ABC The Drum – Page 8

You Can’t Blame Foreigners For High House Prices

On Friday Daily Telegraph readers learnt an “elite audit and compliance unit” of the Commonwealth Treasury has been tasked to hunt down foreign investors who have illegally bought houses in Australia.

The elite unit will then force those “dodgy investors” to sell their properties, and prevent them from “pushing up house prices”.

This is … how shall I put it … a bit iffy.

Lots of reasons have been advanced for Australia’s high house prices. Some people blame negative gearing. Others blame things like first-home owners grants, or loose lending standards by the banks, or the Reserve Bank’s monetary settings, or just an irrational market boom.

Some of these are plausible, some less plausible.

The most likely culprit is that government regulation has unbalanced the relationship between supply and demand. State governments have restricted supply at the outer fringes of our cities and placed strict limits on development in the middle. This creates artificial scarcity and pushes up prices.

Anyway, these are all good theories, and worth serious discussion.

But the explanation being advanced by the Government – that foreign investors are causing, at least in part, our globally high house prices – simply doesn’t rate.

If there is foreign demand for investment in Australia, then supply should grow to meet it – unless supply is constrained in some way. Anyway, if you’re worried about foreign demand now, wait until you hear about natural population growth.

So it’s a bit disturbing that the foreigners-make-housing-expensive thesis appears to be a central part of the Abbott Government’s economic agenda for 2015.

In March last year Treasurer Joe Hockey asked the House of Representatives Economics Committee to look at foreign investment in housing. He wanted to know the pros and cons, whether that investment boosts supply of new houses, how Australia compares to overseas, and so forth.

The Treasurer may already have his own views. Back in 2010 he claimed increased foreign investment was “forcing up prices – particularly in Melbourne but all over the country”.

Anyway, the House Committee report was released in November. It’s 148 pages but the nub is this: “No one really knows how much foreign investment there is in residential real estate, nor where that investment comes from.”

That’s it. We don’t have enough information. Anything more than that is insinuation.

Still, insinuation is something that politics excels at.

Currently the Foreign Investment Review Board screens all foreign applications for house purchase. It is illegal for non-resident foreigners to purchase existing homes. Temporary residents have to sell their houses when their visas expire.

The fear is that some foreigners evade Foreign Investment Review Board screening and buy houses illegally, or fail to sell them when they go home.

But there hasn’t been any court action against foreign investors by the Foreign Investment Review Board since 2007. The committee writes that it “defies belief that there has been universal compliance” with the rules for that long.

Perhaps. But really we have no idea. Foreign investment laws are probably broken occasionally. But then again all laws are broken occasionally. The question is whether it happens often enough to draw the attention of the upper echelons of the Australian government.

And there is no evidence – none – to suggest that.

Of course the point here isn’t the sanctity of the law. It’s the politics of foreign investment. This is a political gambit designed to play to the assumed xenophobic instincts of the electorate.

You’ve heard the rumours about people being outbid at auction by “Chinese” buyers? Well, here’s a Commonwealth government policy to match!

I’ve written on The Drum in the past about how regressive and damaging restrictions on foreign investment can be.

Recall Kevin Rudd’s claim in the 2013 leaders’ election debate that he was “a bit anxious, frankly, about simply an open slather approach” to foreign investment, particularly in agriculture.

At that debate Tony Abbott was on the pro-foreign investment side, despite the Coalition’s policy to lower the review threshold for agriculture investment.

The political hostility to foreign investment was sparked by the Gough Whitlam-led Labor opposition in the late 1960s and early 1970s, and blindly aped by John Gorton and Billy McMahon as they tried to demonstrate Liberal Party renewal.

This was an era when closing the borders to foreign money was seen as the “progressive” thing to do.

But in 2015 it seems incredible that, in such a country so hungry for capital, Australia’s political leaders are still trying to lay the blame for our economic problems on foreigners.

Abbott’s Strategy Just A Blast From The Past

Here’s the problem.

Yes, Tony Abbott survived the spill. But that majority vote of support in the Prime Minister was not in spite of his public unpopularity. It was in spite of his underdeveloped plan for the next year of government.

Everybody is wondering how Abbott might be able to turn the ship around.

And Abbott’s plan, offered first at the National Press Club last week and repeated to ABC political reporter Chris Uhlmann the night before the spill, is worryingly insubstantial.

Far too much of the plan for the future harks back to the past. Not just avoiding the wasteful spending of the Labor years, but reversing or modifying Abbott’s personal commitments. No more prime ministerial picks for knights and dames. No more paid parental leave.

Stripped of all the rhetoric, the future of the Abbott Government looks like this:

One: a crackdown on unlawful foreign investment. “Better scrutiny and reporting” of agricultural sales and “better enforcement of the rules” governing house sales. Two: a further crackdown on Islamist radicals in Australia. Hizb-ut-Tahrir, we’re looking at you. Three: a families package, probably something to do with childcare. Four: small business tax cuts.

This is just not enough to pin the Government’s future on.

One of the most revealing and probably most politically powerful stories to come out this weekwas of a quiet discussion between Malcolm Turnbull and Tony Abbott in the Prime Minister’s office during the two-day cabinet meeting.

