Category: Articles

The Australian political class has a complex, neurotic, and self-destructive relationship with the word “reform”.

On the one hand, every incentive faced by incumbent governments favours the status quo. Serious policy change is complicated and risky. Reform is easy to stuff up, it’s bound to upset interest groups, and it’s a gimme for the opposition.

It’s safer to minimally implement your election promises, relax in the comfy chair of government, and focus on distributing the benefits of office.

But on the other hand, “reform” is the gold standard of Australian politics. Journalists and historians like to see big policy changes that reshape the country, and they like to see lots of them.

Australian political legacies are a simple equation. Good governments are those that reform (Whitlam, Hawke, early Howard). Bad governments are those that squib reform (Fraser, Rudd).

This trade-off is no doubt what has preoccupied the Abbott Government over the Christmas break.

The Coalition won government by promising to be everything Labor was not: calm, austere, and rigorous. But not-being-Labor is an agenda for 12 months, not three or four terms.

Every Coalition government lives in the shadow of the Fraser government. Those press articles about “business urging reform” may be paint-by-numbers but they aren’t going to go away. (Here’s one from yesterday in the Australian Financial Review. Here’s one in the Australian today.)

The Coalition’s long-term political legacy rests on three major inquiries due to report in the next year – three inquiries that have been specifically designed to provide the Abbott Government with a reform agenda.

The Commission of Audit reports in March. The review of Australian competition policy will take 12 months once it is formed (presumably in the next couple of weeks). The financial system inquiry has been formed and will deliver its final report by November.

The Commission of Audit is obviously important to get the budget back under control. The other two ought to be big deals as well. Previous inquiries into competition policy and the financial sector fundamentally reshaped the Australian economy. Think the Hilmer Report that kick-started Keating-era National Competition Policy, and the Fraser government’s Campbell Committee which lay the foundation of financial deregulation.

Yet so far the Abbott Government’s reviews seem modest, even bashful.

The inquiry into competition policy is supposed to be “root and branch”. But its political sponsor is Bruce Billson, the Minister for Small Business, and has been sold almost entirely as a way to level the playing field between small and big business.

Competition policy ought to be about ensuring market forces have free play to drive prices down and spur innovation. However, the Coalition seems to think competition policy is about ensuring consumer prices are high enough to give farmers a “fair go”.

The Financial System Inquiry is also peculiarly insular. Joe Hockey thinks Australian banks should source more capital from within Australia. It appears the lesson the Government has taken from the Global Financial Crisis is that we are too integrated with the world economy.

This lengthy analysis in the Australian Financial Review from November suggests the inquiry will focus on developing a domestic corporate bond market. If that’s the big policy from the financial system inquiry, then the whole endeavour will have been a bit of a flop.

Indeed, a flop may be what the government is hoping for – that the results of the inquiries are managerial but not bold.

The story of the Rudd government explains why. In 2010, Ken Henry’s review into taxation gave Wayne Swan a whopping 138 separate recommendations to reform the tax and transfer system. But Swan wasn’t sure how to handle reform on such a grand scale, and ended up pursuing just one – the mining tax. We all know how that ended.

“Reform” is such a vague and ambiguous concept that any significant policy change is described as reform. For some, reform is carbon taxes and abolishing negative gearing. For others, it’s labour market deregulation and reducing green tape.

Either way, reform is presented as a good in and of itself. Every government is desperate to be seen as the Hawke government – the ideal reforming type. In part that’s because of the near universal consensus in Australia’s policy community that freeing up the economy was a great idea.

Just as significant are the Coalition’s constant reminders that they supported Labor’s liberalisations and asset sales at the time.

It’s easy to assume in hindsight that the politics of reform were relatively simple. But the 1986-1987 cabinet papers released last week underscore just how uncomfortable and bitter economic reform actually was.

Take shipping – one of the key liberalisations in the story of Australian productivity. Greg Jericho tells the story here of how the Hawke government’s desire to open up the Australian coastal trade to foreign ships was scotched by the ACTU. Shipping reform had to wait for the Howard government, for whom broken relations with the union movement was no great loss.

