Opinion & Commentary
Rudd’s political handout culture will be mugged by the economic reality
Late last week it looked like the Prime Minister may have made the first of many tough choices ahead. In the wake of the global economic turmoil, Mr Rudd backtracked on the federal government’s commitment to increase the value of the old age pension. Under pressure from the Opposition, he then quickly backtracked on his backtrack. To add to the confusion we also heard over the weekend that the federal razor gang has been sharpening its blades, signalling the end of an era in Australian politics.
For more than a decade, very few groups in the community have heard a politician dare to say ‘No’ to their demand for more cash from the government. For this we can largely thank the former federal government, which appeared to believe there wasn’t a vote it could not buy by throwing wads of taxpayer’s money at the electorate.
The introduction of the baby bonus and first home buyers grant were matched by generous family payments and child care subsidies, while costly new superannuation concessions and pensioner allowances added billions to the budget. The result was a massive cradle-to-the-grave tax and welfare ‘churn’ which is about to be mugged by reality.
It might appear that normal programming was resumed with yesterday’s fist full of stimulus. Thousands of dollars dished out to pensioners, a doubling and tripling of the first home buyers grant, and an explosion of family payments. A quarter of the surplus doled out to targeted groups of voters in a single day without a tax-cut or long-term infrastructure project anywhere in sight. Nevertheless, this is certain to be the last hurrah for the hand-out culture.
The reason the Howard Government could get away with doling out new payments for so long was that the booming economy, driven by high commodities prices, produced record tax receipts and ever expanding budget surpluses. Because there was no need to raise taxes to fund new expenditure, the hand-outs appeared to reward many winners and punish few losers. Election campaigns become one long rolling-out of the pork barrel and more and higher hand-outs.
The Rudd Government was banking on strong economic and revenue growth to continue the spree, and was undoubtedly planning to raise the pension in next year’s federal budget to curry favour with elderly voters. But, as the Finance Minister, Lindsay Tanner has admitted, there will now be a lot of other priorities on the table. For the first time in a long time, the budget result will depend vitally on what the government decides to do and importantly what not to do. Clawing back some of the government hand-outs might well top the government’s post-crisis agenda given the likely impact of the global crisis on the Australian economy.
Most importantly for Australia, the crisis is finally having an effect on the Chinese juggernaut. Last week Australian suppliers were notified that Chinese steel mills didn’t need as much iron ore as expected. The Baltic Dry Shipping Index, which is a crude measure of Chinese resource demand, has hit a decade low. The price of metals, oil, coal, milk, wheat – all the commodities forecast to rise in a ‘supercycle’ have fallen dramatically, indicating that Chinese growth has already slowed.
It is not clear yet whether China’s failure to ‘decouple’ from the rest of the world economy as hoped will mean a recession for Australia. While the RBA has signalled that it will pull out all the stops to prevent this, and the IMF think Australia will slip through okay, there are still of lots of dire forecasts around.
One thing that is certain, however, is that government revenues will fall, and there won’t be the same scope for irresponsible spending promises. This is no bad thing. More straitened times give governments an excellent opportunity to implement unpopular measures, strike down bad policy, and enact new reforms. The days of poll-driven populist election bribes as opposed principled policy-making should be over, with no alternative to rolling in the pork barrel, and rolling out some political and fiscal responsibility.
Inevitably the government will need to restrict expenditure at some point. This will require tradeoffs and create losers, alienating some voters. Successful and effective politicians will have to possess some real political skills, and real leadership will be required to explain the sound reasons why hard decisions were made, and why one policy priority was set over another.
Whatever its final economic impact, the global crisis will have a far-reaching and beneficial effect on the practice of politics. It will be fascinating to watch politicians try to shake off the bad habits of the past decade that were, once again, so vividly on display yesterday. The Rudd government will soon need to bite the bullet and revive the lost political art of winning elections without stuffing voters’ pockets with gold.
Dr Jeremy Sammut and Gaurav Sodhi are researchers at The Centre for Independent Studies.
