NSW Open Labor reviews the election campaign

NSW Open Labor member Roger Tonkin reviews the election campaign

 

Labor’s 100 Positive Policies

Labor's willingness to take risks and to focus on positive policies has been a refreshing change from the small target strategy and bitterly adversarial election campaigns that we usually get from Labor and the Coalition. That approach together with the increasing sense of disappointment in the electorate with Malcolm Turnbull goes a long way to explain why Labor's stocks and Bill Shorten’s stocks have improved dramatically over the past six months.

 

Economic Management

In this campaign Chris Bowen has emerged as one of the most economically literate Shadow Treasurers Labor has produced. He out-campaigned Scott Morrison on economic management. Chris Bowen was upfront with the electorate and analytical when he needed to be. By way of contrast, to deflect difficult questions, Scott Morrison frequently resorted to bluster, obfuscation and bullying in his trademark machine-gun style. If and when Chris Bowen gets the chance, he will be a superb Treasurer. Like Keating he has the capacity to think outside the square, to develop and extend Labor policy, and to explain Labor policy in ways that lower and middle income earners can understand and accept. In this campaign, like Keating, he demonstrated that he will be an excellent economic manager, an innovator, and an educator.

 

Medicare/’Mediscare’

I support the emphasis in the campaign on saving Medicare. However, Labor could well come to regret the strategy of the last two-three weeks of claiming that the Coalition will privatise Medicare, for two reasons.

First, it drowned out any discussion of other aspects of its 100 positive policies. And second, the ‘mediscare’ claim by Labor that the Coalition will privatise Medicare, without any proof to substantiate that claim, was a disgraceful example of over-reach and distortion. To persist with that claim after Turnbull emphatically stated that the Coalition would not privatise Medicare, and without being able to provide any evidence to substantiate that claim, left Labor open to the accusation that it was lying. Privatising Medicare means selling it lock, stock and barrel to the private sector. It does not mean forcing private individuals to pay more for medical services, and it does not mean forcing individuals to take out Private Health Insurance. The electorate is fed up with lies. It is fed up with politicians and political parties that lie, misrepresent and distort. After the 2010 election Abbott was able to damage Julia Gillard irreparably with the claim that she had lied when she stated there would be no carbon tax under a government she led (even though she had not lied).

After the 2013 election Labor was able to damage Abbott irreparably with the evidence that he had lied when he stated that there would be no cuts to health, no cuts to education and no cuts to the ABC. What Labor has done is ensure that every day from now until the next election the Coalition will attempt to discredit Labor with its ‘mediscare lie’. With this ’lie’ Labor undid the gains it had made in building trust with the electorate. The constant reference by the Coalition to the record high bulk-billing rate of 85% as evidence that its health policies would not damage Medicare was never answered adequately by Labor, when it could have been answered and should have been answered. The reference to the record high bulk-billing rate was always an attempt to deflect Labor from its criticism of the Coalition’s attempts to white-ant Medicare. Labor can justifiably claim that the Coalition has form in trying to destroy Medicare, and that even though the bulk-billing rate is at a record high, the Coalition’s policies will seriously undermine Medicare by forcing patients to pay, or to pay more, for medical services, or even lose services. That is all Labor needed to do. The ’lie’ was not necessary. In defending Medicare, Hawke went as far as it was possible to go: “you don’t set up a task force to investigate privatising Medicare unless you intend to do so”. Hawke adroitly exploited the evidence of an intention to privatise Medicare, but he stopped short of stating that the Coalition will privatise Medicare. Hawke did not lie. Labor did.

 

Housing affordability

I support Labor’s policy to restrict negative gearing to new housing stock, and to increase the tax rate on Capital Gains. Labor argued initially that this would help make housing more affordable for first home buyers by making houses cheaper. For housing to be affordable, house prices need to fall. However, the evidence from its own modelling indicated that the reduction in house prices would be small. Labor also found itself having to defend its negative gearing policy from a dishonest Coalition scare campaign that the housing market would collapse and that the value of houses for low and medium income mum-and- dad investors and home owners would plummet. Labor never managed to reconcile its policy objective of making houses more affordable with the evidence that the fall in house prices would be small. The best it was able to say was that the rate of increase in house prices would be slower.

 

Labor’s Small Business Policy

Two weeks before the election Labor announced its small business policy in which it proposed a small business employment subsidy. In the furore over Medicare that drowned out any focus on Labor’s 100 positive policies, the media did not give this policy the exposure and the analysis that it warranted, and Labor made no attempt to explain or to promote the policy. Labor consciously brought this situation on itself with its ‘Mediscare lie’. That was unfortunate. Even though Labor’s Small Business policy has all the earmarks of an after-thought and as an attempt to dent the impact of the Coalition's Jobs and Growth mantra, the policy has legs. It is well targeted at under-25s, at over 55s seeking to find a job, and at parents attempting to return to the labour market. It involves costs in terms of increased expenditure, but it is claimed to boost employment to the extent of 30,000 full-time jobs each year. In economic terms the policy has multiplier effects which claw back some of the costs as well as the obvious savings to social welfare expenditure (particularly expenditure on Newstart). Together with its Education policy, Labor’s Small Business policy could be argued, with some credibility, to be part of Labor's plan to boost jobs and growth. Labor failed to argue that case.

