Where did it go wrong for Turnbull? The budget

How did it all go wrong for Malcolm Turnbull?

The Coalition may be returned to government yet, either as a minority or a majority. But it’s hard to deny that what we saw on Saturday night was partly the result of a strategic miscalculation.

The eight week campaign was held at the time of the Prime Minister’s own choosing. The Government had to make some almighty efforts to do it. Senate voting reform had to be passed. Double dissolution triggers had to be lined up. Parliament had to be prorogued. The budget day had to be moved. Scott Morrison had to write a budget that both served as a steward of the Government’s finances and a political campaign document.

Almost none of this worked as planned. The campaign – particularly its slow, strange, uncertain first month – only reinforced the impression that the Turnbull Government was dithering rather than driving.

The Senate reform was supposed to clear up the supposedly feral crossbench. Now it looks to be delivering at least as diverse an upper house as the previous term, but one that might be more hostile to the Coalition than what it replaced. Already it is clear that a joint sitting is unlikely to pass the double dissolution triggers.

But the biggest problem with this plan was the budget. Some of that was about timing. The Coalition found itself in a messy argument with its own supporters about its retrospective superannuation changes at the very same time it ought to have been energising the centre-right to defeat Labor.

The superannuation argument dragged on and on. This might have been predictable. Superannuation is a complex policy. It takes time for the downstream consequences of complex policies to spread, first to be identified by specialists and for their findings to flow through to the mainstream media. Julie Bishop was tripped up by the “transition to retirement” issue four weeks after the budget. The ABC ran an explainer on transition to retirement on June 2.

Imagine how frustrated Coalition strategists must have felt as they found themselves debating budget details with their own fundraisers halfway through an election campaign. As Denis Shanahan pointed out on election night, this issue has been an internal policy issue within the Coalition for eight weeks straight.

Of course superannuation did not swing the election. But superannuation is a particularly sensitive example of the Turnbull Government’s broader economic problem – and speaks to the policy reasons the Government has found itself in such an ambiguous parliamentary spot.

Budgets frame Australian politics. They are the filter through which policy is conceived and announced. The 2016 budget failed to give the Turnbull Government’s economic story the depth it needed. The Coalition made a pitch for economic certainty. They asked voters to “stick to the plan”. What plan? “Jobs and growth” is as much a catchphrase as anything Tony Abbott ever said, at least without a coherent policy agenda to back it up.

Looking at the budget papers with the benefit of hindsight is revealing. What is marketed as the National Economic Plan for Jobs and Growth is barely distinguishable from anything a Labor government might propose: infrastructure spending, trade agreements, wage subsidies, defence spending, and hitting high income earners. To the extent this constitutes a “plan”, then every budget that spruiks minor policy adjustments and boondoggles is a plan.

The real point of difference with the Labor Opposition is barely detectable in the budget glossies. One of the Coalition’s few budget announcements that actually speaks to its jobs and growth mantra is the company tax cut. But the Government has been embarrassed by it. During the campaign the Coalition spruiked the small business tax cut more aggressively than their broader, better policy.

Perhaps Turnbull would have liked to talk about the company tax cut more. There are ideas and concepts that speak to him personally, and they work neatly together: jobs and growth, innovation, global competitiveness, digital technology, disruption, entrepreneurship. Turnbull is visibly giddy when inspecting cutting edge technology firms.

But not everybody works for cutting edge technology firms. Everything he says in this context is correct – the economy is undergoing a major transformation, technological change will define the future of work, we need to be smart, we need to be agile. But Turnbull has neither been able to translate his genuine enthusiasm into an electoral coalition, nor been able to devise a policy agenda that would suit these changes.

That is a great disappointment. Political drama, with its narcissism and bloodletting, tends to overshadow everything. But as the two parties vie for government, the Australian economy faces the same fundamental structural challenges it did eight weeks ago.

Perverse small-target strategies leave voters guessing

Oppositions often run small-target strategies. It’s been pretty special to watch an incumbent government run one.

On the one hand, this approach by the Turnbull Government has its logic.

Looking at nothing but precedent, you’d bet on a first term government holding power. Yes, even after the recent upsets in Victoria and Queensland. Commonwealth politics is still very different to state politics. It has a different dynamic. The chance that this government would be the first Commonwealth government since James Scullin to lose an election after one term is low.

But on the other hand, the strategy leaves voters with a dilemma.
A vote at an election is either an endorsement (or rejection) of the performance of a government’s previous term, or an endorsement (or rejection) of its promises for the future. The two are of course related – previous performance offers some guide about how promises might be fulfilled – but what use is that if the government is coy on its future plans?

It is striking how many policy issues have been ruled out, are seen as out of bounds, or deliberately downplayed throughout this campaign – issues that have dominated the elections of the past, issues that have swung votes, issues that have led to the downfall of leaders and governments.

Take climate change policy for one. For the last decade Australian elections have featured complicated, emotional and often arcane contests about emissions trading schemes, carbon taxes, the cost of emissions restrictions on living standards, and the ability of Australia’s parliament to affect the global climate.

