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May 05th 2014 print

Peter Smith

Growth, The Pragmatic Solution

Panels of worthies can recommend all sorts of efficiencies and cuts, as the Audit Commission has just done, but what is the point when politicians decline to make unpopular decisions? An expanding economy is the only way to keep up with the growth in expenditure

growthWhat a surprise, the polls are showing the Abbott government losing support. Well, why not allow the idea to float of increasing the pension age to 70 in 2035 and that the indexation arrangements will be watered down. In 2035! Now that’s something that must be talked about now, isn’t it? How about a so-called co-payment of $6 to see a doctor? That will make a real difference to the health budget!

Someone should remind Tony Abbott, in case he has forgotten, that there is an election to win in 2016. Fiddlesticks! Let’s treat people like complete idiots by suggesting that “a deficit levy” is not a tax. Memo to Abbott and to those who obviously ill advise him: We are not as stupid as you think we are. Any such levy is a tax is a tax is a tax and anybody with half a brain knows it. And that would break a ‘core’ election promise. I assume Abbott and his kamikaze ministerial crew appreciate that.

Too boot this Commission of Audit was always going to be a problem. Don’t set free a group of wannabe economic rationalists (who don’t need to get re-elected) and expect them to come up with recommendations encompassing health, welfare, and education expenditure. Make sure their remit is restricted to measures to boost economic growth and to curtail expenditure in less sensitive areas. It might be objected that the fiscal problem is concentrated in sensitive areas. So it is. That’s why government ministers with the help of their departments should in-source the problem, not outsource it.

The electoral environment in Australia is simply not conducive to conservative, hard-nosed solutions on the expenditure or tax side of the budget. Wishing won’t make it so. And clearly no help will come from the Labor benches. Bill Shorten will object to anything and everything the government puts up. He even objects to the government wanting the rich to pay more tax — probably for the first time for a Labor opposition leader.

If the government were pragmatic, rather than pathetically airy-fairy, it would understand that this is not the end of the age of entitlement. It may seem like that to Joe Hockey when he’s overseas, but it’s not. The very best that can be hoped for is to reduce the future rate of growth in entitlement programs and spending. Coalition governments should accept that and work within it. However unfortunate it is, Australia and all Western countries’ individual sense of self-reliance has been progressively and thoroughly undermined.

Decades of vote-buying governments dispensing goodies have left relatively few that don’t get something and, conversely, many special interests ready to object loudly if there is the merest hint of something being taken away. Has there been any support of note for any of the economy measures floated? I don’t think so.

If that wasn’t enough, the media, and the universities and schools have been persistently busying away over decades warping the culture towards one that puts government at the centre of everything; the government gives and the government takes away. There is no going back. The sense of entitlement and dependency will continue to grow. All of the evidence points that way so why think some kind of cultural metamorphosis is around the corner. That is the way to court electoral oblivion.

The emphasis of any conservative party these days should be on reducing obstacles to economic growth – so that we can afford entitlement largesse. This means reducing taxes on business not increasing them, and tearing down environmental, product and labour market regulations that impede economic development and growth. And, sure, try to keep benefits, particularly to the relatively well off, under some kind of control as best as can be done without losing too many votes.

What is the easiest political argument to run? We have to reduce your benefits and get the budget in order. Or, we have to free industry and business so that we have the wherewithal to fund your benefits in order to help the aged, the poor, the sick, and the disabled.

No-one knows definitively whether sufficient economic growth can be generated to pay for growing entitlements. But it is a good bet that Australia has the natural and human resources, aided by well-targeted immigration and 457 visas, to meet the test. In any event, it is worth trying rather than succumbing to an outdated (even if laudatory) ideology and leaving the country in the hands of unions and the Greens.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

 

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics