By Simon Cowan Wednesday 17 September 2014
Photo: Shadow Treasurer Chris Bowen made it clear that the loss of government hasn't changed his economic views. (AAP: Alan Porritt)
There are growing differences between the left and right about budget fairness stemming from a deeper ideological divide on the role of government in the economy, writes Simon Cowan.
It should hardly be surprising that politicians are leading populist attacks against the budget. This a tried and tested political strategy that has worked so spectacularly well in recent years in campaigns against Workchoices, the mining tax and the carbon tax.
However, the level of vitriol directed at the budget is out of proportion to its impact. As Reserve Bank Governor Glenn Stevens noted, the budget is not that tough, certainly not when compared with the level of fiscal consolidation needed to put the nation's finances on sound footing.
Something beyond mere populism is at play.
A clue can be found in the oft-repeated, emotionally loaded term "fairness". There are growing differences between the left and right about budget fairness stemming from a deeper ideological divide on the role of government in the economy. This is driving the anti-budget sentiment.
The re-emergence of this division is a recent occurrence. In the 1980s and '90s both sides of politics aimed to reduce government intervention in the economy and this led to decades of uninterrupted economic growth.
While we should be careful not to overly romanticise this period as Chris Berg cautions, figuring out what has changed will help us learn what has stymied reform in recent years.
Hawke and Keating embraced economic rationalism and market orientated policies because, as Keating said in 1999 they were "the best way of ensuring the future of ordinary Australians". They believed that free markets led to a prosperous and growing economy, something necessary to achieve fairness and grow incomes for all.
As incomes for the bottom 40 per cent have increased by about 30 per cent since 1984 it seems they were right.
This respect for the power of free markets to underwrite social programs and the need to reduce government interference in the economy to grow the pie was maintained in opposition by senior Labor figures like Mark Latham and Martin Ferguson. Even Kevin Rudd labelled himself, however credibly, as an economic conservative in the lead-up to the 2007 election.
Yet while the Labor party of the '80s and '90s had learned of the folly of government planned economies from stagflation in the '70s and the collapse of communism in the late '80s, those lessons have been unlearnt. The Labor government of 2007 to 2013 proudly regressed to big government, interventionist Keynesians.
The Rudd-Gillard Labor government boasted of government intervention, saving industries with hundreds of millions of dollars in handouts to car manufacturers and aluminium smelters. They also introduced inefficient new taxes, passed thousands of pages of new regulations, and partially reregulated the labour market.
The loss of government has done nothing to change their minds; Shadow Treasurer Chris Bowen made it clear in his recent press club speech that he "fundamentally disagrees" with "a laissez-faire ideology inspired by Hayek, Friedman or Von Mises".
With this conflicting ideology is it surprising there are differing views on fairness?
Some on the right believe that ensuring people keep money they have earned through hard work is fair, while others think it is unfair to waste taxpayers money on failed attempts to prop up dying industries or to continually increase taxes on the group that is already shouldering the tax burden.
Yet these arguments are sidelined in the debate on fairness in the budget, which focuses almost exclusively on the existing (unfunded) distribution of government spending. Many on the left think any cut to the disposable income of middle and lower income groups must be either rejected on principle or offset by a larger (punitive) decrease in the incomes of the "rich".
Even modest attempts to share costs for health care or education spending on the well-off are summarily rejected. Without crossbench intervention it seems the budget can only be propped up by debt or economically harmful increases in income tax. There is little prospect that a serious reduction in government meddling in the economy will be supported by Labor or the Greens.
What the Government should learn from this is that attempting to justify the budget on the current narrow grounds of fairness is futile. By arguing that everyone should make a contribution to fixing the budget, and ignoring the already unequal contributions that people make, the Government accepted an unfair fight on fairness.
A far better approach would be to forget relative impacts on disposable income and instead focus on growing the economy. The first step is boldly confronting the contradictions on what it is right for government to do and what it cannot afford to keep doing.
At least that is an argument the Government can win.
Simon Cowan is a Research Fellow at The Centre for Independent Studies. View his full profile here
The ideological chasm of budget fairness - The Drum (Australian Broadcasting Corporation)
