The Coalition's Gross Hypocrisy

Joe Hockey, Australia's shadow treasurer was in London this week and he seems to have slipped easily into the mood of regressive austerity currently dominating conservative politics in the UK . Speaking at the Institute of Economic Affairs, Hockey lambasted the "universal entitlements" that people in Western democracies have become accustomed to and praised the barely existent safety net in places like Hong Kong which "works and is financially sustainable". 

He went on to attack "what we find in Europe, the United Kingdom and the United States. All of them have enormous entitlement systems spanning education, health, income support, retirement benefits, unemployment benefits.'' Citizens expecting the provision of healthcare and education? How very greedy and presumptuous of them!

It remains to be seen whether Big Joe will take this new spirit of austerity back to Australia with him, but the portents are not good. Last time Hockey was in government it was as a minister in the Howard government, the biggest taxing, biggest spending government in Australian history. It famously sought to encourage the kind of small state self-reliance that Hockey advocates by giving unprecedented amounts of money to people, all types of people no matter how wealthy they were, when they had a baby, when they bought a house (or bought one for their children as a tax rort), when they took out private health insurance and when they sent their children to an exclusive private school. 


How's that for libertarian frontier spirit? 

Of course Hockey was only a backbencher or junior minister when most of these middle-class welfare bonanzas were handed out so it's unfair to hold him too responsible. To get a more balanced idea we should look instead at what model of restraint the dryer than dust Hockey has proposed as shadow treasurer. His highlights so far include:

- A parental leave scheme paying up to $75,000 over 26 weeks and costing $3.1 billion

- A 'Direct Action' carbon reduction scheme that, unlike Labor's market-based mechanism, will simply involve paying large companies to try and stop them polluting and will cost $11 billion a year

- A nanny rebate which will use taxpayers money to assist middle-class families in employing domestic help

- Abolishing Labor's means testing of the private health rebate to redirect funds back to Australia's wealthiest citizens

- Opposing Labor's means testing of the baby bonus

- And last but not least, using all of the above to run up a $70 billion dollar 'black hole' in the coalition's tax and spend plans that would leave the country with a huge budget deficit.

The words incompetent and hypocrisy are barely adequate to describe the mismatch between Hockey's tough talk and his populist, spendthrift policies.

If the ALP has any political instincts left (and that's a big 'if' at the moment) then they should, to use Paul Keating's characteristically colourful words, make Abbott and Hockey wear this abject economic hypocrisy like a crown of thorns. 

Attacks on the Fair Work Act Are Nothing to do With Productivity

There was an interesting piece in the Financial Review yesterday from Ian Hanke, communications director of the HR Nicholls Society.

I would link to it but it is currently hidden behind the AFR’s paywall and the Society themselves do not have a copy of the text on their amusingly antiquated website (it seems appropriate that the cyberspace presence of an organisation dedicated to taking industrial relations back to the nineteenth century should be so fogeyish).

Hanke discuss the background paper for the government’s upcoming review of the Fair Work Act and pre-empts the findings of the review by attacking it’s effect on productivity. Despite claiming that the paper features a “paucity and cherry-picking of data” he seems to find enough to justify a belief that the Act is responsible for a decline in productivity. He contrasts this with the Howard years and claims “(the paper) confirms that after a slump in the mid-2000s, productivity grew by 1.8 per cent for the whole of the Howard era.” 


Ah yes, and what of that slump in the mid-2000s? What IR policies were in place then? The answer is Workchoices, the most individualistic, employer-friendly industrial relations regime in Australia since the introduction of the Conciliation and Arbitration Act in 1904. Who’s cherry picking now, Ian?

It has been established many time around the world that the relationship between productivity and union membership levels is not significant, and that the relationship between productivity and industrial relations laws is complex. Productivity is not the same as profitability, it is about inputs versus outputs. To indulge in a cliché, improving productivity is about working smarter not harder. Workchoices undermined this by allowing employees to be overworked and underpaid, and enabling bad management practices to go unchallenged. 


A workforce that works longer hours for less pay is able to generate more profit for their employer, but it is not more productive and this is indicated by the Workchoices era productivity crash.

