Tag: ABC The Drum

It’s About Muckraking, Not Kingmaking

The Abbott Government’s expenses scandal has been a wonderful natural experiment.

Most political scandals are three-pronged contests, pitting opposition against government against media. Each vie against the others to pursue their goals: winning office, keeping office, selling eyeballs to advertisers.

So usually it’s hard to tell which faction is the driving force behind the controversy – political party dirt units, muck-raking journalists, or partisan commentators.

But not this time. The Labor party has dealt itself out of the expenses debate. (Fair enough, too. They’ve been busy with a leadership ballot. Nor has Labor wanted to expose itself to charges of hypocrisy. See, as an amusing exception to this discretion, Mark Dreyfus.)

Labor’s absence has left the whole expenses scandal as a simple, clean contest between media and the government.

That seems to have made it more frustrating for the Coalition, rather than less. There has been no way to dismiss the allegations as the product of Labor dirt. But more importantly, this natural experiment reveals just how indulgent the debate over the influence of the media was during the Rudd and Gillard years.

Left intellectuals have spent the past six years obsessing over the wickedness of Australia’s press corps. First we were told the press didn’t care about policy, then that the press was speculating about leadership tensions that didn’t exist, then how it was trying to secure government for Tony Abbott.

At its most lucid, the obsession with the media was displaced frustration with Labor’s hapless performance turned into anger about Rupert Murdoch. At its worst, it produced the sort of mad conspiracy of the #ashbygate crowd.

The expenses scandal demonstrates how off-target all that outrage about the media really was. It turns out the press is more interested in muckraking than kingmaking.

Those Labor supporters who imagined Abbott to be the media’s darling must be very confused.

Remember being told that Abbott was a former journo himself, he provided great copy, and therefore journalists in the press gallery had taken a personal liking to him?

Contrast that with the obvious frustration the new prime minister has had trying to deal with the expenses story in the middle of the APEC summit in Bali.

It’s not like the expenses affair is a particularly scandalous scandal. Parliamentary expenses are one of those stories that journalists can pull out of their pocket on a rainy day.

Questionable expenses claims are regularly reported. They will be with us forever. And compared to the British expenses scandal a few years ago, it’s all a bit pathetic. No Australian politician has billed taxpayers for cleaning their moat.

If the Coalition thought the press was on their side before the election, they no longer do now.

Hopefully there’s another lesson the Coalition will learn from this episode – there’s no such thing as media management.

It seems like yesterday that commentators were telling us just how calmly and quietly the Abbott Government was going about its business. This was apparently a revolutionary change from the media hungry style of Kevin Rudd.

One week after the election, Laurie Oakes wrote that Abbott had shunned the demands of the 24 hour news cycle and gotten on with “working rather than talking”.

They say a week is a long time in politics, but, really, it’s not that long. When all this was being said, the government hadn’t even properly formed. Technically Kevin Rudd was still prime minister.

And, in retrospect, the argument that the Coalition had invented a brilliant new style of media management is pretty funny. The government has wasted two entire weeks trying to bat away the expenses affair.

Politics cannot be willed off the front pages. The media cannot be managed. It can only be defended against.

Kevin Rudd’s infamous one-announcement-per-day strategy was less about controlling the news cycle and more an attempt to out-run negative publicity. But the negativity caught up.

And a good thing too.

Most people say the media should aim to rigorously scrutinise government actions. But it should do more than that: the media should be openly hostile to the government. It ought to be fickle. Sometimes even unfair.

After all, the government is the single most powerful institution in society. Australian governments consume or redistribute over a third of the total resources of the nation.

With such power concentrated in one institution, the real risk to liberal democracy isn’t that the press is unfair to the government, but that it is too indulgent.

During the Labor years, nobody could accuse the press of that sin. And, if the last fortnight is any indication, this term of government will be the same.

Accountability Goes Missing In Iraq Bank Note Scandal

In February 1998, John Howard’s cabinet agreed to support American military action against Saddam Hussein. But three months later, in May, officials from Reserve Bank were secretly offering the Iraqi tyrant our unique plastic bank note technology.

This stupefying discovery was contained in the most recent Fairfax and Four Corners investigation, which aired last Monday night. Yes, the Reserve Bank scandal is worse if you put it in context.

Allegations that Reserve Bank subsidiaries used bribery to secure banknote contracts in foreign countries have been around for years. But bribery is one thing. This is something else. One arm of the Australian government – the central bank, no less – was trying to cut deals with a dictatorship that the rest of the Australian government was preparing to go to war with.

(At least the body at the centre of the last Iraq scandal, the Australian Wheat Board, was a private company. It did not travel on official passports. It did not represent the Australian government.)

Even more amazing – it was the Reserve Bank’s responsibility to enforce financial sanctions against Iraq.

The Reserve Bank’s actions in Iraq reveal a massive, endemic governance problem that goes beyond this scandal to the structure of the Australian regulatory state.

After the 1991 Gulf War and subsequent United Nations embargo, Iraq could no longer import its bank notes from printers in Britain and Russia. So the Central Bank of Iraq cobbled together its own printing equipment to do the job. The notes they produced were nicknamed “Saddam” bills – plastered with the tyrant’s face, they were easily counterfeited, badly devalued, and so poorly made that the ink ran.

In the late 1990s, the Iraqi central bank started looking around for a supplier to replace its shabby currency outright. Saddam Hussein was shown polymer notes. He loved them. So representatives of the Reserve Bank’s printing division popped over to Baghdad to spruik our merchandise.

