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Can we extract some good from whingenomics?

It was somewhat unfair to suggest earlier in the week that whingenomics was only the official economic policy of Tony Abbott’s opposition.

This morning Wayne Swan issued a press release, similar to ones he and other ministers have issued at the start of financial years past, detailing an extensive list of measures to help with cost of living pressures. “The Gillard government recognises there are genuine cost of living pressures across the country and not everyone is seeing the benefits of a strong economy,” says Swan.

Pandering to voters’ flawed conviction that they face “genuine cost of living pressures” is a bipartisan policy.

But politicians need to be careful. One of the characteristics of whingenomics is the insatiable nature of voters’ demands of government. The Howard government threw billions in middle-class welfare and tax cuts at voters, but they took them as no more than their due. Kevin Rudd was still able to exploit their sense that they were “doing it tough”, faced unbearable cost of living pressures and that John Howard and Peter Costello just didn’t understand.

It’s unclear whether Abbott and Joe Hockey, who want to go further than Swan and repeat the Howard-Costello approach of spending the proceeds of the mining boom on bribing voters resentful of not benefiting from it, understand that this didn’t work politically the first time around.

The failure was partly due to the simple maths of whingenomics — the more handouts and tax cuts wasted by Howard and Costello trying to bribe voters, the more the Reserve Bank increased interest rates, a vicious circle of pain inflicted first on mortgage holders and business and then, on Howard and Costello themselves. It was a fictitious solution for a fictitious problem.

It was also partly because (cf. Swan’s media release) voters didn’t connect the tax cuts and handouts with their grievances, a failure of marketing by the Howard government, and also reflective of the entitlement mentality it was up against — a nice irony given it was a mentality much encouraged by that government.

Alternatively, Rudd’s approach failed as well. Under Rudd, Labor connected with voters, convincing them of its empathy with them and their plight in the face of alleged spiraling prices. Labor’s strategy was to retain most of the whingenomics handouts but add to them an impression of “cop on the beat” via initiatives such as Fuelwatch and Grocerychoice. Voters, given the vague sense that Something Would Be Done, were underwhelmed.

So let’s take politicians at their word and think sensibly about whingenomics. Instead of using handouts to play an eternal and futile game of catch-up, what if you wanted to put downward pressure on the cost of living, even recognising our current low inflation environment? What should you do?

Fortunately it’s not hard, though some patience is required.

For starters, convince the NSW and Queensland governments to flog off their power assets. As Ross Garnaut recently demonstrated, the government-owned power sector has been jacking up prices even more than privately owned generators and networks owners. Second, dump the array of highly expensive non-market measures intended to encourage a shift to renewables, such as the Renewable Energy Target, in favour of the lowest-cost option, a carbon price. Then overhaul the electricity market regulatory framework so that the Australian Energy Regulator can stop operators rorting the current pricing rules.

Even the Liberals, currently wandering the broad, sunlit uplands of  Abbott’s economic populism, can buy into some of that.

Next, instead of attacking supermarkets that cut prices for family staples, applaud them. Retailers should never be hauled before a Senate committee to explain why they’ve made a product such as milk significantly cheaper for families. Then, rather than seriously entertaining the idea of lowering the $1000 GST import threshold, lift it and index it. At the very least, raise it to $1270, which is where it would be now if the entry threshold had been indexed from where it was in 1976. Shopping online can dramatically cut the costs of household items such as clothes, footwear and small appliances, and will in turn put competitive pressure on Australian wholesalers and retailers to cut their margins. Better yet, investigate the scam of manufacturers refusing to sell online because of contracts with bricks-and-mortar retailers.

Then, force the states to lock in consistent, coherent residential development approval processes that encourage developers to add to new housing stock, instead of trying to deter them through NIMBY-based regulation. Couple it with a significant increase in federal government assistance for the provision of basic residential infrastructure by local councils to start narrowing the gap between our population increase and our housing stock.

It’s unlikely that putting downward pressure on electricity, retail and and housing costs will sate the entitlement mentality of many voters, for whom governments are essentially a source of support for lifestyle choices beyond their current income level. But they’d be of benefit anyway. If politicians are going to pander to voters’ delusions, we may as well good some half-decent reform out of it.

