Tuesday, May 16, 2017
This budget signals a jump to the left
That is sort of true but it is really a non-ideological budget. Its aim is to win elections, nothing more. So it is a steady-as-she-goes budget that aims to please many while upsetting nobody. Turnbull does not have the conviction that would make him able to sell the spending cutbacks that are really needed
Australia is undergoing a decisive change in its political values — Malcolm Turnbull has reinvented his government as a pragmatic, populist, public investment vehicle and Bill Shorten in reply has taken Labor even further to the populist, ideological left.
The edifices of Australia’s aspirational politics and market-based reforms are being torched in an end-of-generation bonfire. Occasionally in a nation’s history you can identify a point of transformation and it is likely that this week is such a marker.
Politics is now a contest about the nature of tax increases, the scope of monumental social spending initiatives and the type of government intervention. Australia is becoming yet another Western-world laboratory for the anti-market, populist revolution fuelled by resentment towards finance and corporates, the breakdown of the social contract, big-spending social democratic reforms and a drumbeat for redistribution and equality.
The Prime Minister and Scott Morrison have repudiated the 2014 Abbott budget, moved to assure Middle Australia, declared the worst is over, bet their government on higher economic growth, and displayed a ruthlessness to save their government and make it competitive again.
How did the Opposition Leader respond? In his budget reply Shorten doubled down on the strategy that nearly made him PM last year — he wants more redistribution and class warfare; more taxes on companies, multinationals and upper middle to high income earners; vastly more education spending and rejection of university cuts; he upholds penalty rates, backs the banks levy, still demands a royal commission, claims Turnbull and the Treasurer aren’t strong enough to stand up to the banks, and wants a top marginal rate of 49.5 per cent (you work for yourself one day and government the next).
The story behind this week is that Labor and the progressives have won the battle of ideas and politics since the 2013 election. The budget is a surrender document for the tougher Abbott-Hockey policies that prioritised the return to surplus. Shorten’s answer to the Turnbull reinvention reveals the political contest will critically shift further to the left.
A far more pragmatic Turnbull now embraces the 2013 Gillard agenda including the Gonski school model and seeks to fully fund the National Disability Insurance Scheme via the Labor way of another 0.5 per cent increase in the Medicare levy. But Shorten savages both decisions. To retain product differentiation he pledges another $22 billion for Gonski funding, frankly a ludicrous figure, and wants the Medicare levy increase limited to those earning above $87,001.
Turnbull enshrines centrist intervention and pragmatism. Shorten’s choice is a crusade for fairness. Debt and deficit reduction is on the table but a lower priority. The nation is in retreat from the pro-market post-1983 reform age that delivered such prosperity.
This is the looming political contest that defines our times. We live in a time of reaction, public denial, shallow debate, self-interest and national interest decline.
For Labor, Gonski and the NDIS are icons of political identity and ideological symbolism that assume almost irrational proportions — hence the determination to massively outbid the Liberals on school funds and insist, contrary to the budget papers, that the NDIS is “fully funded” when the government seeks to plug a huge $55bn shortfall over the coming decade.
Shorten is protesting too much. The truth is that Labor is being squeezed by Turnbull’s dramatic repositioning. Shorten is desperate to keep his product differentiation from Turnbull on fairness, redistribution and company bashing, and the danger is that he goes too far and risks the middle ground. The Australian ethos is becoming far more progressive but Labor is in front of the trend.
Shorten attacks Turnbull for seeking “better days for millionaires and multinationals” along with “property investors and tax-minimisers” and offers truckloads of rhetoric about the “big end of town”. He seeks the retention of the temporary deficit levy on higher income earners. Asked about the justification for his near 50 per cent top marginal tax rate, Shorten answered: “Is it fair to give millionaires a tax cut?”