But this year you’d be hard-pressed to find much discussion on the national stage about the fact that not only does Labor have a policy to reintroduce the emissions trading scheme, but the Coalition’s direct action scheme has a built-in mechanism – the so-called safeguard mechanism – that could easily be switched into a full-blown trading scheme at will.

Labor doesn’t overemphasise its policy for fear of sparking the sort of criticism that characterised the last three elections.

For its part, the Coalition doesn’t want too many voters to know about their safeguard mechanism because the whole thing relies on a confidence trick. The Turnbull Government is building an emissions trading scheme that doesn’t look like an emissions trading scheme.

In this sense, climate policy is not just bipartisan. It is deeply misleading. Voters deserve to know that debate on Australia’s role in global climate policy has been ruled out.

Same with industrial relations. The reforms to union management that were the justification of the double dissolution in the first place have been underemphasised to the point of constitutional negligence.

When Turnbull became leader last year it looked like the ducks were lining up for changes to penalty rates. I wrote about this at the time. Earlier this month Turnbull even ruled out legislation to enact the minor penalty rate change recommended by the Productivity Commission – that is, bringing Sunday penalty rates in line with Saturday ones.

Both Labor and the Coalition have decided to defer to the independent Fair Work Commission, which will make a decision on penalty rates sometime after the election.

But penalty rates are such a minor part of Australia’s industrial relations system – and the proposal to bring Sunday rates and Saturday rates together is such a minor change – that this hardly counts as any policy at all.

Ironically, Tony Abbott – the leader who declared WorkChoices “dead, buried and cremated” – had a more prominent policy on industrial relations in 2013, when he was very clear that the Fair Work Act was going to be reviewed for its red tape burden.

After the success of Brexit many supporters of the Remain camp have focused on the apparent ignorance of voters. It is certainly true that people make votes with less than complete knowledge. How could they do otherwise? A vote to change a government is one of the most complex, information-intensive decisions we ask the population to make.

Even voters who are relatively informed compared to their fellow citizens are, in an absolute sense, highly under-informed. There is just no way a single voter could maintain a working knowledge of the sheer volume of policy responsibilities of the Commonwealth government. Governments are so large, have their fingers in so many pies, and affect our lives in so many ways.

That’s what makes the deliberate, strategic shrinking of the range of political debate so perverse.

The next government, whether it is under Bill Shorten or Malcolm Turnbull, will have an industrial relations policy and they will have a climate change policy.

It shouldn’t require painstaking detective work for voters to figure out what those policies are.

Rio’s financial crisis reveals the moral bankruptcy of the Olympics

The mayor of Rio de Janeiro would like the world to know that the economic crisis engulfing Brazil “in no way delays the delivery of Olympic projects and the promises assumed by the city of Rio.”

Other non-Olympic promises are in jeopardy. On the weekend Rio’s state governor declared a state of financial emergency. The city faces “a total collapse in public security, health, education, transport and environmental management” if it does not receive funding from the federal government of Brazil.

What a contrast. On the one hand, Rio’s politicians have absolute confidence they will deliver this year’s summer Olympic games, which begin on August 5. On the other hand, they have almost no confidence they will be able to provide their citizens with the basic functions of government.

Rarely is the moral bankruptcy of the Olympics so starkly put. Bread and circuses both consume scarce resources. What should we think of governments that put circuses first? What should we think of the circus?

Brazil is in the middle of an economic and political crisis. The Brazilian economy has been in recession since the start of 2015. It has shrunk a massive 5.4 per cent since this time last year. Brazil’s inflation rate is around 10 per cent. The only silver lining is that the economy shrunk by slightly less than experts had predicted.

Brazil’s recession is having social consequences. The cash-strapped Rio state government cut the police budget by a third, reversing advances in crime reduction made since the turn of the century, and raising concerns about tourist safety during the Games. Unemployment is at 11 per cent and growing, and 24 per cent of young people are unemployed. This is the worst economic crisis in Brazil since the 1930s.

The political crisis is almost as calamitous as the economic one. President Dilma Rousseff has been stood down while she is impeached by Brazil’s senate. Rousseff is formally accused of manipulating the government budget to hide the size of the deficit. (Simply servicing Brazil’s debt costs 7 per cent of the country’s GDP.) But she’s also tied up in a major corruption scandal concerning a state-owned oil company. The interim president is also tied up in a corruption scandal. Indeed, up to 30 per cent of the country’s politicians might be implicated in a corruption scandal shortly.

It could well be that the Rio Olympics go off without a hitch. News stories about delayed projects and panicked construction are as much a part of the Olympic ritual as the torch relay and parade of nations.

But outside the athlete’s village and ticket-only areas will be a country straining to foot the enormous Olympic bill.
Hosting the games is a terrible economic deal at the best of times. Hosting the games when you’re a developing economy in the middle of a serious recession is its own scandal.

The woeful economics of the Olympics are clear-cut and, outside the corridors of political power, uncontroversial. A paper published in the Journal of Economic Perspectives in May this year summarising a mass of scholarship and analysis found that the Olympics are almost always a “money-losing proposition”.

