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Sep 14, 2009

We deserve better than legacy wars

Here we are, nearly two years out of the Howard years and happily consigning them to well-deserved oblivion. Then Paul Kelly released his book, and they all came lurching out of the political cemetery.

It’s all Kevin Rudd’s fault. Here we are, nearly two years out of the Howard years and happily consigning them to well-deserved oblivion.

And then Rudd has to mention the war; and of course John Howard and Peter Costello lurch out of the political cemetery to boast about the size and quality of their tombstones and pretend they are not really dead after all, and Malcolm Turnbull feels that he has to join in and defend the two people in the world he most wants to forget. Such is the level of discussion in contemporary Australia.

The trigger, of course, was Paul Kelly’s latest blockbuster, a weighty, indeed ponderous, attempt to spin the 24 years of government by Bob Hawke, Paul Keating and John Howard with (in alphabetical order) Peter Costello into one seamless thread of economic reform.

Launching the book, Rudd predictably dismissed the Howard-Costello period as a mere hiatus; he and only he was the true bearer of the flame kindled in 1983. This admittedly partisan view was derided as mean-spirited and mendacious, but it did invite a critical appraisal of Howard’s legacy and what, if anything it has left us. And on close examination it is not a legacy which can be dismissed lightly. It can, however, be dismissed heavily, so here goes.

The proudest boast of Howard and Costello was that they handed over a robust and vibrant economy, free of debt and sizzling with growth. It was indeed free of government debt; on the other hand private debt, vigorously encouraged by government policy, was through the roof and still climbing. And certainly Australia’s economy was growing and had been for many years.

The problem was that the growth had been squandered on election bribes to middle class voters. Vast quantities of tax had been collected only to be handed back, although the hand outs disproportionately favoured the top end of town. Very little was invested in infrastructure and still less set aside for the inevitable downturn – thus Rudd’s need to borrow large amounts, which is now the target of coalition outrage.

Indeed, so extreme had been Howard’s profligacy that if all his 2007 election promises had been honoured, the budget would have gone into structural deficit even if the boom had continued. Not much of a bequest after all.

Howard also claims credit for workplace reform and indeed the legislation introduced early in his term built on the work of Keating. And it would have gone much further: we would have had WorkChoices in 1998 if the Democrats had not held the balance in the senate. And if we had there’s every chance we would have been rid of the Howard gang at the 1998 election, in which they were rejected by a majority of voters anyway — but not, alas, in the crucial seats. And of course WorkChoices would have been dismantled, as it has been. No monument there.

The Democrats also played a part in watering down Howard’s big one: the GST. The main — perhaps the only — point about a GST is its efficiency, which relies on its universality. As soon as you remove this, as the Democrats did, you are left with just another messy indirect tax. And like all flat rate taxes the GST is regressive: it hurts the poor more than the rich, and so effectively redistributes income upwards, just like Howard’s other so-called reforms.

Even economists admit this is unfair, but they justify it on the grounds of efficiency — it is easy to collect and hard to avoid. Rudd, incidentally, spoke passionately against the GST and has ruled out putting up the rate. He would undoubtedly like to repeal it altogether, but it’s too late to unscramble the omelet. We’re stuck with it, but we don’t have to like it. And in the end it remains a political cop out: we accept an unjust and inequitable tax because raising the same amount from a fair one is just too much like hard work. No wonder Costello was so keen.

He is also very proud of another cop out: handing the power to set interest rates over to the Reserve Bank. Taking his hands off the steering wheel is a matter for self-congratulation. Howard inveighs against a Bill of Rights because it would hand over decisions on human rights to unelected lawyers and judges, but he thinks handing over decisions crucial to the economy and living standards to unelected bankers, financiers and business tycoons is courageous and forward looking policy. Go figure.

And that’s about it. It is true enough that the economy was basically sound, with the big four banks providing a solid foundation: with the added protection of a government guarantee they were never going to suffer the fate of many of their overseas counterparts. Howard and Costello can take some credit for the most un-liberal regulatory regime by which the banks are governed, a regime on which Rudd will cheerfully build, but it is hardly what they themselves would characterise as economic reform. That consisted, in their view, entirely of deregulation, of giving the market more freedom, not less. And here, even by their own standards, they did very little.

Rudd’s principal charge against them is that they did almost nothing to boost productivity against the inevitable time when the mining boom came to an end. Education, research and innovation were all allowed to run down, almost to the point of stagnation. This is where the bonanza should have gone and this will be the priority in the years ahead.

In other words, economic reform will certainly continue, but not as an end in itself: it will henceforth be a means towards social reform. And it is by this criterion that Rudd’s own legacy will be judged.

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29 comments

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29 thoughts on “We deserve better than legacy wars

  1. pwnerous

    Isn’t the independence of the RBA a good thing?

    Could you see the Howard gvt (or any gvt for that matter) ever making the hard call for successive raises in interest rate? Especially when ‘low interest rates’ were their expressed point of difference.

    Otherwise, a good article; interesting point on Workchoices in 1998.

