Articles – Page 21

Going Against The Grain On Data Retention

George Brandis claimed last month that data retention was “the way Western nations are going”, but the opposite is true. Australia would be going against the grain, writes Chris Berg.

It would have been good if, at their press conference last Friday, the Australian Security Intelligence Organisation and the Australian Federal Police had been joined by all the other government bureaucracies that passionately support mandatory internet data retention.

Because data retention is not about national security. It’s about collecting data on every Australian for every law enforcement and regulatory compliance agency to use. And for everything from serious crimes to trivial infractions.

So David Irvine of ASIO and Andrew Colvin of the AFP could have been joined by Chris Jordan of the Australian Taxation Office, Rod Sims of the Australian Competition and Consumer Commission, and Greg Medcraft of the Australian Securities and Investment Commission. All have been pushing for data retention in committee hearings and inquiries.

And then, for completeness, we could have had a few of the dozens of state and federal agencies who currently enjoy authorised access to private communications data under the existing Telecommunications (Interception and Access) Act.

Squeeze on stage the Western Australian Department of Fisheries, Racing Queensland, New South Wales Health Care Complaints Commission, RSPCA South Australia, and Wyndham City Council. They would all be beneficiaries of mandatory data retention.

In other words, data retention is hardly a targeted anti-terrorism measure.

There were, in fact, two separate data retention proposals last week.

The first was announced by Tony Abbott and George Brandis on Tuesday. We’ve all seen the muddled interviews but the broad strokes of the policy itself were relatively clear. The Government was planning to force internet service providers to record both the internet protocol (IP) addresses of their customers and the IP addresses of the websites that those consumers visited.

This is sometimes known as “session logging”, or more popularly as “browsing history”.

Abbott and Brandis clearly left the National Security Committee last Monday night, and Cabinet on Tuesday, thinking session logging was what had been agreed to – it was the “in-principle decision”.

Then something changed. A second proposal was announced by Malcolm Turnbull, and confirmed at the ASIO and AFP conference on Friday. In this, the only data that is to be kept is IP addresses matched to customer details. Not a record of all the sites the customers visit.

With the data provided by the Abbott-Brandis session logging policy, it would be possible to map out a person’s entire world. No ISP keeps such a record of its customers’ online lives. Why would it? Anyway, doing so would be in breach of Australian Privacy Principles, which state that no more information ought to be kept than is necessary for business purposes.

The Turnbull policy is still useful for law enforcement, but much, much narrower. It’s only a small step away from billing information. And a few ISPs do keep this data. Storing it consistently might be expensive – very expensive for some ISPs – but it’s hardly the giant threat to privacy and liberty that the Abbott and Brandis policy constitutes.

Most importantly, it is not the mandatory data retention policy proposal that has been on the table for years – large-scale session logging – the policy that Malcolm Turnbull described in 2012 as “the latest effort by the Gillard government to restrain freedom of speech”.

Thank goodness.

As Bernard Keane has found, the Attorney-General’s Department has been pushing for the full version of data retention since at least 2008.

The intellectual genesis of this policy goes back 2006, when the European Union passed the Data Retention Directive. (Australians rarely come up with these ideas themselves.)

The directive instructed all EU member states to retain large quantities of communications data – both source and destination – for the investigation of “serious crime”. You can read it here. Article 5 outlines how just how large those quantities were to be.

European countries did as they were told.

Their experience shows that Tony Abbott was spot on when he said on Wednesday that data retention was designed to fight “general crime”, not just terrorism.

In a sample 12-month period, an Austrian review found that the most common law enforcement use of retained data was for cases of theft, followed by drugs, followed by stalking. Terrorism didn’t rate.

Internet traffic data retained by Poland’s scheme is being used “more and more” for civil disputes – even divorce cases.

The Danish Justice Ministry found only two cases where session logging has been useful in half a decade. Neither concerned terrorism. Denmark gave up data retention in June this year.

Germany’s Federal Crime Agency concluded that data retention had no statistically relevant effect on crime or crime clearance. Crime continued its long-term decline even after data retention was abandoned in Germany in 2010.

We could go on. Brandis claimed last month that data retention was “the way Western nations are going” but the opposite is true. Data retention is being wound back, repealed, and abandoned. In April this year the European Court of Justice found that the EU directive was unconstitutional.

Australia already has a powerful, robust mechanism to monitor suspects online: targeted data preservation notices on the telecommunications of suspects. This regime was updated just two years ago.

But that, perhaps, is beside the point. The last week has demonstrated that the debate over telecommunications surveillance is held in widespread ignorance – ignorance about our existing capabilities, the constantly evolving legal framework, and the architecture of the internet.

Not surprising, of course. This stuff is complicated. Technology policy is hard enough. Add onto that our labyrinth telecommunications intercept laws.

But politicians ought to try to understand the laws their departments insist they introduce.

Abbott and Brandis seem to have thought that merely mentioning the word “terrorism” would be enough to ensure their policy an easy run.

Yet no matter how real the terrorist threat, the pre-emptive surveillance of every single Australian would be an extraordinary policy in every sense of the word – way outside the bounds of proportionality, and way outside the boundaries of legitimate government action in a free country.

The repeal of the carbon tax

‘What a complete and catastrophic failure of the political system’, wrote the Guardian’s Lenore Taylor a few hours after the carbon tax repeal bill finally passed the Australian Senate. ‘As eight years’ work by thousands of people disappears with the Senate’s vote, many may have cause for regrets.’