The influx of tourism rarely compensates for the decline of economic activity displaced by the Games, and rarely translates into long run tourism increases. It is true that hosting an Olympics encourages governments to invest in infrastructure, but the bulk of those funds are spent on uneconomic specialised venues that cities struggle to utilise once the closing ceremony is finished. Only construction and development companies gained from the Sydney Olympics, as my colleague Sinclair Davidson has found.

The economics are even worse for developing countries. To avoid disaster host cities need extremely capable and non-corrupt management, as well as the political stability to facilitate that management. These sorts of institutions are sadly lacking in poorer nations.

Hosting the Olympics is particularly dangerous for countries that lack tight control over government expenditure. For instance, the Athens games in 2004 exacerbated Greek fiscal profligacy – while the Olympics did not cause the Greek economic crisis, the stadiums and infrastructure stand as monuments to the reckless spending that did.

Brazilian governments spend 41 per cent of the country’s GDP, which, as the Wall Street Journal pointed out in April, approaches the sort of spending levels seen only in mature social democracies like Germany and Norway. It is just not a country with the institutions to manage the extreme political and economic pressures of Olympic hosting.

It is galling, then, that the International Olympic Committee has been encouraging bids from developing countries. Even a failed bid can be extremely expensive – the “low cost” bids for the 2024 games cost about $AU80 million each.

This money of course comes not from the politicians who flank their bids and take box seats at opening ceremonies. It comes from the taxpayers of the bidding countries, and from the public services not provided as scarce resources are redirected towards stadiums and ceremonies.

The Olympic movement likes to affect an image of sporting valour and nobility. But it is the epitome of government waste, almost always doing great harm to its host and taking a real human toll. Once the athletes have gone home, let us hope Brazil can recover from this recklessness quickly.

Australia isn’t immune to the Brexit debate

It is not always a good idea to draw an opinion on the domestic affairs of other countries. But in the case of the upcoming British referendum on June 23 to withdraw from the European Union, Australians should be paying close attention.

The pathologies that have led to the Brexit vote are not unique to Europe – there are deep lessons for Australian policymakers too.

At its heart Brexit is a contest between technocracy, red tape and administrative power on the one side, and democracy and sovereignty on the other. In other words, what we see in the byzantine bureaucracies and agencies of the EU is an extreme form of trends that are common across all Western liberal democracies.

Polling this weekend showed the vote to withdraw from the EU has a 10-point lead over the vote to Remain, with 55 per cent of respondents supporting Leave.

This finding is important not just because of what it suggests about the outcome of the vote. The received wisdom has been that voters primarily concerned about immigration – the free movement of people across Europe has never been more controversial than after the Syrian refugee crisis – would vote Leave. Voters primarily concerned about the economy would vote Remain.

Modelling done by the UK Treasury has claimed that British households would be £4,300 worse off in 2030 if the country had left the EU than if it had stayed. This result is derived from the apparent decline in openness to trade and foreign investment that withdrawing from the EU might bring.

But the weekend’s polling shows that the Leave argument is making significant inroads into the group of voters who see the economy as paramount.

As Dan Hannan, a British member of the European Parliament and supporter of Brexit has pointed out, catastrophic claims about the decline of trade and openness resulting from a Leave vote are nonsense. Withdrawal will not be instantaneous following a successful referendum. Rather, the referendum is a mandate for the British government to negotiate withdrawal; to forge new trade agreements and arrangements while simultaneously stepping back from Europe-wide ones.

There are two distinct visions of European unity. One has perversely flourished, and the other has become distorted beyond recognition. The first is the dream of a government of Europe – a transnational European equivalent of the bureaucracies and political institutions that run national governments.

This first project, it must be said, has been an enormous success. The EU has a parliament, courts, a monetary system, and an enormous administration. One 2008 estimate of the number of bureaucrats working in EU institutions – the EU itself is cagey on its total staff – came to 170,000. This is more than the British army.

But it’s one thing to create a government, it’s another to create a responsible, legitimate government. Even the EU acknowledges that it suffers from a perceived democratic deficit – that the citizens of Europe do not feel they are able to reject the administrations and policies that rule them.

While the European Parliament is an elected body, the six other key European institutions are not.
The European Council, the Council of the European Union, the European Commission, the Court of Justice of the European Union and the European Central Bank are all at one or more steps removed from popular control.

In this sense EU institutions are the natural end point of a trend that affects Australian administration as well – the spread of administrative and regulatory independence designed to keep politics out of policymaking. But this comes at the expense of democratic control.

The second vision of European unity was as a free trade bloc. The 1957 Treaty of Rome conceived of Europe in distinctly classical liberal terms, allowing goods, services, capital and labour to move across borders. This was an enormous achievement at the time, given the economic source of so much intra-European antagonism.

