Nothing in the language of the 2017 Commonwealth budget was exceptional by Australian standards. Treasurer Scott Morrison stood in parliament and announced what he described as a ‘fair and responsible path back to a balanced budget’, followed by an optimistic account of global macroeconomic conditions, a happy assurance that surpluses would be achieved in years to come, a brief panegyric of the virtues of small business, followed by a list of infrastructure projects to be built near marginal electorates.
Nonetheless, the 2017 budget is likely to be seen as one of the most significant in Australian history. In a very real way, the budget bills that Morrison announced can be said to cap not the era of economic reform (Australian governments have long given up serious market driven reform and privatisation), but an era where at least one side of politics was offering any ideological or intellectual support for free market policies.
There have been disappointing budgets before, of course, and disappointing budgets from Liberal governments. But there are two features of the 2017 budget that make it significantly different from the disappointments that have gone before: the bank tax and the increase in the Medicare levy to fund the National Disability Insurance Scheme. The first is a punitive, distortionary, arbitrary, and incoherent fiscal attack on an unpopular but absolutely vital economic sector. The second is a broad based tax increase to finance a new social service that seems more like Whitlam-era public policy.
The bank tax is most striking because it is almost entirely disconnected from any explicit policy rationale. The complete argument for the bank tax Morrison presented on budget night was this: it ‘represents an additional and fair contribution from our major banks, is similar to measures imposed in other advanced countries, and will even up the playing field for smaller banks.’ In other words, it is ‘fair’, other countries have done it, and it will cut the big banks down to size.
Since budget night advocates of the tax have been trying to retrofit justifications to the proposal: arguing that it is a payment for deposit insurance or the government’s implicit too-big-to-fail protection. But the new bank tax does not even pretend to be pegged to the value of any implicit government guarantee. The government just wants money, and banks are where money is.
Of course, governments have always looked to the banks for money. Arbitrary, punitive taxation is hardly unprecedented. But we are not living in just any historical moment, in any country. Australia is one of the richest, freest and most open countries in the world, the beneficiary of three decades of economic reform — reform that sought to reduce the number of arbitrary, punitive and counterproductive taxes and regulations on the industries central to our wealth.
The budget in the sweep of Australian history
The era of economic reform is typically said to have begun in 1983 and ended in 1993 or 2000. It kicked off with Paul Keating’s floating of the dollar, from which so many other reforms had to flow. It ended either with the Fightback! election loss, or the introduction of the GST by the Howard government.
But of course no policy reform movement comes from nothing and disappears immediately without leaving a shadow. Political interest in market reform survived the reforms themselves. The Abbott government’s 2014 Commission of Audit remains an impressively radical and ambitious document.
Likewise, the ideas of market reform significantly predate the Hawke government. The floating of the dollar and the subsequent liberalisation of banking would not have been possible had the Fraser government not commissioned the Campbell inquiry into the Australian financial system in 1978, and directed it to develop recommendations consistent with ‘the Government’s free enterprise objectives’. And those objectives did not come from nowhere. Malcolm Fraser himself might have been a reluctant free marketeer but the Fraser government was starting to feel the ideological heat from the Dries within its ranks. The sense of a sharp division between the reform period and the 2017 budget is in part because Morrison and Malcolm Turnbull have chosen totarget, of all sectors, banks — the high ground of market reform for half a century.
Yet by the time of the Campbell committee, economic liberalisation had been a pitched battle in Australian politics for more than a decade. The truly pivotal ideological moment was the appointment of Alf Rattigan as chair of the Tariff Board in 1963. Rattigan, who had been assumed at that time to be a quiet, unassuming and pragmatic bureaucrat, waged a long running war against Australia’s high tariff regime from his Tariff Board post. Working with sympathetic and economic literate journalists like Maxwell Newton, Max Walsh, Alan Wood, P. P. McGuiness, Tony Thomas and Ken Davidson, as well as parliamentarians like the legendary maverick Bert Kelly, Rattigan made tariffs and trade a central political issue, redefining the terms of Australian policy debate, and, over time, creating the divide between those who wanted to reduce the government’s reach over the economy and those who wanted to maintain the status quo.
It is often forgotten how this division shaped the bitterly personal contests between John McEwen, John Gorton and William McMahon. This convoluted battle was focused as much on Australia’s tariff regime as anything else. In the 1966 election, a group of woolgrowers and graziers created the free trade lobby, the Basic Industries Group. Although it wished not to harm the Coalition and campaigned only in a few safe seats, it nearly tore the Coalition apart, creating a divide between Liberal free traders like McMahon and the protectionist McEwen. Maxwell Newton, who had been editor of The Australian Financial Review and founding editor of The Australian, used the small trade newsletters he ran in the late 1960s to conduct what the journalist Alan Reid described as a ‘free wheeling political vendetta’ against McEwen on the issue of the tariff.
The tariff contest burbled away in the background of the Liberal Party and the conservative movement more generally during the Whitlam years. Milton Friedman came to Australia in 1975, and Friedrich Hayek visited the year after that. By the time the Society of Modest Members — the group of current and former state and federal MPs dedicated to market reform — had its first meeting in 1981, the free market insurgency had been long established. The ideas on which the Modest Members pinned their hopes had been the source of bitter division in the Coalition for a decade and a half.
The origin of the victory of market economics over technocratic social democracy dates further than even the most senior of our press gallery journalists. Yet with Morrison’s budget, that victory seems to have expired.
Is market liberalism exhausted?
