In Search of Good Government Read online

  Commentators speak often of how Gillard lost the trust of voters, but the social researcher Rebecca Huntley says there was something more powerful at work.

  They see her as having delivered minority government by having knifed Rudd prematurely and running a bad election campaign. The Australian electorate doesn’t like lots of different parties controlling the situation. We like a feeling of one political party with an agenda that it is able to pursue but with checks and balances.

  So it wasn’t just that we saw Gillard as a backstabber who had brought down an elected prime minister, it was that we saw her as the very reason we had minority government. Gillard became the embodiment of a crushing number of uncertainties and disappointed expectations, both about politics and Australia’s future, which made voters uncomfortable – and in some cases angry.

  The Coalition’s long-time pollster Mark Textor says that voters have been hit by a “rolling series of uncertainties”:

  There is a deep, structural economic uncertainty. People are worried about their savings and their job. There is a performance uncertainty. That is, an increasing uncertainty about whether governments can, let alone will, deliver …

  There is uncertainty about the present financial situation and the international economy, as Europe has continued to dominate the headlines.

  There is a new sense of political uncertainty created by the act of MPs moving to chop a first-time prime minister on the back of bad polling, and a deep structural uncertainty about the nature of politics when it is played on an “all bets are off” basis.

  There is structural uncertainty about policy, which started with Gillard’s talk during the election campaign of a summit to develop a consensus on climate change [and] then morphed into the deal with the Greens on a carbon tax.

  There is additional uncertainty about the nature of the parliament and how it operates.

  When Textor speaks of voters’ financial uncertainty, this encompasses the “cost of living,” which is cited on all sides of politics as the issue that most disgruntles voters beyond the state of politics itself. We are angry that politicians seem to be out of touch with the pressures we’re under.

  The cost of living used to be code for high inflation. Yet our inflation rate is historically benign. The new reference points are energy prices and housing, and these are both areas where governments have lost the control they once had. Large parts of the electricity market have been either deregulated or privatised, and whereas governments once subsidised new electricity infrastructure, now they don’t (and couldn’t afford to), so the cost pops up on our quarterly statements. Huntley says that even when politicians say they will try to keep a lid on prices with a mechanism such as Rudd’s Grocery Watch scheme, we know that they can’t really do anything, but we blame them anyway, in effect twice – both for prices going up and for their impotence to do anything about it.

  Deregulation put the biggest price signals in our economy – interest rates and the exchange rate – largely out of the government’s reach, and therefore out of our control. Yet we still expect politicians to “do something” about these, while absorbing any benefits from these market movements as our just entitlement. How many Australians link the huge fall in the price of cars, televisions and other goods we buy from overseas manufacturers since 2008 with the decision to float the dollar, and, as a result, the dollar now being so high? The Treasury secretary Martin Parkinson pointed out in a speech in March 2012 that the high exchange rate, while hurting the non-mining sectors, is one way the benefits of the resource boom have spread across the economy, boosting living standards through cheaper imports.

  It does not help that we are always being told we are worse off than we were before. Bills go up, so people tend to believe it. Yet research conducted for the News Limited tabloid newspapers in 2011 by the National Centre for Social and Economic Modelling showed that the average Australian household had $23 a day more disposable income than five years earlier as a result of higher wages, income tax cuts and increased welfare.

  Mark Textor says that everyone, no matter their circumstances, is vulnerable to uncertainty:

  because even if you are doing better, say you are living in Western Australia, you are still aware that your finances are stretched, albeit more well funded now.

  Because your financial horizons are better, you have stretched to them and so even though you are better off than someone else, you are still feeling stretched. The uncertainty becomes, how do I maintain this lifestyle? I’m more leveraged now. Even though I have a higher income, I’m more leveraged.

  On the eastern seaboard, when you are comparing yourself to the rest of the world, you say, “Well, yes but I’ve got greater needs. I’ve promised my children a better education, I’ve promised my wife a nice holiday. I’ve promised myself a progression in life. I’ve promised myself better circumstances. I still feel that competitive pressure more than ever.”

  So it’s not sufficient if you live in WA, or you live in the east, to simply compare yourself to the rest of the world. It’s not sufficient to say “We’re okay,” because a relativity is not a comfort.

  Rebecca Huntley says that Australians are confused about the implications of opening up the country:

  In previous times consumers understood that we’d get things like fashion and books months later than the rest of the world because we were at the ends of the earth. But the fact Australia is now so intimately associated with the rest of the world means that if something goes awry elsewhere, we lose our super. We are suddenly aware of what other countries enjoy from the retail sector and service providers.