He was in furious denial, saying of Morrison’s Tuesday performance: “This is not a Labor budget.” Morrison also agrees it is not a Labor budget. The reality, however, is that probably no budget in the past 40 years has so ruthlessly seized the framework of its opposition — witness targeting the banks, embracing Gonski, funding the NDIS, taxing foreign workers, guaranteeing Medicare, boosting infrastructure via “good” debt accounting and tackling the deficit through higher taxes. That’s comprehensive.
It is an admission of reality: that neither the public nor parliament will tolerate unpopular policies and spending cuts to deliver the surplus and intergenerational fairness we need. Turnbull and Morrison bowing before this truth is a turning point for the nation.
As Morrison says, the budget is driven by what is “achievable”. It is about the “new reality” of our politics. Leading economist Chris Richardson says that because plan A wasn’t working, it was “absolutely time” to shift to plan B.
The options were obvious: more plan A meant Turnbull was signing his political death warrant. Guess what? Turnbull and Morrison decided plan B sounded better. A critical point, however — which they don’t conceal — is this was not their preference. Australia has become a nation of second, third and fourth-best policy and everybody will pay the price.
There is a relentless logic to this budget and the coming contest. It proves that a dysfunctional political system and a fraudulent public debate will have consequences for a nation. Australia is changing before our eyes.
What of the future? There seem to be two choices — the nation will rekindle confidence in the Turnbull-Morrison team and the pragmatic pro-Labor policy fixes and trade-offs they have engineered or march further to the left under the Labor/progressive banner in the cause of populist redistribution presented as fairness.
Shorten stated the obvious in his budget reply speech: referring to the Hawke-Keating era, he said “Australia can’t live off their legacy forever.” So Shorten is ready “to set a new direction”, with his solution being investment in education and human capital. Making the nation “clever” is not a new idea. Valid as far as it goes, it fails without growth-oriented policies to underpin private sector prosperity where 85 per cent of people work.
The major challenge for the government is to stay united in the teeth of its sweeping reinvention. The strains are apparent — Tony Abbott’s policies have been openly repudiated by Turnbull and Morrison; the battered Liberal ethic of economic liberalism has surrendered to political pragmatism.
There is open warfare between the government and the banks that “saved” the nation during the 2008-09 global crisis. Morrison, having insisted the budget had a “savings”, not a “revenue”, problem, has opted for a “revenue” solution via higher taxes and new levies. Having initially defined himself by innovation, Turnbull is now a champion of huge public investment typified by the decision to build a new Sydney airport and take ownership of Snowy Hydro.
And the government has decided in the cause of political protection to guarantee Medicare and put $18.6bn into Gonski school funding for the next decade. It wants to deny Shorten the charmed political life he has led since the night of the 2014 budget. There is no philosophical logic to this reinvention beyond the reflex of political survival and non-ideological adaptation. In many ways it is a reversion to an older-style Liberal Party of the Fraser era.
Morrison is the driving force behind the political sentiments that underpin this budget. He has been moving down this path since last year’s election. His belief is that the government must listen to the pain, hopes and sentiments of Middle Australia and abandon policy that neither the public nor parliament will accept. Wiping $13bn of unlegislated savings from the budget books after their denial by the Senate has a consequence. It breeds a ruthless flexibility. What else would you expect?
The schism between the Liberals and the banks has no parallel over the past 30 years. It testifies to the smashing of traditional alignments — a consequence of the budget deficit, populist politics and Shorten’s demonisation of the banks. Morrison has converted the anti-bank hostility generated by Labor into easy revenue gains for the Liberals. In the process he lectures bank chiefs about not passing on the levy to customers, saying “they don’t like you very much”. It is impossible to miss the personal factor. Instead of defending the banks against Labor, Turnbull and Morrison decided instead to pre-empt Labor, tax the banks, impose new regulations on them and make the royal commission a hollow cause.
The banks, having disastrously misread how to respond to the mounting opinion against them, never saw the hammer blow coming. The deficit levy is dangerous policy and logical politics.
The bank levy was settled as a political issue within an hour of Morrison’s budget speech. The banks were friendless and Labor signed up. Morrison ticked off his bottom-line gains. But this created a problem for Labor in its search for product differentiation.