Its trip had to be secret because, while they were there, 190 Australian troops were on the other side of the Kuwait border waiting for orders to attack.

The United States eventually passed the Iraq Liberation Act, and Bill Clinton ordered a bombing campaign in December that year.

The Reserve Bank is not just one of the most important government agencies. It is also the premier independent agency. It has been deliberately separated from the traditional Westminster lines of ministerial control. It does not take directions from elected representatives.

This governance structure is supposed to eliminate political interference in Reserve Bank decisions. But it also reduces accountability.

The two Reserve Bank subsidiaries involved in the scandal are even further removed from parliamentary oversight. Securency, which makes the high-quality plastic film, was a private firm founded in 1996 and 50 per cent owned by the Reserve Bank. (In damage control, the bank bailed out of Securency earlier this year.)

Note Printing Australia takes Securency’s film and produces banknotes and passports. It was originally a division of the Reserve Bank itself but was corporatised – that is, spun off and converted into a commercial corporation, seeking a market rate of return, but still wholly owned by the central bank.

And when did this corporatisation happen? July 1998. That is, while the division secretly had outstanding business with the Ba’athist government of Iraq.

The scandal occurred at the very moment when all the responsible institutions were being granted further independence; that is, being reformed to be less directly accountable to our elected representatives.

The Reserve Bank itself had just passed a major milestone. In 1996, Peter Costello released a statement on the conduct of monetary policy which formally confirmed the central bank’s independence from government. This was a big deal. It had been less than a decade since Paul Keating had bragged he had the Reserve Bank “in my pocket”.

While most commentators have focused on the monetary implications of this institutional change, the Iraq scandal shows that the central bank believed it could act independently of Australia’s foreign policy as well.

For the last few decades it has been fashionable to praise “independence” as a desirable attribute for regulators, bureaucracies and central banks.

The appeal is obvious. Politicians are venal creatures. The further we keep them away from government the better. The result of bureaucratic independence is – at its best – a technocratic rejection of politics.

But at its worst, independence fosters unaccountable bureaucratic fiefdoms pursuing their own agendas, backed x`by the full force of government but unconstrained by democratic norms like ministerial responsibility and public accountability.

In other words, exactly what we can see in the Reserve Bank scandal.

In its memo reporting back from the May 1998 Iraq trip, the Reserve Bank officials acknowledged that no banknotes could be delivered to Iraq until the United Nations embargo was lifted. But “nothing was stopping us to sign a contract and have products (banknotes, machines, etc) manufactured”.

You can imagine them patting themselves on the back for such clever, disingenuous reasoning. The Department of Foreign Affairs and Trade was not as impressed.

So why are we only hearing about all this now?

The investigations so far have made much of the failure of the Australian Securities and Investment Commission to chase down the bribery allegations. Once again, context makes it worse.

ASIC is one of the big three mega-regulators, along with the ACCC and APRA. All are blessed with formal independence from government. And all were being reformed in the early Howard years.

ASIC only gained its current form in (you guessed it) 1998, when it was given a new suite of powers and responsibilities. It has since gained a reputation for being capricious and draconian. In its actions against AWB, the judge accused it of bringing justice into disrepute.

Yet it has let this scandal slide. But don’t worry. According to ASIC, “the public can be completely and utterly confident in ASIC’s actions.”

We’re supposed to take it on faith that one independent government agency has fully investigated possible wrongdoing by another independent government agency.

There is nothing in the Reserve Bank scandal that should make us comfortable with how Australian democracy functions.

More Than Just A Financial Crisis

Five years ago, the United States Congress was debating its $700 billion bank bailout bill.

Lehman Brothers had collapsed a fortnight earlier. Global share markets were in free fall. It was a time of panic.

But half a decade onwards it is clear the global financial crisis was a cultural crisis as much as an economic one. That’s only natural. Assigning events with cosmic moral significance is part of the human condition.

In his famous crisis-era Monthly essay, Kevin Rudd said the economic downturn was so great that we were entering a new epoch in human history. But Rudd was positively restrained compared to what you heard on talkback radio and newspaper letters pages.

Take this letter, in The Age at the time, in which a professor of medicine speculates that our brains may need rewiring after the crisis. Meanwhile, this is a good example of the typical hand-wringing column warning of the danger of greed and avarice.

All pretty ridiculous in retrospect. And all, of course, from the political left. Perhaps understandably so. The left’s opponents had crowed for three decades that there was no alternative to deregulation and privatisation. Now those certainties seemed dead. The political high ground was up for grabs.

Well, for a bit. The financial crisis quickly morphed into a sovereign debt crisis. That development somewhat dirtied the otherwise clean political message. Turns out the societies most damaged by the crisis were not those who had let their markets run rampant but rather those whose governments had been unregulated by the norms of prudence and responsibility.

So much for the revolution.

The crisis has prompted some modest changes in economic policy – the renewed interested in Keynesian demand management, for instance – and has entrenched government deficits into the foreseeable future. None of these are welcome, but they are reversible.

But it seems likely that the most significant long-term consequence of the Global Financial Crisis is a deeper, more prejudicial popular cynicism about our economic and political institutions.

And rightly so. The GFC involved multiple institutional failures. All sides of political economy were found wanting. Politicians, regulators, central bankers, and markets were all equally corrupt or incompetent. They all failed in their own special, complex, and opaque ways.

In retrospect, the crises of the 1970s – symbolised by but not limited to Watergate and Vietnam – were less damaging to public confidence than the financial crisis of 2008. As I pointed out inThe Drum last year, polls record higher dissatisfaction with government now than they did then.

