Can the LNP cracks be healed?

Malcolm , the usurper, has been trying to recast the party in his own image. In his recent article in Quadrant "The Liberals, Coming Apart at the Seams", Paul Collits argues "the party whose leadership Malcolm Turnbull schemed so assiduously to seize was once a big tent with seating for all, from old-school Tories to libertarians. Now, sacrificed on the altar of one man's egomaniacal ambition, there is nought but division, betrayal and disgust".

Today, unlike in the past when there was much common ground, 

"Liberals are actively hostile to the bedrock beliefs of conservatives. Now, liberals and conservatives are not merely not on the same page, they aren’t even in the same book. They might agree on a few things, but not many. And the things they disagree on, vehemently, are matters of core business to each, not things that can easily be parked."

Alas, if it is so, then the party may well split. It is a conclusion I have seen by many commentators. Perhaps the threat of a split is being amplified by conservatives to gain 'benefits' from the now wet-leaning party. But even unintentionally the fracture could lead to a split. For the sake of the country I hope not.

One of the strengths of Australia's political system over the past four decades was its ability to sustain two central parties that could each accommodate a range of views. Unlike the Italian-model of democracy the two party system gives choice to the electorate, but leaves the messy policy minutiae to the parties to work out. A split in the liberals would not only give a labor-greens alliance power for some time, it would make governing more difficult for everyone. 

Finkel Finkel every where, leads an energy rethink!

Despite a valiant effort by our chief scientist to insert an acceptable energy strategy into the milieu, it has ignited a civil war at least within the LNP. Energy strategy was never going to be easy. With passionate advocates of climate change pushing for the highest possible emission reduction targets and their opposites pushing for none, it is a chasm impossible to fill.

Notwithstanding one's belief in climate change , as I have indicated elsewhere (see Warmer, Wetter, Greener ) I believe it is real but not as dangerous as the tipping point advocates would have you believe, we face a very real dilemma.

How do we encourage energy companies to invest in energy supply when our political parties keep changing the rules?

Lack of planning and rampant politics have squandered Australia's once abundant cheap energy advantage.

The energy landscape has many pot holes; -

• Our base-load power stations are aging and require investment either for replacement or at the very least extension
• Renewables remain more expensive than fossil fuels and suffer continuity issues
• on again, off again carbon taxes by different parties have made investment in new non-renewables very risky
• battery storage is not yet of age and remains expensive
• electricity prices are already too high to encourage manufacturing

So it is no wonder that energy companies have been reluctant to invest in new supply and our manufacturing industry, what little there remains, is looking for greener pastures. 

No doubt these are some of the constraints Dr Finkel faced when contemplating a viable energy strategy. Yet his solution also presents problems. His CET (Clean Energy Target) is an effective 42% RET much greater than LNP's current 24% but less than ALP's 50%.

In effect he has advocated what amounts to a line between the two parties. A Solomon-esque solution dividing the difference by slicing the baby.

His strategy was to present something that was half acceptable to each party and had a chance of bipartisan support. Indeed it may even work out, but it carries enormous political risk for the LNP and if adopted would force more of their support towards One Nation.

Was there any other way? 

I believe so, but will leave my suggestions for another day.

Malcolm must get back to basics

Some time before the last election I posted some gratuitous advice to Malcolm Turnbull (Malcolm must cut through). Advice on how he could cut through and score against his vulnerable yet emboldened opposition. Alas, it did not happen.

Looking back we can see that his tenure has been a steady decline in personal and party popularity, increasing back bench unrest and LNP supporters heading for the door. Many heretofore ardent advocates of the Turnbull 'brand' are wavering, while others have written him off. It is a dismal picture.

With a full two years to the next election I believe it is premature to write off the LNP, even with Malcolm Turnbull as its leader.

Without doubt however some things must change. In its current form it is drifting towards annihilation. Labor's return to office with its current policies would be a disaster for Australia, with increasing debt, lower living standards and further social disruption.

So what can Turnbull and his supporters do about it? How could they address this decline?

Back to basics

It should not be necessary, but given recent ambiguity/wavering on some policy issues, I believe all MPs would do well to familiarize themselves with the LNP's core principles as stated on their website.

