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Would you like wedges with that?

By Nicholas Gruen - posted Thursday, 26 May 2005


“Wedge politics” didn’t begin with John Howard. It’s the stock in trade of politics itself.  The Romans even had a saying for it when applied to military matters - divide and conquer. But some politicians have a stronger instinct for it than others.

Unlike Bob Hawke for instance, Paul Keating, was a divisive politician and a master of the wedge. His initiation of the republican debate was an act of vision and political courage, but he and his party could hardly contain their glee once its success had been demonstrated. It enabled them to wedge their opponents between the traditionalist monarchists and the progressive republicans.

While taking credit for the economic miracle produced by a generation of economic reform, this Government’s own commitment to the difficult process of reform seems to have run pretty much into the sand, no longer assisted by wedge politics but somehow supplanted by it.

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The Government’s economic achievements can be counted on one hand of a three-toed sloth:

  • Restoring the budget to surplus;
  • tax reform; and
  • busting up a corrupt union’s stranglehold on the waterfront and increasing labour market flexibility.

But guess what? All these reforms were first announced during the very first Howard Government. And tax reform was implemented half a decade ago. No-one could accuse the Government of making tough decisions to shore up its revenue base these days.

Recently, to fill the awkward silence on economic reform, our Treasurer has developed a special new faux reformism. I was astonished to hear recently that the States were welshing on a deal they’d made to abolish five state taxes.

These taxes were well worth abolishing, but the idea that the States were “welshing on a deal”. Well, to put it bluntly, I’d call it a big lie. To put it politely I'd call it ... well, a small lie. The States had done nothing more than help undertake to review these taxes in words that assisted the Federal Government save face and get its revised GST deal through the Senate.

This was also economic reform by wedge. The exercise meets these three objectives (I guess our friendly three-toed sloth now has his hands full and is plummeting earthward even as we speak!):

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  • While the Federal Government takes credit for driving reform and abolishing the taxes;
  • the States bear the cost; and
  • the States are also constrained from spending their own revenue windfall, from Australia's “economic miracle”, on things with higher political pay-off for themselves.

All the while the Commonwealth barely lifted a finger to use its own revenue bonanza, from the past economic miracle, to invest in the next one. It was too busy disgorging cash.

This technique of reform by buck-passing is replicated deep inside Budget Paper One.  Whether it's inspired by the Government or is just a bit of innocent Treasury Department sermonising, there’s a lecture on reform that calls for “sound cost-benefit analysis” in planning government delivered infrastructure. Well, for state infrastructure anyway. The Federal pork-barrelling of the Alice to Darwin Railway is politely ignored. Cost-benefit analysis predicted it to be the white elephant it has become.

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Article edited by Patrick O'Neill.
If you'd like to be a volunteer editor too, click here.

First published in The Courier-Mail on May 18, 2004.



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About the Author

Dr Nicholas Gruen is CEO of Lateral Economics and Chairman of Peach Refund Mortgage Broker. He is working on a book entitled Reimagining Economic Reform.

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