 

Budget Repair

Very early in the campaign, and even before the election was called, Chris Bowen stated publicly that it was Labor’s aim to protect Australia’s triple-A credit rating. Having set that as a Labor policy objective, Labor had to ensure that the credit-A rating was not put at risk with its budget and debt strategy in both the short to medium run, and in the long run. Its 10 year policy projections did so, but its 4 year projections of bigger budget deficits than the Coalition’s did not. That outcome could have been avoided, but if Labor did not want to make the necessary changes to its policies, the economic argument for those large deficits needed to be defended vigorously on sound economic grounds. They were not, or they were not defended vigorously enough. Very few politicians or political commentators in the media fully understand the difference between projections and forecasts, the role of assumptions and scenario analysis in policy simulations, and the legitimate role of these techniques in comparing the impact of competing macro-economic policies over both the short to medium run and the long run. Labor needed to explain how crucial these techniques are in evaluating and comparing the Coalition’s and Labor’s economic policies and how Labor’s policies achieve budget repair in an acceptable time frame. It did not.

The Coalition relied on its schedule of tax cuts to business over 4 and 10 years to stimulate growth and to achieve budget repair, a strategy referred to during the campaign by Labor and by some commentators as “trickle-down” economics. The major weakness of this strategy for the Australian economy is that a significant proportion of the tax cuts, of the order of 30%, is lost to large foreign corporations. That is, there is a significant leakage of the stimulus out of the domestic economy, but an alternative ‘trickle-up’ set of policies exists which do not give rise to leakages from the domestic economy anywhere as large as 30%. That alternative involves a direct stimulus to demand in the domestic economy, e.g. via income tax cuts to low and middle income earners or infrastructure investment. This alternative is more commonly familiar to economists as a Keynesian demand stimulus. In a period of low inflation as exists now in the domestic economy, that alternative is a valid feasible policy option. Labor’s infrastructure and education policies would provide a stimulus to domestic demand and economic growth, but by themselves they fall short of what is required to avoid increasing deficits between now and the next Federal election due in 2019. Labor could have and should have argued the case against the Coalition’s ’trickle-down’ tax cuts to business in favour of a more ambitious ‘trickle-up’ stimulus over the short to medium run. It did not. In the current low-inflation circumstances, if it had done so, it would have been able to avoid larger deficits than the Coalition’s over the first 4 years of the forward estimates, and quarantined itself against any scare campaign from the Coalition and conservative commentators in the financial media that its economic policies would put Australia’s triple-A credit rating at risk.

 

Debt

The Coalition constantly raises the spectre of an increasing interest burden on future generations arising from government or public sector debt. The Australian public can be forgiven for believing that the Coalition would only ever be happy if public sector debt is zero. There are several things that need to be understood about public sector debt. First, it is true that a large part of the interest burden falls on future generations. Second, that Australian’s public sector debt is low when compared with other G2 economies. Third, that some level of public sector debt is necessary for monetary policy to be a viable option. These things are well understood by the financial sector, if not by the general public. What is not so well understood, except by economists, is that public sector debt has a legitimate role in stimulating economic growth. Debt financing of current expenditure (e.g. social welfare payments) is acceptable only in very rare circumstances (e.g. during the GFC).

However, debt financing of capital expenditure is a valid economic option where future generations benefit from that expenditure (e.g. expenditure on infrastructure). Labor needed to explain the legitimate role of debt financing of capital expenditure, and it needed to ensure that we move as quickly as possible to a situation where debt is not used to fund current expenditure.

As far as I am aware, the distinction between capital and current expenditure was not even mentioned during the campaign, or in any recent campaign where public sector debt has been an issue. If Labor is ever to rid itself of the perception that the Coalition is always likely to be a better economic manager, there is a clear need for it to educate the public about the legitimate role of debt financing of capital expenditure, and it needs to ensure that in future it uses debt only to fund capital expenditure.

 

Union Thuggery and Lawlessness

The Coalition was able to link the Labor Party with examples of Union thuggery and lawlessness.  

In promoting their policy of restoring the ABCC, one of the triggers for the Double Dissolution, they referred constantly to 100 unionists facing over 1000 criminal charges, and they successfully characterised Labor’s opposition to the restoration of the ABCC as condoning Union lawlessness. Labor needs to demonstrate that it is serious in opposing and stamping out thuggery and lawlessness in the Unions. It is not enough to merely state that Labor has zero tolerance for unacceptable Union behaviour.

 

Roger Tonkin

NSW Open Labor member

5/07/2016