Debt, investment and fiscal policy – all fixed (again!)

Yes Troppodillians, you know what I think about this. So you may want to skip it, but I thought it worth putting my oar in on the subject. It seems so sad, with all the elements in place to blow the idiocy of fiscal populism away – to the enduring advantage of the ALP Governments around the country, but the spin doctors are too blinkered to see it. But I’ll keep banging on. This is from yesterday’s Crikey.

Listening to Julia and Tony debating immigration and the anxieties of the outer suburbs my mind went back to one dawn during 217 BC. Hannibal lured his adversary into a long shallow valley along the shores of Lake Trasimenus after which his troops emerged from the fog and slaughtered an entire Roman army driving it into the lake.

The Coalition Party’s populism on public debt sets a similar trap for them. But so far, for years and years now, the ALP have been so busy optimising the next 24 hours, so timid and reactive to the Opposition’s spin about ‘Labor’s debt’ that they’ve missed the opportunity to emerge from the fog and dominate the next decade or so of politics.

While immigration can be a diversion, what the inhabitants of the outer suburbs really need and know they need – while they pay inflated tolls on stupidly privatised roads and wait in traffic jams – is old fashioned government infrastructure.

The ALP has tried half-heartedly to make itself the party of infrastructure. But without a chequebook it’s largely spin.

But the alternative – higher debt – would be electoral poison right? Not if you set up the debate properly. This is how the ALP could have already turned the situation around at both the state and federal level. There’s not time to do it before the Federal election but there’s plenty of time after, and there’s time before all the state elections we’re expecting. (Are you listening Kristina?)

They could commission some independent economic worthy – say Bernie Fraser or Ian Macfarlane – to publicly define a responsible lending policy. And they could establish an independent agency to publicly advise them on the responsibility of their fiscal policy and the cost effectiveness of their investments in infrastructure.

That could facilitate a large but economically responsible infrastructure spend around the country. Tens of billions of dollars. When the Opposition cried ‘increased debt’ the trap would be sprung. The government could point to their operating surpluses, the reports of the independent fiscal agency showing how responsible their debt levels were and how integral to higher economic growth. And over time they could point to the value of their investments (many of which would be privatisable and have market values well above their cost) and to the fact that their debt profiles were responsible.

But that would just be the beginning. Then they spend the next few elections pointing to all the infrastructure, including future projects and say to their opponents, “so you wouldn’t build that train line, that bridge, that overpass, that freeway?” and on and on.

Of course there would be some critical comments in the first 24 hours. But done right the Opposition would find itself fighting a losing battle – election after election.

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SJ
SJ
11 years ago

I doubt it would work in NSW, Nick. NSW treaury is full of crazed Chicagoites who would do all they could (which is a lot) to sabotage every step of the process.

Fred
Fred
11 years ago

What stop the gravy train for the PPP mates? You must be joking.

observa
observa
11 years ago

Whilst borrowing for ‘infrastructure’ might make sense for a country growing largely by immigration, no amount of spin will convince voters there hasn’t been an incredible level of waste from this L-Plater Govt and that’s what Oppositions are there to remind them of at moments like these. $100 million a day is $9/day or $63/week for every employed person (nearly 11 mill)in the nation and remember many of them are largely in the redistributive public sector. The last Govt started out with a $90bill black hole and took over a decade to reach sizeable surpluses with no interest payments any longer and what’s happened to that Future Funding capability now with an aging population? This Govt with the able assistance of the Greens will be returned and deserve each other as they grapple with what they both wished for. It’s a familiar tale of Lucky Countries with unexpected resource windfalls. We’re pissing it up against the wall like lucky Lotto winners.

observa
observa
11 years ago

Right around the country ratepayers are getting a sample of that with their Council Rates and those nice glossy pie charts. It’s a poignant reminder of
the localised empire building and things like Local Govt newspapers on recycled paper extolling their virtues throughout the year, while private circulations drop everywhere. I received another Govt run virtuosity spiel the other week and emailed a query as to its cost with this reply-

‘In August 2008 the Department for Transport, Energy and Infrastructure released the first edition of its major projects quarterly publication New Connections.

This publication replaced up to a dozen individual project brochures/newsletters.