Here’s some indicative American polling data from Gallup on confidence in institutions, from the presidency to organised labour to banks. In almost all, there has been a clear long-term decline, a decline which was been exacerbated over the last five years.

Such cynicism inevitably manifests itself in popular culture. Hollywood has made a business of selling our neuroses back to us.

Yet most movies that directly tackle the crisis have been either forgettable or too heavy handed to succeed – for instance, the completely unnecessary Wall Street sequel. They tend to suggest that the crisis was caused by the Wall Street lifestyle; that the long economic slump can be blamed on greed, carelessness, or criminality.

As an exercise in fictional villain creation, this approach is fine. But it doesn’t quite capture the all-encompassing nature of the crisis.

There are just so many villains to go around – not just Wall Street excess, but the politicians who forged the massive bailouts, the ratings agencies, the financial regulators, and the central banks.

(It is interesting that one of the only films ever made which shows financial trading in a positive light – The Pursuit of Happyness with Will Smith – was released at the end of 2006, just months before subprime started to hit.)

More evocative of the crisis was the 2009 George Clooney film Up in the Air. This film said nothing about the causes of the crash, but instead focused on the economic despair it caused.

Australians tend to call the whole episode the Global Financial Crisis, but in the United States it goes by the prosaic “Subprime Crisis”, followed by “the Great Recession”. That different emphasis – from the origins of the crisis to its consequences – explains some of the pessimistic ennui which has enveloped the Western world.

It would be one thing if the 2008 crash had been followed by a strong recovery. But instead the world has experienced a long, uncertain slump.

Up in the Air depicts an economy battered by anonymous forces that the victims neither see or understand. Clooney’s job is to fire employees one by one. The recession in Up in the Air could be any recession. It doesn’t matter how it started. All the sacked workers know is that they have no control over their fate. The existing institutions have let them down.

It captures, in other words, a sense of institutional estrangement.

Such estrangement, and the cynicism it breeds, will be the long-term legacy of the Global Financial Crisis.

Freedom Of Speech Means Freedom To Boycott

There’s a saying you hear often in libertarian circles – a government big enough to give you everything you want is a government big enough to take everything away.

Consumer and environmental activists ought to start thinking about this too.

On Monday, the new federal parliamentary secretary for agriculture Richard Colbeck told The Australian that the government might ban consumer and environmental activists from launching secondary boycotts.

For example, in 2011 GetUp tried to organise a boycott of companies that were members of the Australian Food and Grocery Council because the council had said Julia Gillard’s carbon tax would increase manufacturing costs.

The issue will be considered in the long-promised review of one of the most complex and problematic pieces of Commonwealth legislation – the Competition and Consumer Act 2010.

The Competition and Consumer Act is a 1,500-page behemoth of regulatory complexity. It empowers Australia’s most imperial regulatory agency, the Australian Competition and Consumer Commission.

First introduced as the Trade Practices Act in 1974, the act has been continuously expanded at the behest of consumer activists in and outside government.

Now it seems this labyrinth act is to be turned against those very same consumer activists. And once again the Australian Government is threatening to drown free political debate in a sea of litigation and prosecution.

The Competition and Consumer Act currently exempts consumer and environment activists from its general ban on secondary boycotts. Colbeck wants to remove that exemption. The ACCC would then be able to take bodies like GetUp to court to stop their campaigns.

There’s a technicality in here: we’re talking about secondary boycotts, not primary boycotts.

A primary boycott is targeted directly at a company which has done something offensive. Don’t like how a biscuit manufacturer operates, so you and your friends stop buying their biscuits? That’s a primary boycott.

By contrast, a secondary boycott targets the biscuit company’s suppliers and consumers. The aim is to punish the offending company by punishing those who the company relies upon.

The classic secondary boycott is the sympathy strike – where unions in other companies down tools in solidarity with aggrieved comrades. Sympathy strikes were endemic in the old heavily-regulated Australian labour market. Both major parties now largely agree that sympathy strikes ought not to be considered legally protected industrial relations action.

People get very agitated by secondary boycotts. You can understand why. They’re indirect. They’re often pretty unfair – secondary boycotts, particularly in the age of social media, can be poorly thought-through, arbitrary, and capricious.

If you’ve spent more than a few minutes on Twitter, then you’ve seen the madness of crowds.

But, as uncontrollable and impulsive as consumer campaigns can be, it would be entirely illiberal to try to suppress them by force of law.

Consumer boycotts – primary or secondary – are a completely legitimate way to express political views. Free markets aren’t just a tool to bring about efficient exchange. They are a dynamic ecosystem of individual preferences about what we want to buy and from whom.

And sometimes those preferences involve ethical judgments about corporate values.

Companies know this. They know values sell. That’s why we’re subjected to flashy social responsibility marketing campaigns. That’s why fair trade coffee exists. That’s why British Petroleum is now “Beyond Petroleum” and its logo is a pretty green sun.

It’s only fair that consumers are lawfully allowed to respond in kind. If that means unwelcome pressure on companies, well, such is capitalism. Consumer preferences can be tough to navigate. Messy as it is, political outrage is part of the push and pull of a free and open society.

I suggested above that consumer activists may have bought this partially on themselves. To stop the Competition and Consumer Act from being absurd on its face, its drafters carved out exemptions for ‘nice’ activists. But doing so leaves the law vulnerable to the charge, made by the Tasmanian Liberal MP Eric Hutchinson here, that there isn’t a level playing field between companies and their activist opponents.