Turnbull asked Abbott what the plan was. Abbott repeated the major points from his press club address. Foreign investment. Hizb-ut-Tahrir. Turnbull, it was reported, was “underwhelmed”.

The story is drenched in Turnbull camp spin. But it’s very revealing nonetheless.

At the Guardian, Katharine Murphy has a good observation about how Abbott has struggled to define himself in government: “Abbott didn’t know if he was freedom Tony, or security Tony, or austerity Tony, or double the deficit Tony.”

But the confusion goes much deeper than Abbott’s personal philosophy. The Coalition came into power with twin but contradictory stories about how it would operate.

The first story was that the Abbott Government would be the restoration of the Howard era, an era of certainty, and relative economic prosperity. Labor had bickered and bungled around for six years. Abbott would bring back not only John Howard’s governing style, but much of Howard’s governing team. They would be an adult, long-term government. Politics would fall off the front pages.

Ironically enough, this desire to be an “adult government” actually created some of the problems of the first few months, as I pointed out in The Drum at the time.

Yet against this story of stability and certainty was the policy challenge the Coalition believed it had been elected to fix. It is relatively easy to abolish the carbon tax and mining tax, and, as Scott Morrison has demonstrated, not impossible to stop the boats, if stopping boats is your sole concern.

By contrast, fixing the budget in an era of economic sluggishness is an incredible challenge. It requires big, aggressive calls in controversial public policy areas. It requires revolution rather than stability. It makes boldness a more necessary virtue than steady competence.

You could see them struggle to balance these two stories all the way through September 2013 to May 2014.

Eventually crunch time came. Joe Hockey decided to lump all the big calls together in their first budget. They were presented as deficit reduction measures rather than reform proposals in their own right. This was a mistake. Rather than arguing for the budget proposals on their own merits, they stuck with a macro-level Labor-debt-and-deficit line.

Anyway, it all played out very poorly from there.

After many traumatic months nobody imagines that the boldness of the 2014 budget will reappear in 2015. We’re faced with the prospect of Bill Shorten’s small-target Opposition facing off against a gun-shy Government trying to compress itself into an even smaller target.

The prime minister’s office no doubt hopes the small target approach will stop Abbott from haemorrhaging in the polls, but at the same time it will do nothing to put the Government in a competitive position against Labor at the next election.

Governments, even stable, competent, Howard-esque ones, need a purpose; a goal, a vision. Clamping down on foreign investment – even if it was a good idea – isn’t enough.

And in the meantime, the nation’s finances are only going to get worse and worse.

Turnbull failed to put up his hand for the spill on Monday in more than one way. The Communications Minister may have been underwhelmed by Abbott’s plans but has offered no plan of his own. He’s presented no alternative strategy for righting the Government.

And that is almost certainly the conversation Coalition MPs are having right now.

Conservatives Turn Their Critical Eye On Abbott

You almost never get a natural experiment in politics like this. Yet now we’re in the third prime ministerial leadership crisis in five years.

So let’s use this unique and rich dataset (n=3) to draw some preliminary conclusions about Australian political culture.

Crisis 1 occurred in June 2010. Kevin Rudd was rolled by Julia Gillard.

Crisis 2 occurred in June 2013. Julia Gillard was rolled by Kevin Rudd.

We could add some nuances here. Perhaps Gillard’s entire prime ministership was one big leadership crisis. Rudd and his backers had brought the matter to a head twice before the final blow, in February 2012 and March 2013.

Whether Crisis 3 turns into Spill 3 is hypothetical of course. But we mustn’t let details like that hold us back.

In fact, we can’t. It is the nature of these crises that everything is, and will be, interpreted through a leadership lens. Malcolm Turnbull made a speech about Asia? Leadership pitch. Julie Bishop tweets during Abbott’s press club address? Leadership pitch. Scott Morrison put out a media release? Leadership pitch.

Once the cat is out of the bag it is hard to stuff back in. Every press conference is now about leadership. Even if Abbott pulled off a miracle – even if he is prime minister for 10 more years – leadership questions will fester through everything he and his ministers do.

A leak to Kieran Gilbert at Sky now suggests Bishop refused to guarantee she wouldn’t challenge Abbott at a meeting between the two on Sunday. We all know how this plays out. Things are moving very quickly along a well-worn path.

It’s tempting to blame the media for creating the crisis in the first place. This makes sense. They’re the ones asking all those distracting questions about who supports the PM.

But, as we know from last time and the time before that, all those anonymous quotes that litter our newspapers come from somewhere. All those public denials are undermined by private briefings to favoured journalists.

Recall that the Labor Senator Doug Cameron was so publicly angry about anonymous leadership stories in the Daily Telegraph in November 2011 that he threatened a press crackdown, accusing News Limited of being “a threat to democracy in this country”. Of course, it later turned out thatCameron was a big Rudd backer.

Peter van Onselen – who has had his fair share of briefings from discontented Liberal MPs -claimed on Twitter that some of the politicians roped into supporting Abbott at a weekend press conference didn’t actually support him in private.

Yes, Parliament House is really just a nest of professional liars.

And once a party’s stone-faced loyalty has been broken – as it has been, with seemingly every backbencher opening their hearts to every journo that calls them – it’s impossible to get back.

There’s something else that’s blindingly evident when we compare the Labor crises to this one.