Perhaps many do. But from this vantage point the political system has worked messily but as intended. Having promised in opposition to axe the tax, on 17 July 2014 the Coalition axed the tax. Against all odds, even. The showy last minute political games played by Clive Palmer made it look touch-and-go for a bit.

Nevertheless, given the serious problems Australia has had in recent years about governments keeping their promises, the repeal of the carbon tax was a pretty good case of democratic function, not democratic failure.

Taylor’s lament isn’t really that the political system has failed, per se; it’s that the political system has failed to achieve one specific goal — a legislatively driven programmed reduction in Australia’s carbon emissions.

Of course that bipartisan goal of a five per cent reduction of carbon dioxide emissions from 2000 levels within the next six years ostensibly remains. But nobody thinks the Coalition’s Direct Action plan — an apparently un-ironic throwback to the days of corporatist industry policy, with taxpayers simply paying private companies to cut their emissions — will achieve that goal.

The carbon tax has been a centrepiece for three elections. In 2007 John Howard followed the lead of the energetic Kevin Rudd and the Coalition announced its own emissions trading scheme. In 2010 Julia Gillard promised that there would be no carbon tax under the government she led. Instead, there would be a ‘citizens’ assembly’ into the evidence for climate change — possibly the most cringe-worthy idea in the history of Australian politics — with the eventual aim of introducing an emissions trading scheme at the end.

Finally in 2013 Tony Abbott defeated a briefly resuscitated Kevin Rudd with a promise to abolish the very carbon tax Gillard had promised not to introduce.

Buried in that potted history is a wealth of extraordinary drama, and nuance, and subtlety—real or imagined. We’ve had multiple formal emissions trading scheme proposals — including Kevin Rudd’s Carbon Pollution Reduction Scheme and Julia Gillard’s Clean Energy Future.

We’ve had a host of government inquiries — most prominently those done by Peter Shergold under the Howard government and Ross Garnaut under the Rudd government.

We’ve had a diverting but ultimately empty debate about the definition of a ‘tax’. When Kevin Rudd in 2013 announced that he was going to ‘terminate the carbon tax’ by moving it to an emissions trading scheme slightly ahead of schedule, those semantics of when a tax becomes a trading system became a parody of themselves.

It is hard to over-emphasise the shift in the politics of climate change over the last five years. Throughout 2009 commentators and the press gallery urged the Coalition to join the carbon tax bandwagon. There were claims that the Coalition had not ‘learned the lessons’ of 2007 — a viable party had to embrace an emissions trading scheme policy.

Today the emissions trading scheme is history and those who proposed it toppled from their leadership roles.

For climate activists the task is now to regroup. Christine Milne proposed a ‘website of climate criminals’ that would include such names as Ian Plimer, Gina Rinehart, George Pell, Andrew Bolt, Martin Ferguson and the IPA’s John Roskam. This sort of name-and-shame is probably good politics for the Greens with their base, but it’s worth recalling that the Milne and her party voted against the Rudd government’s emissions trading scheme in 2009: they were on a joint ticket with Plimer, Rinehart, Pell, Bolt, Ferguson and the IPA.

The carbon tax is repealed but it is not dead. Bill Shorten has promised to take a carbon tax to the next election. Clive Palmer, who was a climate change sceptic as recently as the 2013 election, has had a Road to
Damascus conversion and is now seen holding press conferences with Al Gore and being closely advised by Australia Institute staffer and former Greens chief of staff Ben Oquist. Palmer has forced the government to retain much of the infrastructure around the carbon tax — the Clean Energy Finance Corporation, for instance, but most gallingly the Renewable Energy Target.

So the carbon tax is gone. But its associated policies are still in place — ineffective, wasteful, and unfortunately resilient.

Free speech is non-negotiable

The Abbott government’s decision, announced in the first week of August, to abandon its promse to reform section 18C of the Racial Discrimination Act is one of the biggest setbacks for freedom of speech — and the cause of liberal reform — in some years.

Not because the broken promise is highly consequential (although, obviously, it is that, as various section 18C cases have shown) but because it demonstrates just how hard it is to wind the clock back; just how hard it is to reverse the dilution of liberal freedoms.

Throughout the debate over section 18C, the Institute of Public Affairs has maintained that freedom of speech is a fundamental liberty. The word ‘fundamental’ is not a rhetorical flourish. Speech is the expression of the deepest condition of individuality: that of thought. It is our thoughts — our preferences, our values, our beliefs, our ethical and moral principles — that set us apart from the collective. Being prevented from expressing those thoughts is an attack on our individuality. It suppresses difference in the interests of the group.

Hence the significance of the Coalition’s 18C promise. The last few decades have seen a substantial growth in the number of limitations placed on the freedom of speech. Most iconic of these has been the increasing legislative enactment of the doctrine of ‘hate speech’.

Each Australian jurisdiction (with the exception of the Northern Territory) has its own form of racial vilification laws. The Commonwealth Racial Hatred Act, that introduced section 18C in 1995, was, and remains, the preeminent anti-hate speech law in Australia. And the most stringent. It is worth recalling that the Andrew Bolt case was originally going to be launched in a Victorian court under Victoria’s anti-discrimination law. However, a decision was made that the plaintiffs would have more success under the Commonwealth’s section 18C.