Labor put up in lights its 2016 policy of seeking to extend the temporary deficit measure of the Abbott government that imposed a 2 per cent levy on income above $180,000, with Shorten attacking Turnbull for delivering “a tax cut for millionaires”. The levy’s termination was built into the law, but Labor pledges to restore it.
Labor’s big new play, however, was its attack on Turnbull’s proposed increase in the Medicare levy from 2 per cent to 2.5 per cent, designed to raise $50bn over 10 years and finance the NDIS funding gap. This is a proven Labor policy — in its triumphal last Gillard budget Labor announced the NDIS with an increase in the Medicare levy from 1.5 per cent to 2 per cent to finance it.
In short, this is another example of Turnbull adopting a Labor policy. The NDIS is a national project for the disabled. Is it fair to expect the entire community to contribute? This is what Labor believed in 2013 in government but does not believe in 2017 in opposition. What has changed?
The key is Labor’s insistence that the NDIS is a Labor policy, that it is fully funded and that the Liberals, somehow or other, want to undermine it. Social Services Minister Christian Porter says: “Labor has never funded the NDIS. They left a $4bn annual funding gap in the NDIS from 2019-20 which grows each and every year … Labor’s claims that it ‘clearly identified’ enough ‘other’ savings to pay for the funding gap is a lie.” Labor’s full savings were never set aside or allocated to a fund to support the NDIS. “They ended up being washed away by Labor’s increasing cumulative budget deficits,” Porter says. The government’s proposed increase in the Medicare levy is poetic justice, doing to Labor exactly what Labor did to the Coalition via its own Medicare levy increase.
Labor now insists on the basis of “fairness” that no one earning below $87,001 annually should pay the increased levy. Yet the proposed increase has a heavy dose of fairness anyway. Richardson tells The Australian millionaires will cover 6.9 per cent of the levy cost while constituting only 0.4 per cent of taxpayers and that the 18.3 per cent of taxpayers earning more than $100,000 will finance 46.5 per cent of the extra levy.
Anyone for fairness?
Shorten’s claim the NDIS is fully funded is not tenable — but if that is the case, why is Labor supporting an increase in the Medicare levy anyway? Given its position it now needs to explain how it would fill the NDIS funding gap as shown in the current budget.
This promises to be a bitter and emotional debate. Shorten plays to the hip pocket. But Labor is vulnerable. It has changed its position, makes untenable claims and has decided to make NDIS funding a political issue. This saga is a case study in the class, fairness and redistributional conflict now at the heart of our politics.
The big danger facing Australian banks
Australian banks now face a much greater danger than the $1.5 billion tax deductible levy — quasi nationalisation.
Shareholders should be alarmed because quasi-nationalisation a serious threat to the value of bank shares Nationalisation takes place when the government buys the equity whereas quasi nationalisation takes place when government bodies control the prices of an enterprise and have power over executive remuneration and appointment.
Banks have become our four biggest ASX stocks and dominate most share portfolios so the threat of quasi nationalisation goes well beyond the fate of individual banks.
It’s ironic that the next Federal Election is due in 2019 — 70 years after the 1949 election when ALP Prime Minister Ben Chifley went to the polls partly on the issue of bank nationalisation. Robert Menzies defeated Chifley and the present private banking system was established. It’s ironic that quasi nationalisation should be undertaken by the party Menzies founded.
The banks now have no support from either of the major parties. The banks blame the politicians but the boards and management did not read the warning signs prior to the budget. And then in the panic after the $1.5 billion levy announcement they locked themselves into a situation where they have probably ensured price control on home mortgages which could easily spread to deposits and other consumer products. And that likely price control will be cemented in via the proposed unprecedented influence over bank executives.
It’s important that bank shareholders understand first how the banks fell into the trap and then how the quasi nationalisation movement could infect their operations
While I don’t like what the government has done, that’s irrelevant. It’s happened and unless the Senate votes it down (unlikely) the levy won’t change for a decade or two so we had better understand the wider ramifications.
