In Search of Good Government Page 5
While on the one hand seeking to protect people from the ravages of change, the Hawke–Keating government also tried to make clear to voters that they could no longer presume that the state would look after them as it once had. The state would provide enough funding to universities to ensure places for those wishing to attend, but students would now have to make a contribution once they saw the financial benefits of their education. Workers would now be expected to negotiate directly with employers on an “enterprise” basis rather than through relatively anonymous, industry-wide negotiations. They would be expected to make concessions about their conditions in return for pay rises, all aimed at boosting the productivity of the business. But there would be a “safety net,” a non-negotiable floor under pay and conditions across the economy, to ensure workers were not exploited. People would have to start paying more for their utilities – phone, water, gas and electricity – to reflect the market cost of providing them, but they were promised that competitive markets would keep these costs down. Perhaps most powerfully, there was a debate about retirement incomes. Following a review of the social security system, the message went out: Australians could no longer presume that the state would finance their retirement through an age pension.
Until that point, superannuation had been an expensive financial product, with limited appeal to lower income workers with cash-flow problems. It was sometimes a tax break for those who could afford it. Companies that provided super schemes sometimes saw them as no more than a mildly dodgy source of captive investment in their own shares. Few people took it seriously as a source of funds for retirement. In fact, a notable feature of the superannuation system was the “double dip.” This was the process by which you retired, spent your super on, say, an overseas trip or a boat or a caravan, then went on the pension. In an age when it was not fashionable to defend the indefensible, I have a clear memory of a Labor backbencher coming out in defence of the double dip on behalf of her constituents. They’ve saved for their retirement, she argued, so they are entitled to spend their super however they want and they are entitled to the pension because they’ve worked and paid taxes all their lives.
In the 1970s, during Malcolm Fraser’s prime ministership, politicians and newspaper headlines had trumpeted the need for crackdowns on dole cheats. But these discussions had always been about taking welfare away from people who “didn’t deserve it,” and cutting excessive spending (implicitly, excessive spending initiated by the Whitlam government). But now it wasn’t just the dole cheats losing unfairly gained benefits. Most Australians saw things such as the tax concessions provided to superannuation, or even the age pension, not as welfare but as rights. The idea that welfare should be available on the strict basis of need was new. Everyone would have to start expecting less of government.
And then came the recession of the 1990s. Hundreds of thousands of jobs were shed from both the previously protected parts of the economy, such as the car industry and the textiles, clothing and footwear industries, as well as the large range of federal and state government utilities: electricity generators, the telecommunications monopoly and transport systems. Adding up the job losses in 1991, I documented up to 114,000 jobs that had gone in the previous couple of years and another 220,000 that were earmarked to go.
Not only was government no longer protecting jobs, it was also aiding and abetting in cutting them. Some people lost their savings as financial institutions went to the wall. Governments didn’t always intervene to save the institutions or reimburse the customers. Others lost their shirts in the speculative push into equity markets, fed by a newly deregulated access to credit and debt. Housing prices fell as inflation subsided. The great Australian obsession with property had one of its rare sour moments. We saw the downside of deregulation, of opening up our economy and the withdrawal of government, in one frightening period of uncertainty.
The spectre of the recession magnified the unfolding human drama of competing ambition between Hawke and Keating, and the emergence of an unrestrained free-market agenda from a Coalition led by John Hewson. The government broke under the strain and re-created itself under a remade Keating. He left the front bench as the man who had preached the need for fiscal discipline and micro-economic reform. He returned as a Keynesian intervener. Paul Keating, prime minister, advocated government spending to kickstart the economy and a big outlay on roads and rail. Big tax cuts were promised once again – although for the first time these were not a trade-off but simply a move to match those offered by Hewson. Keating also spent more time trying to define Labor’s social goals in an era of economic change. His social messages were not directed at the general population but at specific groups. Whether it be for indigenous Australians or the unemployed, Keating’s message was that as a nation we should “reach back” for the poor and dispossessed and ensure people were not left behind.
But having carried voters with him so far along the path of economic change, he didn’t seem to recognise that the recession had left them feeling exposed and vulnerable. And, of course, the faith that had developed that Keating knew what he was doing was shattered. In 1993 Keating (the change merchant) won an election by promising to be the bulwark against more – and more radical – change. The push towards radical free-market economics within the Coalition came to an abrupt halt with the defeat of Hewson’s Fightback! proposals at the 1993 election. The Coalition conceded it had gone too far for the electorate’s liking and spent the next couple of years softening, sometimes disowning, Fightback!