So repealing section 18C, or amending it in such a way that it was effectively neutered, as George Brandis’ exposure draft legislation would have done, would have been highly symbolic.

It was not for nothing that the promise was the hook on which George Brandis hung what he described as the ‘freedom agenda’. When Tony Abbott gave the original promise to repeal section 18C in its current form at an Institute of Public Affairs event in 2012, his speech was titled ‘the freedom wars’. Abbott’s oratory was stirring. The Coalition would be ‘freedom’s bulwark’ in government. Abandoning the section 18C promise was not like abandoning any other election promises in the usual way that new governments do. A bulwark is supposed to provide protection.

So there is a heavy degree of irony that the announcement that section 18C would remain on the books came in the middle of a press conference on national security reforms.

Section 18C was, in the words of the prime minister, ‘a complication’ that put ‘national unity at risk’. In this case the government was quite literally trading liberty for security. It was to drop its promise to restore freedom of speech in the hope it would encourage Muslim communities to assist it with anti-terror measures.

As a political tactic, this is a somewhat strange. Australia’s Muslim leaders did not hesitate to condemn some of the new proposals that they believed targeted Muslims unfairly. The government’s ‘trade’ didn’t survive more than a few hours.

But as a position on public policy it is bizarre. Peter Costello was spot on when he asked in the Herald Sun:

Does the Government believe there are community leaders whose commitment to their fellow citizens and the values of a civilised society is so weak they will not co-operate in preventing terror and murder if Section 18C is repealed? If that is the case we really do have a problem.

Let us hope our anti-terrorism strategy does not really hinge on this legislative quid-pro-quo.

But more critically: what does it say about Australia if a political party elected on a platform of ‘freedom’ — they used the word liberally — drops that platform as a bargaining chip for national security laws? Such laws are, after all, supposed to protect the liberties which have been discarded.

The case for repealing section 18C is as strong as it ever was. Support for substantially amending it — ranging from simply deleting the words ‘offend’ and ‘insult’ from the act to outright abolition of the section 18C — was found across the political spectrum. The Age, the Saturday Age, the Australian, the Herald Sun, and the Courier Mail editorialised against section 18C.

Left wing agitators, human rights lawyers, legal academics, public commentators, aboriginal community leaders, and journalists are all found opposing section 18C as it stands and supporting reform. Figures from Keith Windschuttle to David Marr to Antony Loewenstein agree the act must change. (A full list of supporters of change is available at freedomwatch.ipa.org.au.)

Yet here we are. In the end change has to be fought through the parliamentary system. There will be future cases under section 18C. The section is a very real constraint on our most fundamental liberty. Hopefully future governments will take the freedom of speech challenge seriously.

Abbott Needs To Hit The Reset Button

The Abbott Government is about to learn that the hardest political manoeuvre is changing direction.

In their times, Kevin Rudd, John Howard and John Hewson tried this tricky exercise. Each fumbled.

Rudd shelved the emissions trading scheme in April 2010. This did nothing to restore his prestige. Rudd was shelved by his colleagues two months later.

Howard tried to adjust WorkChoices when it was clear that the policy lacked popular support. The new fairness test, introduced in May 2007, did not placate WorkChoices’ critics. Howard lost government and his seat.

Hewson released Fightback! in November 1991. Over the next year the Coalition bled support. Hewson tried to relaunch a softer version of the package in December 1992. It didn’t help.

But those leaders had it easy. The Abbott Government is likely going to have to pull this manoeuvre quite a number of times over the next few months.

The Medicare co-payment is going to have to be restructured and revised if it is going to pass the Senate. (Even that may not be enough. Clive Palmer yesterday announced he would vote against any co-payment, no matter how small.)

The mining tax will have to be decoupled from the measures it was supposed to fund – the schoolkids bonus, for instance.

The changes to welfare are unlikely to pass in their current form, so it’ll be back to the drawing board with those as well.

The Government hasn’t even begun the university fee deregulation debate, but when it starts it will be bruising.

And then there’s the paid parental leave scheme – not formally part of the 2014 budget but its generosity casts a shadow over every austerity measure. PPL is meant to be up and running next year.

What makes the Government’s problem even worse is that it’s trapped by both legislative forces and public opinion. Tony Abbott’s prime ministerial predecessors have only had to deal with one, rather than both.

Take Rudd’s emission’s trading scheme. The scheme wasn’t overwhelmingly popular, sure. But, in mid-2010, it was hardly a government-killer. Rudd’s real problem was legislative gridlock. His error wasn’t delaying the scheme – the parliament had already done the delaying for him – but taking responsibility for that delay.

Howard didn’t have an obstructive senate. In fact, he had the opposite problem – a compliant upper house that offered no check on his government’s longstanding urge to centralise labour market regulation.

And of course the unpopularity of Fightback! was fatally manifest long before Hewson had a chance to test it in parliament.

The bottom line for Abbott is this, and it’s dire: the Government is unable to legislate policies that voters don’t want anyway.

So it’s hard to see any alternative. The Government has to effect a policy reset – a mini budget. The budget needs to be redone and relaunched. Contentious policies have to be revised, and, critically, argued for on their own terms. If the Government wants to reform Medicare, then great: let’s hear the case for reform. We haven’t yet.

The longer the Government delays that reset, the more trouble the festering budget is likely to cause.

The protracted Senate negotiations are starting to manifest in discipline problems within the Coalition itself.

The canary in the coal mine here is the paid parental leave scheme.

