Tuesday, 23 April 2013

Defence will suffer from Labor's poor performance

Australia's financial circumstances are the responsibility of the Labor Government's dreadful mismanagement of our economy and the country's defence is paying the price, writes Peter Reith.

Get ready to feel the cold winds of Labor's self-induced austerity. But austerity will not mean just lower living standards; it also means compromising Australia's sovereignty.

The solemn responsibility of every government is to protect our country. But under Labor, Australia's ability to protect itself is likely to take another blow in this year's budget.

It was bad news yesterday on revenue and more bad news on defence is likely. In a sense Labor has no choice. It started cutting last year. As Grattan says:

Labor has so much bad news for the budget; it is trying to dump all the bad stuff before the budget so that the budget can include a few baubles for the headlines. But don't expect that anything that Labor says about the budget before the election will be an honest assessment of the true situation strategically or in regards to economics.

Yesterday's speech by Prime Minister Gillard was not to give the public an open statement about the budget, it was all about trying to minimise public reaction to the budget. Labor's only plan is not to fix the budget but to fix Labor's political problem that no-one believes what Ms Gillard or Wayne Swan say about the budget.

There are three basic contradictions in what Labor now says. Firstly, how can a revenue decline of $12 billion be the problem when the extra spending since Howard left office in 2007 is now nearly $100 billion more than Howard's last year? Secondly, Gillard says, since October 2012, there has been a $12 billion fall in revenue but revenue this year is still $25 billion more than last year? Thirdly, if the revenue 'fall' is such a problem why has Gillard not announced that the budget will have to match the revenue drop with a corresponding cut to spending? So Gillard can't say revenue is the problem, the problem is more spending and Gillard has again pledged more spending.

There is a fourth contradiction. Gillard says the underlying reasons for the revenue situation are the high dollar and softening commodity prices. But this is not new. This describes Australia's circumstances for the last three years. The real reason that the numbers have been so wrong is because Labor has been spinning a line that it would get the budget back into surplus this year. Labor's figures have been adopted to meet the political objective, not to inform the public.

And don't kid yourself that Australia's burgeoning debts and falling living standards are somehow also the Coalition's fault. Australia's financial circumstances are very much the responsibility of the Rudd-Gillard Government's dreadful mismanagement of our economy for the last seven years. And it follows a pattern.

In the 1970s, after three years of Whitlam's economic chaos and massive spending, the Coalition under Malcolm Fraser had to clean up the mess. Initially Hawke was a better manager but Keating, as PM, dumped his fiscal credentials and left another round of massive debts. From 1996 to 2007, the Howard government had to clean up for the second time since 1945. Howard's challenge was not easy; when he came to office the budget had not been in surplus since 1989, our region was hit hard by the Asian financial crisis, living standards were stifled by an antiquated labour market and the unions were constantly dictating government policy and attacking key parts of the economy like the wharves and resources. Howard left office with no debts.

In 2007 Labor took over a budget in surplus and a strong economy. That record has been squandered with serious consequences for our Defence.

Under Hawke Labor, Defence had a mixed record. It gave higher priority to the Navy and the Air Force. As a result the Army was under pressure due to lack of resources. But the decision to build Collins Class submarines was problematic and we never got the capability that we paid for. All that changed with the Howard government because its reforms improved the economy and thus revenues and Howard had the political will to rebuild Australia's military capacity.

When Rudd took office, his 2009 white paper promised a strong position on Defence. But he was soon spending on a grand scale and priority for Defence was slipping. It slipped further under Gillard. At least Rudd wanted to upgrade the submarine fleet. The objective for 12 new submarines was kept alive under Gillard although with the proviso that the option of nuclear powered vessels was disallowed for political reasons.