12
  • 1
    Chess C
    Posted Friday, 1 July 2011 at 2:00 pm | Permalink

    Bernard, what are you smoking? “… tax cuts wasted by Howard and Costello trying to bribe voters”. Tax cuts: letting people keep more of the money they earn. So by your logic, every dollar retained by the wage/salary earner is a dollar wasted, but every dollar taken by the government is a good investment???

  • 2
    BH
    Posted Friday, 1 July 2011 at 2:27 pm | Permalink

    Bernard, Some brave decisions to be made there.

    Helen Coonan won’t agree with you on the Howard/Costello tax cuts. I heard her say last night that surplus budget money should be paid out in tax cuts.

    You can’t teach an old dog new tricks. TaxcutsRUs for the Coalition!

  • 3
    arty
    Posted Friday, 1 July 2011 at 3:21 pm | Permalink

    If the Government receives more in income tax than its budget for say 2010-2011 year it should return the excess to the people who paid those taxes in year 2010-2011, not to those that will pay taxes in 2011-2012.

    That part is simple and fair.

    I haven’t got a solution to excess GST, but that just proves that it’s a lousy tax.

  • 4
    klewso
    Posted Friday, 1 July 2011 at 3:32 pm | Permalink

    Me? I’m one of those troglodytes that think we could have gotten more bang for our collective buck by “investing in infrastructure”. That those taxes could have benefitted more of us (less better placed than the more affluent, in their economically insulated existence) in other ways than “a milk shake and a sanga”.
    Like spent on “health”, “education” and “care”.

    With the sensitivity of that “hip pocket nerve”, that is “the voter’s achilles” - every time it gets poked and prodded for votes - I can’t help but remember Olivier’s clinical “Szell” and his own ministrations : “Is it safe yet?”

  • 5
    billie
    Posted Friday, 1 July 2011 at 3:38 pm | Permalink

    Fellas the only reasonable tax cuts are those people on low incomes. People on social security shouldn’t pay income tax.

    You shouldn’t get a tax break on school fees, health insurance, superannuation contributions if you have sufficent in super to keep you in comfortable old age. [currently $500,000 will pay a pension of $38,500 til you are 89]

    I can remember when my income tax rate was 48% - I earned 4 times a graduate starting wage - the equivalent of $232,000 today pays income tax at 35%

    Bring on the MMRT!

  • 6
    rpdavies@swiftdsl.com.au
    Posted Friday, 1 July 2011 at 6:35 pm | Permalink

    I’m with Klewso. Taxes are collected to be spent on essential services and infrastructure. Collect them and spend them properly, don’t give them back to people who don’t need them.

  • 7
    Jeremy Williams
    Posted Friday, 1 July 2011 at 7:16 pm | Permalink

    yeah its pathetic why should the government be giving any money to people on > 50 K
    Pathetic - australia is the lucky country- people need to get a life and create something
    I don’t understand the benefit of raising the threshold on gst for imported goods missing out on government revenue while not helping the local economy
    Also the issue with milk is they are trying to wipe out small players and then buy off at discount
    Some good stuff bk but you seem to be buying into the whingeconomics in parts of your article

  • 8
    Giuseppe De Simone
    Posted Friday, 1 July 2011 at 10:43 pm | Permalink

    The problem is government taxation - everyone thinks they are taxed too much so they want as much of it back in entitlements. If we actually cut taxes (rather than reduced the rate of increase in taxation which is all that the Menzies, Holt, McMahon, Whitlam, Fraser, Hawke, Keating and Howard governments ever did), we’d have a reasonable chance of changing people’s attitudes. Howard was the master of creating the entitlement, even surpassing the Whitlam government in sheer new benefits. If Peter Costello had been able to rein in Howard’s penchant for the hand-out, we might actually have had some decent tax cuts in those 12 budgets. The only way to cut entitlements is to cut the size of government. I am a great believer that you cut taxes first and then you are forced to cut expenditure to compensate for the reduced revenue.

    I agree that further privatisation is warranted especially in NSW and Queensland. This should be done in a way to encourage competitive pressures.