But it would be playing the game of the business lobby to pretend that IR laws are the primary driver of productivity. The real driver of the productivity crash that began under the Coalition and has continued under Labor is the chronic skills shortage that Australia faces; a legacy of underinvestment in education by the Howard government and the decline of research and development. 


The Financial Review, which purports to want to solve the productivity issue, has recently attacked the Gillard government’s decision to invest in vehicle manufacturing, a sector which provides Australia with vital R&D skills and resources, meanwhile it continues to publish attacks on the Fair Work Act and the basic entitlement of workers which help to undermine the nation’s productivity.

It is in the interests of everyone to improve Australia’s productivity, but if we are to do so the vested interests of business organisations and right-wing pressure groups must stop using it as a vehicle to launch ideological attacks on Australian workers.

Ideology Trumps Evidence at the IPA

Perhaps the most striking aspect of the Institute of Public Affairs’ media presence is not the fact that a fringe group with extreme rightwing opinions gets such a good run in the newspapers, but that whoever appears in the media from the IPA their views are always uniform, predictable and lacking in evidential support.

For instance, Julie Novak from the IPA has an article in today's Oz where she considers the unfolding crisis in the global financial system and how we should respond. So, after taking into consideration all the relevant facts and nuances of this unique situation what does she propose? Well, Julie boiled the policy prescriptions necessary into a four point action plan to save Australia. Turns out that what we need to do is:

1 - Stop the mining tax and carbon tax

2 - Slash government spending

3 - Cut taxes

4 - Deregulate the labour market

It's certainly a happy coincidence that what the economy needs in this moment of uncertainty is exactly the same as the IPA's longstanding agenda, and a carbon copy of the IPA's solution to every single economic problem we ever face. 

But in case you were thinking that Novak has just lazily regurgitated a stubbornly held ideological position, she gives us some arguments, supported by very confident assertions, to bolster her case.

Firstly Novak notes:

"Despite the hoopla from the Prime Minister and the Treasurer that the Australian economy is doing fine, Australia is in a worse position now than before the last global financial crisis"

That's right folks, three years on from the biggest global economic crisis since the Depression, with the USA and Europe in dire straits, Australia's economy is not quite as strong as it was before the crisis, when the entire Western world was at the high point of a decade long boom. Shock horror. But wait, that's not the only revelation we have in store. In the next paragraph Novak announces even more outrageous news:

"Gross domestic product per head of population has declined over the past 12 months, compounding the innate sense of growing hardship felt by many Australians. The Reserve Bank of Australia has cut its growth forecast this year by a full percentage point."

Reading that sentence you might reasonably imagine that Australia’s growth was appallingly low as a result of an inherently weak economy. However, when Novak says that GDP growth has declined what she means is that GDP in the past 12 months grew at a slower rate than in the preceding 12 months. Despite this it was still a healthy 2.7%, one of the highest growth rates in the developed world. Novak also fails to mention that Cyclone Yarsi and the Queensland floods knocked more than 1% off GDP growth for the past 12 months and that without that impact growth would have been in line to grow at an even more buoyant 3.7%. As to the cut in the growth forecast, even with the 1% reduction in the Reserve Bank prediction (largely caused by the Queensland floods impact and worries about Eurozone debt), growth is still expected to be 3.25% in 2011. Ask the UK (predicted growth 1.6%) or Ireland (0.5%) what they think of this growth rate and their response is unlikely be as pessimistic as Julie Novak’s.

In the middle of all this factless scare mongering though, Novak does point to one area of genuine concern - consumer confidence:

“The economic bad news continued last week, with news that retail spending figures were at their lowest levels in 50 years, another sign that consumers are tightening their belts in expectation of worse to come.”

So what is her plan to restore confidence in the economy, apart from writing paranoid newspaper columns that make the economy out to be in much worse shape than it really is? Simple, all the government needs to do she says is ”reduce the 165,000-strong commonwealth public service” and deregulate the labour market. She urges the government to “scrap the unfair dismissals law as a starting point”.

Got that? The way to increase consumer sentiment and stop people “belt tightening in expectation of worse to come” is to make tens of thousands of people redundant and then reduce the job security of every single employee in Australia. People will be out flashing the cash in no time in those circumstances!

