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Labor lost the plot and we’re still paying the price

Wednesday, 07 March 2018

Labor lost the plot and we’re still paying the price

Ken Henry last week reminded us how things might have been if Kevin Rudd and Julia Gillard had enlisted the Coalition’s support to legislate his best ­proposals, writes Nick Cater in The Australian.

The world would be a happier place if the last Labor government had been as passionate about Henry as it was about Gonski.

The contrasting fortunes of two expert reviews — one about tax, the other about spending — ­illustrates the damage caused to the body politic when one side loses its marbles. It takes two to tango in our finely balanced bicameral parliament. When a bumbling party in government becomes a graceless opposition, the problems it created in office are compounded. Cleaning up an inherited mess in the face of obstruction is a thankless task.

The lament by former Treasury secretary, now National Australia Bank chairman, Ken Henry about a decade of missed opportunities could have been dismissed as the cry of a jilted expert were it not so painfully true. His speech to the Australian Institute of Company ­Directors last Friday was a reminder of how things might have been if Kevin Rudd and Julia Gillard had enlisted the Coalition’s support to legislate his best ­proposals.

It is hard to imagine a Liberal leader who would not support the abolition of payroll taxes, state consumption taxes and insurance taxes. It is unlikely the Libs would have objected to scrapping stamp duties on property transfers and motor vehicles, fuel excise, vehicle registration taxes or luxury car tax. The Coalition under Tony ­Abbott would have derived enormous joy from scraping renewable energy targets, as Henry recommended, and would have saved households and businesses from a world of pain.

Henry’s cuts to company tax — 30 per cent to 25 per cent — were a no-brainer. Everybody was arguing that Australia had to remain competitive. As Henry wryly ­observed last week: “In a world of mobile capital, countries don’t get to choose their own company tax rate in perpetuity.”

It was our national misfortune that the Labor Party lost the plot between May 2008, when the review was commissioned, and its ­release in May 2010. Rudd made treasurer Wayne Swan sit on the review over Christmas while he went nuts in Copenhagen before burying himself in bureaucratic reform of the health system.

Radio host Madonna King ­received short shrift when she ­interrupted a Rudd monologue about “a sustainable health and hospital system for the future” to ask when the review would be released. “I haven’t worked that through with Wayne, the treasurer, yet because guess what? I’ve been busy on this one.”

When King asked Rudd to commit to Henry’s recommendations, Rudd resorted to mansplaining. “You know something, Madonna?” he began. “What I have said on multiple occasions is I’m sure there’s stuff in there that we can live with and there’s stuff in there we can’t live with.”

It would have been pointless to press the point since the decision on the stuff Labor could live with and the stuff it couldn’t had been largely taken out of Rudd’s hands.

Labor’s national conference passed a resolution nine months earlier opposing “an international race to the bottom” on corporate tax. The public service unions’ fingerprints were all over it.

“There should be no reduction in company income tax revenues as the consequence of this would be cuts to public services, or higher tax payments by individuals,” the resolution read.

Cuts to services “would harm Australia’s international ­competi­tiveness”. How so? By “reducing the current and future productivity of working ­Australians”.

The twisted logic appeared too ridiculous to be taken seriously and the resolution received limited media attention. Melbourne radio station 3AW’s ever-vigilant Neil Mitchell picked it up, however. Would Rudd be bound by the decision?

“Well, we’re always mindful of what the conference resolutions might be,” Rudd told him, “but it is the prerogative of the democratically elected government to take appropriate decisions in the ­national interest.”

Labor’s parliamentary wing tried valiantly to defy the decision; a reduction in company tax was one of Gillard’s commitments in the 2010 election. It would “increase investment, raise productivity and increase the real wages of working Australians”, Labor’s manifesto promised.

Bill Shorten backed it too since, as he famously told Sky News’ David Speers when asked about another matter: “I support what the prime minister has said.” “But you don’t know what that is,” replied Speers. “No,” replied Shorten, “but I’m sure she’s right.”

Chris Bowen’s support for company tax cuts in his book Hearts and Minds in 2013 was a gesture of resistance, but the Treasury spokesman’s will has since been crushed.

In the history of Labor’s rise and fall, the 2009 national conference will be seen as a turning point. Its consequences are ­arguably greater than Gough Whitlam’s intellectual coup in 1967 or Bill Hayden’s conversion to Chicago School economics that underpinned the Hawke and Keating reforms.

Few, if any, Labor figures support Keating-style economic real­ism, least of all Keating himself.

Keating cut company tax from 49 per cent to 33 per cent in government, correctly predicting it would stimulate the economy and increase the potential revenue base. Today, Keating repudiates that theory. He wrote to The Australian Financial Reviewin June 2016 to explain that he “would never have countenanced a $50 billion impost on the budget balance with a discretionary unfunded tax cut”.

Labor’s careless abandonment of rational economics is a symptom a deeper problem: the ­inability of its parliamentary leaders to resist the pleading of special interests.

“Australia will get no progress on tax reform unless the community sees vested interest make way for the national interest,” Henry said last Friday. Yet Labor has surrendered control of its economic policy in return for union support. The price it pays for inner-city votes is the surrender of environmental policy and the abandonment of coal.

The gobbledygook of “new economics” with its mantra of “inclusive growth” is little more than post-hoc justification for its decision to abandon tried and tested principles. Before wealth can be redistributed, it has to be created.

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