  She recounts someone in a focus group noting that you could buy a global brand at half the price online as in a shop here. Instead of seeing that as good, he railed against the high domestic price. The impact of the global financial crisis on people’s superannuation savings has been particularly important, Huntley says, in establishing the idea that we are “only getting the downside” of being part of the world. “People are more educated [and] outward-looking, but also more aggressive. Opening our society has fed our sense of entitlement.”

  Thus, when the Gillard government finally got legislation through parliament in 2012 that imposed a means test on the private health insurance rebate, the Australian reported the reaction of a family in Adelaide which earned a combined income of more than $258,000 and, as a result, would lose the 30 per cent health insurance subsidy they were receiving from the federal government. “It’s ridiculous – the better we do, the more the government takes,” the woman said. “Every time we try to get ahead and don’t rely on the welfare system, we get a guarantee they’ll hit us again.” This battler was oblivious to the idea that the rebate might have been just another form of welfare.

  The two sides of politics have now adopted very different approaches to explain the confusing times in which we live. The government’s message is, in the broad, “It’s complicated.” The Opposition’s message is, “It’s simple.” “It’s complicated” is a particularly vulnerable message (whether or not it be true) because it relies on people trusting the government to fix it, when voters clearly don’t trust the government, and the government seems unable to explain why it can, or can’t, fix it in the first place.

  Tony Abbott had a much simpler set of messages: “Stop the boats.” “Stop the taxes.” “Stop the debt.” “Stop the NBN.”

  In 2012 Huntley said: “We get a little bit [showing up in our research] about people saying, ‘Well, he [Abbott] kind of thinks we’re idiots.’ ‘He kind of says he’ll solve this problem by stopping the boats and solve this problem by getting rid of the carbon tax.’ People know it can’t be that simple, so there is a sense in which people will see through these platitudes that of course as an Opposition leader it’s much easier to present to the public than it is in government.”

  Tony Abbott and his party attacked the interventions made on behalf of the country during the global financial crisis, and he framed his
messages about what he would do in terms of how he would stop the intrusion of government (and boat people) into people’s lives. The ongoing crises of the Gillard government meant there were few periods in which Abbott was pressured to spell out a coherent alternative.

  In the first half of 2012, Abbott began to make some “headland” speeches outlining some of his views on government and policy. In doing so, he replicated the approach of his political hero, John Howard, in 1995. He not only replicated the strategy, he also replicated much of the message. For Abbott’s speeches called on his audience to hark back to the “golden” days of the Howard government and promised both more entitlements – a more expensive child-care system and the measures funded by the mining tax (without the mining tax) – and less government spending.

  By far the more interesting – and realistic – contribution to the debate from within the Coalition was from Abbott’s shadow treasurer, Joe Hockey, who gave a speech in London in April 2012 about entitlement. His message was simple: the Age of Entitlement is over. Much of the speech dealt with the problems of the debt-laden European and US economies, but there was also a clear message about where Hockey thought Australia should go. He argued that Western democracies have been reluctant to wind back universal access to payments and entitlements despite ageing populations and the prospect that our children will not enjoy the living standards we do. Politicians of all persuasions have been promising more and more, despite not having the revenue to pay for it and, as a result, many countries have built up huge levels of government debt.

  “The social contract between government and its citizens needs to be urgently and significantly redefined,” Hockey said.

  The reality is that we cannot have greater government services and more government involvement in our lives coupled with significantly lower taxation. As a community we need to redefine the responsibility of government and its citizens to provide for themselves, both during their working lives and into retirement … [There needs to be] clear thinking about which services should be provided by governments and whether government-funded services should be entirely free or have some affordable co-payment.

  Hockey’s argument was that government spending has to be determined by government revenue. Furthermore, in deciding the new social contract, Western countries, including Australia, must take into account that they are competing economically with Asian countries, which have much lower levels of spending on their citizens.

  His position raised interesting questions about the next Coalition government, beyond the obvious ones about the conflicting messages from its spokesmen. Tony Abbott spent 2011 and 2012 appealing to Howard’s battlers. At the core of that appeal was the idea of entitlement. If Hockey was right, it won’t just be a question of cutting back entitlements, but of a government telling Australians that we have to reconceive what we expect of government itself.

  *

  It is wrong to see the anger of the last few years as a “one-off,” which might go away at the next election. The things we are angry about betray the changes that have been taking place over recent decades. As we have seen, politicians no longer control interest rates, the exchange rate, or wages, prices or industries that were once protected or even owned by government. Voters are confused about what politicians can do for them in such a world. While the levers available to government to protect us have been removed, the expectation that we will still be protected has been fed by the failure of our politicians to explain their new impotence. Our political expectations are still driven by the settlement made at federation.