Abbott’s Liberals were never strong supporters of PPL. The Nationals always hated it. But the longer the PPL scheme remains unlegislated, the more internal dissent is revealed.

There has been an uptick in anti-PPL sentiment over the last few weeks. Madonna King’s Joe Hockey biography – which revealed that Rupert Murdoch knew more details of the scheme than Abbott’s treasurer before it was launched – didn’t help.

Fairfax papers reported on the weekend that the only supporter of the scheme in cabinet is the Prime Minister himself.

Paid parental leave has, perhaps, been an exception for which disloyalty is excused. It was the subject of internal grumblings from the moment it was announced by Abbott.

Yet we discovered yesterday that the culture of dissent around PPL is spreading to other issues. Coalition backbenchers are now freely floating ideas about how to adjust the co-payment to make it more equitable and popular.

And more concerning still is the infighting revealed in this piece by Peter Hartcher – backbenchers and ministers lining up to apportion blame for the budget’s unpopularity. It is apparently easy to find Government members willing to anonymously rag on their colleagues.

Something needs to change. Some commentators have called for a reshuffle. There are, after all, a large number of young and talented politicians in the outer ministry and backbench, and a few too many Howard-era holdouts in the cabinet.

A reshuffle is a drastic thing, especially so early in a first term of government. Yet it wouldn’t fix the budget gridlock, or make the individual items in the budget more popular.

The problem, in the end, is that budget. And the only way to resolve it is to reset it.

Security Bill Widens Government Surveillance Powers

The National Security Amendment Bill (No.1) 2014, introduced into federal Parliament last month, is 128 pages long. The bill’s explanatory memorandum is larger again – 167 pages.

It’s an absolute behemoth – complex, labyrinth, and, to outsiders, entirely opaque. In that sense, the bill is a great metaphor for the massive national security apparatus that has developed since the September 11, 2001 terror attacks.

It’s also the first major piece of Australian national security law reform since Edward Snowden a year ago revealed America’s program of global and indiscriminate mass surveillance.

Timing matters. The Snowden revelations demonstrated that not everything done in our name is done in our interest – and too often it is done without any democratic scrutiny, let alone the approval of voters.

So what should voters make of the Abbott government’s new national security bill?

It seems the three most significant elements are a new power to allow spies to plant software on targeted computers, new penalties for intelligence whistleblowing, and a prohibition on anybody releasing any information about “special intelligence operations”.

But it isn’t clear what the practical implications of these powers are. Are there any boundaries on what constitutes a special intelligence operation? Could journalists be prosecuted for reporting on national security leaks? Getting details out of the government is like pulling fingernails.

National security is a unique area of public policy. It’s one of the most important functions of government. Yet citizens have very little idea of what the government does under the guise of protecting them.

So the debate over national security powers is always held under a veil of ignorance. Usually serious public policy discussion requires evidence. But when we’re talking about security those evidentiary standards go out the window. The best we get is hand-waving about terrorism and, now, Australian residents fighting in Syria. We’re told to take the government on trust.

Given that a basic principle of democracy is that governments must justify themselves to the citizenry, this is a problem. Terrorism is a real threat. But it is not a blank cheque for legislative change.

The democratic accountability problem is enhanced even further by the fact that – as the Edward Snowden leaks have demonstrated – Western governments have repeatedly lied about their national security actions and have kept hidden evidence of their own wrongdoing.

In his recent book, Secrets and Leaks: the Dilemma of State Secrecy, Princeton academic Rahul Sagar argues there are no easy ways to impose democratic accountability on the national security state.

Blind trust isn’t an option. Democracies cannot rely on blind trust. Unfortunately radical openness isn’t an option either. We don’t want the bad guys to know everything about ongoing enforcement operations.

Institutional accountability mechanisms – like parliamentary committees and independent watchdogs – are good, but they tend to be captured by the agencies they are overseeing.

Sagars conclusion is that the best we can hope is that whistleblowers expose wrongdoings.

When America’s mass surveillance program was first revealed by Snowden last year, the Obama administration instinctively responded the program was necessary to prevent terrorism.

Yet in December, 2013 the administration’s own advisory panel concluded that bulk mass surveillance “was not essential to preventing attacks” and traditional, targeted surveillance methods was sufficient. This panel was no naive civil libertarian whitewash. One member was even a former CIA deputy director.

A study by the New America Foundation – a bipartisan thinktank partly funded by the US government – concluded mass surveillance “has had no discernible impact on preventing acts of terrorism”.

Australia is one of the members of America’s Five Eyes surveillance coalition, alongside Canada, the United Kingdom and New Zealand. Unfortunately our governments have been no more honest than American administrations about the need for new security powers.

For instance, the government claims its national security bill is mostly just a long-overdue update of 1970s-era telecommunications interception law. But this argument would be more plausible if the Telecommunications (Interception and Access) Act 1979 had not been updated more than 50 separate times in the past two decades.

The bill is apparently the first of a series. Attorney-General George Brandis said last week a second tranche of reform will make it easier to prosecute Australians fighting overseas, and make it illegal to “promote” terrorism. OK. But it’s already illegal to “incite” terrorism. Is that not enough? Will the government explain, specifically, why changes are needed? Don’t hold your breath.

A third tranche is likely to introduce mandatory data retention. That policy would require internet service providers to record almost everything every Australian does on the internet, just in case law enforcement agencies – from anti-terror spies to competition regulators – decide, in the future, to have a look. Mandatory data retention is both expensive and repressive.

