Scott Morrison unveils ‘good’ and ‘bad’ debt
On Tuesday night at 7.30 Treasurer Scott Morrison will preside over the burial rites for the economic belief system that has guided the Liberal Party for 25 years. Gone is the dogma that the market knows best and the national interest is optimally served by small government and budget surpluses.
There have been strong hints coming from the treasurer in recent times. There is now “good debt” and “bad debt”. From the party that fostered massive privatisations of essential services and flogged much of the family silverware such as Telstra, we are now told there are some things governments can do better than private enterprise. And the government is now definitely back in the dangerous game of picking winners. The political and economic risks are enormous, but now considered worth it.
The chief economist at The Australia Institute, Richard Denniss, says we are seeing neoliberal economics in full retreat but there is nothing yet in its place. He expects the budget to be “an incoherent hodgepodge”. On the one hand it will bring the $50 billion Enterprise Tax Plan, giving some of the biggest corporate players and multinational companies a tax cut in the name of “trickle-down economics”. On the other, he says, it will tick off on “National Party boondoggles” such as the $5 billion Northern Australia Infrastructure Facility being used to subsidise Indian billionaire Gautam Adani’s giant Queensland coalmine.
All of this is from the parties that allowed the Australian car industry to shut down in the name of fiscal rectitude and market realities. The rising damp eroding the prescriptions of neoliberal economics is there in the evidence of its failure to deliver the promised benefits. Voters are onto it.
There is an alternative prescription. It is one the embattled Turnbull government is perhaps inching towards, but it is caught in a mass of contradictions on the way, stuck between competing interests and constituencies. The alternative prescription Labor is now embracing is called “inclusive growth”.
That has government borrowing to invest in people’s health, education, skills and wellbeing as a driver of economic growth. The International Monetary Fund sees sense in it. And it is where the argument over good and bad debt is worth having. In the present mood of the nation, only the ideologues of the hard right or think tanks such as the Institute of Public Affairs will mourn the passing of policy prescriptions that have seen a widening gap between the top and bottom of the pile.
Before he flew out on Wednesday for his meeting with US President Donald Trump in New York, Malcolm Turnbull put in a frantic two-and-a-half days straddling the remnants of the old Liberal conservatism and the new political pragmatism.
Who would have thought that a 21st-century Liberal prime minister would sound more like mid-20th century Labor prime minister Ben Chifley? Turnbull unveiled the latest of his nation-building projects – $5 billion to $6 billion to give Sydney a second airport. Not quite the Snowy Mountains scheme, but it is born of a similar belief in the role of government. This was immediately recognised by Labor’s Anthony Albanese. His only quibble is a call for a rail connection to be constructed simultaneously. That is also on the cards. And talking of the Snowy, don’t forget Turnbull says he wants to expand the hydro scheme there and in Tasmania.
All good debt and all politically expedient. With the polls showing his government apparently locked into a death spiral, Turnbull needs something to reverse his fortunes. The latest Galaxy poll in Queensland has the Coalition on track to lose seven seats. Clearly, the prime minister is hoping voters will begin to take notice that he is trying to break out of the shackles of his conservative colleagues.
His energy minister, Josh Frydenberg, burst into print midweek to trumpet a recovery of investment in renewable energy, putting Australia on course for its 2020 renewable energy target. That’s the one Tony Abbott wants scrapped. But even here, with the Nationals talking of funding a new coal-fired power station in North Queensland, the “clean” message is somewhat muddied.
The Nationals had to swallow hard when Turnbull pulled off his cleverest tactic since rolling Abbott. He enlisted the architect of Labor’s schools funding policy, David Gonski, to his cause. Not only did he adopt the businessman’s needs-based funding model, he signed up his long-time friend to preside over a new inquiry on how best to deliver it. To cap off the coup, he had Gonski stand beside him and his education minister as they announced one of the more spectacular backdowns in
So now “giving a Gonski” has a new hue. In one fell swoop, Turnbull has neutered a campaign that the teachers’ union has been running nonstop for four years. Labor consoles itself with the thought that not many voters knew who Gonski was. But the shorthand did come to mean generous funding for schools. The fight has now become over the quantum of that funding rather than the principle behind it.
Conservatives such as the Nationals’ George Christensen were dismayed but for now are toeing the line. Their dismay would have been exacerbated by those running systemic Catholic schools around the nation voicing their disapproval at the government’s intention to scrap the deal they bludgeoned out of prime minster Julia Gillard as she struggled to implement the Gonski reforms.
Appeasing the New South Wales Coalition government may not be so easy either. The biggest state was the first to sign up to Gillard’s “full Gonski” and is a compelling witness to the success of pumping more funds into under-resourced schools.
Turnbull easily won the backing of cabinet for the policy shift, even though it involves winners and losers. This, in fact, gives it credibility. Only a Liberal education minister would dare target 24 of the wealthiest schools for a cut and 350 for a funding freeze. Labor, by comparison, is still hurting from the charge of “class warfare” thrown at Mark Latham for his schools funding “hit list” in the 2004 election. “It’s brave but the right thing to do,” was the way one of the prime minister’s advisers explains it.
“Brave” is a loaded word in politics; it is usually accompanied by “crazy” under the breath. But it looks as though Turnbull’s courage will pay off. Labor’s Bill Shorten says if Turnbull wants to cut funding to elite schools “we’re up for that, fair enough”. But he adds, somewhat ruefully: “If we proposed it, the Liberals would have gone off their trolley.”
What swung the Nationals leader Barnaby Joyce around was his acceptance that Labor’s attack on school funding had been lethal politically. It was made all the more so by Tony Abbott’s broken promise in ditching “Gonski” after the 2013 election. But still niggling is a Coalition government walking away from its well-worn argument: throwing more money at schools is not the answer to falling performance.
The Greens need little convincing. Their nine votes would leave the government just one short in the senate. But there may well be a barney in the government party room before it gets to that. Abbott has flagged that he hasn’t abandoned the Coalition’s old position. He says he can’t see how this extra funding will lead to better education outcomes. His reservations are an unhelpful bit of spoiling of what looks like a winning Turnbull play.
While Turnbull was busy stealing Labor’s clothes he also borrowed the idea of using cuts to the universities to help fund his more generous schools package. But as far as the opposition is concerned, he overcooked it. Their cut was an efficiency dividend and a slowing in the rate of funding growth. “We didn’t target students,” was the indignant explanation of one staffer.
Turnbull’s raising of fees and dropping the income threshold to $42,000 for repayment of student loans was particularly mean by Australian standards, although the practice of requiring students to contribute more to their degrees was a Labor invention.
But Shorten’s attack was laser-focused. The government’s $50 billion corporate tax cut is the gift that just keeps giving. He said, “Corporate profits in Australia are at a 20-year high. So why is it that Malcolm Turnbull wants university students and their families to pay for his corporate tax giveaway at the top end of town?”
Morrison has no intention of abandoning his Enterprise Tax Plan. On Monday, he proudly noted that he has already delivered half of it at a cost of $24 billion for companies with a turnover up to $50 million. He says this boost to their bottom line will encourage them to hire new workers and even pay them more. Except the evidence is against him. Company profits had a 65 per cent surge last year. Full-time employment is stalling and wage growth is stagnant.
The treasurer being much more accommodating with health funding is a sure bet. The budget will end the Medicare doctors’ rebate freeze. Just how quickly is the question – stalling in the name of budget repair no longer resonates.
This article was first published in the print edition of The Saturday Paper on May 6, 2017 as "A debt of latitude". Subscribe here.