Banks are in this situation partly because too many of them did not act with brutality to smash the management culture that led to the financial planning and insurance scandals and then deliver rapid and generous compensation to customers. If they had undertaken those actions fast the CEO’s could then have gone out on the campaign trail to show they had reformed. Instead they were slow and compensation in the public eye looked incomplete. That strategy generated bitter parliamentary debates over whether we needed a Royal Commission into banking so creating the environment that makes not only the levy but quasi nationalisation possible. Then on November 12 last year the banks had the perfect chance to redeem their public image by making their ‘100 Page” ridiculously unfair small business overdraft contracts “fair” as defined by the act. They could then have gone out to win small business and community goodwill plus generate lots of business. Instead, the task any junior lawyer could do in less than a week, is stuck in a cultural and legal morass in some of the banks. Many business loan agreements are a total mess. The redemption chance was missed.
Then we come to budget night and that dramatic 24 hours that followed. On that night Bankers Association chief Anna Bligh said that bank customers would have to fund part of the levy. Several bank chief executives made similar remarks. It might have felt good but it was an incredibly dangerous action.
In the budget lock up Treasurer Scott Morrison told me that he believed that the competition from the small banks would stop the banks trying to recoup the levy from customers.
But the banks, having decided to defy Morrison, will now have to face an ACCC inquiry into their home mortgage pricing having said publicly that they would taken an action the ACCC is there to stop. As a result almost certainly there will be an on going monitoring of the pricing of the bank’s biggest earner — home mortgages. And as always happens in quasi nationalisations control is extended beyond one body. The bank regulator APRA has already intervened to get investor loan rates up. APRA may also extend their interest rate control wings. And now that the banks have effectively declared war on the government, if there are strange moves in, say, deposit rates, they risk controls over other parts of their business. The ACCC is to set up a special unit to monitor bank pricing.
And to illustrate that they might over time extend the clamps beyond home mortgages, the government plans to clamp down on “poor practices” in the credit card market (“poor practices” is a euphemism for highly profitable practices). The government will put in place new rules on providing credit cards. London to a brick they will slash credit card profits.
Another part of the plan is to look at ways to increase competition in the industry. All the small banks will be rolling up their sleeves to show a proposed productivity commission inquiry how to do it. So not only are we planning to regulate prices but also we are looking to lower the market share of the big banks.
With hindsight, in my view what Bligh and all the bank CEO’s should have done when they saw the budget documents and the likely subsequent pricing control was to guarantee that customers would not be affected by the levy. And then make doubly sure they deliver on that undertaking so that the looming inquiry would be forced to give the banks a good report. Let the market work later when the heat is off.
I emphasise Bligh and the bank CEO’s were entitled to vigorously complain on behalf of shareholders and point out what the tax would mean to shareholders, the retirement community and indeed the integrity of the banking system. They also have strong case that this was a tax thought up at last minute without much detailed work. But in any battle be careful when you fire your shots. At this time they needed to keep right away from customers. Instead Bligh and selected CEO’s took a very high risk stance. If, as is likely, it locks in quasi nationalisation bank shareholders will not thank them.
And that post budget customer threat reinforced the government view that it was time to be more active in controlling bank executives.
Senior bank executives will be required to register with APRA and before any appointment is made banks are required to advise APRA. Penalties will be imposed on banks that don’t monitor the suitability of their executives to hold senior positions. Bonuses must be made long term. Clearly the government believes that a number of current bank executives are unsuitable for the task. I can only speculate that among those considered unsuitable may include chief executives who proposed to pass the levy onto customers.
Welcome to the world of quasi nationalised banks.
At some point the boards of the banks are going to have to construct an APRA approved executive team that can operate in this new environment. Maybe, rather than ACCC and other inquiries, the banks actually might be better with a Royal Commission. Royal Commissions give time to fix the problems.