With Keating changing the story, and radical reform defeated, the language of politics and its subjects of interest changed dramatically after the 1993 election. Voters had grown tired of accepting that deregulation and change would be good for the economy, and therefore good for them. They wanted to hear once again that government was there to make things better. Politicians stopped talking so much about the economy and reform, and started talking of other things. The Accord, and the social wage that had accompanied it as the basis of a new “settlement” defined by Labor, ran out of steam.
By 1996, voters were even more tired of rolling change and tough medicine. They were tired of Keating’s prime ministerial calls for social change, too, whether it be on Aboriginal land rights or the republic. Keating would be defeated in that year by John Howard, who promised voters some respite and, in the process, redefined the relationship between government and voter. Howard offered empathy to Australians and told them they were “battlers.” He wanted Australians to be “comfortable and relaxed” and brought us back to the idea of state paternalism, even though so much had changed from 1983 onwards in a way that could not be unchanged. He promised to protect voters from the new migration threat: boat people. He ramped up our relationship with the United States when the world became scary. While Labor had offered tax cuts and social services as part of a clear compact on wages and agreement to reform, Howard simply told voters that they were entitled to government support.
In a speech in 1995, Howard diagnosed problems in the relationship between government and individual as “due [in part] to the perceived inability of governments to solve basic challenges and to cure the many social ills, and arrest the processes of disintegration which have overtaken so much of Western life in past decades.” People had lost faith in government. He noted a “world-wide shift to the right in the policy debate on economic issues,” which, coupled with the end of the Cold War, had resulted in a “less ideological political debate.” This, in turn, had led to a “de-tribalisation of politics,” and, with uncommitted and swinging voters becoming more numerous, “election campaigns themselves have assumed much greater significance.”
Howard’s analysis of how the political debate had changed did not directly address the biggest change of all: the impact of economic deregulation on expectations of government. However, he sought to reassure voters that he and the Coalition were moving away from the hard-line economic arguments of the past:
I have never seen econo
mic rationalism, economic efficiency – or call it what you will – as an end in itself or a stand-alone political credo… Australian Liberals are not blindly hostile to government but they are profoundly suspicious about what governments can achieve and are concerned about the concentration of power now in the hands of government. For Liberals the role of government should always be strategic and limited … A proper balance must be struck between a healthy scepticism about what governments can achieve, and the Australian tradition of believing that there is a role for government which goes beyond it being a mere keeper of the ring.
Howard’s speech acknowledged both the “Australian tradition” of a wider role for government, and the Coalition’s preference for a smaller role. He spoke of smaller government in the sense of “getting government off people’s back,” but promised that the Coalition would not be going to the extremes espoused by leaders such as Margaret Thatcher and Ronald Reagan.
In fact, his 1996 election platform was not about small government as much as a small target. There was a plan to sell off part of Telstra to finance an environmental fund, but both the partial sale and the environmental pay-off were acknowledgments that privatisation was one of the few deregulation issues that voters would regularly baulk at, from the 1990s to the present day. There were reforms to unfair dismissal laws as an aid to small business. Howard also adopted Labor reforms like Medicare – a big economic intervention that the Coalition had furiously opposed for years – as a core value.
Howard offered a retreat from reform and change and a shift to talking about the desires of individual Australians. In the wake of the Hewson years, he recommitted to terms such as a “decent social security net,” “a strong health system” and “expanding educational opportunities.” After years of national crisis and real cuts in wages to break the back of inflation, Howard said he aimed at “restoring a sense of progress, where our children are better off than we are, that once again our standard of living will be among the highest in the world.”
With his resounding victory, Howard came to office arguing that the Hawke and Keating years had seen Australian politics dominated by a small group of vested interests, notably the trade unions and “elites,” and promised to give government back to the community. In doing so, he rewrote the history of the 1980s. He recast the intent of peak-body politics from what it had been – an attempt to reach agreement on national goals – to something dark and sinister. He claimed authorship of financial and industrial deregulation, but quietly walked away from many of the changes that had taken place with his support. He shifted the political debate from one about changing institutions for the betterment of the economy in the future to one about personal empathy with voters.
Howard inherited an economy that had shaken off recession and its aftermath. With a floating exchange rate and low inflation, the nation could finally defy the boom–bust rhythm that had shaped so much of our history. His government’s first budget cut government spending hard: labour-market programs, the states, the public service, universities, nursing-home residents, the unemployed – all were targeted. Howard also imposed new taxes. It was not an exercise he would ever repeat. But, combined with a resurgent economy, it was sufficient to set the government up to return to surplus.
The Coalition’s story about the economy became a very simple one about reducing government debt. This embraced both the politics of Labor as an untrustworthy economic manager and a fear of outsiders taking control of the country. The idea that we were losing control of our national sovereignty because of our high levels of debt had been a key message of the Coalition’s 1996 election campaign, and it reflected a fear that was to find voice on talkback radio and in the politics of Pauline Hanson.