"We Believe:
In the inalienable rights and freedoms of all peoples; and we work towards a lean government that minimises interference in our daily lives; and maximises individual and private sector initiative

In government that nurtures and encourages its citizens through incentive, rather than putting limits on people through the punishing disincentives of burdensome taxes and the stifling structures of Labor's corporate state and bureaucratic red tape.

In those most basic freedoms of parliamentary democracy - the freedom of thought, worship, speech and association. 

In a just and humane society in which the importance of the family and the role of law and justice is maintained. 

In equal opportunity for all Australians; and the encouragement and facilitation of wealth so that all may enjoy the highest possible standards of living, health, education and social justice. 

That, wherever possible, government should not compete with an efficient private sector; and that businesses and individuals - not government - are the true creators of wealth and employment. 

In preserving Australia's natural beauty and the environment for future generations. 

That our nation has a constructive role to play in maintaining world peace and democracy through alliance with other free nations. 

In short, we simply believe in individual freedom and free enterprise"

From Liberal Party website 

These are fine principles and should be ingrained in the soul of each LNP MP. They can be help to guide them out of many a political quagmire.

Of course the most effective messaging is when there is a contrast. So the principles should be stated and compared to those of the opposition.For example; -

• The LNP stand for equality of opportunity for all. The ALP are forever raising taxes and re-distributing the hard earned income of even battlers to their government funded causes.
• The LNP believe in equality of opportunity but accept that individual effort should be rewarded. The ALP is always "taxing the 'rich' and thereby removing the incentive that is required to generate wealth in the economy as a whole.
• The LNP believes in free enterprise, that it is the private sector un-shackled from government interference that creates wealth. The ALP is always looking to government enterprises and government involvement. 

In the end there are two core messages that need to be ingrained in the electorate; - 

1. The LNP is the party of freedom for the individual to realise their potential 

2. The LNP are better economic managers because they believe in small government and look to private sector to generate wealth.

Most importantly there needs to be consistency; All policies must be aligned with these core messages, so the parliamentary party, LNP supporters and the electorate as a whole understand what the LNP stands for.

Unfortunately this has not been the case in recent times, with the LNP's tendency to squib harder issues. Look at 18 C for a blatant example.

If all policies were clearly and unambigously consistent with the LNP's principles, the flow of supporters away from the party would be stemmed and who knows, many may return to the fold.

Ley her off

Given only 18 months has elapsed since the Choppergate affair saw the dismissal of the speaker of the house, it is simply mind-boggling that expense rorts should surface so soon. Yet here they are centre stage, taking media focus and infuriating the electorate. I covered the last affair in some detail including some suggestions for improving the system (see Conflict of Interest and Footnotes on expense rorts ), so let me just restate a few of the conclusions.

It is hard to think of a case where politicians interests are less aligned with the people they represent than with our pollies' expense claims. Be it a family holiday to Uluru for the wife and kids for $12000 at taxpayer expense, or hiring a chopper for $5000 to get to fund raiser, one would think they lived on a different planet, totally out of touch with their constituency.

In the most recent case Ley's 16 trips to the Gold Coast, where her husband happens to have some business interest, simply doesn't pass the sniff test. Then by way of explanation claiming that a purchase of an $800,000 unit was 'unplanned'  Give me a break.

"a total failure of our political class, in the face of a clear conflict of interest, to set proper standards of behaviour"

It does not matter one iota that when caught the MP is contrite and makes some reparation payment. It does not matter that there is a bit of a penalty when a mis-claim has been identified. The public, the people these MPs are meant to represent are outraged. We don't accept such egregious conduct as a simple 'error of judgment' from those we elect to represent us.

There is a lack of scrutiny, a lack of clarity, and the lack of visibility of these expenses. No corporate entity would accept an open-ended expense system. Commercial operations clearly define the scope of claims, the means of travel allowed, and set and review budgets. Indeed where expenditure by a company has been seen to benefit an individual it is a 'Fringe benefit' which is taxable. Putting a system in place is not difficult. I have suggested a possible scheme and include below the key requirements. For further details see Conflict of Interest.