It is designed to provide communities living in an area adjacent one of Adelaide?s many major transport infrastructure projects with information about “their” project while giving an intimate understanding of where each project fits into the bigger picture for Adelaide and South Australia.
Providing a more cost efficient communication channel, the centralised publication has seen residents, business owners, land owners and other project stakeholders significantly better informed about what?s happening in their neighbourhood and how Adelaide?s transport future is taking shape around it.

Production costs for New Connections are shared across all projects represented within it.

For the most recent issue 160,000 copies were produced with the printing cost: $29,321.10 ($0.18 each). The cost to design the publication was $9,720, which makes the total cost for each copy around $0.24.

Each of the major projects looks after distribution for New Connections, generally through distribution companies and/or via community engagement mailing lists.

The publication is also available at Adelaide Railway Station, the Adelaide Metro Info Centres, public libraries and council offices.’

Now notice how they duck the editorial staffing costs in the media unit, as well as the distribution costs. Then I noticed an interesting slice in Holdfast Bay Council’s glossy pie chart.(we’re an aging yuppy premier seaside Council in Adelaide) 19% of all expenditure on Alwyndor Nursing Home, complete with indoor cafe. Huh! They aint got no cafe at the old man’s private extra care facility at the ‘Hilton on the Hill’ and presumably it makes a quid for Padman Health Care Group. How come my Council are using nearly a dollar in every five of total income to run their single aged care facility? Well I reckon Tony and Co know the overall answers to these small conundrums and many many more no doubt.

Now run that bit about the pressing need for more spin for infrastructure borrowing past me again?

Ken Parish
Admin
Ken Parish(@ken-parish)
11 years ago

It may be creeping senile dementia, but observa is making sense to me. So is Ross Gittins, who put possibly the most persuasive argument against your proposal in his column this morning:

But when you look at the problem the Europeans’ and Americans’ budgetary laxity has got them into, you realise our antipodean obsession with avoiding public debt has its advantages.

We’ve been more frugal than we’ve needed to be, but it has certainly kept us out of trouble.

Gittins also went on to point out that the price for this providential frugality has been much less spending (and associated borrowing) on infrastructure than we could easily have afforded. But is there actually a viable way of preventing the sort of irresponsible race to the bottom that has made Europe a basket case, with cynically pragmatic politicians running continual deficits to indulge the whims of the mass of greedy, ignorant, disengaged voters and thereby secure their own electoral survival? Are Australian voters any less greedy, ignorant or disengaged? Are Australian politicians any less fixated on their own short-term survival? If you’re unsure of the answer, check out the current federal election campaign.

Would an independent fiscal agency be enough to stop us from catching the European deficit disease if we set about deliberately dismantling the simplistic conviction of the bogan masses that government debt is always a dreadful and irresponsible thing? Somehow I doubt it. The bogan masses aren’t good at absorbing nuanced messages. At the very least we’d need not only an independent fiscal agency but an independent infrastructure value rating agency to restrain the inevitable tendency of the politicians to spend on utterly unnecessary, wasteful infrastructure located (by coincidence of course) in the most marginal seats.

I’m almost prepared to believe that the urgency of fiscal stimulation to stave off the GFC justified (or at least excused) all the gross waste on pink batts and unwanted school tuckshops and assembly halls, but you’d be pushing to argue that this sort of extravagant nonsense is sustainable over the longer term. Public-Private Partnerships have their problems (as we in the self-appointed cognoscenti know very well), but at least their inherent nature provides some degree of imperfect assurance that the projects chosen will be ones that are genuinely needed rather than just exercises in electoral pork-barrelling masquerading as far-sighted nation-building. Even the relatively prudent Howard government occasionally succumbed to this syndrome, despite the public fiscal paranoia entrenched by Costello’s rhetoric. Did someone say “Darwin-Alice Springs Railway”?

Until someone comes up with a foolproof recipe to protect us from the ignorant “tyranny of the majority” and pollies who will do anything to appease them, I’d rather leave the bogans wallowing in simplistic fear of debt and continue living in the worst house in the (best) street (as Gittins puts it).

observa
observa
11 years ago

Seek early treatment Ken lest you lapse into an irreversible market green state of bewilderment complete with recyclable, carbon offset nappy and Soylent Green feed tube, muttering incoherently- ‘It’s green for gunkers now!’ and such like.

‘A hopeless case nurse Petahead but don’t trouble yourself pulling the reshiftables life support as there’s not a puff of wind about and the sun is well over the yardarm. Hurry along with your tilly lamp Flo as we’ll be working back late on the need for more infrastructure and PR want some urgent shots for their glossy.’