By the time Howard came to office, the headline economic reform issues of the 1980s had largely been addressed. Long time frames for cutting tariffs, for example, had been set in place by the Hawke and Keating governments and rarely had to be revisited. When the car industry’s tariff phase-down came up for review during the Howard years, the prime minister instituted a pause.
Howard and his treasurer, Peter Costello, stopped talking about the economy in the way Keating had, stopped having the monthly press conferences to explain what was happening. Yet, after attacking Labor for years for not reining in foreign debt, Howard presided over an increase in it at a time when Australia’s terms of trade were the best they had been for a generation. A country’s foreign debt funds the cost of the difference between what it exports and what it imports. Even if governments cut their debt by not spending as much, someone still has to borrow overseas to cover the difference. Under Howard, however unwittingly, it was households that started to raise foreign debt via their demands for credit from banks that borrowed overseas on their behalf.
Rod Tiffen and Ross Gittins point out in the 2009 edition of their book How Australia Compares that Australian household debt in relation to disposable income almost doubled during the Howard years. Some other countries have even higher levels of household indebtedness, but Australia is now considerably above the average. A central reason for this was the increasing price of housing, with Australia experiencing one of the sharpest rises in prices worldwide, so that mortgages in relation to income grew prodigiously during the Howard years. This suggested increased financial stress for many people, despite the relatively good economic growth.
But, as Tiffen and Gittins also observe, current account balances, household debt and house prices were outcomes of markets. Government had limited influence over the decisions of the individuals and companies who traded in those markets. They continue:
At first the Howard government thought that rising home prices was good news: “I haven’t found anybody stopping me in the streets, shaking their fists and saying John, I’m angry that the value of my house has gone up,” said Howard during the first years of the housing boom, a tone that would change later as housing affordability became a vexed political issue.
Howard’s response to the increasingly difficult politics of housing was to offer subsidies for first-home buyers (which only inflated prices further) and general tax cuts, and to blame the states for a lack of developed land leading to higher prices.
An important part of his political formula was the “Howard battlers,” the large group of traditional Labor voters who moved to the Coalition in 1996. John Howard’s political strategy for the next eleven years had them as its central focus. In reviving and redefining the idea of the battler, Howard began a process of reinforcing voters’ notions of how tough they had it. Not that the hardship was the fault of the government, mind you, but it was always on the lookout for how it could help. Having noted the de-tribalisation of politics in the 1980s, Howard moved to create his own tribe. The battlers were not just low-income earners, but middle-income earners too. In fact, it sometimes seemed that few people couldn’t be classed as battlers. Government became a source of endless avuncular tax cuts and new cash entitlements: the baby bonus, the first-home owner’s scheme, the private health insurance rebate. There were no more messages about having to fend for yourself at retirement. Of course, the government spoke in favour of every person’s right to make decisions without government interference. It was just that, whatever you did in life, there seemed to be a government payment to help you along the way.
Talk of reform faded after the big spending cuts of the 1996 budget, with the exception of the introduction of the GST four years later. As for small government, that was well and truly forgotten. A paper produced by the Treasury noted that the growth in government spending in the years leading up to 2007–08 – the end of the Howard era – “stands out, along with the growth in spending under the Whitlam Government in 1974–75 and the increased spending following the recessions in 1982–83 and 1990–91.” The Treasury paper revealed in all its glory the trend of giving individuals money rather investing it in traditional government areas such as health and education.
In Peter Costello’s last budget, 41 per ce
nt of the spending (in a booming economy) was on social security and welfare, and just 18 per cent was on health. Howard’s big health outlay was on a subsidy for private health insurance, not for the hospital system. While user-pays might have always been a central tenet of liberal belief, the integrity of this principle was severely compromised by the constant hand-outs. These also sat oddly with the fact that Costello had alerted us to the looming problem of our ageing population, which would require more spending on government services, particularly health.
The picture was similar for education. Tiffen and Gittins point out that it its
public share of total education spending Australia was already at the low end of the spectrum in 1995 before the Howard government came to power. But it became even more so [12 points below the average] in the following ten years, making the private share of education spending third highest among [seventeen other advanced democracies including the United States, Canada, Japan and the countries of Western Europe].
Much of this was to do with the growth in private schools, and that points to another of its distinctive features, the public subsidy of private providers. One-fifth of Australian public spending on education goes to private institutions, almost double the overall average of 10.5 per cent, a particularly high figure when it is remembered that private universities have a negligible presence in Australia.
Tiffen and Gittins found the data on universities even more dramatic:
In 1995 Australia was already at the lower end of the countries in terms of the public share of tertiary education spending, 13 points below the average. After another decade, though, the public share had dropped to less than half, 48 per cent, and Australia was then 26 points below the average.