There will probably be a fourth tranche. Tony Abbott wants to be a tough-on-terror prime minister.

The Snowden revelations should teach us one thing. Now, more than ever, the burden of proof rests on those who say we must trade off our liberty and privacy for security. That burden has not been met.

Hockey: The Moderate Man Forced To Be Dry

There’s a revealing story in the new Joe Hockey biography by Madonna King – revealing not only about the Treasurer but about the Government of which he is a senior member.

In 2001 Hockey was minister for financial services in the Howard government. It was a junior ministry but one that gave him responsibility for the Australian Prudential Regulatory Authority, and, through it, the stability of Australia’s banks and insurance companies.

So it was Hockey in the hot seat when HIH, the second largest insurer in Australia, went into liquidation in March 2001.

The HIH liquidation meant that thousands of Australians were suddenly uninsured.

Hockey was informed that HIH’s losses could have been up to $8 billion. He was invited into cabinet to explain what was going on. John Howard asked him how the government should react.

“We should step in,” Hockey said.

King says the cabinet meeting descended into a debate about the desirability of bailouts.

Howard and Peter Costello were the most opposed. They spoke of the dangers of moral hazard – creating a belief that private companies were implicitly guaranteed by the government. They noted that in 1997 their Wallis inquiry into the financial sector had warned against bailing out private firms.

On the other side of the argument were Hockey and the young minister for workplace relations, Tony Abbott. HIH was exceptional circumstances. King writes that “many of those now facing ruin were Liberal Party stalwarts who were practising self-sufficiency, and funding their own lives”.

Hockey told cabinet: “These are our people.” HIH’s customers were Howard’s battlers.

King isn’t the first person to have recorded the cabinet machinations over HIH – Tony Boyd had them in a story in April last year.

But in King’s biography they’re more particularly informative because they emphasise – as the entire book does – that Hockey is a quintessential Liberal moderate.

On almost every major issue that King records Hockey takes the moderate side.

When Hockey was minister for tourism Qantas came to the government asking for regulatory relief to increase its foreign ownership. “I wrote to Cabinet, basically, over my dead body,” Hockey recalls.

King writes that liberalism for Hockey is about individual rights, parliamentary democracy and – this is the crucial one – “a commitment to improve society through reform”.

It’s striking how much the Abbott Government is heavily populated by moderates. Hockey and Abbott are moderates. (That Abbott is no free market ideologue is long and well attested, but best shown by his paid parental leave scheme.) George Brandis is from the moderate wing of the Queensland liberals. Christopher Pyne is a South Australian moderate.

Yes, the Government has its share of dries – Andrew Robb, for one, and Mathias Cormann.

But this team is strikingly different from the previous Coalition government. Howard and Costello had serious dry credentials.

Howard was Malcolm Fraser’s last treasurer and tried to drive that government towards liberalisation and deregulation – a direction Fraser was unwilling to go. When the Liberal Party went into opposition Howard was affiliated with various dry groupings.

Costello’s dry credentials were even stronger than Howard’s. He was a founder of the HR Nicholls society, a group dedicated to pushing for industrial relations reform. Costello got Liberal endorsement in a sweep of moderates for the New Right in 1989.

Of course, Howard and Costello’s dry pedigree did not stop their government from being relatively heavy taxing and big spending.

And despite Hockey’s earlier views, it’s now his policy to remove all the ownership shackles from Qantas.

People can change, of course. It’s easier to be an airline nationalist when you’re tourism minister than treasurer.

But nor does the 2014 budget look like something moderates would produce – with its harsh welfare changes, market-oriented university reforms, and abolition of dozens of government bodies.

King’s book provides some help here.

The key to understanding the budget is the Medicare co-payment – or, more specifically, the Medical Research Future Fund the co-payment is to support.

Media reports of the Hockey biography have focused on the description of the fund as “the sunshine that could wrap the budget coverage in the warmth its authors believed it deserved.” The implication is that the fund is as much public relations as policy; a softener for the budget’s hard edges.

But in context King makes it clear that Hockey, and his Government, does in fact believe that the Medical Research Future Fund is a substantive policy reform. It will bring long term “structural change”. Hockey told his biographer he came up with the idea of investing in health while reflecting on 19th century Sydney’s investment in seawalls.

This is too corny to be entirely fiction. It is seems it is genuinely his belief that Medicare’s long term sustainability will be ensured by a massive government research body. This is hardly the dry-as-dust approach to Medicare that has been so widely condemned.

King may be exaggerating Hockey’s moderate instincts. Her book is incredibly positive and flattering. Biographies often tell you more about their author than their subject.

But the overwhelming impression given by the Hockey biography is of a Liberal moderate assuming a role that demands aggressive dryness.

Politics, Not Policy, Will Decide Who Gets Bailed Out

What can we do about “too big to fail”?

The interim report of the Commonwealth’s Financial System Inquiry, chaired by David Murray and released last week, spends a fair bit of time talking about this puzzle.

“Too big to fail” describes financial institutions, mostly banks, which have become so large and so deeply integrated into the financial system that if we let them collapse they would take everything else with them.

If a corporation is too big to fail, then, it follows, taxpayers have to bail them out.

It’s quite a problem. A market economy is supposed to be dynamic, full of entries and exits. Firms that add economic value thrive. Those that do not go broke.