Once we have accepted that the regulatory state ought to control and supervise everything we do in the market, it’s no great leap for that state to control our political expression.

The Coalition’s boycott proposal demonstrates again that the distinction between economic freedom and free speech is not always great. Sometimes the way we spend our money is literally a form of speech. (I’ve argued this before. Take, for instance, the ban on David Hicks profiting from his memoir, or the O’Farrell government’s crackdown on political donations.)

The Abbott Government says it wants to restore freedom of speech in Australia. It has promised to partially repeal Section 18C of the Racial Discrimination Act. This would be a good thing.

But if, at the same time, the new government imposes new restraints on how private civil society organisations can express their views, it will have done nothing to bring the cause of free speech forward.

Teaching The Public Service To Obey Its New Masters

Earlier this year, Tony Abbott promised there would be no “night of the long knives” if he won the election.

Back in 1996, John Howard dumped six departmental heads – one third of the total – immediately on taking his position as prime minister. It was the biggest overhaul of the public service since federation.

Howard’s one fell swoop is now legend. With this act, he took absolute political control of the public service immediately – a public service that had worked for Labor for 13 years.

But his critics claimed the night of the long knives was destabilising. Subsequent opposition leaders have rejected doing anything of the sort. Mark Latham promised no public service upheaval on the eve of the 2004 election. In 2007, Kevin Rudd left things as they were.

Abbott’s promise no doubt was to reinforce that there would be nothing controversial about returning the Coalition to government. Yet the new Prime Minister may end up regretting this promise more than any others.

Like it or not, the Westminster tradition – of a frank and fearless public service dispensing objective and politically neutral advice while unflinchingly obeying the elected government – has always been a self-serving fiction.

The tradition dates back to the British Northcote-Trevelyan Report in 1854. Essentially, the idea is that public servants serve at the pleasure of the monarch, not the elected government. Yet, at the same time, they are supposed to be nothing more than servants of their ministers.

No surprise then that there have been constant complaints throughout Australian history that the public service has pushed its own agenda.

The new government will be deluding itself if it thinks it can just seamlessly slot itself straight into the bureaucratic institutions of the previous government.

John Howard knew this better than any other new prime minister. Howard had been treasurer in Malcolm Fraser’s government two decades before he formed his own government.

Treasury has always been the most powerful department of state. And Treasury has always been the most capable of wielding independent influence over politicians.

The new Treasurer Joe Hockey has been waging a Cold War against his now-department for the last year or so. He is even going to bring in external auditors to scrutinise the methodology behind Treasury forecasts.

But once the political heat dies down, and the government gets on with the tedious job of governing, Hockey is going to come face to face with the “Treasury view”.

The Treasury view is the institutional economic philosophy that governs Treasury advice. For the first half of the twentieth century, the Treasury view consisted of unflinching support for balanced budgets and low inflation.

After World War II, Treasury was converted to Keynesianism, and the goal of preventing inflation was pushed aside for greater public spending.

The disastrous stagflation that resulted in the 1970s saw Treasury move towards free market economics, with an emphasis on privatisation and market reform. In the 1980s and 1990s, academics were complaining that the public service had been captured by “economic rationalists”.

But there were changes still to come. In their book Shitstorm, Lenore Taylor and David Uren recount how at the end of the Howard years, senior Treasury figures secretly brainstormed a change in how the Australian government should deal with economic downturns. Rather than relying on monetary policy to keep the economy above water, it would immediately enact massive Keynesian stimulus.

When Labor took over in 2007 just before the Global Financial Crisis, this policy revolution had its moment to shine. Treasury’s revived interest in Keynesian activism lined up with the interventionist instincts of Kevin Rudd and Wayne Swan.

Yet the interests of the bureaucracy and the interests of their political masters don’t always line up so neatly.

David Kemp tells a dramatic story about Treasury’s opposition to the decision to devalue the Australian dollar by 17.5 per cent in 1976.

Malcolm Fraser requested Treasury write an economic statement in support of devaluation that he could read in Parliament. Yet the department sent back, churlishly, a bare, useless paragraph. As Kemp says, this was extraordinary. When asked to defend a policy it did not support, Treasury essentially went on strike.

So much for the Westminster ideal.

Still, such a public service strike could not happen today. One reason is introduction of New Public Management – the reorganisation of the public service since the 1980s to make it more efficient, more corporate, and more responsive to its political masters.

Another reason is Howard’s dramatic demonstration of political control in 1996.

The last reason is the rise of ministerial advisors. This dates back from the Whitlam years. Gough Whitlam wanted to avoid being controlled by conservative public sector mandarins, so he brought in his own people as an alternative source of advice.

Political advisors will be particularly important for the Coalition because new ministers – especially those without any previous experience – are vulnerable to capture by their departments.

Neil Brown’s book On the Other Hand ought to be compulsory reading for new Coalition ministers. Brown joined Malcolm Fraser’s ministry at the tail end of the government, and in his book he amusingly documents the experience of being a ministerial trainee up against the permanent, experienced public service.

Brown says the public service divides ministers into good and bad categories. The good ones act on behalf of their department, approve their proposals, and fight for their department to get more money at budget time.

The bad ones are those who believe they are there to control their department, to scrutinise and sometimes reject its policy recommendations, and to do their own reading and thinking.

As Brown wrote, “If a minister is regarded by the public service as bad, he might just be coming close to being what ministers should be.”