Much of the conservative leaning commentariat admired Tony Abbott in opposition. He talked about the right things. He offered (many of) the right policies.

But a year and a half in, their critical floodgates have opened.

Now every significant conservative commentator has offered brutal assessments of how things are going. And they’re not just repeating Abbott’s “blame Labor” explanation. See, for instance, Andrew Bolt, Janet Albrechtsen, Piers Akerman, Grace Collier, Chris Kenny, and Miranda Devine.

This is healthy. When the dust settles – wherever it settles – hopefully conservatives will be able to identify the deeper sources of the Government’s malaise.

We saw nothing like this during the Gillard years.

Rather, the story from Labor’s media supporters was that Gillard was actually a great prime minister (great policies, great parliamentary negotiation skills) but let down by a mendacious News Limited, the Abbott wrecking ball, the evil Kevin Rudd, and the fact that she was female.

Oh, and those ubiquitous “communications problems”.

Now it seems Labor’s self-awareness has plateaued: the bulk of the blame has been laid on Rudd for “stalking” Gillard.

The conservative commentariat didn’t create this latest leadership crisis. But they’re reflecting a deeper dissatisfaction with the Government within the broader conservative movement – a dissatisfaction that began with Abbott’s slow start in 2013, crystallised with the deficit levy in the 2014 budget, became exposed after the Section 18C promise was abandoned, and spiralled out of control over the Christmas break.

The Prince Philip thing was just the catalyst, not the cause.

And if we’ve learned anything from the last few leadership crises, once there’s agreement on the cause, the consequences are hard to avoid.

Minimum Wages And The Path To Poverty

Do minimum wages cause unemployment?

The Productivity Commission intends to find out. In the words of its chief, Peter Harris, it wants to know “whether or not there is an impact from the minimum wage on employment – we will try and prove up that, or determine if it is a myth.”

This is quite ambitious.

The minimum wage is one of the most contentious issues in economics. This issue has been banged around since at least the 18th century. The broader question of whether imposing price floors reduces supply is centuries older again.

But it is obviously true that any sufficiently large minimum wage above the market price will lock workers out of the workforce.

Imagine we doubled the minimum wage from its current $16.87 an hour to $34. Employers would shrink their workforces and only hire people whose productivity could justify the new cost.

Still some doubts? Imagine tripling the minimum wage. Quadrupling it. Make it $168.70 an hour. Of course people would lose jobs.

Labour markets are markets. They are governed by the impersonal, amoral forces of supply and demand.

Yet our Fair Work Commission thinks “modest minimum wage adjustments” have a “small, or zero, effect on employment”.

Small or zero? How small is small? How modest is modest? It is obviously true that as a minimum wage increase approaches zero its unemployment cost will approach zero as well.

In Fairfax papers on Saturday, the economics writer Peter Martin argued there was little evidence that the minimum wage costs jobs.

Martin cited the most famous paper on the minimum wage in the last few decades – a 1993 study by the economists David Card and Alan Krueger. Card and Krueger looked at a minimum wage increase in New Jersey in 1992 and found a) the minimum wage didn’t cause unemployment, b) it actually increased employment, and c) it increased it by a lot.

Card and Krueger’s paper has become one of the most influential papers in modern economics. But it’s not the only study done on minimum wages. There’s much evidence that points the other way.

For instance, this paper from 2014 found that American minimum wage increases during the late 2000s increased the unemployment-to-population ratio by 0.7 percentage points.

A 2012 study that looked at 33 different countries between 1971 and 2009 found raising minimum wages “reduce employment levels amongst young people and those at the margins of work”.

This 2011 paper finds that minimum wages cause employers to favour young workers from more privileged households than less privileged ones.

This study concludes that the minimum wage hurts job growth over time, a burden that falls most on young workers and low-wage industries.

And in a 2003 paper, Australian economist-turned-politician Andrew Leigh also found small but real unemployment costs of the minimum wage.

We could go on, but ideally Drum columns should not just be lists of journal articles.

It’s true that for all the studies that find the minimum wage causes unemployment in the short or medium term, there are some studies that disagree. This is not a surprise, for a few reasons.

First, much of the research has been done in the United States, which has famously low minimum wages. American minimum wages are probably very close to the wages that would prevail in the open market, so they can’t distort employment all that much.

Second, when looking at minimum wage increases, we’re talking about very small changes to prices in very complex systems. Disentangling what policy change causes what variation in employment – particularly over the course of years, when there can be lags and broader economic changes – is incredibly difficult. Measurement is hard. Determining cause and effect is even harder. Welcome to economics.

And third, the cost of minimum wage increases might not show up in reported employment or wage data, but still could be worn by employees nonetheless.

For instance, employers might reduce conditions to compensate. They might save on training. They might spend less on heating the workplace. They might reduce non-monetary benefits. These costs are hard to measure, but they’re very real. (This paper from the US-based National Centre for Policy Analysis details those non-monetary costs.)

Despite these challenges, surveying the broad evidence in their book Minimum Wages, the economists David Neumark and William L. Wascher conclude that minimum wages are a “relatively ineffective social policy for aiding the poor”:

They entail disemployment effects that are felt most heavily by low-skilled workers. They discourage human capital formation. They lead to price increases on products frequently consumed by low-income families. And, on balance, they seem to do little, if anything, to raise the incomes of poor and near-poor families, and more likely have adverse effects on these families.