The perversion of the ideal of European free trade occurred with the development of the common market. Properly understood, a country with its markets open to free trade is still able to write its own rules about the conditions in which goods and services are produced and sold within the borders of that country. However, the European common market developed in such a way that widened its focus to the regulatory constructs within each country that make it harder to sell (for instance) an Italian product produced according to Italian standards in France, where French standards apply.

The common market aimed to eliminate these differences. Unfortunately it did so by imposing pan-European regulatory requirements across the whole continent. Without the constraints provided by democratic institutions, the EU has been an enormous source of new regulation and red tape – what is understood by European citizens as EU meddling and domestic interference.

One think tank calculated that since 1957 the EU had passed and incredible 666,879 pages of law. In some states up to 84 per cent of national legislation involves the implementation of new and adjusted EU rules. Analysis based on the British government’s own regulatory impact statements show that red tape coming from Europe costs the British economy at least £33 billion (AUD $63 billion) a year.

The European Union represents the worst inclinations of modern government – heavily bureaucratic, deliberately undemocratic, meddling and interventionist. Australian policymakers should not imagine that British discontent with Brussels has no lessons for them.

The case for a company tax cut is rock solid – and Labor knows it

To read most election comment you’d be forgiven for believing that what was until very recently a bipartisan consensus – that there was a strong case for Australia’s company tax rate to be cut – was in fact a mass delusion.

In 2010 Wayne Swan as treasurer declared that, “Reducing company tax will create new jobs and grow the economy right around the country” and was open to a reduction in the rate from the current 30 per cent to 25 per cent. Chris Bowen was arguing for a 25 per cent rate as recently as September last year.

But now that the Turnbull Government has announced a reduction to 25 per cent to be phased in over the next decade, Swan says there’s “no case for a company tax rate” because multinational companies are avoiding their tax and to suggest otherwise has something to do with Margaret Thatcher and Ronald Reagan and “trickle-down economics”.

For their part, Bowen and Bill Shorten now describe the 25 per cent rate as a $50 billion giveaway to big companies.

This is a rather damning indictment of the current Labor leadership, which has abandoned a long-held position simply to paint the Coalition as pro-big business during an election campaign.

Still, why blame a politician for acting like a politician? The populist argument against company tax cuts is just too easy to make. What’s remarkable is not that Labor has reversed its view but that successive governments actually managed to reduce the company tax rate from 49 per cent in the late 1980s to 30 per cent today.

The case for a corporate tax cut is rock solid. It’s about ensuring that the Australian economy is internationally competitive. A competitive economy attracts foreign investment – and with that investment comes growth and jobs. By contrast, an uncompetitive economy is a declining economy.

As the Rudd government’s Henry Tax Review pointed out, in 2001 the OECD average corporate tax rate was 32.5 per cent. At that time Australia’s 30 per cent rate was a good effort. But now the OECD average is about 25 per cent, and Australia’s rate hasn’t changed.

A word has to be said here about our system of dividend imputation. Under dividend imputation, investors receiving a dividend are credited for tax already paid on company profits. This avoids profits being taxed twice – first as company tax and then as personal income tax when dividends are returned to shareholders.

You often hear that dividend imputation makes the 30 per cent headline rate meaningless, as a reduction in company tax would be automatically made up by a corresponding increase in income tax collection. But that only holds true for domestic shareholders. Foreign companies have foreign shareholders who do not benefit from dividend imputation. And it is foreign companies we want to attract – along with their money and jobs and economic activity.

Indeed, the fact that we need a dividend imputation system at all partly demonstrates why the company tax is a bad tax. In truth no “company” pays tax. Companies are made of people and people pay tax – whether those people are company’s customers, shareholders, workers or management.

Who ultimately pays what proportion of the company tax is a matter of great controversy.

Last year Chris Bowen accepted that the bulk of the company tax was paid by workers. If, alternatively, investors pay the bulk, then it’s worth remembering that through compulsory superannuation we’re all investors. If management pay the bulk – and you sometimes see arguments that the company tax is a de facto tax on wealthy managers – then it is a wildly indirect way of taxing the rich.

This confusion and complication is why every serious investigation into tax points out that the company tax is one of the most inefficient – that is, wasteful – taxes available to government. (See Chart 1.5 of the Henry Review.)

Yet Australia relies on this inefficient tax for its revenue (18 per cent of the total tax take as of 2013) more than any other OECD country (with the exception of Norway, where company tax provided about 22 per cent of the total tax take).

In that light, Wayne Swan is exactly wrong to argue that multinational tax avoidance means we shouldn’t reduce the company tax rate. I’ve argued in the past that avoidance is for the most part a non-problem. But to the extent that company tax is being avoided, it is because other jurisdictions – like Singapore – offer much more welcoming tax environments than Australia does.

Our extreme reliance on company tax makes us particularly vulnerable to corporate tax avoidance and demonstrates how uncompetitive Australia has become for investment.

Labor used to understand this. Given how close they are to winning government, it’s a real worry they no longer do.

Why we’re seeing less pork barrelling this election

When you boil them down to their essence, Australian election campaigns are really just elaborate pork barrel road shows. For all the talk about vision and ideology, politics is about what pleases marginal electorates, not philosophy.