Market liberalism has gone through cycles of decline and resurgence before. Historical perspective helps because it is easy in the current political environment to personalise what is happening: to blame Tony Abbott or Malcolm Turnbull, or any other constellation of political leadership. It is certainly the case that Australia has been poorly served for the last decade. But the leadership comes from the political class itself; they provide the pool from which the leader is chosen and they have the votes. Every prime minister, even the most disappointing, had, at one stage, the endorsement of majority in their party room.
The Liberal Party has been severed from its base — the core voters which support it, raise money for it, man booths for it, and generally give it social force — and has not been rewarded with national popularity.
The Liberal government has tried to echo the Labor Party on notions of ‘fairness’, but why would you buy Liberal fairness when you can buy Labor’s real thing? If trying to reduce inequality by taxing the rich is desirable, why vote Coalition? If the banks need to be punished, why not support the parties that really believe it?
Opponents of reform to section 18C of the Racial Discrimination Act have repeatedly argued that the fight for freedom of speech is a ‘distraction’, and that the Coalition government should be allowed to concentrate on economic reform. But now it seems that the government has given up on both free speech and lower taxes — civil liberties and market economics go hand in hand, and the government seems uninterested in both.
The decline of the Liberal Party, and to a lesser extent the Liberal-National Coalition, into a shadow of its opponents is a sign of exhaustion in the centre-right political class. It also reflects a failure to revitalise free market ideas — and liberalism more generally — decades after the age of Margaret Thatcher and Ronald Reagan.
The window for ‘reasonable’ policy ideas in Australia is remarkably narrow and parochial. No government wants to be caught stepping even slightly outside the thin band of mainstream policy ideas. Canadian income tax rates are indexed to inflation, eliminating the problem of inflation-induced bracket creep. Yet it would be seen as radical and unrealistic in Australia to propose anything of the sort, even though tax rate indexation has successfully worked overseas and was trialled in Australia under the Fraser government.
The unwillingness to puncture some of these sureties, to develop, legitimate and push through policy in the face of opposition, and to seriously challenge the status quo has left Australia’s policy regime stagnant and fragile. Market liberalism arose in just this sort of historical moment, when the Keynesian policies of the mid-century exhausted themselves, unable to provide answers to the economic decline throughout the developed world. Is market liberalism now exhausted too? Certainly parties that profess market liberalism seem to be tired of pursuing free market policies.
The Coalition’s push to the left on economics has been paralleled in other developed countries. Theresa May’s 2017 manifesto declared that conservativism ‘is not and never has been the philosophy described by caricaturists’:
We do not believe in untrammelled free markets. We reject the cult of selfish individualism. We abhor social division, injustice, unfairness and inequality. We see rigid dogma and ideology not just as needless but dangerous.
But far from rejecting the caricature, this seems to reinforce it. Who, after all, believes in ‘untrammelled free markets’? Even the most vigorous anarcho-capitalist believes that markets are ‘trammelled’ by the constraints of norms, values and human-made institutions. If there is a cult of selfish individualism, does it have any members? May claims to be distancing the Conservatives from some sort of spartan Thatcherism but the frivolous nature of this attempt only underpins the impression that ‘May-ism’ is just unmoored from any philosophical foundation.
Against this, the appeal of a Jeremy Corbyn — whose public persona is inseparable from his deeply held political views — is obvious.
Market liberalism looks slightly better across the Atlantic but even in the United States it is in a bad way. The Trump administration’s red tape reduction program, ambitious tax reform, and budget proposals look exciting — if they can be accomplished. Withdrawing from the Paris Agreement is deeply symbolic, but needs to be married with specific policies that roll back the renewable energy labyrinth put in place by the Obama administration.
Otherwise, Donald Trump’s explicitly anti-trade position undercuts one of the founding principles of market liberalism.
Seen in this context, the exhaustion of liberalism in Australia is hardly surprising — it’s exhausted everywhere.
Yet we should not look to high politics for a guide to the vibrancy and potential of a set of ideas as rich as the philosophy of liberty. In 1929 a group of Australian economists wrote that in Australia:
practically all shades of thought are committed to some form of Government activity in the economic sphere, whether it be wage regulation or assistance to immigration, criticism of the policy of laissez faire is unnecessary.
The Institute of Public Affairs was founded fourteen years later, and half a century later the idea that we needed to introduce competition and markets into our stagnant economy was a bipartisan view. Long before this year’s budget it has been obvious that our politicians had declared free market ideas as empty platitudes; a period of time in the wilderness will allow for the intellectual rebuilding of centre-right politics.
In fact, the times suit the ideas of free markets and individual liberty more than our political parties realise or acknowledge. The IPA has spelt out at length the tax and red tape challenges holding back the Australian economy — nothing the Labor Party or the newly centrist Coalition are currently proposing have a hope of tackling those two fundamental economic problems.
If the retreat of market liberalism globally has the effect it had in earlier times — greater macroeconomic instability and uncertainty — Australia will need a resilient and adaptable economy to suit.
Other trends demand a revitalised liberalism: the spread of automation from the industrial sector to the high-end service sector, the increasing demand for personal control over healthcare, the move of global economic power from the West to Asia.
Malcolm Turnbull failed to turn his 2016 innovation agenda into anything more than slogans, but like it or not, this is where the big changes are going to come. Doubling down on the twentieth century welfare and planning economic model is not going to help the losers from those changes, nor will it ensure the benefits are distributed widely.
The task now is an intellectual one — to build a new liberalism, a neo-neoliberalism, out of the failures of centre-right politics.