Another option might be to boost the economy through fiscal stimulus and certainly this is the opinion of the IMF which this week wrote of Australia "If global financial markets become severely disrupted or world growth falters, macroeconomic policy is well positioned to respond. There is also fiscal space to delay the return to surplus and, if needed, to take temporary discretionary measures, given the low level of government net debt (6 per cent of GDP)."


Novak cautions against this though, warning that:

“The decision to imitate the economic sick nations of Europe and the US by introducing fiscal stimulus in 2008-09 still haunts the federal government, in the form of a budget deficit and $107bn of net debt this year.”

Don’t you love that language? Imitating the ‘economic sick nations of Europe’. If that’s the case where was Iceland’s stimulus package? Or Ireland’s or Greece’s? They didn’t exist because those economically sick nations couldn’t afford it. China on the other hand protected its 9% GDP growth by successfully rolling out a huge economic stimulus package. If Australia imitated anyone, it was not the sick nations of Europe but the world's strongest economy.

And what of the debt level in Australia that ‘haunts’ the government? By the sounds of things that is at scarily high levels like the sick European economies too. Except that it isn’t. Australia’s government debt to GDP ratio for the period Novak is talking about was 22.4% (it's now close to only 6% as the IMF notes) even lower than the Scandinavian economic power houses of Sweden, Norway and Denmark. Compare Australia’s 22.4% to the UK (76.5%), Ireland (92.4%), Italy (118.1%) or Greece (144%) and then consider that the debt will be paid off by 2013 anyway (something Europe and the USA are no way near to) and it starts to look like very small potatoes indeed.

The truly disturbing statistic about debt in Australia is that private debt is currently sitting at almost 200% of GDP, but this worrying debt exposure is entirely the product of the markets and can only be blamed on the government through their lack of action, not their intervention, so Novak is uninterested in it. In fact she seems to be fairly uninterested in any statistics at all. Take her appraisal of the Rudd government stimulus for example, where pronounces with a characteristic lack of data and surplus of certainty:

“With the national economy in worse shape today than before the GFC, the government should concede that the Keynesian strategy pursued last time was an economic failure.”

Just read that sentence again and soak in quite how ridiculous it is. The stimulus package that was designed to avoid recession in the face of the most extreme global financial collapse in eight decades, which it did, was a failure because the economy is in worse shape now than before the GFC.

Most people would think that a fair comparison would be to look at the impact of the stimulus package against countries that didn’t stimulate their economies in such a direct way (for instance the UK and USA which both had bitter recessions) or to look at GDP predictions for Australia without the stimulus factored in (the IMF did this and concluded that the stimulus package was a success). But not Julie Novak, she believes the best way to measure the success of a solution to a problem is to compare the outcome with the state of affairs that existed before the problem came along. 


I’m just grateful she is only a researcher in a right-wing think tank; imagine if she worked in medical research – ‘the patient’s health improved greatly with this treatment, but it is still significantly worse than before she contracted the terminal illness so I must conclude that the treatment is a failure’.

Novak doesn’t stop to give the stimulus package any actual assessment beyond her own prejudices, but goes on to recommend tax cuts and spending cuts as the policy prescription in a future downturn. Now let’s be generous for a second and pretend that massive spending cuts at the beginning of a downturn wouldn’t completely destroy demand in the economy (I know, I know, but just pretend for a second) and look at the impact that tax cuts would have had during the last GFC-induced downturn. 


On IMF figures every $1 spent on government stimulus generated $3 in the economy, and that is a dollar figure that ignores the social benefits of the infrastructure projects the government invested in. Not a bad return at all. By contrast tax cuts would have generated 30 cents in the economy for every dollar lost in tax revenue; that's ten time less bang for your buck. It is plain to see that the IPA’s favoured policy of tax cuts and spending cuts would not have saved Australia from recession in the same way that the stimulus package did. However, you can only see this is you take off your ideological blinkers which Julie Novak and the rest of the IPA team seem incapable of.

Novak concludes her article by warning the government that it would be wise to “show it is willing and able to learn from its previous mistakes on economic policy.” All I can say is 'libertarian, heal thyself!'