Tony Abbott will probably not renovate the upper stories of the public service as his mentor John Howard did. But the first few months of a new government are critical.

If ministers like Joe Hockey don’t push back against the institutional orthodoxies of the public service early on, they may find themselves unable to do so when it counts.

Foreign Investment Is Always A Two-Faced Policy

Julia Gillard was right to say in the Guardian over the weekend that Kevin Rudd’s last-minute criticism of foreign investment during the election was “bizarre” and cheaply populist.

But glass houses, meet stones. Remember Gillard’s attack on the 457 visa scheme? It was announced on her Western Sydney safari as a way to put “Aussie workers first”. It was exactly the same cheap, populist economic nationalism she accuses Kevin Rudd of indulging.

Kevin Rudd’s foreign investment stance was a policy burp expelled in the middle of the Rooty Hill debate.

It stunk. It didn’t fit very well with the wonky image that he had crafted over such a long period. Kevin Rudd is supposed to be cosmopolitan, serious, worldly. Not reactionary, populist, and parochial.

The politics of foreign investment in Australia has been rife with this sort of incongruity.

Australia has always been utterly dependent foreign capital to finance its development.

We’re small, open, and desperate for other people’s money. We have more economic opportunities than capital to service them.

Luckily other countries have been eager to oblige.

But that luck usually goes unnoticed in the foreign investment debate. The developing world would kill to have as much money knocking at its door as Australia does. Poor countries obsess over how to attract foreign investment.

In the first half of the 20th century opposition to foreign investment within was a minority view held mostly by Labor’s far-left base. They were convinced that British financiers controlled the economy.

It was a fringe obsession. Then in the mid-1960s, Arthur Calwell fatefully decided he could make political capital out of opposing foreign capital.

Robert Menzies and his treasurer Harold Holt did all they could to attract British and American money.

But Calwell had let the cat out of the bag. On both sides of politics, the young blood that took over at the end of the 1960s reversed the foreign investment consensus.

In his important 2000 thesis, Christopher Pokarier points out there was a subtle terminological change in government documents around this time. What had been described benignly as “overseas investment” became the faintly more sinister “foreign investment”. (Pokarier’s thesis is available here.)

John Gorton was an economic nationalist. Gorton’s Coalition successor William McMahon introduced the first economy-wide foreign investment restrictions.

Labor’s myth-making industry has cast Gough Whitlam as a cosmopolitan reformer open to the world.

But the central plank of his economic policy was opposition to foreign investment.

Where Labor supporters of the 1930s were angry about British financiers, Whitlam’s intellectual backers were angry about American multinationals. The story was the same – foreign money meant foreign influence – but Whitlam’s supporters told it with a more scholarly and respectable veneer.

Whitlam ditched the outright xenophobia of his forebears and replaced it with the paranoid “it’s time to start buying Australia back”.

His government imposed the political control over foreign investment that we still have today.

When it returned to power in 1983, Labor did a partial reversal, jettisoning economic nationalism for market reform. The big dramatic gesture was Paul Keating’s 1984 decision to allow in foreign banks – those very same foreign banks Labor had railed so long and hard against.

The awkward contortions of today’s Labor on foreign investment represents a clash between Gough Whitlam’s economic nationalism – passionately held by the ALP for decades – and the shock modernisation of the Keating era.

The thing about market reform is that it leaves little room for politicians with bold nationalistic vision. Nobody is going to win an election calling for more foreign ownership of Australian assets. The Keating legacy is uncomfortable. Labor has not removed Whitlam’s foreign investment controls. Nor has the Coalition.

Barnaby Joyce made headlines last week when he condemned an Indonesian government plan to invest in cattle farms in Australia. As of today, Joyce is now federal Agriculture Minister.

He joins a long National/Country Party tradition of internal Coalition dissent on foreign investment dating back to John McEwen.

But like McEwen before him, Joyce is also a developmentalist – he wants state action to help build up rural areas. As Christopher Pokarier points out, Australian development needs foreign capital. You can’t have one without the other.

The Liberal Party is trying to play both sides of the fence too.

Under Tony Abbott’s new cabinet arrangements, the traditionally National Party-held Trade portfolio is now a Trade and Investment portfolio, and its minister is Andrew Robb, easily one of the most free market Liberals. At his press conference announcement yesterday Tony Abbott made much of the Coalition’s support for foreign investment.

But that support had some caveats – “It’s got to be the right foreign investment, it’s got to be foreign investment which is in our national interest”.

The Coalition comes to office promising a crackdown on foreign investment, not a liberalisation. The government intends to dramatically lower the review threshold for foreign purchases of farmland and to institute a register of foreign farm ownership.

Pro-investment rhetoric is no compensation for anti-investment reform.

The two-faced policy approach we’ve had since Arthur Calwell won’t be gone any time soon.

‘On Track’ For A Surplus? Not Good Enough

Tony Abbott promised the Liberal Party faithful last week that “By the end of a Coalition government’s first term, the budget will be on track to a believable surplus.”

Got that? Not in surplus. On track to surplus.

Given the Coalition’s near-certain victory, Abbott’s surplus expectations management may be the most significant promise of the whole campaign.

Significant not just for this government or the next, but for Australian governments far into the future.

First, the obvious. This is quite a backtrack. As recently as January, Joe Hockey was promising a budget surplus in the first year of government. By April, the promise had been downgraded into a surplus in the first term.

Here’s the new promise: “Within a decade, the budget surplus will be 1 per cent of GDP.” The Coalition is only willing to guarantee a budget surplus by 2023.