    I believe everyone (not just overseas travellers returning to Australia) should get an annual import allowance for tax free purchases. Setting the level at around $2,000 per person per annum means a “loss” to revenue of $200 per person (or around $4 billion a year). This would really shake up the retailing sector while preventing large scale importation by the wealthy. It is easy enough to require people to declare imports over a certain figure using the matching technology that already exists.

    The cost of construction is tied up with a lot of featherbedded industrial practices as well as overly prescriptive State regulation. We could reduce the cost of construction considerably by planning reforms and building code reforms but the big savings would come from reducing the stranglehold of unions on work practices. The latest government moves to reduce contracting in the building industry is just going to increase costs. Stupid, stupid move.

    Peter Reith has started the debate on workplace reform. This is the final large piece of micro economic reform that remains from the 1980’s. You can have higher wages with higher productivity - anything else is unsustainable in a global economy with the impact being reduced employment or lower standards of living due to purchasing power parity adjustments.

    There is no law that forces people to keep buying from the same shop if they change their mind. There is no law that forces employees to keep working for the same employer if they want to work somewhere else. There is a stupid law that says employers cannot dismiss employees unless they have valid reasons and gave plenty of warnings of unsatisfactory performance. It is called unfair dismissal - somehow it is unfair for an employer to decide that this particular worker is no longer wanted. The employee can decide on a whim to leave the employer at any time and the consumer can decide to stop buying from that shop or supplier at any time without having to give reasons and indeed for the most stupid of reasons. The poor old employer has to satisfy a bureaucrat that the reasons provided are satisfactory. This is really restrictive and is based on some old fashioned notion that the world owes us a living. Of course, no political party is going to tackle this issue because they are too damn scared of the electoral backlash.

    Let’s be clear - all tax cuts are good, all taxes are bad and distorting and should only be imposed to raise the revenue required for the protection of citizens where such imposition is more economically and socially efficient than citizens providing for themselves.

  • 9
    Posted Saturday, 2 July 2011 at 8:32 am | Permalink

    ah Bernard, you are prophetic!

    the media outlet for whingenomics is at it again, this time on bread:

    http://www.news.com.au/business/first-it-was-milk-now-grocery-war-spreads-to-bread/story-e6frfm1i-1226085988408

    Coles sells more than 50 million loaves of SmartBuy bread each year, or close to a million a week. More than 80 per cent of the sales are for white bread.

    The grocery monolith has rejected claims it is financing lower costs for staples through higher petrol or other grocery prices.

    Consumer group Choice has warned that super-low prices for home brands could cut product choice in the long run.

    so whilst they are not screaming yet, the news corp tabloids are setting the punters up for Milk Wars 2: coming soon to a tabloid near you.

  • 10
    Bernard Keane
    Posted Saturday, 2 July 2011 at 1:36 pm | Permalink

    For those complaining about me criticising tax cuts, the problem with the Howard-Costello tax cuts was that they were funded by windfall revenue from the mining boom, not from serious cuts to govt expenditure - which was in fact going up under the Liberals.

    Tax cuts funded by equivalent cuts in permanent govt spending - which will therefore have no net impact on the size of the public sector contribution to demand - would have reduced pressure on the RBA to increase interest rates. They also would have meant the budget was less exposed to the collapse in revenue caused by the GFC - or at least the hit to revenue would still have been as great, but the resulting deficits smaller because of lower govt spending.

  • 11
    Harvey Tarvydas
    Posted Saturday, 2 July 2011 at 8:10 pm | Permalink

    Dr Harvey M Tarvydas

    Interesting stuff BK with some good ideas.
    I haven’t really applied much time to the ‘whinge class’ in the ‘lucky country’ so I’m not feeling as clever as you.
    Whinge noise emanates from those curious inhabitants of the ‘have’ class rather than the ‘have nots’.

  • 12
    Eldon Lim
    Posted Sunday, 3 July 2011 at 7:34 pm | Permalink

    Have a look at http://www.globalrichlist.com/. I’ve been mystified by why people who earn in the top 1% in the world require government welfare.
    Cost of living pressures here are real, but could be addressed with some of the BK reforms proposed.

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