Coalition's brutish approach to the carbon tax and the Senate bodes ill



Coalition's brutish approach to the carbon tax and the Senate bodes ill

Friday July 18 2014, 5:04pm

Of course, the cross-bench in the Senate is behaving erratically. Cross-benchers can behave politically, all the time.

Major parties, on the other hand, have to act with economic responsibility, at least some of the time.

Politics and economics attempt to answer the same question: how to divide up national wealth. The difference is that politicians like to hide the bad bits and take credit for the spending, whereas economists always look at who is paying for the spending. 

But without sound economics things ultimately come unstuck for major parties in government.

So, taking the cross-bench as a given. let’s look at the Coalition’s efforts. 

Before the election, it clearly had the sound economic intention of getting the Budget back into surplus as quickly as possible, and said so. 

But it did not say with any great precision how it would do that. Rather, it concentrated on the politics of hiding the nasties. However, if you repeal a carbon tax or a mining tax, someone else has to pay. If you cut government spending someone has to pay.

Before the election, the Coalition failed to tell us precisely who was to pay. It only told us afterwards: people who go to GPs; people who buy petrol; some pensioners; young people before their first job; high-income earners for two years; and so on.

The important point is not the merit of these actions, but the failure to communicate them and the need for them.

The Coalition knew before the election that a Senate majority was almost impossible. Even if no-one could have predicted Palmer, it was inevitable that the Greens and others would hold the balance.

So the Coaltion should have asked the question before the election: how will cross-bench and Labor senators react to post-election surprises? Knock them back, of course.

Whereas, if the cuts had been flagged before the election, then – as with Budgets in the past – nearly everything would have been through by now. But they were not flagged. Presumably that was because they were dreamed up after the election – revealing a lack of strategy. Or the Coalition feared electoral backlash – revealing a failure to understand or persuade the electorate and worse revealing stupidity if the Coalition imagined it would get away with surprises after the election.

The upshot is that $25 billion of the $37 billion in Budget savings is blocked in the Senate. Most of that was to take effect on July 1. So every day that goes by means government debt blows out. That is not very good economic management.

Nor is it very good economic management to give first priority to repealing the carbon tax. It is not even good politics.

Given the trouble the other measures are in, a more economically sound position would be to fulfill the election promise by putting up the legislation to repeal the tax, and then breathe a sigh of relief when the Senate knocked it back.

Besides, many in the Coalition know in their heart of hearts that a carbon tax blending into an emissions-trading scheme is far more effective and efficient than the Soviet-style command-economy approach of “direct action”. And many in the Coalition know that our trading partners will ultimately demand action on carbon one way or the other, or slap trade restrictions upon us.

Similarly with the mining tax. It is economically sensible to tax the exploitation of natural resources and use the money for education and health. And it would be good politics for it to remain in place. The mining industry could hardly wage a television war on the Coalition just because the Senate knocked back its repeal legislation. 

The money could then be put to more politically palatable uses. The populace is hardly braying for giving miners (mainly foreign-owned) an easier time.

It is not a broken promise if you put the legislation up but others knock it back. 

In all, the Coalition’s actions from since before the election have lacked intelligence, sophistication, prescience and effectiveness.

The dumb brutishness of the Coalition was best summarised by Prime Minister Tony Abbott a week ago when he said, “Eventually, if not at the first attempt or even the second, this budget will pass, because no one has put up a credible alternative. You can’t block the government’s economic strategy without one of your own.”

Well, yes you can, if you have a majority in the Senate. Australia has not addressed the fundamental constitutional weakness that was exposed in 1975 – that the Senate can block money and tax provisions. In short, it can thwart an elected government’s economic strategy.

The Coalition knew this. It is no good blaming the Greens and Palmer United. 

The Coalition’s best point has been to identify Australia’s unsustainable debt problem.

On the other hand, its biggest mistake strategically has been to throw away the one weapon it had against Labor and the cross-benches: the threat of a double dissolution.

By pulling all those unfair white rabbits out of the budgetary hat without notice it broke its “no surprises” promise, broke its trust with the voters and lost support.

It is now in no position to go to a double dissolution. It would come out with a worse result, or perhaps lose government.

There is an interesting history lesson here.

Three of the four successful three-plus-term post-war governments used the double-dissolution weapon: Menzies, Fraser and Hawke. 

Howard did not need to; Whitlam was virtually forced to. And Rudd did not take climate change to a double dissolution, and paid the price.

Now Abbott can no longer use the option.

It means that he may well fail at what Howard would call a “core promise” -- to get government debt under control. Australia has a structural deficit and it is unsustainable in the long-term, irrespective of all the talk that Australia’s public debt is much lower than nearly all other developed countries as a percentage of GDP.

It is better to have higher absolute debt that is falling than lower debt which is rising. Australia is in the latter position. And with the lack of intelligence and subtlety in the Coalition’s dealing with the Senate, it is likely to remain so.