Abbott fudged it a few days later by saying “the Government is proposing to bring us back to surplus in 2016/17 and we will do at least as well as the Government”. But there’s a catch. Abbott doesn’t think the government is able to achieve a surplus in 2016-17.

OK, sometimes public finances change. Tax receipts are unpredictable. (Just ask Treasury.) And promises are easy to regret. (Just ask Julia Gillard.)

But the upshot of the revised promise is the Commonwealth budget will have been in deficit for 15 years – more than half of that time under a Coalition government.

This would be the longest stretch of deficits in Australian history. It would be twice the previous record of seven years, incurred after the Recession We Had To Have.

In their classic 1977 book, Democracy in Deficit: the Political Legacy of Lord Keynes, the Nobel laureate James Buchanan and his co-author Richard Wagner argued that democracy systemically favours deficits.

Politicians want to be loved. And voters love services and infrastructure and big bold plans for the future.

But all these things are costly. Politicians have just three unpleasant ways to increase expenditure. They can increase taxes, they can print more money, or they can borrow.

The first is unpopular. The second increases inflation, also unpopular, and hard to do now our central bank is independent. That leaves borrowing.

The great advantage of borrowing is that by the time debt has to be repaid, the government will have changed. The year 2023 would be the Coalition’s fourth consecutive term of government. Even if the Coalition holds power, odds are Prime Minister Abbott and Treasurer Hockey will be on the book tour circuit by then.

Of course, temporary deficits are natural. In any economic downturn, the government’s budget will go into the red. On one side, taxation revenues fall. On the other side, calls on the public dollar increase as workers drop onto unemployment rolls. It would take hasty, herculean cuts to avoid a deficit in those circumstances.

The Keynesian revolution convinced politicians that they should use the government’s budget as a tool to manage the broader economy; that they ought to spend their way out of a recession by propping up aggregate demand.

Hence Kevin Rudd’s stimulus packages of 2008 and 2009.

The adoption of Keynes’ doctrine, Buchanan and Wagner argue, blew a hole through the classical belief that deficits are something to be ashamed of, and ought to be avoided.

To be fair, John Maynard Keynes himself believed that deficits, once incurred, must be quickly repaid. Preparing the British government’s 1944 policy on full employment, Keynes wrote that “the ordinary budget should be balanced at all times”.

Yet enticed by Keynes’ spending recommendations, the norm that budgets need to be quickly returned to balance was thrown away.

In a way, we should be thankful the Coalition made such a song and dance about the deficit over the last few years. Budgets are only balanced when there is political pressure for them to do so.

That’s what makes Tony Abbott’s backtrack so concerning.

Demoralised and in opposition, Labor will hardly be able to criticise the Coalition for the deficit. And economics commentators have spent the last few years trying to convince us that debt is nothing to worry about. The surplus pressure will be off.

If the global economy stays slow for the next few years, as most indicators suggest it will, Joe Hockey won’t be able to rely on growth alone to rebalance the budget.

And if the global economy takes a turn for the worse, a Coalition government is just as likely to try to spend its way out. It’s often forgotten that the Coalition supported the first tranche of Kevin Rudd’s stimulus package. It still supports Keynesian countercyclical spending.

If deficits are not flushed out early, they fester. When George W Bush dropped his government into deficit with tax cuts in 2001, his defenders said it was a temporary measure to simulate the economy. The US would be back into the black once the crisis was over.

Twelve years later and there’s still no light at the end of the tunnel for the United States.

If the Coalition doesn’t return to surplus soon, these may be the economic consequences of Mr Abbott.

A Nanny State On IR Policy Is The Liberal Choice

In politics, sometimes it’s best not to go into detail. This is the lesson Eric Abetz learned after he explained part of the Coalition’s industrial relations policy last Thursday.

Abetz told the Australian that, under an Abbott government, the Fair Work Commission would not approve workplace agreements that raised real wages unless there had been “appropriate discussion and consideration of productivity” (paywall).

Why? So “lazy companies don’t just give wage increases because it’s the easiest thing to do.”

It is one of the founding assumptions of Australia’s system of industrial relations that workers are unable to negotiate with bosses in their own best interest.

Around this paternalistic assumption we have built a superstructure of industrial relations law, tribunals, and controlled wages unique in the developed world.

Now the Coalition seems to think some bosses are just as incapable of looking after their interests. And that a government regulator knows how to run a business better than the business itself.

If true, one wonders how the labour market functions at all.

The Coalition’s policy is patronising, illiberal, and fundamentally anti-market.

Now we know the true legacy of WorkChoices.

The fight over WorkChoices represents the moment the Coalition turned its mind from liberalising industrial relations to regulating it.

More on that in a moment. On Friday poor old Senator Abetz was accused by his colleagues of “freelancing” – that is, speaking only for himself – and advised to avoid interviews for the next few weeks.

But the Coalition’ official workplace policy document does, in fact, say “before an enterprise agreement is approved, the Fair Work Commission will have to be satisfied that the parties have at least discussed productivity as part of their negotiation process.”

If anything, Abetz softened the policy, suggesting Fair Work will only second-guess agreements if they give pay increases above inflation.

That’s how sensitive the Coalition is to the WorkChoices tag – even talking about its own policy is off-message.

Industrial relations has a special place in the Australian political compact. It is Labor’s raison d’etre; the world’s oldest party was born as the political wing of the union movement. Obviously they have a deep interest in wages policy.

In the Liberal Party there have always been free traders and protectionists, conservatives and liberals, fans of both big government and small. But one thing has bound the party together since conception – an antipathy to union power and prominence.