So bailing out failed companies makes the economy less efficient. More gallingly, it redistributes money from the poor to the rich. And it creates “moral hazard” – a belief by management that ultimately they won’t have to pay for their mistakes.

Moral hazard is a particularly severe problem for banks. Banks trade on risk. A bank’s basic job is to transform short-term highly liquid deposits into long-term extremely illiquid loans. Too much of the latter will prevent redemption of the former.

Too big to fail encourages banks to make riskier loans. Why wouldn’t they? They’re not the ones bearing the cost of failure. Taxpayers are.

So it would be great to get rid of too-big-to-fail. Or at least limit it somehow. The Murray Inquiry has a few ideas: higher capital requirements for bigger institutions, for instance, or new procedures for when banks do fail.

But the question isn’t what should we do about too-big-to-fail but what can we do about it.

And the answer to that question is almost certainly nothing.

Because no matter what the Murray Inquiry recommends – no matter what policy the Government or Reserve Bank or Australian Prudential Regulatory Authority imposes today – the decision of which firms to bail out and which to let fall will be made by the policymakers of the future, according to their own whims, and mindful of political, not economic, considerations.

Simply put, there are no ways to credibly constrain future governments from deeming an institution too big to fail.

Nowhere is that clearer than in the United States.

After the savings and loans crisis of the late 1980s, American policymakers decided to put some limits on the availability of government bailouts. The result was the Federal Deposit Insurance Corporation Improvement Act 1991. This law was supposed to set rules under which an institution would be considered too big to fail.

But those carefully constructed limits fell apart when the Global Financial Crisis hit. Consumed by panic, the American government bailed out not only banks but money market funds and Fannie Mae and Freddie Mac – two bodies that were theoretically and legally owned by private shareholders but were implicitly backed by a government guarantee.

Now American policymakers say they’ve come up with a new system supposed to constrain too big to fail – the 2010 Dodd-Frank Act. Will it work? Don’t bet your house savings account on it.

We’re lucky in Australia to have gone the better part of a century without a high-profile bank failure. But we’re hardly immune to the political pressures that have created the too big to fail problem.

One predecessor of the Murray Inquiry, the Fraser government’s Campbell Committee, argued the responsibility of the government is to keep alive the system as a whole, not prop up individual institutions. Banks should be allowed to go under.

But who gets bailed out is a decision made by politicians not economists.

In 1990 the Farrow Group – a Victorian group of building societies whose most prominent member was the Pyramid building society – got into serious trouble. In July 1990 John Cain’s Victorian government gave it the bailout it wanted, guaranteeing more than $1 billion of unsecured deposits. (The full story is told in this paper).

Was the Farrow Group too big to fail? The Cain government said it was – it was “systemically significant”, to use our contemporary econocrat buzzword.

Systematic significance is a term of art, and not a very clear one. Since the Global Financial Crisis systematic significance has become a totem of financial regulation. The idea is that too big to fail isn’t just about size, but more about integration.

There’s been a cottage industry of academics trying to figure out how to tell which institutions are systemically significant.

No doubt they’re all doing great, insightful work. But the fact remains these studies of systemic significance are just a lot of after-the-fact reasoning.

It was policymakers – not scholars – who came up with the idea that some institutions were just too interconnected with the financial system to collapse peacefully.

Like pornography, politicians and bureaucrats know systemic significance when they see it. The Victorian government just knew the Farrow Group was too important to collapse. The American Federal Reserve just knew that they had to bail out the private money market funds.

Yes, systemically significant institutions get bailed out – but their significance should refer to the political system, not the financial system.

No matter what the Murray Inquiry decides, in the middle of a panic political expedience is going to beat carefully crafted rules every time.

The Lessons Abbott Should Learn From Victoria

Tony Abbott ought to be watching Victoria closely.

His problem – a disgruntled former Liberal controlling the balance of power and holding the Government’s agenda to ransom – is exactly what Denis Napthine has had to deal with for the past year.

In 2010 the Victorian Coalition won government with a one-seat majority. Such a margin would have been perfectly serviceable if it wasn’t for the fact that Geoff Shaw, the Liberal member for Frankston, was accused of an entitlement rort, fell out with the Speaker, then fell out with his party, and then fell out with the entire Parliament.

Since then he has been creating havoc. Shaw has a single agenda – he’s anti-abortion – but beyond that he’s been mainly focused on creating problems.

So yes, Shaw is a lot like Clive Palmer – the man who was a climate sceptic one day and an Al Gore climate ambassador the next.

In June the major parties finally ganged up on Shaw and voted to suspend him from Parliament.

Obviously Palmer and his three senators won’t be suspended or expelled, even if the Abbott Government wanted to do such a fundamentally undemocratic thing.

The first and most important lesson of Victoria is simple: Abbott needs to go to an election as soon as he can.

When the Shaw crisis came to a head last month, Napthine said he would have liked to call an election six months ago. Spill the entire Parliament. Let a ballot resolve the crisis.

But in Victoria the key mechanism to resolve parliamentary instability in the Westminster system – an election called by the government leader or forced by the head-of-state – was eliminated when the previous Labor government introduced fixed terms.

Abbott doesn’t have that problem. And his problem is in the upper house not the lower. He can play the double dissolution card.

This would be a drastic strategy of course, especially because the polls make it look unappetising.

But the alternative may be a lot worse.

The new Senate has sat a single week but there must be Coalition hard heads thinking about the future.

