I have this op-ed piece in the Australian today.
Do right-of-centre political parties make better economic managers than their more left leaning counterparts? Are right-of-centre political parties more or less likely to introduce significant economic reforms that lift productivity and living standards?
Viewed over the past several decades and considering these questions in the context of a number of countries, the answers are not at all clear-cut. There have been very effective economic managers on both sides of politics and important economic reforms have also been introduced by both sides. At the same time, disastrous economic managers have come from both the left and the right.
So what is Tony Abbott’s position on economic reform? And how would the Coalition approach the important task of managing the economy and implementing policies that raise per capita incomes?
In these matters, the framework brought to bear is all important. On the basis that competition and choice are the hallmarks of good policy, decision-making should be informed by the following principles:
- Markets, with few exceptions, produce the best outcomes;
- The role of governments should be well-defined and limited, involving low taxation and spending;
- Businesses should be allowed to get on with the task of competing with each other and serving customers.
So what are the early indications that Tony Abbott actually embraces such a framework? The short answer is: not at all promising. In particular, there is confusion between policies that are pro-business – well, pro-small business – and those that promote competition and increase overall living standards.
Take Abbott’s suggestion that the recent introduction of unfair contract provisions in the Trade Practices Act should be extended to cover business-to-business transactions. Currently, the new provisions only apply to business-to-consumer contracts.
Tony Abbott makes the feeble point that small businesses are really the same as consumers when it comes to being bullied by big business. What he doesn’t seem to understand is that the very act of meddling in the contractual arrangements between consenting parties can only work to the detriment of small business.
Not only will various costs be indirectly added to all contracts, but big business will simply refuse to deal with certain types of small business, lest they get caught in a web of regulatory intrusion and penalty.
Another worrying illustration of Tony Abbott’s lack of grasp of the real principles of economic reform is his proposed paid parental leave scheme. What was he thinking?
The case for any form of mandated paid parental leave scheme is actually quite weak. The prime rationale relates to the interests of the child and the evidence that babies do best with the undivided attention of a parent (virtually always the mother) for the first few months of life.
While most new mothers do arrange their lives to achieve this outcome, a small proportion do not, or cannot, and return to work. It has been estimated that between 11 and 17 per cent of mothers in Australia return to work in the first three months of their baby’s life.
In reality, the combination of the baby bonus and family tax benefits has acted as a de facto paid parental leave scheme, although no distinction is made between working and non-working mothers. The government’s new paid parental leave scheme, to come into force from next year, is at least relatively modest in its features and cost.
By contrast, the Abbott scheme, to be funded by a levy on big businesses – which in itself calls into question any commitment to lower taxation – is ridiculously generous. And it will completely crowd-out the private provision of paid parental leave, which currently covers nearly 50 per cent of women workers.
The proposition that the Abbott scheme would boost participation and productivity, certainly relative to the government’s scheme, is not based on any evidence.
Another black spot on the Abbott blueprint for economic management and reform is his view of the role of state governments, particularly in relation to the provision of public services. At heart, Abbott is a centralist who probably believes that Australia would be best served if the states did not exist.
His experience as Health Minister evidently led him to distrust the state health bureaucracies in terms of actually delivering on promises made to the federal government.
But surely the experience of the last year or so tells us all that the federal government is a disaster when it comes to implementing programs and delivering services – think pink batts, school halls, green loans?
The response of Abbott to these events, apart from raising legitimate criticisms, is that he will by-pass the state governments and deal directly with the agencies, such as schools and hospitals.
But his government’s attempt to deal directly with just one small regional hospital, the Mersey Hospital in Tasmania, was extremely time-consuming, complex, costly and largely pointless.
The alternative for Abbott is to propose a complete overhaul of the federal compact in which an appropriate and central role for state governments is established. A part of this new compact would be a rethink of federal-state financial relations, to reduce the extent of vertical fiscal imbalance, as well as improve the way in which federal monies are allocated among the states.
He could also pledge to revisit the many sensible recommendations of the Henry Review which, in combination, could lead to more efficient and equitable tax collection while reducing the total tax take. It is good to see Joe Hockey canvassing this possibility.
I am always amused by people who trumpet decentralised decision making when it rarely happens in the private sector.
Who makes the decisions on major investments and does the work. almost always Headoffice.
however the vertical fiscal imbalance should be confronted.
If one is a decentralist then it is obvious the States should get mote taxes to match their spending.
Yes the Henry review would be a very good start.An industrious treasurer could , with State co-operation, get rid of all those minute taxes that clog up the system and make do the the major ones and maybe even improve them.
however this would involve the Commonwealth giving up some taxes to give to the States.
Hard to see
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 10:46 am
The Libs aren’t in a very good place, are they? Lesser of two evils, perhaps, but still supporters of a big (and worse, growing) government.
Fleeced
22 Jul 10 at 11:12 am
A lot to worry about in an Abbott government.
