Tuesday, 3 April 2012

Labor's 'reform' agenda

Bill Hayden is not just a former Labor leader and former Governor-General; he was also one of the few economically sensible people in Gough Whitlam's team that lost the 1975 election.

Bill knows about the importance of economic policy. He brought down Whitlam's last budget – the only one that was not condemned for the excesses that marked the economically disastrous Whitlam years.

After three tumultuous and controversial years, the Whitlam government was removed by the Governor-General and annihilated by the electorate. It is no surprise that Bill can see electoral carnage coming again – he has seen it before.

He said, "It may not be the case that it's time for Labor," and on the next election, "Unless this party gets out of this suffocating thing we have created, I fear we might have had it".

Bob Hawke distanced Labor from the Whitlam approach. Hawke was a better economic manager than expected and enjoyed a long stint at The Lodge. Hawke and Paul Keating were generally pro-reform. During their time in office in the 1980s and '90s the general Coalition position was that we supported Labor's reforms, but we wanted them to go further.

Last week Paul Keating talked about Labor's loss of support of its support base. He said, "The loss of this started from 1996 onwards really, when a lot of the Labor party didn't really like the reform agenda that Bob Hawke and I presided over…"

Keating's comment has hit the nail on the head.

After losing the 1996 election, Labor repudiated much of the Hawke agenda. Labor had weak leadership and they quickly abandoned the mainstream positioning of Labor in government. To give one example, when I introduced the Coalition's labour market reforms in May 1996, Labor not only opposed our reforms but they moved amendments to overturn some of the Keating/Laurie Brereton reforms.

Ever since 1996, Labor has lacked effective leadership, failed to develop a coherent policy approach, and squandered billions of dollars on madcap schemes. When back in government, Labor was soon reregulating the labour market. This was the opposite of Tony Blair's approach in the UK; he kept the Thatcher labour market reforms.

Then in 2010 Labor wandered into an alliance with the Greens. The Greens only want to take votes from Labor so that they can pursue their whacky policies like closing down the coal industry and abandoning Australia's national democracy for a world government.

With friends like that it is no wonder Labor is down in the polls. They will stay there.

The constant flow of polls is getting monotonous, if not yet boring. For at least six months, Labor's primary vote has been hovering around 30 per cent. The latest Nielsen poll shows the Labor vote at 27 per cent. Federal Labor's political position looks very much like Labor in NSW last year and last month in Queensland. In both those cases, well in advance of the election, the polls accurately predicted huge swings against Labor.

Labor's big problems are policy problems.

If Labor had been a competent economic manager then the 'drover's dog' could secure a better primary vote. For competent economic management to politically support the government, that management needs to produce tangible results. You don't need to be an economist to feel the hip pocket impact of poor management. And you don't need to be a scientist to realise that closing down the coal industry is going to push up electricity prices.

Until recently the idea of economic reform included the rather obvious idea that reform would improve per capita living standards. That idea has been abandoned. Labor's claim to be a reformist economic manager is meaningless because their idea of reform does not require that it provide economic benefit.

When David Murray, a well respected businessman, said that the carbon tax was the worst reform he had ever seen, he could have alternately said it was not even reform. Treasury modelling shows that the economy will be worse off as a result of the carbon tax. Therefore, in my view, it is not economic reform. It lowers GDP relative to what it would be without the tax.

Whether you support the carbon tax or not is not the point. Whether you believe in climate change or otherwise is not the point. Labor's tax has adverse consequences for GDP. The public don't like the idea of cuts to living standards. But the public will support reform if there is a clear objective of improved economic performance.

This was the situation with the introduction of the value added tax (the GST) because the abolition of the wholesale sales tax and its replacement with the GST provided quantifiable benefits for Australian businesses, especially manufacturers and exporters. Full compensation for pensioners and others ensured it was a win-win outcome. With the carbon tax, it is more of a loss-loss, like a tax imposed by the local council to collect rubbish; necessary but hardly great economic reform.

Labor also calls the mining tax an economic reform. But the first proposal for a mining tax was drafted by Ken Henry and then ditched. The design of this tax breaches many of the standard criteria for good tax policy. The truth is that it is a poorly executed grab for cash. If it does anything, it will undermine investment in the industry and so advantage our competitors. This is not reform by its ordinary meaning.

Labor is not reformist. It is a bit like the Fraser government. It was not so good on economic reform either although it cleaned up the mess left by Whitlam. I do not see any prospect for an early election. Incumbent MPs like the independents will be hanging on as long as possible. So Labor's term will end up about the same length of time as Fraser. Maybe there is a lesson here about the political power of economic reform. Reformists like Howard and Hawke get 10 or 11 years but non-reformists are lucky to last more than six, all other things being equal which they never are!

PS: It was interesting to see Nikki Savva go over to the Bolt Report last Sunday. She also appears on the ABC's Insiders. I thought the ABC suffered a loss when Bolt left. Andrew was great for Insiders because single-handedly, in his own inimitable style, he gave the program a sense of political balance. Despite the good efforts of Piers Akerman and Gerard Henderson and others, the Bolt gap at the ABC has never been filled. Bolt rates very well, so it will be interesting to see if Insiders can enliven its offering.

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