So let’s play this out. (As a hypothetical, mind you, not as a prediction. Who’d be so reckless as to make predictions about the 44th Parliament?)

The carbon tax is likely to be repealed. But almost every piece of ancillary legislation to that repeal has been held up or explicitly rejected by the balance of power senators. They won’t abolish the Australian Renewable Energy Agency, they won’t abolish the carbon tax compensation tax cuts, and they won’t abolish the Clean Energy Finance Corporation.

Sure, in themselves these programs are subordinate to the main game. The Government gets its win from repealing the carbon tax.

Yet Palmer is certain to repeat his theatrics with every moderately controversial bill. The GP copayment. The medical research fund. The welfare reforms. University deregulation. Those dozens of agencies the Government has promised to abolish. Why wouldn’t Palmer make trouble? What else has he got to do with this time in parliament?

And that’s just Palmer and his senators.

Ricky Muir, Bob Day, David Leyonhjelm, Nick Xenophon, John Madigan – none of them are fully signed up to the Coalition’s budget, let alone their broader program.

We could very easily get to Christmas without the substance of the May budget having been passed.

Could the Abbott Government negotiate its way through to parliamentary stability? Perhaps. But recall that last week wasn’t the first time the Abbott team’s negotiating skills have been wanting. The Coalition failed to negotiate minority government in 2010.

These are the Abbott Government’s parliamentary problems. The polls are a worse problem.

Before last week the mantra has been that it is a long time until the next election – polls change. Yet after last week that mantra sounds a little desperate.

More importantly, the Victorian saga shows that voters blame anarchy in parliament on the government. It’s not fair, of course – the Napthine Government is governing well enough. Yet the parliamentary drama overshadows everything.

It is certainly true that if Abbott went to a double dissolution, voters may give him an even more unpredictable parliament, stuffed full of Palmer senators and micro parties. If so, then the Coalition will just have to grin and bear it. Such is democracy. (For that matter, Shaw could be returned in Frankston, and the Victorian Parliament might be hung again.)

But what’s the alternative?

Laura Tingle wrote in the Australian Financial Review on Friday that “cornered ministers have resorted to arguing that no matter how untidy things were at the moment, the Prime Minister will get to the end of this year”.

An earlier rallying cry was that the Government just needed to get to July 1 when the senate changed over. Before that, the Government just needed to get to Christmas.

This is what governments say when they don’t have a Plan B.

Maybe Palmer will calm down. Maybe he’ll play ball. But remember the Gillard government’s hope that they would eventually find “clear air”?

They never found it.

Star Wars Cantina: Patronising Politics Strikes Back

“Senator school”, as it’s colloquially known, happens every time there is a new crop of senators. It’s an induction process.

The two day course takes new senators through the tedious nitty-gritty of work in the red chamber. Education in parliamentary skills is a serious thing.

Usually senator school passes without comment. There’s a (slightly shorter) program for new members of the lower house as well.

This year, however, senator school is newsworthy. It’s been talked about everywhere. The program has been leaked to Business Spectator. AAP wrote, “There won’t be any finger painting but some may have a nap when a dozen new politicians head to Canberra for ‘senator kindy’.”

It’s all incredibly patronising.

The only reason we’re hearing about senator school is because six of the new senators (out of twelve new senators in total) aren’t from the political class.

The nickname that’s been given to the new senate crop is the ‘Star Wars Cantina’ – suggesting the independents are a raucous gathering of aliens, rather than the usual well-disciplined political natives.

(Sometimes the clownish Joe Bullock has been included in the cantina, cast by the press as an honorary independent after he disgraced himself, and Labor, at the election.)

One of the most common complaints in recent years about Australian politics is that it is too clubbish – politicians are drawn entirely from the ranks of political staffers, lawyers, party officials and union reps.

John Howard made this argument last month, decrying the rise of politicians “whose only life experience has been politics”. You hear it from Malcolm Fraser often too.

Here we have, now, a home builder (Bob Day), an agri-business owner (David Leyonhjelm), a military police officer (Jacqui Lambie), a civil engineer (Dio Wang), a footballer (Glenn Lazarus) and a sawmill manager (Ricky Muir).None are ex-staffers. Lambie has the most first-hand experience in the practical business of politics. And all that is a stint volunteering for Labor senator Nick Sherry.

Far from unrepresentative swill, these independent senators are not a bad cross-section of the community. Compared to the rest of the incoming senator cohort they’re much more representative – the other six new senators from the major parties are former union bosses, former mayors, former party directors and former chiefs of staff.

This isn’t the first time the press has treated independent senators as if they didn’t belong.

In 2005 the Canberra Times reported that Steve Fielding was the only incoming senator going to senator school.

A few days later the paper issued an embarrassed correction that, no, all 15 new senators in Fielding’s cohort had to attend.

In other words, the press only find senator school interesting when the aliens take it.

Odgers’ Australian Senate Practice, the manual by which the Australian senate operates, is more than 900 pages long. How many major party senators do you think have read that tome? That’s why politicians have staff. That’s why the parliament has clerks.

Yet we’re being asked to laugh at the entirely reasonable statement by Dio Wang that the details of senate practice are “pretty boring… For things like this it’s always better to learn through practice.”

If we assume that politicians, being human, have limited time for self-education, perhaps it would be preferable they study unfamiliar policy areas rather than the details of senate procedure.