Unfortunately, the underlying financial mismanagement of the economy and the federal budget is quite rapidly denying Australia's ability to defend itself. This came to public attention in last year's budget when the Defence budget was cut by $5.5 billion and thereby dragging Defence's percentage of spending as a proportion of GDP to 1.56 per cent. This is the lowest since 1938 and much of the spending cuts have occurred in capital items thereby directly undermining military capability to defend Australia. Australia should be seriously considering the purchase of US nuclear powered submarines. There is no excuse that when it comes to Australia's security we should have the best that money can buy. Sadly, Labor has neither the money nor the political will to protect our country in the future.

In the Australian "referendum proposal"

FROM The Australian's front page story yesterday, it seems likely the federal Labor government will soon announce a referendum to coincide with the September election.

The referendum will propose the recognition of local government in our Constitution. The excuse for the referendum is that a recent decision by the High Court has put in question the legality of commonwealth funding direct to the states. But this is a ruse. Labor has wanted this change for decades and there is nothing to stop the commonwealth funding local government via the states.

If, as expected, Tony Abbott supports Labor's proposal by dragooning the partyroom, he will do so without any discussion with his MPs or the party organisation and will split Coalition premiers, rank-and-file supporters and a swag of his MPs.

Just because the major parties support a proposal does not mean success is guaranteed; ask Gough Whitlam and Malcolm Fraser, who joined hands in the 1970s. Nor do polls foretell the results. When Labor's 1988 local government referendum was first announced the polls showed public support but it was soundly defeated. Only eight referendums have passed to change the Constitution and Labor has succeeded only once.

I do not understand why Abbott would want to muddy the political waters with an unnecessary referendum when the one priority for the September election is to terminate the worst Labor administration in living memory. If the proposal is meaningless then there is no reason to vote for it but if it means more power for Canberra, Labor's intention for decades, it should be opposed. Local government is the responsibility of state parliaments and if the central government meddles with local government it is likely that there will just be more duplication and red tape, increasing the costs of local government and clogging up local decision-making.

There are four common reasons for the failure of referendums and all are relevant here.

First, the public does not like proposals to give the federal government more power.

Second, part of the problem has been poor process. This proposal has been considered by a federal parliamentary committee with a majority of Labor MPs, which is not an adequate forum for review. The best way to conduct a referendum is first to hold a convention so that the people are not only responsible for the outcome, they are also involved in the first steps for change. This was relevant in 1988 when the record low for a referendum was set at 30.79 per cent.

If Abbott unilaterally announces the Coalition's support, then the Coalition's own lack of good process will further undermine the chances of success of the proposal.

The Constitution is not the plaything of government or opposition and effective process is essential to good government.

Third, most Australians don't like politicians fiddling with the Constitution; if the bike is not broken, why fix it? And there is evidence the public doesn't like being harassed for a third time for a change that has been rejected twice.

Fourth, the public has a well-founded fear about the consequences of change, especially after the judges of the High Court have decided to interpret any change differently from what the public expected. This was a factor in 1988 when the Catholic Church recommended a no vote partly in fear of how the courts might interpret the meaning of religion, burdening the country with unforeseen outcomes.

It applies equally to managing local government.

If the Coalition and Labor rush through the legislation to change the Constitution, not only will good process be abandoned but, with no dissenting voices, the rules of the parliament will ensure that there is not even a formal no case committee to put the alternative point of view. The debate will then be biased in favour of the yes case and a noisy election will smother the right of the electorate to hear both sides. If Mr Abbott wants a referendum, he should defer the proposal until the public can carefully consider the arguments within a better process, as John Howard provided for the republic debate.

Peter Reith is a former Howard government minister and chairman of the committee for the successful no case in the 1988 referendum on local government.

Tuesday, 16 April 2013

The economy is the main game

The polls could tighten before the September election but Labor is still destined to be severely punished for incompetence and woeful economic management.

It has been a bad week for Labor but at least policies have been centre stage. The economy will be the main issue and Labor's behaviour has not helped.

