Old pastime of redistribution, regulation, reckless spending returns

The nation goes to the polls on May 3, and everything continues to point to a hung parliament. That’s too bad because the status quo is an unsatisfactory state of affairs.

Our regulated housing sector continues to price people out of the property market. Both parties have delivered higher energy prices. Government spending as a percentage of GDP continues to rise, as do the budget deficit and national debt. Australians are experiencing the longest decline in real household incomes on record.

And yet, both sides want to party like it’s the 1970s. Gone are the lessons learned about productivity-enhancing and competition reforms adopted by Labor in the 1980s and the Coalition in the 1990s and early 2000s. Back is the old-time religion of redistribution, regulation and reckless spending.

Labor’s “Future Made in Australia” is just a revised form of protectionism – Canberra subsidises industries in which Australia does not have a comparative advantage and misallocates investment from sectors where workers and capital could generate higher value. Add to this Labor’s tax increases via bracket creep, higher energy prices and its pro-union regulation of the workplace system, which piles a burden on the private economy and erodes upward mobility.

The ALP has come a long way since Bob Hawke made peace with markets and embraced the case for deregulation.

As for the Coalition, it has indulged in business-bashing populism. Its threats to break up the big supermarket chains and insurance companies – if workable at all – would hurt employment, profits and do nothing to reduce prices.

A Liberal party that once proudly stood for aspiration and prosperity has more to say about tax breaks for small business entertainment than lifting living standards through productivity growth. Its philosophy appears to be a modern version of Fraserism – a new incarnation of wet, paternalist thinking.

The opposition’s response to most of Labor’s new spending announcements is to play a game of one-upmanship. It would be a relief to hear Peter Dutton mimic Kevin Rudd’s cry during the 2007 election campaign that “this reckless spending must stop” – and mean it.

Indeed, both Labor and the Coalition fail to address the unsustainability of spending monuments such as the National Disability Insurance Scheme and implement the kinds of reforms that liberate private initiative and enterprise. The result is a growing disconnect between the rising costs of defence, the care economy and interest on public debt, and a reduced ability to finance them.

The election campaign will put on display a broader failure of virtually all Australian politicians. The true test of policy wisdom should not be a commitment to more handouts. It should be a commitment to a smaller, more cost-effective state that encourages entrepreneurs to take risks and gets out of the way.

Both the prime minister and opposition leader say they are friends of business. This is a hard position for them to sustain since they are ambivalent at best about wealth creation and the need for private enterprise to make a profit. Governments can’t get tax revenue out of losses – it is profits that provide private sector jobs and help pay for public services.

Compassion is not an unalloyed virtue, least of all in politicians. Yet a dismaying number of voters measure niceness by how much taxpayers’ money politicians are willing to throw at them. Witness a recent poll that shows 83 per cent of Australians support more government spending to help with the cost-of-living pressures. Only 12 per cent disagree.

But no party dares to tell the public the truth – that, ultimately, more government spending will drive up inflation and put pressure on taxation to rise. Inflation, taken together with the resulting rising interest rates, will just tighten cost-of-living pressures again.

If Australia were having an ideal election campaign, the parties would debate how the nation can pay its way and reduce energy and housing costs through less regulation. Instead, all the argument is about how to spend and regulate more.

Our political leaders should recall the maxim that if you are in a hole, you stop digging. They should end the spend-athon that will impose higher debts on future generations and embrace the kind of productivity agenda that provided the foundation for Australia’s long prosperity from the early 1990s to the COVID-19 recession.

Reducing government spending as a share of GDP, alleviating regulatory burdens and making sure taxation does not egregiously punish effort and discourage location here are all laudable objectives. But to succeed, any government should be more ambitious: improve labour-market flexibility by loosening workplace regulations while staring down the last gasps of old-style union militancy (read: CFMEU); make property more affordable by slashing approval planning restrictions and removing supply side obstacles to building more houses; teach children basic skills essential for higher learning in literacy and mathematics.

Australia faces an uncertain global economic outlook: tariff wars, China’s stumbling economy and US recession fears. Without an agenda to encourage an open economy and open society, the nation faces years of economic stagnation. That would mean fewer opportunities for upward mobility, especially for younger generations and those who don’t own assets.

If you’re wondering why this election campaign does not have a clear frontrunner, the lack of convincing economic policies may be the reason.

Tom Switzer is Executive Director of the Centre for Independent Studies.