Monday, 19 May 2014
If there is one thing that sums up the contradiction in the government’s position that is behind what is turning into a political disaster, is that a few weeks before the Budget came out, the Commission of Audit proposed one of the most radical overhauls of the Australian economy in fifty years – to one of the weakest governments capable of implementing it.
This gap between political will and political reality is a culmination of thirty years of hubris on the economy by our political class that is now coming home to roost.
It has become almost ritual over the last few decades that every new government will face press columns by the more serious journalists of the right and left about how this needs to be a “reforming government” of the Hawke/Keating mould. Invariably the two Great Men are trotted out, especially the latter, to tell us all what they did back then and how, for some reason, no one’s come up to scratch since.
In reality there was nothing especially remarkable about those economic reforms in the 1980s, since they were happening elsewhere in the world, some a bit earlier than they happened in Australia. For example, the floating of the dollar was already, as Fraser noted in his memoirs, “sailing with the wind” even before the interim Campbell report came down in 1980. In reality, it was well on the cards before that – in fact since the US cut the dollar’s link to gold, resulting in the collapse of Bretton Woods, and forcing Japan and the EC economies to float their currencies, in the early 1970s.
The collapse of Bretton Woods marked a decade of international turmoil as the economic order that the US had built after the Second World War began to unravel. The economic unravelling coincided with an unravelling of the US political order as well (the cost of the Vietnam quagmire was one of the reasons for Nixon’s decision to get the dollar off gold). International instability inevitably had a knock-on effect on domestic arrangements as well.
Nowhere was this clearer than in the UK, where the first part of the 1970s saw a Conservative government try to manage economic pressures by taking on organised labour, and failed. The following Labour government in the late 1970s had more success, using its links with the unions to bring about the biggest cuts in health and education, before and since, and cuts in real wages that have only been exceeded (in duration) by Cameron forty years later. But inevitably the contradiction was too much and the Social Contract collapsed into the Winter of Discontent in 1978, and so, basically, did the UK’s post war political arrangement.
By the time Thatcher came in at the end of the 1970s much of the damage had already been done. The unions and Labour were demoralised and divided both electorally and in the industrial arena and her triumphalism was hollow. Both left and right have an interest in talking up what Thatcher did, for obvious reasons. But in reality she buried a corpse and opened up to international capital because there was little other option.
What happened in the UK throws a light to what happened in Australia because if there was one real difference was that the Labor’s use of its union links for a counter-crisis strategy actually held under Hawke – and Australian employees suffered the biggest drop in real wages since the war (and since) over several years in the 1980s as a result. The ability to hold this was Labor’s real distinctive “reform” of the time.
But the end result was much the same. The union links eventually unravelled, this time by employees deserting the unions in droves and kicking off a terminal decline in union membership that has continued to this day. By the end of the 1980s, Labor’s relationship with the unions had nothing to deliver and Hawke was out. In a sense Keating did a Thatcher, claiming credit for “pulling the teeth” from the unions, as he boasted in a 2007 interview, when the damage had already been done.
The unravelling of Labor’s Accord with the unions, and what was its historical role, has left a hole in the political narrative that has yet to be filled. As usual in politics, that hole is presented upside down. What was in reality an unravelling of social relations became a triumph of the reforming political will of Messrs Hawke and Keating that, curiously, can no longer matched.
Howard tried a Thatcher in his first year, but spending and the size of the public sector ended up swelling under his government, (so aping Thatcher more than he knew). Nevertheless Howard and Costello tried to pretend they will decide when the Budget will go into surplus and the manner in which it does so. But in reality, Howard presided over improving Budgets much as governments around the world did, whatever their political hue – just as they went south at the same time when the GFC hit.
Rudd didn’t even try really to pretend that he was in control of the economy, despite some talk of productivity improvements, but largely meaningless because he no longer had any real links with the unions to bring it about. There was an attempt to find a new narrative during the GFC about the evils of the market, but that sort of went nowhere. But at least, with no union links, he was the first Labor Prime Minister to preside over an economic downturn that didn’t try to take it out on Labor’s traditional supporter base.