It seems the public refused to fall for the phoney fast train idea. The origin of this latest proposal came in the deal with the Greens in 2010. You would think that Labor had worked out by now that cuddling up to the Greens is politically disastrous.

A fast rail track down Australia's east coast would cost $114 billion. The project would not generate a return until 2060 or thereabouts and so taxpayers would be paying more taxes for 40 years for a service that most people would never use. It would stop at every marginal seat from Brisbane to Melbourne and, at best, would be no quicker than flying. And that assumes that all the estimates of traffic and cost are realistic which is highly unlikely. If someone really thinks it is a good idea, let them waste their own money, not the wages of the average Aussie.

No wonder the Nielsen poll was so emphatic; this style of politics is especially galling from a government that has just abandoned its promise to reach a surplus in 2013 and now has abandoned the objective altogether for the foreseeable future. The government likes to claim that the economy is in good shape, so how is it that the government can't reach a surplus?

The fact is that Labor has abandoned any pretensions about economic management - Labor will lose the next election having not produced a surplus at any time since federal MP Wyatt Roy was born.

The second phoney ploy was better disguised. Presumably John "457" McTernan thought up the idea to send John Howard to Thatcher's funeral even though Howard was going anyway. McTernan must have been smiling because the announcement worked a treat.

I reckon there were two real reasons Gillard would not go. Firstly, in her younger days Gillard would have preferred to be with the radicals in Trafalgar Square celebrating Thatcher's death and secondly, to the extent she would be noticed, comparisons between Thatcher and Gillard would be odious. In particular, unlike Gillard's train, when the French/British channel project was devised, Thatcher made sure the investors would be more responsible for the losses than the taxpayers. Thatcher was committed to private enterprise not massive government expenditures on white elephants like government trains and a government telco with costs already skyrocketing towards twice what was forecast and well behind on schedule.

The cancellation of the massive Browse project in WA was yet another straw in the wind even though an offshore platform might be a better, more commercial plan. But all the same, at one time, the investors wanted to proceed with a plant on the coast and it would have been especially beneficial to the local Indigenous community. Unquestionably, the blowout in costs, in part due to Gillard's industrial relations changes in 2008, are now wreaking their impact on the resources sector.

The loss of 500 jobs at Holden was yet another reminder that governments, state and federal, have been throwing away good money after bad. Jac Nasser, respected chairman of BHP and formerly head of Ford in Australia, made it very clear that car manufacturing in Australia is inevitably going to come to an end.

Prime Minister Gillard can't admit the blindingly obvious because she can't afford to disappoint the unions that have propped up her government in return for taxpayer monies propping up the car companies.

Labor's policy puts up the price of cars that are an input for many businesses. There is a fundamental disconnect between saying you support jobs and then burdening business with costs of car transport or taxes like the carbon tax. Additional costs undermine jobs.

Then along came the unemployment numbers showing that trend unemployment is rising. This was not news. Nor is it surprising that more and more people are now dropping out of the workforce and more women are going into part time work. These are the very outcomes railed against by Labor and the unions but which have been the consequence of the Labor/union alliance.

Maybe the one thing that Labor might get right is the weekend announcement of cuts to university students. It certainly makes a mockery of Labor's complaints about Victorian cuts to TAFE funding.

Labor's plan exposes how government funding changes behaviour. The Australian yesterday had a front page story of students stating that they will no longer be given $2,050 cash p.a. under the Student Start-Up Scholarship and instead will have to repay the substitute loan. Apparently students defer starting university just to become eligible for the $2,050.

A policy that rewards students for deferring their education must surely deny the workforce of qualified workers, thereby reducing productivity and the revenue to government that follows. So it might be justified although it will be interesting to see the details.

The savings are to go Gonski but what is a Gonski? I know it is more money the government does not have but surely education reform should be about the quality of teaching, not the money per se? Until Labor can explain what will be done by the states, who run the schools, to improve education, the whole scheme seems to start from the wrong premise.

