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Federal

Feb 1, 2012

Abbott's nostalgia for Howard's Oz is no basis for an economic policy

Nostalgia is a fine political tool if you can use it and half his luck if Abbott can make it work for him. But it’s no basis for an economic policy.

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There is much to ignore in pursuit of the core of Tony Abbott’s philosophy of government, to the extent that he outlined one yesterday at the National Press Club, amid the generalities, motherhood and vagueness of “aspirations”.

It was, at least, good to see the Opposition Leader trying to be at least slightly clearer about what an Abbott Government would look like, something we’re still not clear on despite more than two years of Abbott’s leadership and a federal election. It was also comforting to see him talking positively about immigration and in particular the Howard government’s program, which saw high levels of immigration. That makes a change from the fearmongering about “a big Australia” that Labor and the Liberals engaged in in 2010.

To get the core of what Abbott is pitching, though, you have to overlook a lot. You have to overlook the complete absence of the global financial crisis from his account of recent economic history. You have to overlook the extraordinarily fatuous statement with which he opened his speech, that Labor had no policies to deal with the Eurozone crisis, when it is Labor’s politically risky focus on a 2012-13 surplus that was lauded by a ratings agency as recently as late November when it upgraded Australia to a triple-A rating.

You have to overlook Abbott’s invocation of “the iron law of economics” as a reason to reject price signals as a means of modifying behaviour. You have to overlook the confusion about the timing of tax cuts which already looks like bedevilling the Opposition from now until they release their full costings – if they ever do. You have to overlook a whole host of things that reflect the common-or-garden inconsistency and willful obtuseness of oppositions, no matter what their composition.

Abbott is often accused of having decidedly backward-looking social views. Yesterday’s focus was backward looking in a different way. In the speech, he repeatedly invoked the Howard government as an example of what he’ll go back to. The Howard government, Abbott said “now looks like a lost golden age of reform and prosperity.”

Now that may patently be wrong if you have a mortgage, or you’re concerned about inflation, but ignore whether it’s accurate or not and understand the message.

Abbott’s speech was a conscious effort to invoke a fondness for the calmer economic times of the Howard years — a time before the GFC, before the mining boom had started hammering manufacturing… and a time before foreign investors regarded our government’s fiscal management so highly that we started becoming a safe haven and our dollar went through the roof.

Don’t make the mistake of dismissing this as empty nostalgia. As Essential Research’s poll this week shows, the electorate rates Howard very highly – he’s easily the most popular pick for “best Prime Minister”. And the world was a very different place economically then, with an apparently endless boom driven by cheap money and, for Australia, our ability to piggyback on China’s relentless rise.

That world came to a shuddering halt with the GFC, and the one that has now emerged — assuming Europe or the US can be said to have “emerged” at all — is a far more difficult one for any economic manager, including ours. And Wayne Swan, Ken Henry, Martin Parkinson and Glenn Stevens have done an excellent job so far of navigating its rocks and shoals.

But the problem is that this isn’t simply politics. Abbott is not merely trying to invoke nostalgia in voters, he proposes economic policies from the Howard years. The Howard government was big on the “small government” talk as well, but became the biggest taxing and spending government to date. It would be nice, in that context, for Abbott to acknowledge when he drones on endlessly about cutting government spending that the previous government ended up making the Whitlam government look like misers.

And when asked after his speech about examples of middle class welfare like subsidies for school fees or private health insurance, Abbott invoked aspiration to justify its retention. Middle class welfare was primarily a creation of the Howard Government, and plainly for all the talk of “small government”, Abbott would retain it.

Indeed, we don’t have to guess at this, for Joe Hockey in his Budget Reply speech last year explicitly said that the role of government was to “grease the wheels of structural change” via middle class welfare, to make sure voters don’t become alienated when the economy undergoes the sorts of changes it is now in the middle of.

This piece of Hockeynomics of course was the approach of the Howard Government, to direct the proceeds of the resources boom into tax cuts, middle-class welfare and regional rorts programs. The result in the last term of that government was ever-higher inflation and interest rates and a profound sense of entitlement on the part of voters.

A return to that policy would be more than just a rebuttal of the oft-proclaimed “small government” ethos of the Liberals — that’s just perfectly ordinary hypocrisy. Rather, it would create the same vicious circle of inflation, rising interest rates and pressure on governments for more relief from so-called “cost of living” pressures.

Similarly on IR. Abbott yesterday was talking about the need for greater labour productivity. Again, ignore his lie that “productivity has stagnated” – it’s been in decline for the last decade – and focus on the message. “My best moments as employment minister,” said Abbott, “were the figures showing ever higher real wages and record job increases. It was possible to have more jobs and higher pay then because there were productivity increases to sustain them.” Abbott wants more “flexible” and “adaptable” workplaces. As I’ve repeatedly noted, in fact the biggest fall in labour productivity in recent decades was under WorkChoices.

Abbott also seems taken with an idea he appears to have devised himself, claiming that the Australian economy has “five pillars” – manufacturing, “knowledge economy”, “services”, resources and agriculture.

Apart from the fact his pillars combine specific industries like manufacturing or resources with industry characteristics like services and a vague, sloganish add-on about “knowledge”, it’s a static view of the economy, as though Abbott wants our economy preserved in amber forever just the way it is.

The speech thus suggests that Abbott really believes we can go back to the Howard era economically, and wants to base his policies on that.

We can’t. The Chinese Communist Party has ensured our economy is undergoing a rapid and dramatic transformation. Foreign investors and the benighted state of European finances is turning us into a safe haven currency. The shift to services and away from retail is changing our employment market, as is an aging population that has made the health and caring sector the biggest and one of the fastest growing employers. Our tax base is changing, too — the shift to services will have implications for GST revenue; nearly a decade of income tax cuts has left us more reliant on corporate tax revenue, which is in turn ever more reliant on the mining industry and the big banks.

Nostalgia is a fine political tool if you can use it and half his luck if Abbott can make it work for him. But it’s no basis for an economic policy. The Australia of the John Howard era is disappearing, as much because of the policies he set in motion as anything else. The Coalition needs to recognise that.

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