Qld LNP devise plan to slash red tape
Queensland's Liberal National Party opposition has declared it will slash red tape by 20 per cent over six years if it wins power at the next election.
Opposition Leader Tim Nicholls made the announcement on Monday, committing to a "red tape repeal day" once a year in state parliament to focus on reducing bureaucracy.
Mr Nicholls said the key to fostering "vibrant businesses" in the state was to reduce regulation to let them "get on with it".
"Unnecessary regulation, compliance paperwork and approval processes are costly and consume time," he said. "That's why we owe it to businesses, especially those many family-run small businesses, to turn this around."
In addition to the annual repeal day, the LNP would appoint an industry figure to oversee regulatory reform, as well as setting performance targets for ministers and department heads.
Mr Nicholls said the previous Newman government had put forward more than 500 red tape reform initiatives, valued at $425 million a year.
He also criticised the current Palaszczuk Labor government for increasing red tape, including scrapping the LNP's plan to reduce payroll taxes.
But Industrial Relations Minister Grace Grace defended the government's record on red tape, pointing to their proposed trading hours reforms as an example. "Our proposed reforms will slash the number of trading hours provisions in Queensland from 99 to just six - a 94 per cent reduction in red tape," Ms Grace said. "The LNP has indicated it won't support trading hours reform, but it's about time they stopped playing politics and put jobs and the economy first."
The next Queensland election is due by next May but there is speculation it will be called later this year
Mainstream pulls reins on runaway political masters
Conservatives everywhere could learn from Trump
Wandering around the US last month I was reminded about the less than compelling place that partisan politics has in our daily lives.
Even in the Democrat heartlands of California and Hawaii, whether in the big cities or the back blocks, Americans didn’t mention politics or their new President unless I raised the topic. They were — to use a phrase — relaxed and comfortable; just getting on with their lives.
This, of course, should be no surprise and it merely confirmed my instincts as I mulled over what we are told are tectonic shifts in the political mood in Western liberal democracies.
Brexit, Donald Trump, Marine Le Pen and even Pauline Hanson are often characterised as evidence of a far-right, populist upsurge. This analysis often veers into patronising or demeaning references to the voting public.
If this were true, what could be the trigger? Why would this be happening? And where will it take Australian politics?
Perhaps much of the political/media class has misjudged what is going on. Maybe this is less a case of the public mood shifting than voter realisation that the political/media class has shifted from a once centrist axis.
In the broad, voters have a tendency to be more consistent. Maybe, rather than behaving with volatility, they are the ones who have applied, or are applying, a corrective on a runaway political/media class intent on a damaging progressive course.
Central in this corrective is a reassertion of a fundamentally sensible principle: the primacy of the nation-state and the sacredness of sovereignty.
The voting public has shown it values the cultural and institutional heritage — the hard-won gains — of its liberal democracies more highly than the political/media class, which seems willing to risk bedrock priorities such as national security, border control or separation of church and state to ingratiate themselves to virtue-signalling contemporaries or to win approval from non-government organisations or supra-national bodies.
The political/media class, for instance, would allow free movement across borders into Europe, the US or Australia so as not to wear the opprobrium of the UN — the same UN that puts countries such as Saudi Arabia and Iran on bodies promoting women’s rights.
Much of the political class in centre-right and centre-left parties, and throughout media and academe, would portray so-called Islamophobia as a bigger threat than Islamist terrorism.
Voters have been calling time on this sort of nonsensical posturing. Brexit is perhaps the clearest example because there was little by way of personalities or party politicking that contaminated the referendum about membership of the EU. Indeed, the major party and media consensus favoured the remain case.
But voters preferred Brexit. The political/media class still derides this as a foolish, regrettable and even xenophobic decision, yet it was eminently sensible. This was reclamation of sovereignty and is likely to be reaffirmed at next month’s general election.