Meanwhile back in the present I notice another cute single page flyer along with that glossy pie chart foldout titled (wait for it) Annual Business Plan 2010/11. It’s got a pretty picture of a life preserver on it (well we are a bit nautical) and reads-

Rates Time Again?
Relax!

The City of Holdfast Bay is taking the stress out of rates payments with Direct Debit.
Never miss a due date again with quarterly deductions from your cheque or savings account.
Call Council Rates Department on 82299999 for a copy of the (wait for it)service agreement and an application form.
Please note that credit cards not accepted for this facility.

Sorry folks only those nasty capitalists can absorb those ubiquitous Merchant Facility fees and I note while filing away the bill the rates have increased 22.5% in the last 4 years. That would likely pay for this years’s Alwyndor expenditure slice of the pie chart you’ll notice, while the biggest expenditure slice is Capital Renewal at 27% of the pie. Still I’m not bitchin like struggletown will be firing up the radio airwaves no doubt. We’re dripping with dough in a well established leafy and Norfolk Island bepined coastal burb, with recent Holdfast Shores, etc highrise rateable addons having the cup runneth over, as a mate on our coastal fringe just in adjacent Marion Council well knows. A third higher bill for a slightly lesser valued property than ours, but Marion runs South and needs to play catchup with their many newish burbs and the odd new housing development.

Meanwhile we set the lavish trend in empire building for them all to play catchup with. They’ll be pleased to know the ‘Development of the Brighton Performing Arts Centre in conjunction with Brighton Secondary School(our tightly zoned Clayton’s private when you’re not having our half a dozen or so real privates)and the State Govt will be opened in Dec’. It’s getting harder to work out what to do with all that petty cash these days and someone’s got a wry sense of humour with that life preserver leaflet.

Michael
Michael
11 years ago

I reckon SJ is correct in identifying the public service as the problem. Rudd’s error was to assume that the public service could manage all these schemes. I don’t know enough about the workings of the public service but they don’t seem to be able to handle anything particularly well. This maybe real or an impression brought on by media slant. How did much of the infrastructure that keeps the country running get built in the past – it seems very little of it was through PPP’s. It seems somewhere along the line capability has been sucked out of the bureaucracy. Maybe what was incorrectly labeled as wasteful over-staffing by razor gangs has stripped the public service of people who actually knew what they were doing. John Kay has written that it is always possible to make savings in the short term in any business or organisation, but it will often be made at the expense of long term profitability.

observa
observa
11 years ago

I can see where you’re coming from Nic and perhaps it might be a good idea to have a mid term round table of business/union leaders and State Premiers and Treasurers, PS Departmental heads and the like for a round table directional assessment in a broad macro sense.(I’m scratching for the name of Hawke’s round table here) Certainly not Rudd’s type of sideshow. In the final analysis economic reality matters eg Green motherhood promises and La Trobe realities and some serious priorities set down eg fixing the MDB before an Alice Springs darwin railway but things like water from the North costed and considered as well as ETS/straight carbon taxing and the like. Govts may float ideas for consideration too but it’s hard to imagine cash for clunkers or pink batts would get a gguernsey over say an NBN idea.

Sounds OK in theory and I think it could develop into a sensible forum for priorities and direction setting (and hopefully the third way market green approach in the longer term). It would certainly help build trust and mutual respect for particular expertise brought to the table. However I think it overlooks a long term problem and one we see very much in evidence at present. Essentially we have the two parties with identical main policies pork barrelling around the marginals when we really need them concentrating on the main game and bigger picture. It’s inherent in the system and only when it’s perceived as too shallow and obvious does it become an electoral liability. If Lithium’s handshake was a quintessential signalling moment then so was Merseyside hospital for Howard. That was a pork barrel too far in my book and he paid the ultimate electoral price for it.

There’s only one way to solve that eternal problem and it’s to elect the 2 Houses in reverse. A proportional House of Reps to concentrate on the big picture issues, freed from localised discontent, NIMBYism, selfishness and downright obfuscation and orneryness, while the Senate is a collection of local seat based members with powerful ‘keep the bastard’s feet on the ground and honest’ powers with the ultimate sanction of DD. The latter nominates and appoints the GG with nominees fronting a tough selection process. No public funding of political parties to encourage broader participation which naturally kills off branch stacking. No Senator can be a member of any party standing for the Reps and the Parties democratically nominate their ticket to protect their best talent at the top of the ticket (leaders like Howard don’t have to kiss ass in the Bennelongs) and casual vacancies can be filled from the original ticket only (ie the full nominated list for the total seats available at the last election) Do that and we won’t have any of the marginal pork barrelling rubbish we’re being served up at present and we’ll really get to see some overarching direction being set.

