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The next phase of Australian politics - the phase of consolidation

By Kerry Corke - posted Thursday, 5 January 2006


The Senate has now passed the policy trinity of:

  • the final sale of Telstra;
  • workplace reform; and
  • the welfare to work initiative.

The final reforms that can be linked to the economic liberalisation of the Australian economy commenced in the 1980s and 1990s have been implemented.

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2006 heralds the start of the third period of politics since World War II.

The period of Big Government

The first post-war period was the period of Big Government.

It commenced with the 1944 “14 Powers referendum” - an unsuccessful attempt to change the constitution to give it greater powers to influence post-war reconstruction, and the subsequent 1946 referendum - which successfully removed any doubt about the Federal Government's role in the provision of social services. This period concluded around the mid-1980s.

There was a general consensus among political classes that a post-depression, post-war government would impartially implement policies that were in the public interest. “Big Government” was put forward as a mechanism by which the greatest level of satisfaction could be provided to the greatest number. Therefore, so the story went, social programs were designed to assist those seen as “losers” in the community, although at a level that would not affect others detrimentally.

It was presumed that natural growth would fund government so it could take this central role.

Thus, income support was paid to people falling within various categories, with support available in many circumstances as a matter of right, not of need. Other schemes such as Medibank - universal health cover - were introduced. This increased role of government, built on elements of the so-called Deakinite settlement, were retained throughout most of the 20th century - particularly through devices like tariffs, quotas and the arbitration system.

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The stagflation of the 1970s, and Australia’s stagnation in the early 1980s caused a review of this policy mix.

The period of market reform

The second political period was the period of market reform, which ran from the 1980s until now.

Again, there was a general consensus within the political classes that the power of government to change conditions had limits. Globalisation and the growing dynamism of the Asian economies meant that Australia had to restructure to ensure its economy could meet the challenges of the new world - and to afford the style of government to which the community had become accustomed.

So, during Christmas 1983, the ALP commenced the process of floating the dollar - the market and not the government set the rate of exchange. Tariffs on imports were reduced. The Australian financial system was liberalised.

In 1990, a special premiers conference agreed to significant micro-economic reform. This laid the groundwork for the national competition policy agreements of 1995. As a general proposition, free trade between nations became common cause within the Australian political classes. Privatisation of institutions, such as the Commonwealth Bank and Telstra, commenced.

The Coalition also played its part. It reduced government debt to nearly zero (compared to the OECD average of 40 per cent). It also entered into an agreement with the Reserve Bank to maintain monetary policy so as to keep underlying inflation to 2-3 per cent, and kept the budget in surplus. Finally, while the tax code wasn’t simplified, the GST, and the various Ralph taxation (elements) were implemented.

The laws just passed by the Senate are the last gasps of this period of post-war politics.

The current situation

However, while there have been some changes to internal Australian market structure, many of the income redistribution mechanisms established during the era of Big Government remain. There has been some tinkering at the edges, such as the various welfare-to-work initiatives. However, some benefits are still being extended, and others have been created.

For example, various benefits, such as increasing access to the federal Senior's Health Card, have been directed towards self-funded retirees. A baby bonus is now payable on the birth of a child. And while the Federal Government has wound back some changes to Medicare offered during the election, other benefits have been extended.

To pay for this, Australians are paying more tax than ever before. Moreover, Australia has a disproportionate reliance on personal and corporate taxation relative to the two largest OECD countries - the US and Japan.

With globalisation, there are dangers in over-reliance on this highly mobile tax base. It is also the case that business is a cycle. The Federal Government is currently harvesting the benefit of booming company tax, based in large part from the large increase in sales to China. The economy won’t always be booming. Benefits levels must be sustainable.

As time, and the age of the community advances, the current level of support will become unsupportable, as the number of claimants for income support increases and the numbers of taxpayers diminish.

There is also an argument to say that people are working so hard, a sense of community is being lost as they lose time with their families, community groups, and so forth, as they work to live. The development of social capital - the value of the social networks that local people can draw on to solve problems - is prejudiced. It is impractical to believe that this state of affairs can continue forever.

The Treasury Inter-Generational Report suggests that by 2040, there will be twice as many people older than 65, and four times as many over 85. Spiralling social security and health care bills will result in a budget deficit of $87 billion if policy settings don’t change.

The Productivity Commission estimates expenditure on health will rise from 5.7 per cent of GDP to 10.3 per cent by 2045.

The phase of consolidation

The political debate commencing the phase of consolidation is starting with the Business Council of Australia pushing for tax and regulatory reform. Victorian Premier Bracks has launched a Third Wave of National Reform.

A debate as to whether Australia can maintain a top level of personal taxation of 47 per cent has commenced, involving both Feeral Government and the Opposition.

The challenge for the realists within the political classes during consolidation is to make everything pay - to preserve the better parts of the current welfare state, while ensuring future generations don’t possess a taxation burden that denies them the ability to make policy decisions to reflect the value of that generation. And to permit them to develop their own sense of community.

It is fine for the politically pragmatic to do little, or to say it is too politically risky to change the benefit mix during a time when the Australian economy is doing well - (usually by asking “so what benefits would you cut?”, and then fold their arms triumphantly, without offering any further argument) - and promises and programs can be paid for as a result of (among other things) record corporate tax receipts.

However, there are advantages in making small incremental changes over a period of time, rather than make massive changes in policy when the inevitable train wreck occurs.

No one particularly wants to see the community dislocation that occurred around the period of the Recession We Had to Have. During that period, many in the manufacturing industry (particularly those in their 50s) lost jobs that disappeared forever. Many in regional Australia suffered as statutory marketing schemes were wound back and removed.

To ensure the continuation of a viable safety net, and to avoid One Nation-like reactions to structural change when it ultimately occurs, the Liberal realists of the Social Reform Period will need to show what they will do to ensure they remain the best friend Medicare ever had, without alienating their base with ever higher amounts of taxation.

The ALP has spoken about a new approach to innovation, national leadership on infrastructure and competition policy.

Should this debate of ideas take place, that  rather than rely on 20th century concepts of omnipotent big government, Australia can have as its goal for the third period of postwar Australian politics, the development of a society in which citizens are able to structure their lives in the manner of their choosing and to re-engage with their families and communities, without having to pay usurious levels of taxation.

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About the Author

Kerry Corke is principal of K.M. Corke and Associates, a Canberra based public law consultancy.

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