electoral spending spree

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    Wise Policy Trampled in a Frenzy of Self-interest

    Mike Nahan, The Australian, 8 October 2004

    The 2004 federal election will go down in history as an opportunity lost. We had the chance to use 'reform dividend' to address some of the challenges facing the nation. There was also the potential to further remove the regulatory barriers that hinder employment growth, investment and saving.

    Instead of billion-dollar promises to a fortunate few living in marginal seats, we could have had a tax system that operated for the benefit of all Australians. Individuals in work would have been better rewarded for their efforts. Those looking for work would have been given better incentives to leave welfare.

    The campaign has left the electorate cynical and complacent. If parties run a campaign appealing entirely to self-interest, based on the assumption that the good times will last indefinitely, then cynicism and complacency result.

    It is not that the Coalition or Labor ignored the big issues; the problem lies with their solutions. In most cases, both sides offered little more than more government---more taxes, more spending, more bureaucracy and more regulation. It was a return to tax and spend policies.

    Thanks to a buoyant economy, driven by decades of economic reform, the commonwealth has experienced high revenue growth during the past eight years, pushing the budget into surplus. There was the capacity to return government revenue to those who earned it in the first place---taxpayers. This is not what has happened. While both the Liberals and Labor trumpeted tax cuts, in fact they did little more than give back the proceeds of bracket creep.

    The national saving rate is just about zero, which is ominous given the ageing of the population and the low stock of savings held by many baby boomers. The national superannuation scheme established by the Hawke government was a worthwhile initiative. However, its effectiveness was limited at birth by excessive regulation and, subsequently, excessive taxation.

    These burdens have increased during the past decade, imposing exorbitant costs and rendering the system incomprehensible even to experts. This has been done under the banner of protecting investors from themselves, but in reality has protected the commercial interests of the superannuation industry. What is needed is policy aimed at injecting freedom of choice and personal responsibility into the industry. Neither party took up the challenge.

    Our health system is not broken. There is no crisis in the hospital system, or shortage of nurses or doctors, and waiting lists are not exorbitant. The system does face pressure on demand and costs, and is long overdue for systematic evaluation.

    Neither party gave even a hint of undertaking a serious evaluation of the health system. One of its key strengths---that it requires people to contribute out of their own pocket to the cost of their care through private insurance or co-payments---is being undermined. This is essential not only for funding of the system but as a signal to people that medicine is not an unlimited and free good.

    Our federal system of government is broken. It has been in decay for decades. But the GST has effectively destroyed any remaining vestiges of utility in the system. The states have become spending agents without accountability. They are sheltered from accountability by a perverse federal grants system and the fact the commonwealth raises nearly half of the states' revenues. Both parties seem willing to have the commonwealth government assume responsibility for practically every ill that besets society. There is no recognition that at least some of our problems are caused by too much government.

    John Howard and Mark Latham like to stress the notions of responsibility and self-reliance. Nothing destroys these notions more effectively than a government effectively saying it can make better decisions than individuals and families.

    Latham as a backbencher once wrote: 'Only the political equivalent of Austin Powers could believe that government intervention achieves better results than market forces.' On becoming Opposition Leader, it appears that he was quickly disabused of such ideas. Latham has made commitments to reducing market forces in practically every area of the economy including universities, the retail and financial sectors, and the media and telecommunications industry.

    The Coalition's tactics are more difficult to comprehend. They have been one of the talking points of the campaign. Is it true that Howard has jettisoned his long-held political beliefs about government financial responsibility simply to achieve a fourth term? Some of his commitments are consistent with an approach that promotes choice; for example, rebates on private health insurance and allowances to working mothers. But, overall, the impression remains that most of the Coalition's promises do little to strengthen our long-term productive capacity.

    Australians have many great qualities, but our capacity to plan for the future is not one of them. The reforms of the 1980s, which produced the economic growth from which we are benefiting, were the product of a crisis. The political leaders of the time---Bob Hawke, Paul Keating and, it must not be forgotten, Howard in Opposition---understood the crisis and responded to it. They also did one other essential thing. They communicated the need for change to the electorate.

    But all is not lost. Whoever wins the election will have a strong mandate to provide economic leadership and thus have the opportunity to rebuild the case for reform. They need support..

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