Of course, it is possible to accept that minimum wages cause unemployment at some margin but still support them, under the belief that the social security net should catch people who are kicked out of the workforce as a result.

But as I argued in the The Drum last month, our actually-existing safety net is a hotchpotch of paternalism and bureaucratic restriction.

Imagine how bad it will be if the Abbott Government legislates its no-welfare-for-six-months policy. Young workers unable to find work at the minimum wage will also be ineligible for the dole. This is a recipe for destitution.

It’s true that minimum wages are popular. So were housing rent controls and trade protectionism.

One day, hopefully, the Australian public will realise that by preventing the most vulnerable Australians from getting a foothold in the labour market, the minimum wage is creating the very poverty trap it is supposed to alleviate.

When Is Tax ‘Reform’ Actually Just A Tax Grab?

The worst thing about the Abbott Government’s newfound interest in reforming the GST is that it makes Kevin Rudd right.

During the 2013 campaign one of Rudd’s biggest attacks on the Coalition was that Tony Abbott was desperate to increase the GST.

The sole hook for this claim was the fact that the Coalition had promised a tax review that, unlike Rudd’s Henry Review, was supposed to scrutinise the GST alongside everything else.

On that basis any attempt to study Australia’s tax mix could be assumed as a plan to increase any and every tax.

Rudd’s GST attack was deliberate, disingenuous fearmongering – based on virtually nothing, used to fill out a campaign desperate for anything.

Yet now here we are, in 2015, and the Coalition can’t help itself talking about changing the GST.

Rudd would be feeling pretty good about his ability to predict the future. The great sage of Griffith.

There are apparently two proposals on the cards. The first is lowering the threshold at which consumers can import goods without paying GST. The idea is that local retail doesn’t compete on a level playing field against foreign websites.

The second is the perennial one of broadening the base. The GST should be applied to things like fresh food – things that were specifically excluded when the tax was first introduced by the Howard government at the turn of the century.

Both interesting ideas. It’s nice to chat about policy.

Incidentally, these proposals will raise the government quite a bit of money.

It’s painfully obvious that the main reason we’re talking about the changing the GST is because of the Government’s dire budget and political situation.

There’s a big difference between tax reform and tax grabs. The sudden interest in the GST looks everything like a tax grab.

But there’s another reason for the GST gabfest: the Coalition’s search for a “narrative” that will push them through to the next election.

Folk political memory recalls how John Howard won his first re-election on the GST – the same new tax that had sunk John Hewson just a few years before. Even more impressively, Howard pulled off this trick after an unfortunate and unhappy first term.

So you can understand why trying to replicate the master’s 1998 success might have some appeal.

But the GST was a grand program, not a technical adjustment. When Howard and Peter Costello announced the GST they described it as “not a new tax, a new tax system”.

The idea was not that the GST would simply replace the sales tax but would reduce taxes across the board. Howard claimed “the heart” of the system was “the largest personal income tax cut in Australia’s history”. And the GST was supposed to allow states to abolish stamp duties and transaction taxes, and a host of other inefficient taxes.

Despite some superficial similarities, Howard was in a very different political space to Abbott. Howard had much more political capital. Budget repair was on track. There was a sense in the late 1990s that we had prosperity in our future – a sense somewhat lacking today.

And, most of all, Howard’s “non-core” promises did nowhere near as much damage as Abbott’s policy backflips have done.

One of the most credibility damaging moves this Government made was its introduction of the deficit levy on high income earners in the 2014 budget.

Not only did it destroy the promise that “taxes (will) always be lower under the Coalition”, but it raised the marginal tax rate on high income earners to 49 per cent – just under that morally dubious rate where more marginal income goes to the government than to the earner.

The Abbott Government’s approach to taxation thus far has been almost exactly the same Labor’s. They’ve been trying to quietly bump up taxes and tax rates at the edges without causing a stir. In August last year the indexation of the fuel excise resumed. In April the Fringe Benefit Tax rate is going to be bumped up as well.

Then of course there’s bracket creep, which steadily and inexorably raises everybody’s tax rate without the Government having to lift a finger.

You might object that possible changes to the GST should be treated on their own merits. They’re either good ideas or bad ones, regardless of what else is going on in the broader economic or political sphere.

As my IPA colleague Mikayla Novak has pointed out, lowering the import threshold is in the not-a-good-idea category. It won’t fix the problems of the retail sector, and it would be prohibitively expensive to impose.

And as for broadening the base? Well, a broad tax is better than a narrow one. But unless this change is matched by wider reform, imposing the GST on food would be simply soaking the poor.

But the Government isn’t thinking about efficiency, or fairness. It’s thinking about politics. Let’s hope parliament doesn’t use the GST for a short-term budget fix.

The Inability To Handle Criticism Shows Weakness

In his discussion of religion in Dialogues Between ABC, the great French writer Voltaire makes a simple point about freedom of speech.

“If a country’s religion is sacred”, says Voltaire, then “a hundred thousand volumes written against it will do no more harm [than done] to rock-solid walls by a hundred thousand snowballs. How can a few black letters traced on paper destroy it?”

One must now add: or a few coloured cartoons.

