Tuesday, 20 December 2011

Forget the predictions for 2012, focus on good decisions

Sitting in a committee room in the House of Lords, the US economist Art Laffer was once asked how long would it take before the effects of a new flat tax could be assessed.

His answer was a question; if you drop a $US100 note on the Wall Street footpath, how long do you think it will take before someone picks it up? Picking up the dollars is a consequence of the dropping of the note.

Many people will make predictions for 2012 although often, like picking up Art's $100 note, the predictions are really the consequences of decisions already taken.

Take the issue of asylum seekers as an example.

When Julia Gillard's Malaysia deal failed, she predicted that boat arrivals would increase but in reality the increase in boats was a consequence of not implementing her policy. The tragedy of the last few days was shocking but, by her prediction, it was not unexpected by the Government. In fact, such events are the reason for the Labor Party adopting offshore processing as their policy even though they say that their policy can't be implemented when of course it could be implemented in Nauru. A government that was fair dinkum in wanting to pursue an offshore policy would at least give Nauru a trial which was one reason why the Immigration Minister unsuccessfully put that proposal to Cabinet.

You don't need a crystal ball to know that more boats will arrive in 2012 and public dissatisfaction with Labor's policy will grow. The Greens and the refugee lobby will next agitate to legalise the smuggling trade to stop boats sinking. In 2012, the boat arrival numbers are going to grow; that is not a prediction, it is a consequence of decisions already made.

Another reality for the Government is that Europe's problems will worsen in 2012. This is not a prediction; it is the consequence of longstanding economic policy failures of European democracies. But it will have ever greater impact in Australia as 2012 unfolds. And the issue for the Government will be how to react. We don't know how hard the tsunami could hit us but, given that Federal authorities are seeking detailed scenarios from the banks on the possible impacts of 12 per cent unemployment and a 30 per cent drop in house prices, it is reasonable to assume that we could be in for a rocky ride.

At this stage, the Government has shown no inkling of what to do and no sense of when. Neither side of politics has yet called for a contingency plan. The Government thinks it did enough with its dodgy numbers in the mid-year forecasts but otherwise Australia is awash with economic complacency and a bit of bank bashing. Of course, for the Government, contingency planning would immediately put the microscope on three big items that they can't touch, namely, the NBN, industrial relations reform and the carbon tax. For the Coalition, they would have to add industrial relations to give their plan credibility but it's off the agenda for now.

If it is good enough for the banks to consider what to do in the case of a 12 per cent unemployment rate, surely it is good enough for the Government to encourage some public discussion on what to do in the event of a major economic downturn.

For Julia Gillard, if she wants to lift her poll ratings into the 40s, which Paul Keating says is necessary for her to have any chance of winning the next election, then she needs to focus on Australia's economic circumstances. She needs to clear the decks and focus on the hip-pocket nerve. She should defer the gay marriage debate and cancel her promise to the Greens for a referendum to change the Australian Constitution. Ms Gillard will do neither and unless she can convince the public that she can manage the job of prime minister, I predict she will not last as PM.

The September 2010 agreement between the Greens Party and the Labor Party was to:

Hold referenda during the 43rd Parliament or at the next election on Indigenous Constitutional recognition and recognition of local government in the Constitution.

Julia Gillard does not have the authority or political standing to push through some potentially significant changes to our Constitution. The apparatchiks who run her politics will tell her that they don't want the referendum to be held at the same time as the next election because it will reinforce the public view that she is incapable of focusing on what is most important to the voters, namely the economy.

The alternative is to hold the two referenda in 2012. This is a complication because the vast majority of voters are not au fait with legal matters and they have a sensible level of cynicism about constitutional changes. They are often swayed by the simple question: if the bicycle is not broken, why fix it?

In addition, even if the Coalition were silly enough to support the Indigenous referendum, which is highly unlikely, there are already many voices from the Aboriginal community who oppose change. Northern Territory Indigenous MP Alison Anderson articulated a common view about constitutional recognition in these words:

It's a diversion from the real issues of education, health and housing. This is just something for Julia Gillard to go down in history with.

And Warren Mundine, former ALP president and Indigenous leader said of the latest proposals:

I feel strongly about this – it's a hundred steps too far… I am opposing it and will campaign to oppose it.

There is zero chance this proposal will ever be accepted and if presented will only annoy the public at the waste of holding the referenda.

The local government proposal is also doomed from the start. It has been put twice before by Labor governments and resoundingly thrashed. Local government is a creature of the state parliaments and a mini bill of rights for councils is either just tokenism or a grab for more federal power. In 1988 the vote was one of the largest 'no' votes ever recorded in the history of Australian referenda.

Like many things in politics in 2012, these outcomes are not so much predictions than the obvious consequence of factors and widely held opinions already well known based on Australia's long experience with referenda and economic management.

A lot of bad decisions have been taken in 2011 and earlier, including the carbon tax, asylum seeker policy, fiscal policy, industrial relations and others. And they all have consequences, so forget the predictions, forget about Nostradamus and let's hope that in 2012 more attention will be paid on making good decisions in the national interest.

Merry Christmas and Best Wishes for 2012.

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