  2. Neil Summers

    Strangley Howard hasn’t come out big noting the several billion he ripped out of education soon after being elected. Neither doesn’t he mention how he broke his election promise not to touch ABC funding. Funny that! Some legacy.

  3. Cavitation

    Here was I over the weekend just admiring Rudd’s skill at reminding the Australian electorate of the unpleasant aspects of the previous government, now that Howard’s mistakes had disappeared from public memory. And now Turnbull adds to the unpleasant memories by revisiting “Workchoices” and individual work contracts during the most dangerous economic climate in the last few generations. You’d think the Liberals would have known better, since Howard pioneered the strategy of raising Whitlam and Keating every time political momentum started moving away from him, during his time in government.

    Surely this whole issue was a clever strategy from Rudd to remind the public about the nasty stuff the previous government did – people naturally remember the bad stuff more than the good.

    But I am reluctantly coming to the conclusion that Malcolm Turnbull was offered Labor Party membership back in the past; but that he actually accepted, and kept it quiet. Is he a secret Cheryl Kernot? Is he really working for the Labor Party, as his recent actions seem to indicate, and will he jump ship once his fellow Liberal Party colleagues eventually catch on?

  4. redfrogs

    Pwnerous I think you are right in your question. Having a deregulated economy/currency/interested rates and therefore reserve bank would seem inevitable rather than a political football keen to be passed elsewhere.

    Mango I can see where you are coming from but not sure if I see all of these arguments being particularly strong. There are advantages in having a broad-based tax such as a GST as opposed to a more narrowly enforced income tax – which is only applied to the 10 million people in paid employment. Both have advantages and disadvantages and part of the reason why we have both.

    Incidentally I think it is clever politics for Rudd to speak out against a tax, which is by definition unpopular, which he knows he could not and would not repeal.

    I also don’t think the politics of a GST would be lost on Keating who was rolled by Hawke in 1985 on this same issue. Several Labor figures cite this as the incident which really soured the relationship between the two.

  5. John Inglis

    More Mungo please 🙂

  6. madeinaustralia

    “Rudd’s principal charge against them is that they did almost nothing to boost productivity against the inevitable time when the mining boom came to an end. Education, research and innovation were all allowed to run down, almost to the point of stagnation. This is where the bonanza should have gone and this will be the priority in the years ahead.”

    Lol at this whole arguement

    Rudd ran at the last election on premise he was infact John Howards long lost twin hibernating in his anus for the last 12 years, he promised to be exactly like Howard on all things economic and now Rudd is knocking his father after he shat him out and gave him life…

    cant work it out?

  7. evidently

    MIA
    Do B. Econ dropouts work it out with a pencil too?
    Mungo
    you are bang on. I said very similar things in a far more crude and overly detailed response to Bernard’s assessment of this matter last friday and got similar ugly imagery thrown at me by the rabid MADEINAUSTRALIA and his other nom de guerre.
    I remember you fondly for interesting me in politics in the mid seventies, yet you still seem fresh a fit for task in the face of this rampant ‘cult of the amateur’.
    Long may you rile the shallow ilk of MIA.

  8. jeebus

    Spot on analysis, Mungo. While other resource rich states like Norway, Chile, and UAE were able to build up sizable war chests during the biggest global boom in history, Howard and Costello left us with structural deficits, sorely neglected infrastructure, and a complete deterioration in our terms of trade.

    Yes, living standards increased for the majority of people over the last ten years, but how much of our economic growth was due to easy credit that led to the mother of all debt binges by the private sector?

    Hockey and Liberals have been thundering about the dangers of public debt when the private debt is what’s killing us.

  9. Most Peculiar Mama

    “…Howard inveighs against a Bill of Rights because it would hand over decisions on human rights to unelected lawyers and judges, he thinks handing over decisions crucial to the economy and living standards to unelected bankers, financiers and business tycoons is courageous and forward looking policy. Go figure…”

    Such simplistic nonsense.

    Why would an “elected” official be stupid enough to set monetary policy as MacCallum suggests?

    Many of the metrics that influence and drive the Australian economy go way beyond our shores and deserve due consideration from a global perpective.

    Can the same be said of a non-elected judiciary setting an ‘Australian’ Bill of Rights?

    I’d hardly call Costello’s correct decision to insert an objective political distance to Treasury a “cop out”.

    Just as he rails against the monarchy and religious involvement in Australian politics, MacCallum would be screaming if there was any undue influence on the RBA Governor from the Treasurer…whatever their colour.

  10. Kirk Broadhurst

    The comments against the GST & Reserve Bank autonomy weaken this significantly.

    A flat GST (accompanied by a suitable raising of the tax-free lower bracket thresholds) is better than a random smattering of taxes across various goods while services remain untaxed – the rich do consume a lot more services than the poor, after all.

    Reserve Bank autonomy is absolutely essential to maintain a rational approach to monetary policy – I would much prefer to have an unelected & educated official set rates than an elected & uneducated politician.