  The failure of our political discourse over the past two decades to recognise the implications of dismantling the Australian settlement for our long-held ideas of government leaves us ill-equipped to deal with the big questions of governance. These questions concern our relationship with the world; a changed budgetary situation; problems in the federation; and the level of government intervention in our society and economy.

  Globalisation has made us more exposed to changes taking place around the world. We are confronted by the spectre of Europe and the US spending at least next the decade experiencing conflict and constraint, if not actual decline. At the same time, Asia, with its very different take on the role of the state, is on the rise. Western countries are now being forced to confront what their governments, under massive budgetary pressures, can afford to provide.

  At home, both sides of politics are committed to spending and taxing trajectories that are not feasible even in the medium term. It’s not just that politicians won’t be able to afford to offer more tax cuts in the future; they will either have to increase taxes or cut their spending commitments, including ones they have already made.

  In March 2012, Martin Parkinson outlined the new reality of Australia’s finances. Since the global financial crisis, he said, tax revenue as a proportion of the economy had fallen by four percentage points and it “is not expected to recover to its pre-crisis level for many years.” His comments point to a disconnection in the established relationship between the rate of growth in the economy and the rate of growth in tax collections.

  Strong economic growth no longer necessarily means strong growth in tax revenue. With the ending of the asset boom of the 2000s, capital gains tax collections have been hit hard. Households are also more cautious in their spending, which hits indirect taxes such as the GST (with implications for state budgets). While the resources sector accounts for about a fifth of our corporate profits, it only generates about one-tenth of company tax receipts because high levels of investment attract big tax deductions. Finally, the historically high Australian dollar is lowering profits in other parts of the economy, and therefore reducing how much tax those sectors pay.

  Implicit in Parkinson’s message, as the Sydney Morning Herald’s economics editor Ross Gittins points out, is that:

  all these things are just elements of a more fundamental explanation for the budget’s new growth/tax disconnect: the Howard government’s decision to cut the rates of income tax for eight years in a row. This has robbed the income-tax scale of its propensity to bracket creep. It also represented a significant shift in the federal tax mix, greatly reducing reliance on personal income tax and greatly increasing reliance on capital gains tax and, particularly, company tax. Get the point? This switch was made at a time when, for all the reasons we’ve discussed, the level of non-income tax revenue was artificially high. Now those temporary factors have evaporated, leaving us with a badly wounded tax base.

  Gittins points out that both sides of politics are ultimately responsible for this problem, as Labor matched the Coalition’s tax cuts. Now both sides of politics must reap what they have sown.

  The changing tax base is also a problem for the states. Their budget positions are already in a much worse state than the federal government’s and they ultimately deliver so many of the services that we expect of government. We have come full circle: from the time when the states established what they thought would be a small federal government to the states now being reliant on the federal government to prop them up financially if they wish to keep delivering the services they so desperately seek to control.

  Our politicians will at last have to sort out just who does what, and how best to let that happen. Our leaders know it, too. Tony Abbott went to the trouble of including in his book Battlelines some draft legislation for a referendum that would give the federal government power to override state legislation. “It wouldn’t abolish the states,” Abbott said, “but, because Commonwealth law prevails over state law to the extent of any inconsistency, it would mean that they could not jeopardise policy in areas where the national government was determined to intervene.” This from a leader of a party that has always advocated states’ rights.

  Australians will be forced in the next decade to consider what level of government intervention we really want, and what form it should take. That will require us to forge a much more explicit new settlement, a much clearer social contract than
the one we have had to date. We must assess what level of government intervention works in an open economy and how best to deliver it. We will have to go back to the idea that government assistance is on a needs – not an entitlements – basis and work out which needs we are prepared to support. Our politicians will have to face up to the question of what governments can realistically promise – and what they can no longer pledge to provide – and change their messages accordingly.

  Mark Textor says, “Australians have trodden water before, but they have never been so far out to sea and without someone they trust pointing to a horizon, saying, ‘That is where we have to swim.’ People talk about the ‘vision thing.’ To me it’s not a vision, it’s the horizon that people seek.”

  He put me in mind of the journey of the sixteenth-century explorer Ferdinand Magellan. Fourteen months after leaving Seville, crossing the Atlantic and tracking down the east coast of South America, and losing two of his ships along the way to mutiny and shipwreck, Magellan sailed through the strait at the bottom of South America and entered the Pacific Ocean on 28 November 1520. His next landfall was in the Marianas Islands, east of the Philippines, three months and 12,600 miles later. Go and look at a globe to see how far that is, and how much blue water lies in every direction. I often wonder how he kept order on his too-little ships, imbuing his crew with the belief that they would find land in a safe and hospitable place, in a world that on maps was drawn as having an edge and was believed to be inhabited by dragons and other strange creatures.