The Charlie Hebdo massacre was supposed to demonstrate Islamism’s strength. It revealed the opposite: the weakness inherent in any ideology that is unable to handle criticism with anything but force.

The Islamist radicals who committed this terrorism – and those who would support it in the West and around the world – are contemptible. They war against a modernity they cannot control or change.

Why? Freedom of speech is really a misnomer for the liberty we really care about. The speech isn’t the point. Charlie Hebdo’s cartoons aren’t the point. What really matters are the ideas that underpin the speech.

It is one thing to kill a speaker. But the beliefs of Charlie Hebdo’s readers are what matters. And this terrorist attack does nothing except confirm pre-existing views on the irrational sensitivity of Islamism and even a concern that Islam does not fit in a pluralistic, irreverent society.

So the debate over whether the Charlie Hebdo cartoons are satirical or just offensive completely misses the point. Either way, they were expressing an idea. Who cares whether that expression was done cleverly or not?

Yet apparently many do. In free speech debates there are always people who want to pontificate over the tone of the speech that has been censored or punished. We read that it was not reasonable, or civil. That it was unbalanced. That it was deliberately provocative. A Financial Times writer was quick to condemn editorial foolishness and Muslim “baiting” at Charlie Hebdo. One leaked Al Jazeera email said “insultism is not journalism”. If only they’d been more responsible, like real journalists.

Such journalistic boundary-policing does the profession no credit. Journalism isn’t special. It is just a form of expression. It deserves no more or less speech protection than any other form. Yet boundary policing always follows incidents like this. And we hear it from the same sort of people who have that quote that journalism is “printing what someone else does not want printed” on the wall of their cubicle.

In his memoirs, Salman Rushdie writes of his disdain of the earnest debate over his literary ability conducted after he was forced into protective custody for insulting Islam in The Satanic Verses. Everyone piled on. Even Prince Charles called Rushdie a “bad writer”. Putting aside that sort of critical dubiousness, so what? What relevance does quality have when protecting speech? Why criticise a victim if not to blame them?

In a liberal democracy the state is supposed to have a monopoly of force. Only the state has the lawful ability to conduct violence in the pursuit of its agenda.

The Charlie Hebdo massacre shows that not all threats to free speech come from the state. But it helps illuminate the basic contest in free speech. On the one side there are those who accept the plural society, and can tolerate the sometimes offensive cacophony that involves. On the other side there are those who would punish ideas with violence, whether that punishment is the violence of state power or murder.

This is why there is nothing more cynical than the politicians who have jumped on the Charlie Hebdo solidarity bandwagon yet impose force against speech at home.

The Egyptian foreign minister attended the Charlie Hebdo unity rally over the weekend, while Peter Greste languishes in an Egyptian jail. Almost every Western nation whose leaders announced their moral support for protecting offensive speech in the wake of the massacre also has laws against “hate speech”.

Whatever those politicians are protesting for, it is not the sanctity of freedom of expression.

Over the weekend Tony Abbott said in defence of Charlie Hebdo that “from time to time people will be upset, offended, insulted, humiliated…but it is all part of a free society.” This is a curious choice of words. Just a few months ago his government declined to remove the words “offend, insult, humiliate and intimidate” from section 18C of the Racial Discrimination Act.

Nevertheless, there is politics on both sides of the conflict. In both the Rushdie affair and the 2005 Danish cartoons crisis (when the newspaper Jyllands-Posten published a series of cartoons depicting the prophet Mohammed, leading to a diplomatic crisis and violent protests in the Muslim world) it later became clear many Islamist radicals were using their offence to pursue personal political agendas: to bolster support in Muslim countries or in their expat communities.

As Jytte Klausen writes in her 2009 account of the Danish crisis, The Cartoons that Shook the World, “Anger and pride certainly influenced the behaviour of some of the main actors, but so did deliberate political calculation and motives other than the public ones.”

The audience for these attacks on the West are not solely in the West. But the message they broadcast, domestically and internationally, is not that radical Islamism is strong, but that it is a weak, ideological dead-end.

The Government Can Revive Its ‘Freedom Agenda’

The promise to repeal or reform Section 18C of the Racial Discrimination Act may have been shelved, but it is not too late for the Government to revive its “freedom agenda”.

In opposition Tony Abbott and George Brandis made much of their commitment to freedom, arguing that the Liberal Party was “freedom’s bulwark”.

Unfortunately, this agenda is looking a little sad after they dropped the 18C promise, not to mention all the other stuff that’s happened in the last six months.

Yet one of the less heralded parts of the freedom agenda could set up a program of serious liberty-focused reform.

Sometimes the most important reforms are those that are done slowly and quietly.

In the first few months of the Abbott Government, Brandis asked the Australian Law Reform Commission to inquire into Commonwealth laws that encroach on what he described as “traditional rights and freedoms”. The ALRC produced an issues paper and a request for submissions in December.

The genesis of this inquiry is significant.

It was born in the contest over the Gillard government’s Human Rights and Anti-Discrimination Bill 2012. Remember that? This was the bill that would have made it unlawful to offend someone on the basis of their political opinion in the workplace.

The 2012 bill wasn’t really a “human rights” bill at all, as I argued on The Drum at the time – it was a consolidation of existing anti-discrimination law, symbolic of the capture of almost all human rights discourse by anti-discrimination.

