Tuesday, July 08, 2014

Tony Abbott: the most radical prime minister since Whitlam

I and many others got the Abbott government wrong. It’s turning out to be more like Whitlam’s than Howard’s, perhaps the most radical in Australia’s history.

My first mistake was to think his first budget would be a typical first budget, full of cutbacks to be followed later by generosity nearer the next election.

It’s been the other way around. The immediate impact of his first budget is close to nil. That’s not how Abbott sells it and it’s not how Shorten sells it, but it’s how the governor of the Reserve Bank sees it. Here’s what he said at the Economic Society conference in Hobart last week: “Over the next couple of years the estimated impact of the budget is not very different from what we had previously been assuming”.

The cutbacks are “actually not particularly large” in the governor’s words.

But that’s just in the here and now. In the longer term the changes will be profound if the newly-installed Senate approves them. The only prime minister in living memory to have put forward such a far-sighted a program is Labor’s Gough Whitlam. And just as many of Whitlam’s measures became part of the social fabric and almost impossible to undo, Abbott’s changes will stick.

If you doubt that he is governing for the long-term rather than the electoral cycle, consider the timing. Almost all of his measures build up slowly, beginning to have an effect at or just beyond the next election.

Pensions. Whitlam announced that pensions would climb until they hit 25 per cent of average male earnings. Abbott has announced that they will fall relative to male earnings without limit, being indexed only by the consumer price index from 2017.

Whether or not you think that’s a good idea (I do, I can’t see why pensions should have had first call on the proceeds of economic growth) you would have to agree that it’s farsighted. It’ll change society in long term rather right now. It’s also far reaching. It’s difficult to imagine a new government rolling it back. A new government would face its own budget pressures and would have other priorities. CPI adjustment would become the norm.

The Commission of Audit recommends much the same thing for minimum wages. They would increase by CPI minus 1 per cent for the next ten years after which they would settle at a new permanently lower level relative to other wages.

States. Whitlam took responsibilities from the states. Howard took more. Abbott is shoving them back. If they want to maintain their hospitals and schools in the future they will have to do it themselves. He will lift grants to hospitals only in line the consumer price index and population even though medical costs are rising rapidly. All he will offer them is the ‘opportunity’ to lift the GST. White papers on both the federation and the tax system are due before the election. If they take the opportunity to lift the GST schools and hospitals will become their problem from then on, not the Commonwealth’s.

Medicare. Whitlam made it easy for doctors and medical providers to pro vide services without charge. His successor Fraser undid Medibank and his successor Hawke reinstated it as Medicare. With one brief exception the option of free medical care been sacrosanct ever since, until now. Once fees are in and the reward for waiving them is removed it’ll be hard to go back...

Universities. For as far back as anyone can remember bright students have been able to get into university for free. The method used to be the Commonwealth scholarship, then it was free education under Whitlam and after that a loans scheme under Hawke where the debt didn’t accumulate in real terms if you were unable to pay it off. Abbott’s proposals allow universities to charge what they like (up to an international ceiling) and require students to repay loans at a rate well above the rate of inflation. For students who move quickly into good jobs that won’t be a problem. For those that do not the debt will build and build toward a crippling burden making university an attractive financial option for people with poor financial prospects. Future governments will be unable to reverse the decision to charge a real interest rate because fees will be by then so expensive the cost will be prohibitive.

Financial advice. Independent advisers want to ban  kickbacks and the misery they have caused. That’s what the previous government did and what would have come into force on July 1 had not the Coalition sneaked through regulations that will continue to allow kickbacks for “general advice” so long as the kickback is not solely for that purpose and so long as the adviser is affiliated with institution handing over the money. It’ll allow “general advisers” to set up in competition with genuinely independent personal advisers stifling the best chance the industry ever had of turning professional. And the general advisers will win. The kickbacks will make their conflicted service cheaper.

Regulation. The Australian Securities and Investments Commission is about to lose 12 per cent of its budget. It’ll have to adopt a lower-cost model of catching corporate crooks notwithstanding a damning Senate report about how little it was able to do with the budget it had. Neither corporations nor charities are universally honest. Labor’s Charities and Not-for-profits Commission was the best chance Australia ever had of subjecting non-profit organisations to the same sort of scrutiny as companies. And the good ones loved it. It was a one-stop shop. If it is abolished as Abbott intends it’ll be hard to restore.

Energy. We are in the middle of a life or death struggle between coal and gas fueled electricity generation and renewable energy led by wind. Only one side will win. The Renewable Energy Target has tipped the scales in favor of wind. If it stays coal-fired power station are likely to close. If it goes we’re likely to have seen our last big new wind farm. Abbott is siding with his coal. If the Senate lets him remove the target we will wear the consequences a long time.

It’s said that when you change the government, you change the country. That wasn’t true of Howard and it wasn’t true of Rudd or Gillard. It’s only true of governments with plans. We live with them for decades.

In The Age and Sydney Morning Herald

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