Is Australian politics as poor as some suggest?

I always read newspapers to keep up with the latest policy debates.

But at a time when the world (including Australia) faces enormous challenges, I am amused at what is sometimes published.

Take Tim Soutphommasane’s article calling for Labor progressives to reaffirm the Hawke-Keating legacy given that “social democracy can be as much about the state designing markets as about the state being a provider”.

According to Soutphommasane, Australian “politics is now separated from conviction”; “government has become poll-driven”; and “policy has been relegated to a secondary concern, if a concern at all”.

But is Australian politics as poor as Soutphommasane suggests, or has freer trade and greater social demands exposed greater policy limitations in recent times despite greater awareness and technical possibilities for a better society? I argue the latter despite noting that rhetoric may continue to play a greater role in Australian politics, as again suggested by Gillard’s recent August 31 promise to “renovate the Labor tradition”.

First of all, it is simplistic for Soutphommasane to refer to past governments to denigrate the present. Sure the Hawke-Keating governments adopted extensive economic and social reforms. For instance, financial and industry deregulation and lower tariff protection was accompanied by the re-introduction of a universal health-care system (Medicare), compulsory superannuation from employers, and expanded rent assistance.

But Labor (1983-1996) also adopted significant privatisation during the 1990s (including the Commonwealth Bank), achieved just three budget surpluses (with Commonwealth debt increasing from 4.9 to 18.5 per cent of GDP in 1995-96), and struggled to get manufacturing going with Australia now increasingly commodity dependent.

Australian government efforts to balance compassion and competitiveness remains evident, but the ability to do so comprehensively to address old and new issues is getting harder.

It is not that recent governments have abandoned those in need. OECD data indicates that Australia’s public social expenditure has steadily increased: 10.6 per cent of GDP in 1980; 13.6 in 1990; 16.6 in 1995; 17.8 in 2000; and 17.1 in 2005. Public health spending alone rose from 3.9 per cent of GDP in 1980; 4.6 in 1990; 5.5 in 2000; and 6.0 in 2007.

But, with Australian governments seeking to keep outlays at a similar level of GDP, after increasing from about 18 to 36 per cent between 1960 and 1985, there is now greater competition for resources. In 1985, when public social expenditure was 12.5 per cent of GDP (OECD), social spending represented just over a third of total government outlays, yet the proportion has been about 50 per cent since 2000. Hence, a lower proportion of government outlays are available to fund infrastructure, defence, and the environment. No wonder governments have looked more to the private sector to meet infrastructure needs.

While Soutphommasane praises the Hawke-Keating policy mix, he downplays the reality that Labor’s reforms also relied more upon private consumption, although household debt exploded later when credit became even easier to obtain. This is evident by Australia’s rising household debt to income ratio: 33.5 per cent in June 1977; 36.0 March 1983; 67.7 March 1996, 155.9 (134.8) December 2007; and 157.3 (139.5) March 2010.

A greater reliance on household debt has only been offset by a higher value of assets, as illustrated by an increase in the household assets to income ratio: 387 per cent in June 1977, 409 June 1985, 519 June 1995, 617 June 2000, 795 December 2007, and 754 March 2010 after falling to 659 in March 2009 during the global financial crisis (GFC).

But reversing such dependence will not be easy, as seen by aspects of the Rudd government’s housing strategy which has done little to offset higher housing prices and greater home unaffordability. This included a generous boost to the first home buyers grant to stimulate construction and consumption in response to the GFC, and the National Rental Affordability Scheme which gave investors up to $6,000 a year per property for up to 10 years in refundable tax offsets and grants (with another $2,000 from state governments).

With the ABS indicating that the average first-home buyer’s home loan in Australia was about $288,000 (May 2010), the left may be wiser to argue for a greater slice of taxation revenue to build a lot more public housing, as was the case in previous decades But as I have already noted, international trends show Western governments continuing to cut company tax rates alone in order to enhance national economic competitiveness. Good luck to the Left if higher income tax rates are the desired option, or whether the GST will have to rise to meet greater spending needs.

Truth is that there are real pressures on government in regard to its policy options. That is why recent Australian governments continue to rely on consumption, debt, and high levels of immigration (especially skilled immigration).

For the most part, Soutphommasane’s suggestion that “policy has been relegated to a secondary concern, if a concern at all”, is indeed nonsense. Both Labor and Coalition governments have sought to address old and new issues. For instance, the Howard government increased federal spending on Indigenous-specific programs from $1.7 billion in 1996-97 to $3.5 billion, and environmental spending from $1.7 billion to $4.3 billion between 2001-02 and 2007-08.

There are also problems with Soutphommasane’s claim that Labor is the progressive party.

Sure, it has been Labor that has driven much important social change. There is no doubt that the emergence of trade unions and labour parties in Western nations many decades ago forced conservative parties to shift to the middle to accommodate changing social demands.

But what does progressive mean? If it is merely about who promises the most, who says the right words, and who can appeal to as many interest groups as possible, then Labor is indeed Australia’s champion party.

In terms of its opposition role against Labor, the Coalition also plays a crucial role in addressing public debt levels, as recognised by many Australians at election time given their concern for fiscal responsibility. After Commonwealth debt increased under Labor to 18.5 per cent of GDP in 1995-96, it was the Howard government that reduced it to 1.5 per dent in 2007-08 before stimulus spending by Labor (albeit necessary) again raised debt levels.

And contrary to what some on the Left would have us believe about what policy should be, it is worth noting the February 1996 AGB McNair and Morgan Gallup polls which indicated that many were attracted to the Coalition because of campaign promises made in regards to addressing welfare fraud and immigration. In the case of the latter, the Coalition upheld longstanding public concern about cultural independence to adopt a more aggressive tone to encourage all Australians to commit to common views and values. This was despite supporting a diverse immigration program with less reliance on Europeans given that 40 per cent of immigrant arrivals in 2007-08 came from Asia (25 per cent in 1994-95).

The Howard government, by using a carrot-and-stick approach (again supported by public opinion), also reduced Australia’s long-term unemployment rate (over 12 months) from 32 to 15 per cent between 1995 and 2007.

To conclude, while answers to our many problems have proven difficult and sometimes divisive, critics should recognise that policy limitations are evident at a time when Western nations (including Australia) support processes associated with freer trade. While Australia has done relatively well when compared to most developed nations in recent decades, the struggle for resources for old and new issues has also increased with rising public social transfers alone diminishing our ability to fund other important needs.

There may be major policy change in the future, but it remains to be seen just what kind. Will Australia (and the West) keep relying more on communist China? Will it increasingly rely on high-skilled immigration and international students while downplaying domestic skill needs? Will there be higher or lower taxation levels in the longer term? Will social welfare spending be reduced as a percentage of both GDP and government outlays in order to spend greater public resources elsewhere?

As always, these issues will be decided by ongoing interaction between political parties, interest groups and public opinion.

As for the leftwing rhetoric, they will continue to tell us how hopeless we are as their own self-righteousness often swamps their ability to fully understand the problems ahead.