Bill Shorten was in Western Australia last week doling out $45 million for Perth’s Wanneroo Road. Malcolm Turnbull was there a few days later, announcing his own Wannaroo Road upgrade, but a slightly cheaper one – just $20 million.

I complained about this pattern in the 2013 election. Shorten and Turnbull are competing to head the government of a $1.6 trillion economy – Australia is one of the richest countries in the history of the world – and their job application involves dribbling out money for grade separations.

And yet there’s something different about this election. It’s not that the pork barreling isn’t happening. Coalition and Labor candidates are dutifully travelling their electorates to announce minor environmental projects, CCTV installations and community centre upgrades. But at a national level there’s a slight feeling of embarrassment about the whole charade.

Fundamentally both major political parties know that every new spending promise – every new security camera, every new fence around a local park – is a further setback to repaying the national debt.

This week Shorten announced that Labor would not promise to restore the Schoolkids Bonus, which had been scrapped by the Coalition, and refused to guarantee it would restore money to the pension that the Abbott government had cut.

These announcements constitute a dramatic reversal of years of Labor rhetoric. Both the Schoolkids Bonus and the pension changes were essential elements of the attack on the Coalition as being unfair to low and middle income earners.

This is the first election since the Global Financial Crisis in which the reality of deficit politics is beginning to dawn on both major parties.

Tony Abbott and Joe Hockey made the changes on the grounds that cuts had to be made to the Commonwealth budget if it was ever to return to surplus. Now finally at the end of the Coalition’s first term in government Labor has conceded the point – yes, perhaps cuts, even uncomfortable, unpopular cuts, need to be made.

No doubt Shorten has known this for some time. Labor in government was unable to restore the surpluses they promised, but were nonetheless willing to reduce spending in ways that hurt them politically. Recall the cuts to single parent payments which so agonised Labor’s own supporters. Shorten must feel he has a non-trivial chance of becoming prime minister, and needs to start tamping down expectations.

This is the first election since the Global Financial Crisis in which the reality of deficit politics is beginning to dawn on both major parties. Neither party has a plan to bring the budget back to surplus, but they are starting to accommodate it. It seems unlikely either side will give the sort of blanket “no cuts to health, education, the ABC, SBS” promise that Abbott did so fatefully on the eve of 2013.

Both Labor and the Coalition announced tax increases before the campaign begun. We saw in the debate on Sunday night that the Coalition is still trying to deal with the fallout from its retrospective superannuation changes. Tax increases are not ideal electoral politics, and the last thing the economy needs is a heavier tax burden. But the increases were probably necessary to give at least some patina of credibility on all the spending promises that were to be announced – at least in the absence of expenditure reduction.

Shorten says that his backtrack on the Schoolkids Bonus and pension changes came after the release of the Treasury’s Pre-Election Economic and Fiscal Outlook. This is nonsensical. PEFO – one of the rituals which makes up Australian elections – did not forecast anything significantly different from the 2016 budget.

But PEFO represents Treasury’s “best professional judgement” on the state of the economy, undiluted by the political needs of its masters. The Coalition in opposition is sometimes willing to second-guess Treasury. Labor is not.

PEFO made two claims that have been obvious for a while but look particularly devastating when expressed in an official Commonwealth document. First, without either tax increases or spending reductions there will be no sustained budget surplus.

Second, budget forecasts are based on an assumption that economic growth will return to its long run average. If that assumption does not hold – if, say, we go into an economic downturn – then the budget is going to be in a dire state.

The upshot of PEFO is that no side can believably maintain the traditional laissez faire approach to campaign spending promises. Sure, there’s the usual money for playgrounds and intersection upgrades. But the 2016 election carnival has an unusually depressing tone. The Australian political class is learning to live with deficit politics.

People or profit: How does the Greens’ corporation plan stack up?

It is turning out to be a very peculiar election. Last week the Greens wholeheartedly embraced the notion of personal choice – and in the realm of corporate law no less.

The new Greens innovation policy, launched on Friday, is for the most part the standard set of spending boondoggles, new bureaucrats and empty jargon that constitutes deep thinking about innovation these days.

But buried in the policy document is a proposal to create a new class of corporation in the Corporations Act: the “benefit corporation”, which, as the Greens describe it, will “consider the collective good, generate public benefit and generate profit.”

This is not a bad idea – but not for reasons the Greens might think. With this policy, the Greens may have subverted a few decades’ worth of left-wing agitation about corporate social responsibility, the idea that firms need social licenses to operate, the stakeholder model of capitalism, and the campaign for ethical divestment.

We’ll come to all that in a moment.
The idea of a benefit corporation is simple. The Greens argue Australian companies are too focused on profit. The Corporations Act says company directors have a duty to act in the best interests of the company as a whole, which has long been interpreted to mean that they should act in the best interests of the shareholders who own the company.

In a benefit corporation, by contrast, directors are required to take other goals into account alongside profit – typically social and environmental goals.