A lack of real belief in markets is the most serious. Probably closer to a Menzies or Fraser government than anything else?
Maybe it would be best for Gillard to win, produce a disastrous government then be demolished and replaced in three years with a true believer?
ken n
22 Jul 10 at 11:26 am
Oh, I wouldn’t compare him to Fraser – that’s just rude. Howard was a big spender too, but still seemed to have an underlying belief in the market (though believed in middle-class welfare more, it seems)… plus he had Costello hiding the Treasury figures from him to stop him spending all the cash.
I guess the question is whether Hockey can keep him in check… of course, with Gillard, you have “DC” Swan as Treasurer – a total failure.
Whether long-term would be better (by forcing Coalition to rediscover its core principles) to have ALP stuff things up for another term is debatable… it’s a pretty high price to pay – and could just see the Libs move more to the center (by bringing back the douchebag Turnbull and his support for an ETS).
Fleeced
22 Jul 10 at 11:43 am
Maybe it would be best for Gillard to win, produce a disastrous government then be demolished and replaced in three years with a true believer?
Maybe that will come true. Or maybe not.
Instead, they might drift leftwards, trying to me-too the government; or they might adopt good market-oriented policies but be defeated at the next election anyway for all kinds of reasons.
daddy dave
22 Jul 10 at 11:49 am
Yeah, it’s a hard call F.
Trouble is that belief in the market isn’t one of the Lib’s core principles.
ken n
22 Jul 10 at 11:54 am
I don’t think it’s that hard a call… whilst its possible that another disastrous ALP term could cause a reset (or better yet, an Australian Tea-Party style movement), I don’t think it likely. I’m going with the lesser of evils – with Gillard, you have Swan and a whole team of deadbeats behind her.
With Turnbull, btw – I think he could make a good supporting role in government, but not as leader… as leader, he’d not only be too centrist, but is also strong-headed enough that no treasurer could keep him in line.
Fleeced
22 Jul 10 at 12:11 pm
good grief.
If things were as bad as that the Libs would be walking towards a landslide alah NSW.
Do you clowns ever thinking about living in the real world?
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 12:14 pm
Not too bright, are you Butters? If ALP didn’t think things were that bad themselves, they wouldn’t have dumped Rudd. He was going to lose, and they knew it.
NSW is indeed bad atm, but no worse than before the last election – which they still won after replacing the leader. They even ran with the slogan, “There’s more to do, but things are getting better” – an even more obvious admission of failure than Gillard’s “Moving Forward”.
Fleeced
22 Jul 10 at 1:23 pm
You are even dumber then.
the machine men moved rudd. and people as innumerate as you agreed.
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 1:25 pm
“Maybe it would be best for Gillard to win, produce a disastrous government then be demolished and replaced in three years with a true believer?”
I was thinking that for the first few days. Talk about devils and the deep blue. A grouper against a hartleyite wearing a bogan disguise.
pedro
22 Jul 10 at 1:27 pm
three years time we will be probably be swimming in surpluses and debt will go from being buggerall to being sweet buggerall.
they lose this then unfortunately we will have an ALP government for some time
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 1:33 pm
“Instead, they might drift leftwards”
I’ll bet this is true. They can’t have the Liberal party’s policies forever or the Greens will chew into their vote too much — indeed, if they became a bit more sensible, then it would be like the UK.
“the machine men moved rudd”
I agree, and the funny thing is, the machine men are from the place with the worst outcomes of any (NSW). Perhaps they need machine men that actually know how to do good job.
conrad
22 Jul 10 at 1:35 pm
Ah, you’re one of those people… you know: “ALP hasn’t had any failures – they’ve just been unlucky! Why, imagine how worse off we’d be without their wicked economic management skillz!”
Fleeced
22 Jul 10 at 1:38 pm
No doubt if ALP is still at the help in 3 years, and still blowing out deficits, Butters will have someone to blame.
Fleeced
22 Jul 10 at 1:40 pm
well think of it this way.When they let you out of the funny farm there maybe a change of Government.
I am willing to bet I have voted Liberal here more times than anyone here has voted labor
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 1:41 pm
You would be wrong about that. I was once a staunch Labor supporter. Voted for them many times.
daddy dave
22 Jul 10 at 1:43 pm
You can’t vote here Homer, it’s not a polling station.
I voted ALP once, but so what. Homer’s problem is not that he’s an obvious Labor shill, it’s that he’s a total dill.
pedro
22 Jul 10 at 1:58 pm
Where Turnbull would shine is as NSW premier. He’s well connected in Sydney and would squash Keneally like a bug. Unfortunately his ambition is too large for his sense of timing.
Jacques Chester
22 Jul 10 at 2:09 pm
I have in fact voted for the Liberals more than the ALP whether it be Federal or State and it is easily more times Liberal when combined.
Pedro you would know more about dills than I.
