Well, Labor’s tax package has been released, and it looks very attractive, as Chris Sheil discusses here. Will it be enough to get Latham’s campaign back on track?
Certainly, Howard is doing his level best to keep derailing Latham’s loco, with a pre-emptive medical care subsidy that sounds generous until you realise that it continues Howard’s covert undermining of Medicare, by directing the subsidy to both bulk-billing and non-bulk-billing doctors. Labor’s marginally more modest additional health care subsidy is directed solely at bulk-billing, thus reinforcing Medicare’s central element as well as the price restraint on doctors that’s inherent in the bulk-billing concept.
However, I can’t help being a killjoy and wondering whether this frenzied orgy of pre-election spending by both sides is sustainable. Graham Young from Ambit Gambit has had the same thought, which he also creatively links to the current truth and lies campaign theme (update 9 Sept – Gregory Hywood makes similar points in today’s Age):
Low tariffs and floating exchange rates mean wage push inflation is much less likely than in the 70s and 80s, but excess spending always has a reckoning.
The thing is, both sides of politics at the highest levels (although not necessarily that much further down the hierarchy), know that the government spending inherent in the present fiscal settings (and supercharged by the campaign promises of both sides with more to come), will have adverse repercussions, but there is a conspiracy of silence on the issue.
Robert Manne, writing in The Age analyses the ethics of lying. While he concedes that at times it may be O.K. he concludes “There are …no situations in which politicians are entitled to tell blatant lies simply to be re-elected.” In this he fails to understand the real imperatives underlying most political lies. Most politicians lie either because electors expect them to, or because they know that if they do not their opponent will lie about the same issue, and as a result of their truthfulness they will lose to an untruthful opponent.
The issue of interest rates is a good example of this. Most of us know that governments cannot spend ever increasing amounts of money without it having an impact on interest rates amongst other things, but it is a truth we deny to ourselves. We would not thank a politician with our vote, except in times of national crisis, such as 1975, for telling us the truth. So politicians lie to us about economic policies.
Then, having both made that lie, they are bound even more deeply in because, in a version of the prisoner’s dilemma, they know that if they suddenly have an epiphany of truth and recant, their opponent will win.
Graham has a point. I strongly suspect that the more economically literate left-wing bloggers, especially John Quiggin and Christopher Sheil, are well aware that the promises currently being made by both sides are almost certainly unsustainable. The tax cuts and extra spending are not going to increase Australia’s productivity or GDP one iota; it’s all fuelling consumption spending that’s already arguably at unsustainable levels given the amount of private debt and lack of national savings.
Does that mean Howard and Latham are both lying? Probably, unless they and all their advisers are economically illiterate. At the very least, both sides are making promises that they either have no intention of keeping, or (more likely) will effectively reverse by new countervailing taxes and/or spending cuts that they’re currently keeping under wraps until after the election, not to mention the fact that they know very well that interest rates are going to have to be ratcheted up fairly dramatically to take the election-generated heat out of the economy. That too will mean the tax cuts and other election bribes currently being offered by both sides are little more than “pea and thimble” tricks. It’s less heartless and socially divisive than lying about asylum seekers chucking their kids in the water, but immeasurably more serious in its impact on the national economy and society at large. The only difference is that this bout of political lying is buttressed by a bipartisan conspiracy of silence in which media commentators and bloggers alike are complicit.
And so, Graham Young argues, are the rest of us. We want to be lied to. We really do want to keep believing that free lunches exist, and that there really is a Santa Claus cunningly disguised as a politician.
PS – I should record the fact that Graham Young is a former Liberal party spin doctor, and still thinks like one. If you put yourself in the position of a Coalition apparatchik tasked with selling John Howard to the electorate for a fourth time, you’ve got to think your chances of convincing people he’s Honest John, or even that he’s an energetic leader with lots of fresh, exciting ideas, are zero. So the next best strategy is to convince the electorate that all the other candidates are just as tawdry and dishonest. If that message sticks, voters are forced back onto Howard’s strong points: – experience, steadiness, strong on national security, hasn’t cocked up the economy noticeably. Why change? It’s the “best of a bad lot” strategy, and that’s going to be the subtext of a lot of Coalition manoeuvring. Graham’s portrayal of Howard and Latham’s spending promises exemplifies the approach perfectly.