Nevertheless, Labor did try to make it look as though it was the spending that prevented a recession (while government programs did help create a few thousand jobs, the difference to the mass unemployment in Europe and the US might be more due to the absence of a collapse of the financial system). However, it left Labor with the unfortunate perception that the deficit was an act of political will, rather than the collapse in revenues it actually was, over which neither side of politics would have been able to do anything about. It was a perception made even worse as Swan flapped around trying to pretend he knew how to get back to surplus. It is this perception of lack of control that Abbott took advantage of, but which has now led him into an even messier trap.
From the right’s point of view, the Budget is a fraud. The nastiness of some of the measures does not disguise that there is little the government can do to cut spending back to fix the Budget. As Howard found, government spending is too ingrained into propping up the economy to do much about. Even under its own projections, spending as a percentage of GDP is set to rise above the levels under Howard. As Ross Gittins points out, the “savings” are not really savings at all. Around a quarter of savings are actually higher taxes, and the really big savings don’t even come this term of government but are due in 2017-18 – and much of this is shifting the burden onto the states for the purpose of recovering it in higher direct taxes.
In other words, the Budget is nasty without being tough, or effective. This worst of all possible worlds is brought out in the polling. The real problem for the government is not even the overwhelming majority of voters who think they will be worse off, but the unusual majority that think it will all have been for nothing to fix the economy.
This is unsettling for the government as if people don’t think it will be good for the economy, they must think there is only one other reason for the pain, it is “ideological”, which is a political stinker. Unfortunately this government has spent so much time with bogus culture war initiatives in the first few months that it is not a difficult conclusion to draw.
But nor can Labor take too much comfort from this. As polls show, voters think Labor would do worse. However, much Labor, or its leader, may be enjoying good polls, it’s reasonable to bet that that perception that Labor has no control over the economy will return to haunt it at the next election. The trouble for the Coalition in the immediate term is that voters are suspecting that they don’t have control either.
Fortunately, for the government, Labor is more interested in “righting the wrong” (as it sees it) of 2012-3 and cheering itself up, shown by its constant banging on about “broken promises”, than being politically effective
The real threat comes from those who have interests in taking advantage of the weakness of both sides. Clive Palmer has immediately focused on the weak point, the ideological nature of it, and has been the only one refusing to give ground that the deficit is a problem in the first place. If Clive sounds rather left wing, however sincere/insincere, it indicates not only which way he sees the votes are going right now, but also how little difference there is between what passes for left-wing and what big business like Palmer’s actually wants – more spending to prop them up.
The other group that has an interest in taking advantage of the weakness of the parties, at least in the federal sphere, are the states. Arguably one of the most important features hidden (and deferred) in the Budget is the attempt to shift the burden of spending back to the states and presumably facilitated by an increase in the GST. It is quite possible that the states may want this greater control and be happy with where this agenda is heading (a reason why a beneficiary of any distribution like Barnett is more relaxed).
But the manner the government has gone about it is extraordinarily antagonistic given that within a few weeks of a landslide win, it was forced to back down over Gonski. The government’s position is a lot weaker since then. Now, in making a song and dance about cuts, that aren’t really happening this term, Hockey has effectively handed what are generally weak unpopular state governments a free rein to make cuts and blame the federal government for them in the meantime.
Since before this government was elected, this blog has noted that any incoming Abbott government will have the problems of the Gillard government, with which in many ways it is joined at the hip. This has been building up over the last few months, and present in the polls, but largely unappreciated by the media. Now having reached the ultimate ritual of the Budget, and economic management, through which the last thirty years political unravelling has been understood, the depth of the government’s problems are finally becoming apparent to all.
Posted by The Piping Shrike on Monday, 19 May 2014.Filed under State of the parties