Right now, directors’ duties are vague enough to allow them to pursue virtually any sort of philanthropic, corporate social responsibility agenda they desire.

Since 2010, some 31 American states have started to offer the benefit corporation with a standard model. This is almost certainly the model the Greens are thinking about. To ensure transparency – it’s easy for shareholders to see when firms are maximising financial value, but not so easy to see when they are maximising social value – firms sign up to third party standards which measure their work against agreed criteria.

But the idea that company directors are narrowly interested in profit is a myth. Yes, it is true that Milton Friedman once famously said that the sole social responsibility of business is to increase its profits. But good luck finding an Australian company director that agrees with Friedman. A 2006 survey of company directors found that nearly 95 per cent believed that they had a duty to take account of the interests of stakeholders other than shareholders. An astonishing one in five did not consider shareholders to be among their top three priorities.

The simple fact is that, right now, directors’ duties are vague enough to allow them to pursue virtually any sort of philanthropic, corporate social responsibility agenda they desire, just as long as it can loosely be justified as a public relations measure. This is why we get firms jumping on board political campaigns like Recognise.

Directors are human. It is unsurprising that they would like their friends and families to see them doing good as much as doing well. But it’s not their money they are playing with.

One basic problem facing any organisation is how to ensure that the people who run it do so in the interests of the people who own it. The duty to maximise shareholder value is an institutional mechanism to try to get shareholder and management interests to align.

This is why the benefit corporation is such a powerful idea. Not because corporations are only interested in profit, as many progressives claim, but because they’re not only interested enough.

In effect, the Greens policy would offer for-profit companies a choice: do they want narrow shareholder-focused, profit-first directors duties, or do they want to pursue broader social and environment goals?

Firms interested in the latter could convert to benefit corporations – to pursue ethical investment strategies, to donate to fashionable social and political causes, to talk about community and social licenses and the environment.

But those that remain would have a much clarified mission. Promote shareholder value. Ignore all the other stuff.

Shareholders too would have a choice – higher returns from profit maximising companies or potentially lower returns from benefit corporations.

This is, indeed, the basis of left-leaning critiques of the benefit corporation model, in that it strengthens the profit maximising goal among firms that do not convert.

Of course, to make the benefit corporation meaningful, the Greens should be advocating stronger shareholder rights to ensure that normal companies actually focus on increasing shareholder value.

For decades the corporate form has been a target of anti-capitalist sentiment. Corporations have been depicted as “psychopaths” for pursuing profit on behalf of shareholders.

Basic liberal theory tells us if society disagrees on an issue we should create institutions that allow people to make choices for themselves, according to their own values. How wonderful to see the Greens embrace that principle when it comes to corporate social responsibility.

Why the super debate is a Liberal flashpoint

Casual observers might be confused why what appears to be a technical legal debate – what counts as retrospectivity for the purposes of superannuation policy – has been so emotive within Liberal circles over the last fortnight.

The answer is historical and philosophical.

For the last two years Labor has been beating the Coalition up on “fairness”, arguing that its economic policy favours the rich. The superannuation changes are intended to counter this attack, hitting the Coalition’s own supporters in their retirement accounts.

But with the retrospectivity debate the Government just dropped itself into another fairness debacle.

Retrospective law changes the legal status of actions that were performed before the law was passed. The issue here is that the new lifetime cap of $500,000 on after-tax concessional superannuation contributions is backdated to 2007.

That means there are Australians who have been planning their retirements on the basis of the law of the day and who have suddenly been informed that the law was, in retrospect, different, and that they were working towards a contributions cap that they never knew existed.

That retrospectivity feels unfair, in the sense that it is unjust to rewrite the past in a way that negatively affects the future.

(Retrospectivity is not inherently unfair or unjust. No one could object to posthumous pardons of men convicted of homosexual offenses in the 20th century. And no one should object to the post-war convictions of Nazi war criminals, even though, given they had not violated German law, their offenses had been retrospectively created and applied. But people planning for retirement are neither of those.)

As much as Bill Shorten has tried to suggest otherwise, fairness is not just a question of how heavily the rich are taxed. It encompasses the feeling that a citizenry acting in good faith will be reciprocated with good faith actions by the state.

Particularly since the Howard government, Australians have been told to put superannuation at the centre of their future planning – to contribute as much and as often as they can. Making superannuation the central pillar of retirement income has been a deliberate policy and political position of government after government.

It is hard to exaggerate how much pushback the Coalition is getting from its own supporters on the unfairness of retrospectivity.

There are a lot of people – and many Liberal Party supporters – who are quietly sceptical about the whole idea of compulsory superannuation.

In part this is because retrospective law has a particularly sensitive history in the Liberal Party. The Fraser government’s 1982 legislative volley against the bottom-of-the-harbour tax minimisation schemes (where companies stripped all their assets just before their tax was liable) included a provision that required these companies to pay all the tax that would have been due between the years 1972 and 1980, when the bottom-of-the-harbour schemes were believed to be legally sound.

