The Sins of the Compassionate

Malcolm Turnbull’s offer to return taxing powers to the states, withdrawn as quickly as it was offered but not as quickly as it was rejected by the states, was the latest in a recent line of unforced errors by the Prime Minister. It was such a large error and so obviously unforced that some observers have been tempted by the explanation that it must have been a deliberate one: Turnbull had cleverly swept from the table a policy he disliked by the devious tactic of offering it to state premiers in the knowledge that they would reject it. That promptly relieved him of the odium of rejecting a policy he had never wanted. Q.E.D.

It’s an appealing theory borrowed (and inverted) from The Godfather: making someone an offer he can’t accept. It rests in part on Turnbull’s reputation as a brilliant Machiavellian schemer. But it lacks credibility for one overwhelming reason: Turnbull has made so many unintentional errors in the last few months that the idea of making one deliberately would have been quashed with a withering glance before it had fully emerged from the mouth of one of the Sorcerer’s apprentices.

Another reason for the currency given to this theory is that restoring taxing powers to the states would give a fillip to federalism and for that reason is generally regarded as a conservative policy. Would the Prime Minister really be found committing conservatism in a public place? And if so, could he possibly be doing so from conservative motives?

Such questions imply an ideological coherence that no practising politician could ever live up or down to. Turnbull is undoubtedly a liberal progressive on cultural, moral, environmental, ethnic and other issues—and thus a poor fit as the leader of a largely conservative party. But he is also a successful businessman and an economic realist. He knows that bills must be paid, especially if those bills will be larger owing to progressive policies on entitlements, welfare and migration.

For that very reason he has to find even more ways of controlling expenditure and raising revenue than would a scowling tightwad. Anyone faced with that necessity could hardly avoid looking at those government services that are run by state governments but financed centrally through grants from the Commonwealth. When he proposed that the state governments should be given back the taxing powers needed to finance education from their own budgets, he was saying that these authorities should be responsible for the financial consequences of their own policies.

That doesn’t sound unreasonable in theory, and in practice it would restrain spending to sums that could be raised in taxation (well, to some extent). As it now is, state governments can plan higher spending on education far beyond what the Commonwealth rationally budgets for—and then attribute the shortfall to its supposed heartlessness. Labor maximised this irrationality in its last period of office by promising vast new grants in the dim and distant future with the obvious effect of encouraging state governments to spend vast sums that would shimmer mirage-like into nothingness the nearer they approached them.

George Bernard Shaw, a rare socialist who understood the relationship between cause and effect, pointed to the absurdity of this in his play Candida. A vicar’s prudent wife explains the facts of life to her generously “compassionate” husband: “When there are bills to be paid, you pay them. When there are bills to be refused, I refuse them.” Socialists should occasionally pay attention to their own cultural icons. Shaw is adept at exposing socialist financial hypocrisies as well as bourgeois moral ones. Yet however many times he does so, the world’s compassionate vicars succeed in forgetting these realities without delay.

On this occasion the state governments, drawn from various political parties, smartly refused Turnbull’s offer of responsibility for their own finances and chose instead to chant hosannas in praise of government grants that the Prime Minister, with unusual firmness and clarity, told them honestly would not be forthcoming. It is reasonable to call his position a conservative one, because it is conservatives who mainly defend it, but it is in reality a prudent position that as Shaw’s example demonstrates should be embraced by people of all parties.

When we look around the world, however, it is Turnbull’s position that is the rare one. Separation of service costs from provision of them is rampant throughout the advanced world, and a more general separation of cause and effect is found everywhere. America’s health system is built upon the third-party payer concept that encourages doctors and hospitals to over-treat patients and over-bill government agencies and private insurance companies. It now consumes almost 20 per cent of America’s Gross Domestic Product, illustrating (Enoch) “Powell’s Law” that health care, unrestrained by price, will rise without halt to the point where it eventually absorbs the entire national income. The European Union, having abolished internal borders without strengthening external ones, now struggles uncomprehendingly with a predictably massive migrant infusion. Chancellor Angela Merkel of Germany issued a welcome, explicitly without limit of numbers, to refugees from Syria that has brought between one and two millions of migrants from all over the Middle East, North Africa, and parts of East Africa to Germany, Sweden, and other EU countries favoured by the migrants. Mrs Merkel is the outstanding example of a political leader with understanding of neither cause and effect nor cost and provision. Having invited millions more migrants than she expected, she promptly told the other EU countries that they would all have to welcome them on a quota basis: “When there are bills to be paid, you pay them.” They claim to have left their wallets at home.

It is a political leader with whom Malcolm Turnbull is sometimes compared, however, who is suddenly “a person of interest”, as the police say, in this context. David Cameron became Tory leader eleven years ago and promptly set about modernising his party along progressive lines to make it greener, more compassionate, more liberal in culture, more “European”, and so on while remaining fiscally prudent. (His reputation for prudence is greatly exaggerated; UK borrowing has risen by half as much again since 2010. But it’s not hard to maintain such a reputation when the voters are comparing you with Labour. Still, grant Cameron this one.)

Cameron has had his ups and downs, but until recent weeks he has manoeuvred skilfully between the rocks of political life. In early April, however, he was hit by a series of crises on a Turnbull scale—on the threats of closure to the Port Talbot steel works in Wales; the “Panama Papers” that revealed his father’s company had operated offshore investment accounts to avoid UK taxation; and the government’s decision to issue a taxpayer-financed leaflet on how Brexit would damage the UK economy that was, as Tory Minister Alan Clark once put it to an Australian court, “economic with the actualité”.

Superficially, the most serious threat was the revelation in the Panama Papers that Cameron Senior had been involved in facilitating what was (perfectly legal) tax avoidance. Labour focused its questioning on whether the Prime Minister had benefited personally from his father’s tax minimisation schemes, and Downing Street issued five different statements in the course of seven days on exactly how he hadn’t. That kept the story going for an entire embarrassing week. At its close, however, it was generally agreed that Cameron was personally in the clear. He had behaved scrupulously in paying his full UK tax liability.

What was damaging at a deeper level was that all these embarrassments either arose from Cameron’s earlier commitments to “modernising Toryism”, or compelled him to make new commitments likely to undermine it in future, or both. The Panama Papers revelations were all the more embarrassing because Cameron and Chancellor George Osborne had made the elimination of “aggressive tax avoidance” a selling point of their broad financial policy. It was designed, among other things, to show that they were a new kind of socially responsible Tory. Instead, it made them look like rich hypocrites while fostering a social-media witch-hunt in which any kind of tax privacy is treated as all but criminal and the payment of high taxes as a mark of social virtue.

Similarly, the possible closure of Port Talbot (which dragged the Industry Secretary, Sajid Javid, directly from a speech to the Sydney Institute back to talks with the Port Talbot workers) was explained as a result of two things: the very high costs of energy needed for steel production and competition from subsidised Chinese steel. But high energy costs are the result of a Cameron’s green policy of deliberately hiking energy prices in order to encourage conservation and the use of renewables. And just as Cameron’s pamphlet on the virtues of remaining in the European Union came out, it was discovered that it was an EU fund (financed by the UK among others) that had been subsidising the Chinese steel plants competing with Port Talbot—which, not incidentally, may now be partly renationalised. Cameron’s policies have produced Corbynite results.

None of these embarrassments are fatal for Cameron; but they show the political risks of striking socially liberal poses without considering the costs and consequences. They have also reduced Cameron’s authority, which may weaken the Remain side in the forthcoming referendum campaign. If David Cameron really is an ideological soul-mate of Turnbull, he’s now an Awful Warning too.