It has been an action packed week for Labor. If they are to do better in the elections than suggested by the latest poll, then Labor certainly would not want another week like last week.

Tuesday, 9 April 2013

Margaret Thatcher Vale in AFR

Margaret Thatcher was one of the greats of our time. She came to office when the UK was on its knees and needed a Prime Minister to pull the UK out of the economic mire. In doing so, she became an inspiration to millions of freedom loving citizens around the world. Her basic theme was that economic freedom was an essential ingredient of political freedom. Thatcher was a true believer in free markets and, in consequence, she wanted the economy to be guided by citizens not government bureaucracies. Her objective was not so much driven by ideology but the belief in a system that actually worked in practice to promote jobs growth and higher living standards. It is a quest that still drives many people around the globe.
A lot of people still yearn for a Thatcherite leader. I can’t help but look at today’s political landscape and wonder why the western democracies have not been able to produce the leaders needed now to drag the first world out of its economic troubles. Just when they needed a real leader, the US voted for Obama, a good man in many ways but not a man with a feel for economic management. If ever the Tories should have won in a landslide, the UK ended up with a minority government and David Cameron. I never liked Cameron since one of his whips told me that when organising a function at which Thatcher and Cameron (the then Opposition leader) were to sit side by side, Cameron insisted that he not sit next to the “Iron Lady”. His tactic in his Opposition days was to distance himself from Thatcher. One of the few times he was seen with Thatcher in public was only after Gordon Brown stood on the steps with her at Downing Street. I did not forget Cameron for that either – but it demonstrates that for a conviction politician like Thatcher it is difficult not only dealing with the official Opposition but with your own team as well. Too many politicians today approach issues with the question being how to manage the politics of the decision to be made. Thatcher’s approach was to decide what was right first and then work out the politics. The former represents the pursuit of personal interest; the latter is the pursuit of national interest.
Whilst Thatcher’s resolve in dealing with the Argentinians over the Falklands affirmed her “Iron Lady” status, Thatcher’s contest with militant unionism in the early 1980’s was a reason why the UK public came to respect her as a leader. The same thing happened with Ronald Reagan who stood up to the flight controllers in the US. In Australia, todays politicians shy away from a political argument with the union movement. Major reform is not expected until a second term if the Coalition is elected in September. In the UK, Thatcher was elected in 1979 and introduced labour reforms in 1980, 1982 and 1984. Thatcher never blinked when she faced the miner’s violent strikes, the Wapping dispute and the eventual reform of the docks.
Whether you call it economic rationalism or Thatcherite economics or otherwise, Thatcher’s proselytising of good economics encouraged not just right wing politics but many others from across the political spectrum. Both sides of politics in NZ were certainly influenced by Thatcherism.  The first major economic reforms in NZ, like privatisation, were introduced by the Lange Labor government and in particular the treasurer, Roger Douglas.  NZ was like the UK, in dire economic circumstances and the Douglas reforms basically saved the day.  NZ was then lucky because when the inevitable change of government arrived, the incoming Nationals picked up from where Douglas left off. The issue that Lange had been unable to confront was labour market reform. The Nationals then abolished NZ’s compulsory arbitration system that had for years burdened Australia and NZ. The next NZ Labour government left individual agreements in place.
Similarly in the UK when John Major finally lost office to Tony Blair some of the structural reforms of Thatcher years were kept. Blair never overturned Thatcher’s labour market reforms. When I was arguing for labour reform in the Howard years in the late 1990s my favourite speech was to quote Tony Blair speaking to the UK Trade Union Council and compare Blair’s speech to Kim Beasley at the ACTU promising to overturn not just the reforms from 1996 but Keating’s minor reforms as well.
It will be a long time before we see anyone in Thatcher’s class and it beats me why the Poms will only give her a ceremonial funeral when a State funeral is the highest honour. No wonder the UK needed the daughter of a grocer when all they had were blokes still worrying about their old school ties.