The hero story of the reform era that is told in the business pages every week is no more a reflection of what happened during the Hawke and Keating governments than the West Wing is of the Clinton administration.

If the Abbott Government wants the historical mantle of “reform”, it will need to take some risks. And it will need to make some enemies.

The State Library of Victoria holds an engraving from 1865 titled ‘Christmas in Australia’. About two dozen people, presumably an extended family, are having a Christmas picnic in what appears to be Ferntree Gully in Victoria.

At first glance, their Christmas is not too different from ours. Food, family, the outdoors; it looks lovely.

But the celebration depicted in the engraving would have been an enormous, expensive, time-consuming, and overwhelming logistical task.

Ferntree Gully is more than 30 kilometres from the Melbourne CBD, and in 1865 almost everybody lived in what we now think of as Melbourne’s innermost suburbs – Richmond, lower Carlton, North and West Melbourne.

We can see three horses and in the distance a carriage. That wouldn’t have been enough for 20 people. And carriages cost a lot of money.

The journey to Ferntree Gully would have taken hours along very poor dirt tracks. They would have had to bundle up everything: children, rugs, sporting equipment and pets. To say nothing of the food, which would have to be kept safe. (Well, maybe. This was before widespread understanding of the germ theory of disease.)

The journey probably started the day before. Hence the tent in the background.

When we think about how our lives differ from our ancestors, it’s easy to focus on the big things: television, telephones, cars, and electricity.

That is, consumer comforts. The stuff that makes individual life less arduous.

But we forget how economic growth and technological change has made our relationships closer, easier, and cheaper to maintain.

A century and a half later, the classic Australian Christmas is no longer a trip to the bush but a suburban backyard barbecue. That change has only been possible thanks to the market economy and consumer society.

How? Let’s take it one word at a time. Suburban, backyard, barbecue.

Obviously, Australia’s sprawling suburbs rely on cheap ubiquitous motor transport. (Trains and trams can only service a few kilometres either side of their tracks.) A short trip to the developing world should be enough to demonstrate that car ownership indicates wealth.

Backyards, too, are a sign of prosperity.

As the food historian Barbara Santich points out, it was relatively recently – that is, after the Second World War – that backyards were turned over from home food production and gardening to leisure. The reason was affluence, as well as the convenience and availability of supermarkets.

Hence, the 1865 journey to Ferntree Gully. The Australian backyard of our ancestors was an economic asset, not a social setting.

This remained the case well into the twentieth century. A short book from 1928 explains to Britons the difference between Christmas in Australia and in the mother country. The book tells the story of the “long trek” taken by Australians on Christmas Eve to the mountains and the sea. Cars would be heavy loaded with tent-poles and gramophones and food. And, of course, spare tyres. Celebration would start at dawn the next day.

Finally, the barbecue. The barbecue is a remarkably recent invention. Its pre-war equivalent was the “chop picnic”, where meat was cooked on a small fire in the ground. The figures in the background of ‘Christmas in Australia’ are probably having a chop picnic.

When backyards were freed up, Australians started building permanent barbecues out of brick fuelled by firewood. (Nobody wants an open fire in their backyard.)

The free standing portable metal barbecue fuelled by a gas bottle became prominent in the 1970s. Gas barbecues are better in almost every way: they’re cleaner, heat faster, and, as they cool down rapidly, they’re safer too. It was only thanks to better materials, cheaper energy and technological innovation that the free standing gas barbecue became the Australian norm.

And of course, they’re still getting cheaper. The 1978 barbecue shown here cost $670 in 2012 dollars. These days you can pick up the same thing for $90 and a gas bottle for $30.

So our traditions change according to our prosperity. Our relationships do too.

That family in Ferntree Gully 150 years ago were – as European settlers – at least a four-month journey on an iron clipper ship away from the family they may have left behind. Communicating with their relatives by letter would have taken twice that.

In the 1930s the situation was much better. An Australian wanting to travel to Europe could have flown. But aviation was in its infancy. The flight would have been extremely high cost – far too high for a mere holiday – and taken more than a week.