So Labor supporters recount our political history as a contest between employees (labour) and employers (capital). For Liberal supporters our history is a contest between sectional interests (union thugs) and the mainstream (Forgotten People).

Yet eight decades of the Australian Settlement concealed a few subtleties in the Liberal view.

For all that time, being opposed to union power and supporting greater market control over wage price setting was, effectively, synonymous.

When, during the Hawke, Keating, and Howard eras, labour law was slowly liberalised, this equivalence was superficially reinforced. As labour markets became freer, unions declined.

But then Kevin Rudd repealed WorkChoices. Rudd’s move was the first time since the reform era began that a liberalisation – in any sector of the economy – had been reversed. In 2007 Australia hit the market reform wall. This was very disorientating.

(I’ve described WorkChoices here as “liberalisation” because that’s what all sides of politics imagine John Howard’s policy was. In fact it was a complex regulatory takeover of workplace relations by the federal government. Still, perception is what matters.)

Now the Liberal Party has to figure out what its industrial relations priority is: to pursue a free market in labour, or to battle the unions.

Put another way, is Australia’s industrial relations dilemma that it is too highly regulated? Or is the dilemma that unions are too prominent?

After the 2007 defeat, there are many on the Liberal side who say the latter; many who imagine they are fighting a guerrilla war against the union movement. There are hints of this attitude in the Australian article. Abetz says the Coalition’s policy was developed “in response to unions ‘bragging’ that they had secured productivity-free pay increases.”

The Coalition’s solution to such hubris? Increase workplace regulation. If the government has to nanny lazy companies to reduce union power, then so be it.

Never mind that both sides of a mutually beneficial exchange should be “bragging” about the great deal they got.

It’s worth pointing out that unions would exist in a free society. They would have no privileged position in the law, and no coercive power, but, as Friedrich Hayek once wrote, everybody “ought to have the right to join a trade union.”

The dust from WorkChoices has settled. Now that Coalition is preparing to form government again, what does it really want for industrial relations? Labour market freedom, or just defeat of the union movement?

Behold The Dance Of The Travelling Salesmen

On Sunday Tony Abbott announced his government would provide $10 million to upgrade the Brookvale Oval in New South Wales.

As the Coalition’s press release puts it, “Brookvale Oval is the only ground between Sydney Harbour and Gosford that meets NRL standards.” Furthermore, “Only the Coalition can be trusted to deliver the Brookvale Oval upgrade and better sporting facilities for the Northern Beaches.”

Such is the high stakes of federal politics.

Every election carnival has its major attractions – the set-piece debates and the big announcements that consume half a week’s worth of media coverage. Think of Tony Abbott’s corporate tax cut. Or Kevin Rudd’s northern Australia policy.

But in between these major announcements, there’s a whole lot of filler. Stadium revamps. Road extensions. Oval upgrades.

We’ve grown so accustomed to the stream of spending promises that accompany elections, we rarely reflect on how absurd they are.

For these critical few weeks, when Australians decide who is best to lead, the election campaign subordinates the serious task of distributing public revenue to theatrical opportunism.

We hope for the clash of political visions. But we get rival groups of travelling salesmen, each trying to one-up the others’ offer.

The Brookvale Oval promise has received a bit more scrutiny because the ground is already getting its upgrade – Labor’s Anthony Albanese committed to it a few weeks ago. And the money was already allocated in the May budget.

Few of the usual handouts get that sort of attention.

Over the past two weeks, Abbott has announced he would, if elected, provide money for an Antarctic research centre, a Hobart Airport upgrade, a netball centre in Queensland, a sports centre in Penrith (also announced by Albanese earlier), and a recreation centre in Victoria.

Kevin Rudd would like to be elected so he can hand taxpayer cash to a discovery centre in Melbourne’s east, a sports complex in Launceston, a refurbishment of the Hobart Showground, a gymnastics centre in Mackay, and a natural gas research centre.

There’s clear no rhyme or reason to any of these promises. From the outside they seem completely arbitrary; a scatter plot of spending. They’re sometimes handed to marginal seats, but not always. Hopefully they have some internal logic.

But it’s hard to imagine a single vote being swung on whether the Brookvale Oval or Hobart Showground gets federal funding.

We should distinguish these promises from another group of similarly forgettable announcements meant to reinforce specific messages. Does anybody remember Abbott’s pledge in 2010 to set up an “Office of Due Diligence” in the prime ministers’ department, to vet new spending programs? Of course not. It wasn’t a serious policy suggestion: it was promised solely to remind voters that Labor was wasting taxpayers’ money.

The challenge for any opposition is to convert their core argument – the government is terrible – into deliverable policy. Much policy devised during an election campaign is like this.

Different again are the big, headline-grabbing infrastructure spends. Take Abbott’s promise to put $7 billion into the Bruce Highway in Queensland or $1.5 billion into the East West Link in Melbourne. At least these are subjected to some public debate, and even – occasionally – a cost-benefit analysis to demonstrate they are actually worth doing.

In 2008 the Labor government created an independent body, Infrastructure Australia, to scrutinise such spending. The idea was to avoid pork barrelling. A lovely thought. But the Coalition feels no need to abide by the body’s recommendations. And Labor ignores them when convenient. (The Parramatta to Epping Rail Link in Sydney, a last minute pledge of Julia Gillard in the 2010 election, was never favoured by Infrastructure Australia.)

Anyway, minor showground renovations are well below the threshold for Infrastructure Australia, which only looks at “projects of national significance”.