This created a firestorm among the business community. The issue wasn’t so much that the loophole was being closed. It was that people who had made decisions under the law as it was were suddenly being told that they had actually been acting unlawfully. It was, fundamentally, a fairness battle fought against the government’s supporters.

In his autobiography, John Howard spends a big chunk of his account of his time as Malcolm Fraser’s treasurer detailing the political havoc that the legislation created. Fourteen Coalition members crossed the floor against the bill. Howard told a radio interview in 2006 that he still carried a few scars from the debate. As prime minister he regularly made hostility to retrospective law a basic liberal value.

Twenty-four years after it was introduced, compulsory superannuation is still a policy experiment vulnerable to tax grabs and policy change. While this has been obvious from a theoretical perspective for a long time, the 2016 budget confirms the uncomfortable fact: superannuation is an unreliable store of our retirement money.

Retirement savings are unique in that they constitute fixed investments made with a time horizon of 40 or 50 years. The Coalition Government seems determined to demonstrate that they can fiddle apparently unhindered and consequence-free with the tax treatment of this long-term asset.

Are we supposed to believe that this will be the last change to superannuation? Under the Turnbull Government’s new policy, the accumulation accounts that are supposed to hold super balances above the $1.6 million lifetime cap will be taxed at 15 per cent. It is virtually certain that here will be a government soon that decides that 15 per cent is too low. That it ought to be equivalent to the company tax rate (30 per cent) or the top marginal income rate (45 per cent). Or decides that the money should be taxed when withdrawn at the equivalent marginal income rate.

If it was any other investment, of course, we would be free to move out of this now provably unreliable asset and put our money elsewhere. But that is against the rules.

There are a lot of people – and many Liberal Party supporters – who are quietly sceptical about the whole idea of compulsory superannuation for this reason. It is fundamentally unfair to prevent people by law from accessing until retirement money they have legitimately earned.

And as Labor knows, once people have it in their mind that a policy is unfair, that impression is hard to budge.

The ghosts of deficits past, present and future haunt this election

Is it impolite, at the very start of the election campaign, to talk about the budget deficit? Impolitic? It’s certainly unfashionable.

Budget night was so long ago. Neither Labor nor the Coalition want to bring up this old chestnut. You can understand why. Each have in turn declared their intention to return the budget to surplus and each have failed, at great political cost.

Yet we must talk about the budget deficit. Steel yourself. It would show great disrespect to the treasurers of our ancestors if we were not to briefly acknowledge the land on which they fought and died, at least before the election carnival marches forward. Anyway, the deficit will be the unspoken theme of the whole campaign – always there, never really acknowledged.

Treasurer Scott Morrison declared in the budget speech that the Government was on a “sustainable path” to surplus. This language has become such a cliché that it’s easy to miss how sad it is.

Last Tuesday’s budget declared that the deficit would be just 0.3 per cent of GDP by 2019-2020 – the last year of the forward estimates. Morrison’s predecessor Joe Hockey declared in May 2015 that the deficit would be almost exactly the same (0.4 per cent of GDP) a year earlier, by 2018-19. And in the 2014 budget Hockey argued we’d hit 0.2 per cent of GDP by 2017-18.

The clear reason for this sustained failure to return to surplus is Treasury’s long-standing belief that economic growth will – very, very, very soon – jump above 2 per cent per year. They’ve been predicting this growth leap for half a decade now. No doubt Wayne Swan was very impressed when he first saw growth forecasts with a three in front of them in Treasury’s 2010 outlook. But Morrison’s heart must have dropped when he saw the same numbers again – still just a few years away.

Yes, the budget has to have forecasts. And treasurers can only accept what Treasury’s models tell them. But waiting for a growth spurt that never seems to come is hardly a comforting economic plan.

I’ll admit to some schadenfreude. The deficit has been a major political issue for nearly a decade. Every commentator has refined their arguments on the topic over and over and over. Here’s the hissy fit I had in The Drum on the eve of the 2013 election, when Hockey changed his promise of a surplus to a promise to be “on track” for a surplus.

But in the latter half of the Labor government it was commonplace to hear that there was no need to rush back to surplus. Take this Australian Financial Review piece, or here in The Drum.

Neither party will want to spoil the fun by talking about their embarrassing deficit. But it will be there, uncomfortably shadowing every minute of the campaign.

Many analysts and interest groups warned that the economy either could not handle the necessary budget cuts, or that the surplus was an irrational obsession cultivated by Peter Costello fan fiction. The budget would balance itself in good time. No need to stress about it.

The argument for a single-minded return to surplus was never that the small deficit – yes, our deficit is relatively small as a percentage of GDP compared to many other rich economies – was causing immediate and direct harm to the economy. It was that unless there was pressure on the government to balance the books the government would never feel the need to do so.

And a long-term budget deficit is harmful. Market economies are cyclical. It might not feel that way – growth is sad and sluggish – but it is very possible that these are the good times. When we face the next downturn the budget balance will plunge. It will plunge even deeper if the government of the day decides to stimulate the economy, believing Kevin Rudd’s program to have been a success.