Today we can cross the planet in 24 hours. And, with the internet, communication is instantaneous. That technological change has made seeing and appreciating our family much cheaper.

The cost of sending a gift to a family-member across the other side of the world by sea freight has declined by two thirds between the 1930s and 2013.

Flights to see family members are a tenth of what they were.

An international phone call is one 100th of what it was 85 years ago. If we use Skype, it is effectively zero-price. Letters, too, cost nothing online.

Australia is a very rich country – one of the richest in human history.

And there’s no better time to reflect on how that wealth has made it easier to have stronger relationships than Christmas.

There was a disturbing detail in a Dennis Shanahan piece earlier this month. Describing concerns within the ministry about the performance of the government, Shanahan wrote, “It’s fair enough to argue that ‘getting to Christmas’ is all that matters now.”

“Getting to Christmas.” Almost an exact mirror of the motif of the Gillard Government, that “clear air” was just around the corner.

Labor was a tired government trying to be optimistic. By contrast the Abbott Government should be – and is – a fresh new government facing many years at the helm.

Not every government is treated to as much wall-to-wall coverage of its hundred day anniversary as the Abbott Government has been. But then, not every Government has had to learn so many lessons in as short a space of time.

One of those lessons is “try to avoid having former National Security Agency contractors leak Powerpoint presentations of Kevin Rudd-era surveillance missions on Indonesian politicians”. But too much of the Government’s pain has been self-inflicted.

The expenses scandal didn’t have to hurt. Yet the government let it stretch for more than a month by refusing to engage.

The Gonski episode – let’s be tactful and call it an ‘episode’ – undermined the Government’s most core promise: that it would not break promises.

But probably the most damaging was Joe Hockey’s decision to deny foreign investment to GrainCorp.

This decision stunk in many ways. First, it suggested that the Nationals tail was wagging the Liberal dog. Second, it implied that the Government’s interest in economic reform was casual at best.

And finally, it showed that the Coalition was no better than Labor for business. It was just as willing to play politics with the economy, and completely unwilling to stand against Australia’s universally reviled foreign investment central planning.

The GrainCorp decision would not have cost the Government any votes. But it cost a lot of goodwill. The Wall Street Journal excoriated the government in an article titled “Tony Abbott’s protectionist retreat”. Even worse was the subtitle: “Australia appears to be closed to some kinds of business.”

GrainCorp has a silver lining. The fallout made it much less likely that the Government would increase car subsidies or buy out Qantas. The Coalition’s free market wing would not be able to stomach that.

After all this drama, it’s no mystery why Tony Abbott’s Government looks older and more tired than it is.

When the Government first came to power, Coalition spinners proclaimed Abbott wanted to slow down the news cycle, keep politics off the front pages, and restore calm to national political life. Unlike his Labor predecessors, the Prime Minister would only talk when he had something to say.

This plan was fundamentally misconceived. The news cycle isn’t something that can be sped up or slowed down from Canberra.

It wasn’t the Prime Minister’s Office that built the content-hungry 24-hour news networks. The Prime Minister’s Office hasn’t been hollowing out the newspapers’ ad revenue base. Nor is it to blame for the technological change that moved our news consumption online and created the demand for a constant flow of information.

No, the 24-hour news cycle was not Kevin Rudd’s fault.

Don’t get high on your own supply. It’s a saying that applies as much to political spin as it does to selling drugs. And it’s a saying worth remembering as the government tries to manage its way through today’s release of the Mid-Year Economic and Fiscal Outlook.

Getting the budget under control is the central task this government was elected to perform. More than stopping the boats, and more than the carbon tax, it was Wayne Swan’s budget mismanagement which created the aura of policy dysfunction emanating from Labor.

But now the Coalition is talking, as it did at the tail end of the election campaign, about being unable to get the budget into surplus for another decade.

If that turns out to be the case – if the Coalition run deficits for 10 years, longer than the Labor government did – the failure won’t be Wayne Swan’s, it will be Joe Hockey’s.

MYEFO is not “Labor’s last budget statement”, as the Prime Minister claimed yesterday. It is the Coalition’s first.