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 2:15 pm
I am willing to bet I have voted Liberal here more times than anyone here has voted labor
Okay, you’re on, doofus.
I’ve only voted libs twice in my life while the rest has been lab.
JC
22 Jul 10 at 2:16 pm
I won’t vote Liberal until all the Howardistas have died. Don’t get me wrong, I think the Howard years were very much a positive for Australia, but as Howard himself said “the times will suit me.” They did. He did his job well. But those times are over. Until the parliamentary wing gets that memo, my pencil will not be darkening their boxes on my ballot sheets.
Peter Patton
22 Jul 10 at 2:34 pm
Fleeced
Howard could afford to spend big.
Peter Patton
22 Jul 10 at 2:35 pm
For Fed and State combined I too have voted Labor probably twice as much as I’ve voted Lib if not more.
jtfsoon
22 Jul 10 at 2:36 pm
Looking for a liberal party that is going to be full of market fundamentalists and introduce a range of economic reforms is too much to ask.
On the other hand, a Liberal Party that won’t spend it’s time introducing *new* affronts to economic freedom like this Labor government has is the reason to vote for them over Labor.
This Labor Government has given us:
Fuelwatch
Grocery watch
Alcopop Tax
New Cigarette Tax
Mining Tax
Attempted to bring in Internet Filter
Attempted to bring in ETS
None of these things would have happened under the Liberals. Which is why it’s so pathetic when fence-sitters try to claim that the 2 majors are “just as bad as each other” when it is perfectly clear that Labor is 100 times worse.
Yobbo
22 Jul 10 at 2:42 pm
Yes, both parties suck, but I don’t see how anyone can say they’re “as bad as each other” after the last 3 years. And for all of Abbott’s faults, it was he who saved us from the ETS (and will also dump the proposed mining tax).
Alas, he will have some new “affronts to economic freedom,” as outlined in the OP – but nothing on the scale of the ALP.
Fleeced
22 Jul 10 at 2:53 pm
If you believe in any sort of personal or economic freedom you can’t seriously vote ALP. And the choices only get worse as we go further left. The only possible reason I could see for voting ALP is if I had a development or rezoning issue and I wanted a local member who I knew would be welcoming of an Egyptian handshake.
Infidel Tiger
22 Jul 10 at 2:54 pm
If you believe in any sort of personal or economic freedom you can’t seriously vote ALP.
That’s how I see it.
daddy dave
22 Jul 10 at 3:00 pm
No Peter he couldn’t.That is why we got an economy going too fast and thus got inflation running to 4%
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 3:12 pm
An economy can grow *too* fast??
Only in the dismal bizarro world of non-monetarist Keynesian economics
jtfsoon
22 Jul 10 at 3:13 pm
an economy that grows beyond capacity grows too fast and hence you get inflation.
Demand is outstripping supply
Any textbook tells you this.
If you studied economics then you would understand!
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 3:18 pm
Homer
If demand outstrips supply, then prices rise which induce an increase in supply. This is how market economies work.
Price rises alone do not constitute inflation doofus. If there is a supply side problem then you deal with it as a supply side problem – by getting rid of the inflexibilities that prevent the increase in supply.
jtfsoon
22 Jul 10 at 3:21 pm
how about learning some real economics from a micro text instead of regurgitating that terrible year 11 and year 12 keynesian pap, homes?
jtfsoon
22 Jul 10 at 3:23 pm
gosh Staman,
What does the RBA do when capacity constraints eventuate?
do they wait for the supply side to eventually catch up?
no they react to the rising prices of demand outstripping supply.good to see you understand how Central Banks operate.
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 3:25 pm
Statman you do not even understand how Central Banks operate?
Get your head out of batman comics and read something anything from the RBA website.
you might just might make an insightful comment like you used to
Butterfield, Bloomfeld % Bishop
22 Jul 10 at 3:26 pm
you’re talking about inflation as a monetary phenomenon.
congratulations.
it has nothing to do with taxes being too low
jtfsoon
22 Jul 10 at 3:27 pm
BBB
When I read your first sentence “no Peter he couldn’t,” I was about to reply in agreement. I thought your next sentence was going to be “we, the taxpayer afforded it, he just gave it back.” But no, you wanted to complicate the matter.
Peter Patton
22 Jul 10 at 4:34 pm
C’arn Currency Lad. Get out here and defend your hero.
Adrien
22 Jul 10 at 7:20 pm
The prime rationale relates to the interests of the child and the evidence that babies do best with the undivided attention of a parent (virtually always the mother) for the first few months of life.
I think Abbott’s prime rationale is to return to the era where women stopped working once married. He doesn’t realize that horse bolted and ain’t coming back.
Adrien
22 Jul 10 at 7:22 pm
Homer,
If the HSC economics course is so brilliant, why did you need your MBA?
.
23 Jul 10 at 6:46 pm