confusion.

No sooner had Turnbull launched a well-targeted attack on Labor’s negative-gearing changes than his Assistant Treasurer Kelly O’Dwyer undercut it. Such are the vagaries of politics as a team sport. Now Turnbull needs his Treasurer, Scott Morrison, to come up with a saleable reform package.

My pessimism about the system doesn’t match Kelly’s. Yes, the twenty-four-hour news cycle, social media, journalistic obsessions with complaint and protest, along with the public’s thirst for entitlement have all made government more difficult. As the Senate has become a menagerie of minor parties and unrepresentative independents it has also become more obstructionist. These are tough times for governments.

But we have had a succession of governments who have broken faith with the electorate and failed at their advocacy tasks. We need a political party and leadership prepared to lay out controversial and necessary policies before an election—and then stick to those undertakings after the poll. If voters elect such a party and the policies are implemented we will have broken the impasse. But we can hardly blame the voters or the system when the standard approach over the past decade has been to promise easy solutions before the election and then attempt to administer difficult medicine on the other side.

All this would be easier to implement with a media interested in reform and fascinated more by policy than by personalities and political revenge. But if a political party is to advocate reform, one advantage of the modern media environment is that there is a plethora of platforms and programs available for it to constantly advocate its case. The opportunities are endless if only the participants had a cause to push and an argument to mount.

While the political class obsesses over the internal workings of Abbott’s office, or the desire for revenge among disaffected backbenchers, or the confected cost of a plebiscite on gay marriage, the real budgetary challenge doesn’t go away.

Australia’s budget will be fixed and our economy will become more productive. The question is only whether we manage that process efficiently, or whether we march blindly down the road until an external shock forces a dramatic reckoning.

Chris Kenny is a columnist for The Australian.

 

Comments [8]

  1. Lawrie Ayres says:

    The biggest question to be answered from both sides is ” why should someone who works give some of their earnings to someone who does not work”? Why should contributors to the common good be bled dry to keep non-contributors in a manner to they have been encouraged to adopt? Wealth creators are despised by wealth consumers, the sort of people who vote Green and ALP.

    • Thomas Sowell, to my mind Americas best living economist/philosopher had some questions that are appropriate here:-
      1- ‘What is your ‘fair share’ of what somebody else has worked for and earned?’ This question should be asked of any ‘redistributionist LABOR/GREEN axis type as often as possible. I could only add to Thomas’s original question by asking all leftist journalists to tell me clearly – ‘what should MY ‘fair share’ of what I have earned or made? And I would then like them to justify why it should be less than 100%. People who work involuntarily for others are in essence slaves.
      2- Thomas Sowell again posed a question on the ‘slavery’ issue which is very appropriate here. If confiscation of 100% of a persons’ effort is regarded as slavery – at what percentage does it cease to be slavery?

  2. Keith Kennelly says:

    And for Turnbull

  3. Bill Martin says:

    Chris Kenny neglects to mention the undesirable aspects of Turnbull’s character. That is, being a man of superior intelligence who uses that intellect primarily for his personal advancement; a man without fixed political convictions who would make a deal with the devil if he thought he’benefit from it; and finally a man who is nowhere near as competent as would be expected him. In a nutshell: a useless party leader as prime minster, just as he was as opposition leader.

  4. a propos says:

    Chris Kenny is almost despondent in his succinct analysis of the present state of an Australian political system. There is, however, an elephant in this “room”, which gets ignored. I am talking about “the public’s thirst for entitlement” – an almost a freudian slip. This thirst for entitlement is a root cause of our budgetary difficulties Until and unless this thirst will be addressed, no half measures will suffice.

  5. Keith Kennelly says:

    With 50% of the voting public now receiving more from Government than they pay, what would anyone expect except entitlement to be paramount.

  6. ianl says:

    My objection to Chris Kenny and the other “meeja talking pundits” is that they simply refuse to say outright the essential problem:

    Spiteful envy wins votes. End of story.

    My view of why this is never said outright is not because it isn’t true (it is), but that they will lose readership numbers, ratings etc. So the problem is self-perpetuating.

    • Advertising [especially political advertising] works because it appeals to the emotions and not to the intellect. Jealousy is the strongest of all human emotions. Hence a great number of people world wide have worked out that it is easier to ‘vote for a living’ than it is to work for a living, and they can get away with it by playing on productive peoples’ emotions, most especially those of ‘guilty feelings’ because they are successful.