The irony was that the bill was itself the remnant of Kevin Rudd’s grandiose dreams of a statutory bill of rights for Australia, yet it restricted human rights in some very important ways. For instance, it placed the burden of proof on the person accused of discrimination, and restricted the right to legal representation.

This correctly got Brandis and the Coalition fired up about Labor’s hostility to traditional legal protections.

For Brandis, and consequently for the ALRC, what constitutes “traditional rights and freedoms” is extraordinarily broad.

It includes things like freedom of speech, religion, association, and movement. Property rights are in there for good measure.

Then there are rights we exercise in the course of legal proceedings: the right to a fair trial, the right to appeal, the privilege against self-incrimination, and procedural fairness.

To top it off the ALRC is looking at broader governance principles like limiting the delegation of executive power to bureaucracies or regulators and maintaining judicial review of legislation.

This is a pretty comprehensive set of the tenets of liberal governance. The ALRC is going to find it very hard to do justice to just a small fraction of its inquiry.

But, on the other hand, it’s hard to imagine a more important inquiry for this Government, or any government, to pursue: a serious audit of the state of Australian law.

Debates like those over section 18C and the Human Rights and Anti-Discrimination Bill come and go, but Australia’s legal framework is the accumulation of decades of legislative busy-work. We look at laws individually as they are introduced or reformed but rarely do we step back to survey the full legal landscape.

We’re all familiar with commissions of audit for government spending. Wouldn’t it be nice to have periodic audits of our liberties?

In December my Institute of Public Affairs colleagues Simon Breheny and Morgan Begg released a report into just one facet of the ALRC’s traditional rights and freedoms: the rights that protect us while interacting with the legal system.

Breheny and Begg looked specifically at the right to silence, the presumption of innocence, the privilege against self-incrimination and what’s called “natural justice” – which constitutes things like the right to a trial, to appeal, to know what is alleged against us.

They found an astounding 262 provisions in Commonwealth law alone that breach these legal rights. Everything from the Telecommunications Act to the Agricultural and Veterinary Chemicals Code Act in one way or another abrogates these basic legal principles. The labyrinth Fair Work Act violates all four. So does the Competition and Consumer Act.

Breheny and Begg suggest these breaches of principle have been increasing in recent decades. If so, they’ve been increasing alongside the more general increase in legislative activity since the 1970s – governments are passing more, and longer, legislation than ever before.

Brandis asked the ALRC to look particularly into rights breaches within commercial and corporate regulation, environmental regulation and workplace relations law.

Breaches of fundamental legal rights in these sorts of acts tend to be ignored by Australia’s human rights community.

Indeed, the scope of the ALRC inquiry reveals how myopic and narrow the Australian Human Rights Commission has been, which appears to focus almost exclusively on anti-discrimination.

Things like the extraordinary powers granted to the Australian Securities and Investments Commission seem to be outside their frame of reference.

The people whose rights are violated by ASIC tend to be business types: managers, board members and executives.

That is, unsympathetic capitalists.

But, as the ALRC will hopefully conclude, even capitalists deserve attention for their traditional rights and freedoms too.

Testing times make for great (and awful) leaders

Tim Fischer, deputy prime minister in the Howard government, thinks John Monash, the legendary Australian military commander during the First World War, deserves a promotion.

Fair enough. But Fischer has stumbled upon a bigger issue in Australian history – the mendacious jingoistic hopelessness of one of our most famous prime ministers in one of the most important times in the development of the nation.

In his new book, Maestro John Monash: Australia’s Greatest Citizen General, Fischer argues that Monash was denied the rank of Field Marshal because Billy Hughes, prime minister between 1915 and 1923, was both jealous and anti-Semitic. Monash had both German and Jewish ancestry.

A promotion is not the only honour Fischer would like for Monash. He would like the main street in Monash’s childhood home of Jerilderie to be renamed John Monash Parade. He’d like a bridge Monash helped build in Benalla to be renamed the John Monash Bridge. He’d like London’s Imperial War Museum to recognise Monash’s contribution, and some newspapers that downplayed Australian war efforts a century ago to rectify that error. Along the way he’d like some WWI battles renamed, for clarity.

(Yes, Maestro John Monash is a very policy-oriented biography.)

Fischer says the idea of promoting Monash to Field Marshal has precedent. The cause has been taken up by the Assistant Treasurer Josh Frydenberg.

But the real spotlight here has to be on the bad guy in Fischer’s story – Billy Hughes.

Historians tend to be most impressed by active prime ministers. Usually those that govern during war do well on that measure. Testing times make for great leaders. Take John Curtin, who has been the subject of more hagiographic praise than any other PM. (John Hirst makes the case against Curtin’s greatness in his 2010 book Looking for Australia.)

Billy Hughes benefited in his lifetime from the patriotic enthusiasms of the First World War. Now he’s largely faded into old Labor legend as the archetypal “rat”. Otherwise he’s best remembered for his two failed referendums on conscription during the war.

But in retrospect it is hard to think of a worse Australian Prime Minister than Hughes.

Hughes’ record is dismal. His support for conscription is bad enough. (Ronald Reagan once described conscription as the “assumption that your kids belong to the state”.)

