The avalanche of opprobrium in Abbott's way
When Finance Minister Mathias Cormann held up a new Liberal
Party-funded booklet entitled ‘Labor’s mess’ yesterday, the depth of the
Coalition’s growing political crisis couldn’t have been clearer.
Here, just six days out from a historic budget, the key message is: “This is all Labor’s fault.”
Well,
haven’t we heard that message just a few times before? Perhaps it’s
time to shift attention to why this is a “growth budget”, as Cormann
named it, rather than a “highlight Labor’s shame budget”.
The
current sky-is-falling strategy is just not helping the economy, and is
likely to haunt the Abbott government as plummeting consumer confidence
translates into subdued economic activity and more tax revenue
write-downs.
Indeed, all the fear being spread by talk of a “debt
levy” could end up hurting tax revenues by more than the amount the
still-unconfirmed tax is likely to raise.
Just as ironically, we
now have opposition leader Bill Shorten arguing that an extra tax on
wealthy Australians simply will not be allowed to pass the upper house,
while Cormann asks: “Is Bill Shorten really saying he wants pensioners
and low-income earners to carry most of the burden?”
Spot the socialist. Everything is topsy-turvy.
The
overwhelming picture is one of a political team that were virtuosos in
opposition, but headless chickens in power. This must change, as fiscal
reform needs to get underway sooner rather than later.
The problem
is, if the Abbott government continues to squib the politics of reform,
then it can only be heading for a dramatic blockade in the upper house
– as explained yesterday.
And
if that is the case, how will voters view an election in which Abbott
runs on harsh reforming policies, and Labor, Greens and Palmer are
gifted the opportunity to argue that a much more gradual approach to
reform is needed?
They really would be able to make those
arguments, because there are oodles of economic data to say things
aren’t as bad as the Abbott government insists. Yes, the nation’s net
debt-to-GDP ratio, at 17 per cent, is bad, but the real reform relates
not to servicing that debt, but to cutting spending trajectories to make
sure it doesn’t get worse.
Trajectories can be steep or gentle, and that is what a double dissolution election would be fought on.
Labor
operatives may be doing a merry jig at that prospect, but it would be
premature to think Abbott could not win such a contest. In troubled
times, voters can surprise pollsters and go with the devil they know,
rather than the devil they knew a year or two before.
The 1974
election is instructive in this regard. The Whitlam goverment, elected
in December 1972, dared to play double-dissolution roulette, despite
being in the depths of grim economic conditions.
Specifically,
consumer confidence was very low following the 1973 oil shock and the
1973-4 global stock market rout. It’s worth remembering that that
sell-off was deeper and more protracted than even the 2008-09 sell-off
during the GFC.
The Sydney All-Ordinaries Index (in those days
each state had one or more exchanges, rather than the unified ASX set up
in 1987) fell sharply in 1973-4, following a more general decline in
the previous three years. Its total loss was 61 per cent over five
years, compared with a 55 per cent peak-to-trough fall in the ASX 200
between the start of the sub-prime crisis in 2007 and its 2009 GFC low.
Consumer
sentiment was considerably lower in 1974 than it is today, the latest
plunge notwithstanding, as the following charts from Trading Economics
show.
The
Whitlam government took a gamble on being re-elected, despite the
stockmarket rout and low consumer confidence – and won nonetheless. And
all the contested legislation that had triggered the double dissolution
was then passed.
There are limits to this comparison, of course.
The Whitlam era started with huge momentum for change – from what voters
saw as the staid and old-fashioned policies of a Coalition government
that had ruled for 21 years.
Specifically, while many other
developed countries were revelling in free education, health and
generous welfare, voters elected Whitlam to help Australia catch up with
the post-war welfare state (something we can now all be glad didn’t
happen – see The death knell of social democracy, August 2011 )
The
momentum that Whitlam brought into government was just enough to carry
him through the 1974 double-dissolution as well. Times might have been
hard, but voters wanted reforms of largesse, not austerity.
The
Abbott government does not have that advantage. Its election platform
relied on getting rid of wrecking-balls – the carbon and mining taxes
– that, truth be told, were not really wrecking anything.
It did, however, win a mandate for being a ‘grown-up’ government and ending the “debt and deficit”.
The problem was that it pretty much kept secret its magic formula for doing so, well into its period in government (Hockey’s real economic plan is still secret, 27 February )
On
Tuesday, all the secrets will be out, but are unlikely to be much less
painful than the bits that have been leaked early -- especially the debt
levy.
The budget documents are therefore unlikely to give the
government much momentum with voters – and, if the debt levy is
included, it may actually have lost some of its core constitutents.
How
did this happen? While the Abbott government’s pre-election promises
did not add up (for example, scrap the carbon tax but keep the
compensation) skillful political managers could have stretched the
government’s mandates enough to serve the public interest, without an
avalanche of opprobrium making the Senate impassable.
But unless
the budget contains something extraordinary and unexpected, that is
where Australian political-economy will now find itself.
Whitlam’s shoes in 1974 look positively comfortable by comparison.
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