The public probably has been quite steady on all this through the years, but the political/media class had rushed on without it, ceding ever more bureaucratic, legal, economic and immigration power from London to Brussels. Given the chance, voters opted to protect what they had rather than risk further experimentation and diminution of their sovereignty.
The nation-state matters. Borders are meaningful. Immigration needs to be organised. The rule of law and equality before it must take precedence over cultural tolerance.
This is not reactionary. This is not a redneck backlash. This is rational. It is common sense.
And it represents a commitment not to squander the unequalled gains and privileges of Western civilisation.
To the extent we are seeing culture wars, they are eminently justifiable. Our culture and what it has nurtured — from science and technology, through democracy and the rule of law, to high art and unprecedented standards of living — represents the pinnacle of civilisation to this time, and the aspirations of just about everyone on the planet except those who would tear it down to create a bleak caliphate.
Mainstream people know this, even though the political/media class has made us almost ashamed to say it.
There should be no need to apologise for defending this bounty, this legacy.
In America, eight years of Barack Obama saw endless apologies for American exceptionalism and a retreat by the US from its role as a global enforcer of order.
The Republican Party was unable to coalesce around a strong establishment candidate, so voters were left with a choice between two unappealing options.
One of them, however imperfect, actually spoke about reasserting sovereign priorities on foreign policy, immigration, economic development and trade. When the alternative was more of the same progressive drift, Trump became a viable option.
In France the differing dynamic fits the pattern even though Le Pen did not win. To understand her success so far we have to consider the Muslim integration problems that have manifested in no-go zones, social strife and horrific terror attacks, as well as the example of Britain showing that it is possible to turn your back on Brussels (and Berlin).
The point is that whether you endorse these correctives or not, they are understandable and rational.
So Malcolm Turnbull will be making a major miscalculation if he dismisses these trends as some far-right or conservative backlash that he must resist at home; quite the opposite.
If he further blurs the distinction between the Coalition and Labor he will embed the perception that the political/media class has drifted from mainstream values. This will only inflame the corrective we have started to see already through Hanson’s One Nation and Cory Bernardi’s Australian Conservatives, and deliver Bill Shorten into the Lodge.
Turnbull has had one of his better weeks since taking over the prime ministership. His natural instincts for deal-making have produced an ideal (if expensive) outcome for Sydney’s second airport and a plausible (if also expensive) compromise on education funding.
We can expect to see something similar on Medicare funding in the budget.
This is all aimed at neutralising difficult issues for the government and stemming Labor attacks, which is well enough as far as it goes.
But to capture a sense of purpose for his government and provide a reason for re-election, he must accentuate some differences.
Labor has been soft or wrong-headed on visceral issues such as borders, budgets, Islamic extremism and climate/energy pricing, but the government has not taken advantage.
The Coalition faces a relatively easy task — should it recognise it — of convincing the public it is the party that can be trusted to strongly defend and protect the hard-won qualities, values and priorities that underpin our prosperity and security.
Whether they have been here for generations or arrived last year, Australian families, in the main, will value strong borders over UN posturing, solid schooling over gender and sexuality options, affordable energy over climate gestures, balanced budgets over grand promises, and job opportunities over union deals.
The Coalition has surrendered enough already, giving up its advantage on leadership stability and gradually reducing its dominance on fiscal rectitude. It needs to press home key differences that advance the national interest.
Given where Labor is on the defining issues — divided and weak on borders, high risk on energy pricing and firmly in favour of higher taxes and deeper deficits — Turnbull is fortunate indeed. Aligning with mainstream sentiment should be easy.
Capping the renewable energy target would be the best start and most worthwhile battle. The greatest threats to the Coalition are the lure of political/media class approval, limiting itself to what the Senate will allow and showing a lack of confidence in its values.
Posted by John J. Ray (M.A.; Ph.D.). For a daily critique of Leftist activities, see DISSECTING LEFTISM. To keep up with attacks on free speech see Tongue Tied. Also, don't forget your daily roundup of pro-environment but anti-Greenie news and commentary at GREENIE WATCH . Email me here