Hughes fostered a split in the Labor Party and created an alliance to hold government united by nothing except aggressive wartime patriotism. This Nationalist coalition represents the final death knell of classical liberalism as a political force in Australia.

As an administrator he was a failure. Even as sympathetic a biographer as Donald Horne had to say that Hughes was an “incompetent wartime prime minister”.

At the Versailles peace treaty he was the most extreme supporter of German reparations. He even wanted Germans to compensate Australians who had financed their purchase of war bonds by taking out mortgages. The final harsh reparation settlement contributed to the later German economic collapse and the rise of Nazism.

Just as consequential was his aggressive and passionate support of the White Australia Policy. A Hughes biographer, W Farmer Whyte, writes that “nobody had fought harder than Hughes to place Australia’s immigration laws on the statute-book”.

When Japan proposed in 1919 that the covenant of the new League of Nations should have a clause defending the principle of racial equality, Hughes was the clause’s most aggressive critic. He was worried it would threaten White Australia.

The historians Geoffrey Blainey and Margaret MacMillan have both argued there is a clear relationship between the defeat of the racial equality clause and subsequent Japanese belligerence towards the West.

Either way, there is no doubt that thanks to Hughes, Australia’s contribution to world peace at Versailles was an unmitigated disaster.

Poor old Billy McMahon is regularly pummelled as the worst prime minister in surveys (Wikipedia has an overview here). Left and right like to argue that either Robert Menzies or Gough Whitlam was the worst.

But none of these leaders’ flaws can possibly stack up next to Hughes – who was incompetent during the First World War and the biggest supporter of mistakes which led up to the Second World War.

Hughes’ incredibly poor leadership is the embarrassing counterpoint to the Anzac heroism we are remembering during the WW1 centenary.

Australians don’t have a deep political memory. We don’t debate our political past as, say, the Americans do. Our newspapers aren’t filled with comparisons between political events and their historical precedents.

But our political history matters. Hughes was an inept leader who benefited from the patriotism of wartime. He was sustained by a political class who valued his populist touch more than good government. There are some lessons there we could file away for the future.

So should John Monash be promoted to Field Marshal? Monash was a great military leader, and deserves to be judged on his merits.

But, then again … if by doing so it further exposes our worst prime minister for the failures of his time in office, it might be worth it.

Welfare Plans An Assault On Our Freedom

Last Thursday Kevin Andrews, then minister for Social Services, wrote in The Australian that income management – the practice of “quarantining” a portion of social security payments for approved purchases like food and accommodation – is central to the Abbott Government’s welfare reforms.

Four days later he was replaced in the social services ministry by Scott Morrison. This has been seen as somewhat a demotion for Andrews, who now takes Defence.

But it is in no way a repudiation of Andrews’ plans. Far from it. Morrison was lauded at the reshuffle press conference as a minister who gets things done. One of the things to be done, no doubt, is the expansion of income management.

This is not a good thing. Income management is paternalistic and illiberal. It’s counter-productive, too: far from discouraging welfare dependency, it encourages that dependency.

Yet income management has bipartisan support.

Income management was first introduced as part of the Northern Territory intervention in 2007. The idea was to prevent the sort of child abuse and neglect that had been described in the Little Children Are Sacred report. The policy was originally imposed on a few dozen specifically nominated vulnerable communities.

The original idea was to use income management as an emergency measure in a moment of deep social crisis. But policies that are introduced in a crisis tend to stick around. They entrench themselves in the policy landscape as bureaucrats build reputations on their success – and try to hide their failure.

So the Rudd and Gillard government decided income management ought to be rolled out to at-risk populations across the country. Income management is now being tested in areas like Bankstown in New South Wales, Shepparton in Victoria, and Logan in Queensland.

Last week the Government released a commissioned report that found that income management had not substantially changed what welfare recipients buy. Nor had income management reduced alcohol purchases or problems like running out of food. (You can read the report here.)

It’s absurd that governments say they want to reduce welfare “dependency”, yet at the same time actively encourage such dependency by taking freedom of choice away from welfare recipients.

And instead of encouraging “financial literacy”, income management appears to reduce it – by treating welfare recipients as incapable and incompetent.

Right now income management affects very few people. Most Australians might not even be aware the system exists.

But it is peculiarly central to the debate about the proper size and shape of the welfare state.

One of the great philosophical arguments concerns how we understand the concept of “freedom”. In the classical liberal story, people are free when they are not being coerced by external forces like governments or other people. This is a negative conception of freedom. It’s all about the absence of constraints.

Social democrats have long criticised this idea of freedom by saying that it takes more to be truly free than just no constraints. A free person is someone who has the capacity – the resources – to pursue their own goals.

Thus, the goal of the welfare state is to enhance a positive conception of freedom, by giving all members of society not only the right to live lives of their choosing, but the ability to do so.

But those welfare recipients who now have their purchases micromanaged by Centrelink are unlikely to feel very liberated.

As this paper from 2013 points out, income management allows government to monitor shopping habits with attendant costs to privacy and feelings of autonomy.

Indeed, decades of paternalism applied to welfare recipients has undermined the idea that government-provided social security is in any way “liberating”.

Those placed on work for the dole schemes obviously do not feel more free for being conscripted to do menial tasks below minimum wage for non-profits.