A small deficit always threatens to be a large deficit. And a large deficit is costly, harms macroeconomic stability, and undermines economic confidence. It might not be much fun to cut spending during the good times, but, as Greece has shown, it’s far worse to be forced to cut spending during the bad times.

No doubt we are tired of talking about debt and deficits. Neither party will make it an issue during the campaign as neither party is confident it has a solution. Where tax increases are proposed – such as the tobacco excise hike – they are proposed in order to fund new promises, not pay back old ones.

And spending cuts? Not a chance. It appears that the government has locked in a permanently higher spending plateau. This year it is estimated the government will spend 25.8 per cent of GDP, just a fraction off the 26 per cent of GDP that Rudd spent on his extraordinary stimulus package. Under the Howard government this figure hovered around 23 and 25 per cent.

Elections are always full of spending promises – gifts of road upgrades and sports fields dropped into struggling marginal electorates. If the budget feels long ago now wait until we’ve had two months of pork barrelling. Neither party will want to spoil the fun by talking about their embarrassing deficit. But it will be there, uncomfortably shadowing every minute of the campaign.

Rejecting A Chinese Bid For Land Is In ‘The National Interest’? Show Me How

If it wasn’t clear that “the national interest” was a pretty hazy criterion on which to deny foreign investment approvals, then Scott Morrison confirmed it last Friday.

The first time the Government rejected a Chinese bid for the S Kidman & Co. estate – Australia’s largest private landholding – it was because part of the property, Anna Creek, was next to a sensitive defence site.

In fact, some of Anna Creek is in the least important green zone of the Woomera Prohibited Area, which is infrequently used by the Woomera Rocket Testing Range. Nevertheless, the Foreign Investment Review Board was skittish about a Chinese company owning property nearby, so the deal was scuttled in November 2015.

The Kidman deal was then restructured to exclude Anna Creek. Last week, Morrison announced that this wasn’t enough – the property is just too large to be sold to a Chinese firm. Kidman and Dakang Australia Holdings have until Tuesday to come to another arrangement, otherwise Morrison’s “preliminary decision” to prevent the sale will become a permanent decision.

It’s easy to present the Kidman sale as a big deal. It is, indeed, an enormous collection of properties, spread across Western Australia, South Australia, the Northern Territory and Queensland. It was put together in the 1890s by Sidney Kidman, to whom the words “baron” and “legendary” are usually affixed.

But the land is in fact some of Australia’s least productive. We’re talking about desert. The Kidman holdings are enormous because they have to be – to run cattle across such stark landscape you need space.

As David Uren pointed out in The Australian over the weekend, S. Kidman & Co wouldn’t even rank in a list of Australia’s largest 2000 companies. It has nowhere near the largest number of head of cattle of Australian companies. Geographic size isn’t everything.

Still, you might object, size does matter. But how? Why? Morrison’s press release announcing his preliminary decision is completely empty on this point. It states simply that the sale of a property of Kidman’s size is not in the national interest.

How so? Is it because, as Morrison points out, there are some Australian companies that are interested in the property? This assumes what needs to be shown – that large scale foreign investment is against the national interest, but domestic investment would not be.

Usually governments feel the need to offer arguments in defence of their position. Morrison’s press release offers no justification – just “the national interest”, an empty signifier with no qualification or clarification.

If Kidman is sold, the land would remain in Australia, obviously. The property’s new foreign owners would be able to do no more or less with it than any Australian owners would.

Some have claimed that the sale might result in the loss of Australian jobs, if the new owners brought in Chinese workers. But any Australian purchaser could do the same. The thing that is stopping them is our strict immigration system, and the heavy regulatory constraints around the 457 skilled worker visa program.

Simply put, land owned by foreign investors continues to be governed by Australian law. It is private land so it can be used for private purposes, within those legal constraints. To be afraid of foreign ownership of land is to be afraid of private ownership of land. And to punish it.

Two things are going to happen if Morrison fails to approve the sale of Kidman. First, Kidman’s owners are going to get less money for their property than otherwise. Less money is less investment in Australia – with its superior bid, we can assume that Dakang believes it can run a more efficient and profitable enterprise than any other bidder. Australia is still desperate for capital investment, particularly in the vast interior. Investment brings jobs. Investment brings growth. Blocking investment harms both.

Second, any failure to approve seriously damages Australia’s reputation for stable and reliable investment, and the marketability of other properties that might be sold in the future. Hence the concern from farming groups – WAFarmers and the Northern Territory Cattlemen’s Association, for instance. All this populist handwringing about foreign investment in agriculture actually harms the real farmers who want to maximise investment and sale prices.

We have a clear national interest in attracting investment; a clear national interest in promoting investment certainty; a clear national interest in developing the interior; a clear national interest forging tighter economic links with China; and a clear national interest in allowing Australian property holders to get the best deal for their property.

All of these things encourage economic development and growth, with flow-on effects that enhance our living standards. The Coalition understood this, when, after the 2013 election, they declared that Australia was open for business. How are potential investors in Australia supposed to see that promise now?