It isn’t just a “running on the record” strategy. It involves carefully calibrated negative tactics to discredit Latham, underlining the national security risks at every possible opportunity (Beslan was a godsend in that respect), and enough ad hoc “sweetener” promises (like the Medicare one yesterday) to neutralise any attractive Labor promises. It’s a sophisticated multi-level strategy with all of the strands weaving together and running simultaneously. So far I think Textor et al would be pretty happy with the way the campaign’s unfolding, I reckon.
When Latham made his Medicare announcement I did think how is he going to pay for it? But I didn’t think maybe he’s lying, I bloody should have. I think it’s imprinted in our brains, to automatically trust people in positions of authority.
I wouldn’t be surprised if they are both lying, They probably think it doesn’t matter. Howard knows it’s his last election, and Latham his first, (Lathams still trustworthy you see).
There was a counterintuitive explanation recently for how a reduction in company taxes actually increased the revenue base through economic expansion and greater company profits.
I did wonder whether there was some similar argument for reduced personal taxes leading to greater expansion of the tax base somehow. In my heart of hearts though, I know I’m probably (willingly) fooling myself as Ken suggests.
Stan, it’s called the Laffer effect and it’s the justification for Reaganite/Bush tax cuts.
However, most economic modelling would suggest that tax cuts as stimulatory fiscal policy are far better directed to low income earners than high income earners as the former are much more likely to spend than save the extra disposable income and there are more of them. Latham’s tax cuts, therefore, are probably mildly stimulatory. There would be implications in here for an interest rate rise – but not distinguishable from what Howard is pumping into the economy with unsustainable spending. John Quiggin made the point a while back that the Liberal party have effectively given up fiscal policy as a macro-economic tool, and that they really don’t have any macro-economic policy at all (the degree to which they have any particular direction in micro-economic policy could also be questioned). At least Labor – much as I disagree with Crean’s attempt to resurrect Hawkie’s trilogy (no net increase in tax, lowering the public component of GDP, running a significant surplus) has a macro-economic approach but I’d question the degree to which it’s appropriately targetted to current economic conditions. Pace Ken, all governments in practice need to trim their sails to the prevailing winds depending on economic shifts, and thus there will always be an extent to which spending may need to be curtailed or redirected (or increased) depending on macro-economic conditions. To my mind, neither party is being open about how their economic policy settings may interact with changing world economic conditions. And the journalistic commentariat – having been obsessed with economics in the 80s and 90s – now write almost nothing about this with a few exceptions such as Ross Gittins.
Yup, the next Budget is going to be a doozy whoever gets in. The best argument for longer parliamentary terms is that we get fewer pre-election budgets.
And of course we want to be lied to – you get elected by telling people what they want to hear, not by telling people there is no such thing as a free lunch. Clever rulers know that life is a series of fiendishly difficult problems in constrained maximisation; dumb ones (eg GWB) sincerely believe the world is tradeoff-free – they can have their cake and eat it too. God save us from sincere fools.
Fair cop Ken. I may have been a “Liberal Party Spin Doctor”, but that doesn’t mean that my political commentary is slanted. I don’t spend considerable amounts of my time and energy producing a multi-partisan site like http://www.nationalforum.com.au because I am trying to shaft anyone on the political spectrum.
I am, however, happy to observe and speculate, when they are shafting themselves. You might think that I am trying to help the Liberal Party with the post you reference here, but then, how do you explain other recent posts I’ve made, like the one about George “Washington” Brandis and his alleged “lying rodent” comments? I know how the Liberal hierarchy interpret them!
Graham
I wasn’t suggesting you posted in bad faith. i was just mentioning your background because, like mine or anyone else’s, it inevitably informs your viewpoint and approach. I find your spin doctor instincts really interesting and instructive. “Wargaming” tactics and strategies from the viewpoints of both sides can be a worthwhile exercise, and you attempt to do it from the perspectives of both sides in your various posts (though with rather more evident sympathy when you’re talking about the Libs). For an ageing student of politics like me, with no strong commitment to either side and a healthy scepticism about all of them, your sensibility is more valuable than most.