And would those who would have been subject to the punishing high numbers of job applications proposed in the May budget – 40 applications per month – have felt that they were enjoying any sort of positive liberty? Of course not.

It is certainly possible to imagine a welfare state not built around paternalistic mutual obligation requirements. But, in Australia at least, it seems that every political incentive is driving our real-world welfare state towards them.

A person must not lose their rights the moment they receive government assistance. It would be incredibly dangerous to think otherwise. Governments have involved themselves in so many facets of our lives that there are few people who do not receive some form of assistance.

In 1944 the economist Friedrich Hayek wrote his bestselling book the Road to Serfdom, where he suggested that social democracy’s expansion of government control would undermine civil liberties.

Hayek has been ridiculed for that argument ever since – post-war Britain did not turn into a totalitarian dictatorship.

But 70 years after Hayek published his book, welfare paternalism is demonstrating that when government is involved, coercion almost always follows.

Stop Putting It Off: We Need A Surplus ASAP

The Mid Year Economic and Fiscal Outlook forecasts yet another budget blow-out of the sort that we’ve become used to over the last decade.

This time the budget papers predict a surplus in financial year 2019-20.

That’d be during the Abbott Government’s third term.

For the last few years we’ve constantly heard the government has “obsession” with surpluses. Take this piece by David Richardson in The Drum here, or Alan Kohler in Crikey here.

MYEFO has demonstrated, beyond a doubt, why that “obsession” is so necessary.

Budget repair is not a trivial task that can be delayed until it is more convenient, or just sidelined in favour of social policy reform. It’s never convenient. And there’s always another social program that can be introduced.

Back in 2011 Wayne Swan wrote in an essay for the Fabian society “If we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again.” That is, having splurged money while the economy was going down, they should save money when the economy is back up.

It’s a shame that none of the Rudd, Gillard, or Abbott governments have ever had the strength or desire to make good on their words.

I wrote a grumpy piece for The Drum on the eve of the 2013 election after the Treasurer-in-waiting Joe Hockey downgraded his surplus promise. What had begun as a pledge to get the budget into surplus immediately became an ambition to be “on-track” for a surplus at the end of Coalition’s first term.

At the time, Hockey’s downgrade could have looked like prudent expectations management. In retrospect it was the entire political class throwing in the towel.

Budget politics is incredibly hard. Politicians don’t win friends when they cut spending.

Yes, Labor is much at fault here – they made the deficit, and they’re doing nothing to help clean it up their mess.

But there’s a deeper story below all the political argy-bargy. And it’s to do with the advice both Swan and Hockey have been receiving.

For a few months Hockey has been offering variations along the lines that the Australian economy is too weak to cut drastically. On Monday this assumed a more rigorous formulation. The budget is now a “shock absorber” for the collapse in commodity prices. If the government cut the budget harshly, “Australians would lose jobs and we will lose our prosperity.”

The economic theory behind this is pretty orthodox Keynesianism. Under this style of thinking, the government’s budget is a lever with which to manage the macroeconomy. Government spending doesn’t crowd out private spending, it substitutes for it.

That’s why Treasury don’t want the Coalition to introduce new, large-scale spending cuts. They reason that a drop in government spending would lower economy-wide demand.

Almost all the cuts in MYEFO are designed to offset new spending announced since the May budget. The government’s national security program and the conflict in Iraq are substantial new costs which have to be paid for. Hockey has sought out savings but only with the goal to leave the overall budget position where it is.

Can’t the government just raise taxes to get into surplus?

Well, in the Keynesian story an increase in taxes would have the same macroeconomic effect as a reduction in government spending – suppressing demand and confidence. Hockey suggested as much in his brief press conference yesterday.

One Keynesian alternative is that tax cuts might help boost the economy. But by reducing revenue, those cuts would make the budget bottom-line even worse.

So, with the advice Hockey is getting, there’s nothing to be done on the revenue side.

What we’re left with is a sort of vulgar Keynesianism that relies on just one tool – spending, not revenue – to manage the economy’s ups and downs. Monetary policy is seen as secondary. The real work is done by government spending.

In 2008 and 2009 the Rudd government adopted a kind of one-shot Keynesianism – a single, giant increase in spending to try to prevent Australia going into recession.

This was a sort of intellectual revolution for Treasury. Ever since the 1990s it had been sceptical about the virtues of stimulus spending. Sometime in the last years of the Howard government, Treasury changed its mind.

Rather than viewing fiscal policy as a break-glass-in-case-of-emergency fire axe, now Treasury is beginning to see fiscal policy as a way to micromanage the economic cycle, year by year, budget by budget.

We’ve had experience of this approach to fiscal policy before. In the post-war era, policymakers were mesmerised by the possibilities of the John Maynard Keynes’ ideas. Grasping copies of his 1936 book, General Theory Of Employment, Interest And Money, they pored over the tea leaves of economic statistics and tried to match the budget to the economy’s headwinds.

But this post-war budget Keynesianism was chaotic and unpredictable. Australian governments were derided as “stop-go” economic managers.

It would be nice to think that Treasury is better at micromanaging the economy in 2014 than it was in 1960. We’re so much smarter than our grandparents. We have more and better theory, and more and better data.

But so far the only thing that confidence has given us so far is a surplus pushed further and further into the future.