The Government has been on the back foot virtually since it was sworn in. Its agenda was set by Julia Gillard and Kevin Rudd: boats, debt, carbon tax.

And fair enough, of course, at such an early stage in the electoral cycle. But its fixed agenda has left them struggling with the issues like foreign investment, car subsidies, and education.

What sort of government will the Abbott Government will be? Unfortunately, after 100 days, that has become more uncertain.

Sometimes great things happen by accident. The debt ceiling was one of those things.

Back in June 2008, then-assistant treasurer Chris Bowen pushed through Parliament the obscurely named Commonwealth Securities and Investment Legislation Amendment Bill.

The worry at the time was that the demand for Australian government debt was out-stripping the supply. (The past is another country, as they say.)

There were only $50 billion worth of Treasury bonds on issue, and the financial sector wanted more. So the government complied. But, as this was the era in which Kevin Rudd was an economic conservative, the government put an economically conservative cap on the increase: $75 billion.

Thus was born the debt ceiling. It had a short and unhappy life.

The ceiling was bumped up to $200 billion to accommodate the big stimulus package in February 2009, and bumped up again in 2012 to $300 billion.

Yesterday, the Coalition government and the Greens abolished it entirely.

This makes sense from the Greens, for whom fiscal prudence is not one of the higher political virtues. But the Coalition has spent the past half decade banging on about debt and deficit. And now they have eliminated one of the few tools to get the budget under control in the long term.

The debt ceiling was a rare example of a fiscal rule in Australia, an explicit constraint imposed on the government’s financial power.

The purpose of a debt ceiling is to fight the natural proclivities of government to run persistent deficits. There’s every incentive in politics to spend money but very little to save it. I explained this dynamic in the Drum during the election campaign. Because spending is popular and taxing is not, deficits are the inevitable result.

Yes, the debt ceiling wasn’t much of a ceiling. It didn’t stop government spending more than it earned. Labor raised it twice, and – if the Greens had not pushed for its abolition – the Coalition would have raised it again.

But that’s not the point. A debt ceiling is an assurance that going further into debt has at least some political cost. It helps at the margin.

And in that sense, Australia’s debt ceiling was very effective. From the opposition benches, Joe Hockey and Tony Abbott tore strips off the hapless Wayne Swan when he raised the limit in 2012. It confirmed everything the Coalition had been saying about the irresponsible Labor government. Swan would not have enjoyed asking Parliament for his increase. The debt ceiling helped keep his budget troubles in the news.

Australian politicians like to say Parliament should be supreme and sovereign. It has been claimed in recent weeks that a debt ceiling is somehow anti-democratic – Parliament has an absolute right to spend as it sees fit without any roadblocks being placed in its way.

Well, they would say that.

But that this argument has been seriously entertained across the political spectrum goes to show how poorly the commentariat understand – or are even aware of – elemental political theory.

For one, such an argument gives the legislature a moral authority it does not deserve. Governments need rules which govern their operation. A government without rules is an autocracy.

That’s what constitutions are for. The Commonwealth Constitution is really just a long list of things the government can and cannot do.

Some fully democratic constitutions place even stricter limits on what democratically elected politicians may do. The Bill of Rights in the United States constitution violates the sovereignty of the legislature by preventing politicians from interfering with the liberties of its citizens. That’s no bad thing.

A bill of rights and a debt ceiling are both imposed to keep a government from doing things that governments tend to do: restricting liberties and spending more than they tax.

No wonder governments are reluctant to adopt such rules.

The US debt ceiling has been raised more than a dozen times since 2001. It has been a constant focus of intense partisan wrangling and brinkmanship. Every time the ceiling is approached, the Congress and White House go into crisis mode.

This is how it should be. The periodic battles over whether to raise the debt ceiling are the only time in which the Congress and White House seriously come to terms with how badly they have ravaged US government finances over the past decade.

The debt ceiling isn’t to blame for this chaos. No, the real crisis is that caused by the Bush and Obama administrations’ financial gluttony.

Abolishing the American debt ceiling would only allow US politicians to pretend the debt problem doesn’t exist. Just as abolishing the Australian debt ceiling has released some of the pressure on the Coalition to get the budget back into line.