Patrick
Patrick
11 years ago

Just for the record, Nick, America was still a sovereign democracy when they let Obama blow the budget to kingdom come. I think that has about as strong a connection to this post as does Clinton’s good fortune at being so bad so fast that he completely wasted the very short window of control he had over Congress and never got it back.

Not sure why you hate Reagan and Bush for being good politicians (ie winning) but you think it is awesome when Obama does it.

observa
observa
11 years ago

Proportional voting for the Reps immediately satisfies the imperatives of one vote one value and negates the evils of marginal seat pork barrel and branch stacking as well as releasinging an electoral commission from the wisdom of Jove. It also recognises the practical and time honoured reality of executive power without the need for repetitive and costly mandates. ie a PM or Minister loses the support of his elected peers and is replaced by them with the proviso that replacement can only come from their ticket running at the last election (no Reichstag putschs here please)That allows the parties to promote and protect their own perceived best talent sans baby kissing and fete openings, which is a clear barrier for many. It also solves the casual vacancy by-election problem and allows for fixed terms (say with the flexibility for the PM to allocate the election date any time in Nov every 3 yrs) Armed with this we’d probably also need to recognise the Govt of the day needs to appoint its own SES(minders and spin merchants if they so desire) over an existing career PS and SES which is not removable. Probably the career SES for this ‘without fear or favour’ PS needs to be appointed and removed only by the Senate as would High Court judges and the Head of State to remove the eternal politicisation of such appointments. The Govt goes and its political ‘SES’ goes with it. I’d definitely want a Senate to have oversight and veto powers with Govt advertising aka those spaghetti and meatballs Health Reform ads and NBN spruiking at present as well as similar past political advertising. Add to that no taxpayer funding of parties to encourage grass roots participation and funding and we now have simple 1,2 and 3 preference voting with likely only that no 2 vote being used to allocate the last doubtful seat in the Reps.

The Senate can then consist of seat based members that cannot belong to political parties albeit they may have in the past. They deal directly with the lost kittens and Centrelink cheques with appropriate office backup and unfettered access to PS Depts (that career PS)leaving the Reps party members to concentrate on the big picture. This is where the regional local concerns get a voice and the plethora of Harradines, Clearys, Xenophons, etc reside keeping the bastards feet on the ground and honest as I said. It’s also a place for past political knowhow should they desire (a Keating, Howard, Rudd, etc) but no longer party members. This is the logical answer to appoint the ceremonial HoS if we’re not to suffer the problem of a Presidential style election and competition with the PM and executive Govt. The punters would go for that compromise in any Republic design. The Senate can then be elected at the same time as the Reps every 3 years with casual vacancy byelections necessary. Perhaps also the Senate could be vested with powers to put up constitutional reform referenda (say if 75% of members agree) at the time of their choosing but certainly they retain the ultimate DD sanctions and powers.

The major stumbling block to the bleeding obvious is the majors and their winner take all argument that the current system provides stable Govt. They’ve got some argument and I’d be the last one to want some of the Greens lunar policies and motherhood statements. However there’s nothing like power and decision-making to discipline that rubbish and we’ve seen it with the Dems and GST and now the Greens and Libs with that phoney ETS. In the crucible of real decision-making and accountable responsibility for it, I’m supremely confident sensible policy will win in the end. To the stability argument overriding all the other negatives with the present system I say BS and it’s time ladies and gentlemen of the majors. You’re sole objection is in tatters all around you at present and we have to take charge and remove you once and for all from the impossible situation we’ve all ben slack enough to leave you to inherit. This simply can’t go on.

observa
observa
11 years ago

Here’s one for the Republican fans to consider with that thorny HoS problem of theirs. We give the Reps parties the power to nominate prospective candidates on the basis of 1 nomination per seat held (ie a shortlist of 150 nominations) and the Senate get to shortlist and choose from among them. A nice ying and yang there and it could be extended in similar form for career SES appontments as well as High Court judges. I do love my countervailing market and political power you’ll note ;)

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