We need to change the system

Massively higher debt and declining real incomes: this is where Australia is headed

By The Hon. John Brumby. Former Premier of Victoria; Advisory Board member Melbourne School of Government

‘Dog days.’  ‘The Greek road.’  Massively higher debt and declining real incomes.

Call it what you will, but make no mistake: short of a miracle, this is where Australia is headed—irrespective of who wins the July 2 election.

The election campaign itself is off to a better-than-usual start.  We’ve seen genuine policy boldness from both sides in areas such as health, education, tobacco taxation, superannuation and negative gearing.  In electoral terms, of course, we need to remember that this is a particularly long campaign—more a Melbourne Cup than a Cox Plate—and just like in a horse race, it’s the last furlong that counts.  But no matter who wins in July, one question remains:  Will either side be able to tackle the real, deep-seated problems we face as a nation?

When Donald Horne called Australia ‘The Lucky Country’ in 1964 he wasn’t being complimentary.  He meant that we were coasting along on overseas demand for our agriculture and resources, and neglecting to do the hard work of building a smart, resourceful and innovative nation.

Today it’s more true than ever that Australia has to make its own luck.  The mining boom is over and the world economy is sluggish at best.  The recent Federal Budget brings a number of issues into sharp relief: budget papers describe $67.7 billion in combined fiscal deficits by 2020, and net government debt up from $285 billion to $355 billion in that time.  After 26 years of uninterrupted economic growth in Australia we need to remember that these numbers do matter; debt has to be repaid, and, as we have seen elsewhere in the world, when things go wrong it’s often the people at the bottom that suffer most.

To make matters worse, most commentators agree that the key budget projections (on growth, inflation, commodity prices etc) are highly optimistic and unlikely to be achieved.  This makes bigger deficits and higher debt more likely, with a credit downgrade from AAA highly likely this year—with the possibility of a further downgrade in 2017.  How did it get to this?  And why is it that we are seemingly prepared to burden our younger generation with unsustainable deficits and future indebtedness?

It would be easy to blame our political leaders.  But like Ross Garnaut in his recent article, ‘Budget predictions pointing us towards a world of rainbows’, I don’t believe that our leaders are the problem.  I’ve known Bill Shorten for a long time—Malcolm Turnbull somewhat less—but both are extremely capable and successful individuals with a wide range of life experiences.  Both would make excellent post-election Prime Ministers.

The real problem is that our political system is currently centred around party votes, two divided Houses of Parliament and short-term media and electoral cycles.  It is therefore unable to deal with the profound long-term problems we face, from mounting debt and unsustainable budget deficits to ‘wicked’ policy problems such as terrorism and climate change.

Six Prime Ministers in nine years (and a possible seventh on July 2) is just one symptom of our system’s failure.  Another is unprecedented levels of public distrust in our elected leaders.  These problems won’t go away on 2 July—most likely, they will get worst.  Even in the unlikely event of a decisive result in the House of Representatives, it will be minor parties and a range of others (Greens, Xenophon, Lambie, Lazarus, and others) who will control the Senate.

So that’s the situation the next government will confront the week after the election.  But it’s certainly not hopeless.  There are many good ideas out there about how to fix the problem.  My own view is on record: we need a swift return to surplus, as well as substantial tax reform, including a rise in the GST as the ‘least worst’ option.  As to systemic change, there is no easy answer—but here are three suggestions.

The first is to create a political culture in which bi-partisanship is a real option.  The media has a role to play in this.  Political points should go to the side that is willing to compromise.  Election campaigns may be a horse race, but governing need not be.  Coverage should not only be about who’s up or down, strong or weak, but also about how the sides are working together in the interests of the nation as a whole.  We generally see this kind of bi-partisanship on the issue of national security; fiscal questions are no less important to the future wellbeing of the Australian people.

Another positive step would be for both sides to introduce more ‘free votes’ in the parliament in an attempt to gain a consensus around difficult, long-term issues.  These should not be limited to the traditional ‘conscience’ issues of abortion and sexuality.   This is necessary because in the absence of a new approach in our parliament, the hard, long-term decisions we need to make will inevitably be bid down to the lowest common denominator—that is, to whoever delivers the numbers in the Senate.  This is hardly the way forward for Australia.

Three examples of difficult, long-term issues which come immediately to mind are climate change, negative gearing and road pricing.  I don’t want to go over the tragic history of climate change policy post-2007, but the fact is that sound, stable, evidence-based long-term policy was destroyed by divisive political leadership and short-term political opportunism.  There is absolutely no doubt in my mind that a sensible (and free) parliamentary vote around appropriate pricing and renewable energy arrangements would produce a clear consensus.  Ditto for negative gearing.  The fact is that a clear majority of the parliament would support some action to limit negative gearing.  The end result may not be Labor’s policy; but it will almost certainly be more than half-way along the continuum between Labor’s policy and simply doing nothing.

And then of course there is road pricing.  Fuel excise currently raises around $17 billion per annum, but with lower oil prices and rapidly improving fuel economy, real revenues are in decline.  Over time, as electric cars become ubiquitous, the revenue will fall to near zero.  The policy solution is road user and time-of-day charging—but what government wanting to be re-elected is going to impose a $25 toll to enter the Melbourne or Sydney CBD, or whack a huge new charge on heavy vehicles?  Again, the best way to a sensible, long-term solution will be through a genuine bi-partisan agreement or free vote.

Finally, whoever wins the election should model themselves, at least in one respect, on Bob Hawke.  I was elected to the Federal Parliament as part of the first Hawke Government in 1983, which meant that one of my first experiences of government was the National Economic Summit.  It was also one of the best.  Prime Minister Hawke brought together representatives from every part of the nation: trade unions, business, church and welfare groups, and many more.  The goal was simple, and it was summed up in Bob Hawke’s election slogan: ‘Reconciliation, Recovery, and Reconstruction.’

We need a similar national conversation today: one with no predetermined outcome, where everything is on the table.  The results and policy prescriptions of such a summit could claim a strong mandate.  Whichever side wins on July 2, they should immediately commit themselves to pursuing in this way Hawke’s ‘one great goal—to reunite this great community of ours.’

A shorter version of this article was co-published with The Age.

Image credit: Global panorama/Flickr


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