And if there isn’t enough pressure, it simply won’t happen.

Tony Abbott wants everybody to know he’s running an “adult government”. This is a mistake.

That story is responsible for the strangely flat-footed response to the two scandals the Coalition has faced in government so far: expenses and spying.

To both, the Prime Minister’s defence has been a variation of “that’s just the way the world works”.

For nearly six weeks, Tony Abbott tried to bat the expenses scandal away. His colleagues suggested that weddings were more business than pleasure. But the ride-it-out, nothing-to-see-here strategy didn’t last. After letting the expenses issue fester for more than a month, the Government announced a crackdown in mid-November.

And Tony Abbott’s first response to the reports Australia had spied on the Indonesian political leadership was, “That’s hardly a surprise. It’s hardly a shock.”

In other words, the adults already knew. And adults don’t apologise for doing adult things.

This is an audacious new crisis management technique. Don’t deny the scandal. Don’t deflect. Instead, openly admit it. But admit it with a knowing shrug. Spies spy. Some expenses are questionable. So what? That’s just how it is.

It’s audacious, but it hasn’t been particularly effective. The Indonesian government found our Prime Minister’s reaction somewhat inadequate.

You may have missed it, but the Carbon Tax Repeal Bill was introduced to the Parliament on Wednesday last week. Just think how frustrating it must have been for Coalition strategists to watch the Indonesia spy scandal unfold at the exact time they’re trying to execute a political manoeuvre they’ve been preparing for four years.

The Liberal Party sent around campaign-style emails to inform its supporters of the tax’s impending repeal. Abbott made a YouTube video trying to goad the Senate into action. The Coalition is working hard to pin high electricity prices on Bill Shorten.

Despite all that, the carbon tax repeal has been overshadowed by Jakarta’s unhappiness.

The whole adult government thing was only ever supposed to be a critique of Labor’s internal turmoil. The point wasn’t that Tony Abbott and his team were particularly mature. It was just that the Labor Party was uniquely immature.

Recall that the best explanation for the otherwise inexplicable June 2010 spill is still that Kevin couldn’t get along with the other kids in the playground. This diagnosis became a big part of Coalition thinking. An internal Liberal Party document described Kevin Rudd as a “self-centred two-year-old in an adult body”.

It’s a mistake to assume a story that works on the campaign trail makes sense in government.

The Abbott government is full of former Howard government ministers. But most of them made their careers in the later years of that government.

They received their senior leadership roles after John Howard had held office for many years, after he had been firmly entrenched as an incumbent government, after he had built a degree of trust – that is, after he had proven to the voters that he and his team were adults.

A reputation for competence has to be earned, not assumed. The Abbott government is trying to skip this crucial step.

Sure, scandals come and go. They chip the edges off a government but rarely damage the foundations. A few months from now nobody will remember the expenses affair. The Indonesian relationship will recover.

The Coalition’s stubborn attachment to its campaign narrative could have more important longer-term consequences. Just ask Malcolm Fraser.

Fraser also came to power after a frenetic, unpopular, dysfunctional, and short-lived Labor government. His story in 1975 was the same as Tony Abbott’s in 2013. To vote Coalition would be to vote the adults back in power.

Yet once the Coalition was back on the Treasury benches they drifted. The aim had always been to aggressively break apart the Labor government, not develop an agenda for reform.

The Fraser government is now chiefly remembered in Liberal circles for missing the opportunity to open up the Australian economy.

Under Fraser the Coalition was slow and methodical. Take its approach to the stiflingly over-regulated financial sector. Malcolm Fraser first announced he would hold an inquiry into the financial system at the 1975 election. Yet it was only in 1983 that his government begun the process of opening the Australian market up to foreign banks. By that time it was too late. Paul Keating had to do it for them.

Tony Abbott has repeatedly promised to take any big reform proposals to the next election, rather than springing them on an unwilling public. Again, this only makes sense in comparison to Julia Gillard’s broken carbon tax promise.

Yes, the Coalition needs to get out of the shadow of the last government.