Recall that the new senators aren’t given money for staff and support until they officially enter the senate.

Major party senators have been coddled and cared for by their party organisations while they waited to take their seats.

The micro-parties and independent senators have had to get on with their lives. They’ve had businesses to run and livings to make, while trying to fend off the Canberra press gallery looking for a colourful sound bite to fill out dull copy.

Ultimately, the condescension with which the new senators have been greeted is another attack on their legitimacy to sit in parliament.

I argued in The Drum in April that the new senators do in fact represent the will of the voters; the will of the nearly quarter of the Australian population that chose to vote against the major parties, Greens included.

The major parties are deeply worried that they’ve lost control over their third senate spot. Don’t imagine it’s anything more principled than that.

That raw political calculation explains why the majors have been so patronising towards their new colleagues.

So what explains the media’s snobbery?

There’s a reason we call it a political class. When threatened by outsiders, they protect their own.

Shining A Light On The Dangers Of Royal Commissions

Last week, the Senate Standing Committee on Economics called for a royal commission into the Australian Securities and Investment Commission and the Commonwealth Bank over the financial fraud scandal. (You can read the committee’s report here.)

In other words, the key recommendation of one parliamentary inquiry is that the government should establish an even bigger inquiry.

Royal commissions have an almost magical, mythical status in Australian politics. They have become less a means to an end, and more an end in themselves.

There are already three royal commissions ongoing at the Commonwealth level: one into institutional responses to the sexual abuse of children, another into the Rudd government’s home insulation scheme, and the third into trade union governance and corruption.

It’s been 20 years since there have been this many commissions going at the same time.

Yet there’s only one real public policy reason to choose a royal commission over any other form of inquiry – their coercive powers.

Royal commissions awkwardly span the gap between executive government and the judiciary. They’re formed by the government of the day according to its whim. See, for instance, the royal commission into pink batts – an incredible precedent for new governments to punish the policy decisions of previous governments.

But while royal commissions are creatures of the executive – that is, driven by politics – they’re also empowered with the sort of coercive powers only granted to apolitical courts.

They can summon witnesses. They can compel those witnesses to produce documents. They can force testimony – even self-incriminating testimony, eliminating the right to silence in the process. They can apply for search warrants. (In the Northern Territory, no warrant is even needed. Any member of a commission can enter any building they want and take what they please.)

As the Law Council of Australia told a 2009 inquiry into royal commissions, the Commonwealth Royal Commission Act “removes or significantly dilutes the traditional common law protections usually afforded to witnesses”.

This makes them exceptionally powerful. Even for undoubtedly worthy subjects of investigation (and who could question the virtue of an inquiry into institutional responses to child sexual abuse?) it should be of serious concern that royal commissions throw basic legal rights out the door. Even the worst people have rights.

Do these coercive powers uncover ‘hidden truths’, as many advocates of royal commissions suggest? Maybe. But royal commissions have lower standards of procedural fairness than courts. They can admit hearsay, for instance. They are as likely to uncover untruths as traditional courts are to miss hidden truths.

In his book Royal Commissions and Public Inquiries in Australia, Scott Prasser distinguishes between royal commissions whose purpose is to advise on policy questions and those that are inquisitorial; that is, those which investigate and expose wrongdoing. All three current commissions take the latter form.

But we already have elaborate and expensive law enforcement and judicial systems to investigate, expose, and finally prosecute wrongdoing.

Every inquisitorial royal commission is a tacit admission that the existing legal system isn’t working. More prosaically, every inquisitorial royal commission should be focused on law-enforcement failure.

One survivor told the child abuse royal commission that “the police don’t listen to children”. Another was told by police “we can’t do anything” and that the issue of sexual abuse was too much of a “hot potato”. Whatever comes out of that royal commission, changes in the way the police handle abuse allegations are likely to have the most long-term importance.

While the ability to coerce testimony may be the only real policy reason to form a royal commission, there are a whole lot of political ones.

Nobody ever made headlines by calling for an interdepartmental review. When a government appoints a royal commission, it is trying to tell the public that there is no limit to how seriously it takes a given issue. The government looked at its menu and chose the crown jewels – a royal inquiry.

When the royal commission into union corruption was announced earlier this year, the unions were quick to denounce it as a witch-hunt.

The metaphor was more correct than was perhaps intended. Once formed, royal commissions are impossible to control.

Usually governments have a good idea about the result they’ll get from an independent inquiry. They write the terms of reference. They choose who heads the inquiry. Did anybody doubt that the Gillard government’s inquiry into media regulation would propose new media regulation?

By contrast, the Fraser government wouldn’t have expected its royal commission into the Federated Ship Painters and Dockers Union to delve into corporate ‘bottom of the harbour’ tax evasion schemes. Royal commissions are fishing expeditions, and heavily armed ones at that.

So why a royal commission into ASIC and the Commonwealth Bank?

ASIC is one of our most heavily empowered regulators (I’ve been banging on about this in the Drum for a while, for instance here, here, here, and here). If any regulator deserved to have its feet held against the fire, it would be ASIC.

Yet, as the Coalition Senator David Bushby pointed out in a dissenting appendix (page 457 onwards), we already have an inquiry looking at the structure of financial regulation.

The Financial System Inquiry isn’t draped in the Queen’s regalia, sure. It can’t coerce testimony.

But isn’t that a good thing? The cultural status of the royal commission has obscured its very real dangers to the rule of law and civil liberties.