That is, it only looks at things the federal government should be doing.

If upgrading the only ground between Sydney Harbour and Gosford that meets NRL standards is a desirable use taxpayers’ money, perhaps it could be paid for by state or local governments, whose citizens will directly benefit.

But then federal politicians wouldn’t be able to claim credit.

The purpose of the pork barrel road show is impressionistic rather than specific. It is spending as white noise – designed to give a potential voters a feeling that a Labor or Coalition government will be generous with federal funding. Not generous anywhere particular, but everywhere.

Tony Abbott says he would like to be considered an “infrastructure prime minister”. He’s promising “cranes over cities” like so many storks around a watering hole.

The sociologist Thorstein Veblen coined the term “conspicuous consumption” to describe consumption that was valued for the impression it left on others, rather than the utility it bought the consumer.

So much of what passes for policy during an election campaign is conspicuous investment – not important for its own sake, but to demonstrate how freely money would flow under the next government.

After all, if Brookvale Oval gets its funding, who knows? Maybe your pet project could be next.

Scare Campaigns Aside, GST On Food Is A No-Brainer

Let us thank Kevin Rudd for reminding voters that “great big new tax” scare campaigns are a bipartisan affair.

The sole hook for Labor’s claim that the Coalition will increase the GST is Joe Hockey’s promise to conduct a review of Australia’s taxation system that would include the GST within its terms of reference. (Kevin Rudd’s Henry Tax Review specifically excluded the GST.)

From that, Rudd has concluded that the price of Vegemite will rise 50 cents under the Coalition.

Pretty deceitful, but such is politics. And let’s not be precious. Recall the often farcical tabling of electricity bills by the Coalition in the last parliament. When a politician wants to make an argument – right or wrong – they’ll stretch the truth to breaking point. Whatever works.

But the carbon tax has nothing on the GST. The GST is the great bogey-tax of our generation.

Thirty-eight years after it was first formally proposed in Australia, the GST still retains its power to spook the political class.

In 1972 William McMahon’s government commissioned the first full-scale review of the Australian taxation system since the Great Depression. The review, chaired by NSW Judge Kenneth Asprey, concluded that the key to a simple and efficient tax system was a broad-based tax applied uniformly to all goods and services.

By the time Asprey’s report was released, it was 1975 and the prime minister’s name was Gough Whitlam. The only tax reform Labor was interested in was that which might suppress Australia’s skyrocketing inflation.

Malcolm Fraser’s cabinet toyed occasionally with a goods and services tax, but ultimately left it alone. Paul Keating proposed a GST which was then scuttled by Bob Hawke. John Hewson put it officially back on the political agenda, but an opportunistic Keating tore it down again when he tore Hewson down. And John Howard had to denounce the GST before he could introduce it. By comparison, introducing the carbon tax was a cakewalk.

No surprise our politicians don’t want to revisit all that pain.

But any self-respecting tax review has to include the GST. And any review would conclude that broadening the GST’s base – that is, applying the GST to food – is a no-brainer. Excluding food increases the GST’s complexity and reduces its efficiency.

The argument that a GST on food would disproportionately hurt the poor is misconstrued. Yes, the smaller your income, the more you’re likely to spend on food as a proportion of your income. But the food exemption doesn’t just make food cheaper for the poor. It makes food cheaper for everyone. There are much more targeted better ways to help people on lower incomes – direct welfare payments, for instance, or varying the income tax schedule.

If you were a benevolent dictator designing a tax system from scratch, the GST would apply to all consumption goods and services. The ideal system might even set the GST higher than 10 per cent. There are a lot of inefficient, complex taxes that target production which could be replaced by a simple GST that targets consumption.

(This is important. Free marketeers tend to favour GST reform not because they love taxes but because the GST should replace more distortionary ways of raising government revenue. Any GST tax change ought to be revenue neutral. Hopefully the Coalition remembers this in government.)

Of course there is no benevolent dictator, and we wouldn’t want one.

Policy thought experiments like this are an economists’ fallacy. They assume the best policy can be modelled on a computer or detailed in a white paper and then imported holus-bolus into a nation’s legislative framework. The world doesn’t work like that. The elegant, uniform, and broad-based consumption tax envisaged by the Asprey review was shredded when it came into contact with the Australian Democrats.

One of the current furphies is the idea that Tony Abbott couldn’t change the GST even if he wanted to – it would need to be renegotiated with the states. This is wrong, at least on the face of it. The GST is a Commonwealth law, and a Commonwealth law can be changed by the Commonwealth parliament whenever it likes.

But there appears to be an evolving political norm that would compel the Commonwealth to negotiate to change the GST, even though it technically does not have to do so.

Such a constraint is a good thing. The GST is, after all, supposed to be the states’ tax.

And we know from experience that a tax unconstrained by norms or rules can become a monster.

One of the major taxes that the GST replaced – the wholesale sales tax – was introduced by James Scullin’s Labor government in 1930.

The wholesale sales tax was originally levied on a selected range of goods at a uniform rate of 2.5 per cent. But by 1940 the government had hiked the tax to more than 8 per cent, varied the selection of goods, and introduced multiple rates. The rate and the schedule changed repeatedly over subsequent decades. Scullin’s simple wholesale sales tax became a complex behemoth that the federal government couldn’t stop tinkering with.

The GST has so far avoided this fate in large part due to the trauma involved in implementing it.

Maybe we should also thank Kevin Rudd for ensuring the GST remains a toxic tax.