Expense claims must be Reasonable and Accountable
'Reasonable' simply means a claim must be consistent with accepted norms within commercial and non-commercial enterprises. This is just the 'sniff' test. Many travel claims, by our MPs certainly fail this 'sniff' test. If an MP has some doubt about what is reasonable, they should submit an application for pre-approval (see below).

Accountability requires all claims to be managed formally by an independent body and for the public interest they should be visible. If the MP's work on behalf of their constituents then they should 'report ' to their constituency. What better way to shine a light on the excesses than to publish all claims on a website.

Set the bar high

In view of the justified public outrage it is time our leaders established a business-like set of of rules for the eligibility and accountability of all expense claims. Moreover all such claims should be posted on a web site to provide visibility to the public. The punishment for non-compliance should be high and should comprise repayment plus a significant penalty, say double the original claim. Ministers should face immediate dismissal form the ministry for any proven non-compliance.

...but provide an amnesty

Unfortunately Ley's case is no doubt just the tip of the iceberg and many other ministerial transgressions can be identified were all MPs' claims closely scrutinized. So to prevent a wholesale dismissal of the cabinet, despite what the public may want, Turnbull should provide an amnesty for any offences that occurred before the  implementation of the new rules.

Given the politics this should not save Ley, she happens to have been caught out and should be sacked from the ministry. However effective from the date of the announcement any offence should see immediate dismissal. The ministry certainly has had fair warning.

It is time the government started to rebuild long lost trust in our politicians. Implementing a tough expense claim systems is a good place to start.

Malcolm misfires...again!

The week started so well, with all guns aimed at Union thuggery, preparing the ground work for the ABCC legislation Yet it ended so dismally with both barrels emptied into the government.

This has left many in the liberal side of politics shaking their heads and asking "how could this happen"?

Without getting into the details, after all in the fullness of time they are irrelevant. We tend to sift out the minutiae and are left with impressions. The overarching impression is of a government in disarray. No matter who contributed to the problems, the responsibility is borne by the PM who is supposed to lead his party through the great morass of potential problems. Rather the Turnbull government seems to lurch from one political fiasco to another. Week after week Malcolm has been exposed as a weak, vacillating and politically naive operator and the government he leads as lacking focus and discipline.

Woeful.

Malcolm's mixed messaging

What is he up to? After several weeks seeming to take at least some control and demonstrating some core Liberal values Malcolm is falling back to old habits.

His overseas trip showcased Malcolm the statesman. Mixing it with the leaders of the world he cut a fine figure. Astute, confident and willing to address issues directly and with conviction. He affirmed Australia's position on border control, despite the wide criticism it had received from many, and he "sold" the policies well. He was the very model of the Liberal leader of old, his mentor of sorts, "we will decide who comes to this country and the circumstances in which they come".

So too his attack on Green/Labour renewables policies following the unprecedented total blackout in South Australia. He was unwavering and caustic in his critique of the strategy that claims aims for renewables at any cost. Yes, he had a good reason to do so. After an unprecendented total blackout of an entire state, that despite the attempted deflection by the guilty , was inexcusable caused at least in part by SA Labour government policies.

Given his personal stance on climate change, one would have thought it went against the grain for Malcolm, Nevertheless he seemed to enter the fray with gusto and with piercing logic. Of course that doesn't mean the Left simple conceded defeat on the contrary they went on at great volume obfuscating , denying, and generally excusing the inexcusable. Still it was there for all to see, we may all believe in responsible climate change action, many will also believe in renewables, but definitely not at all costs. We must have electricity!

So after this most welcome change in fortune why is he wavering on SSM?  On SSM Malcolm seems to be trying to have it both ways. He avers the stated policy of the government is to have a plebiscite.
He repeatedly re-iterates the facts; -

• a plebiscite on SSM was taken to the election
• the government has a mandate for the plebiscite
• a majority of voters supported the plebiscite on SSM
• Ireland had a successful referendum that saw people come together

Yet, and it is still causing him enormous political problems. He has not and seems unwilling to state clearly and convincingly that as far is his government is concerned it is the plebiscite or nothing.

He has been given plenty of opportunities to do so. No interview goes by without the press asking him if he will rule out alternatives. He has refused to do so. His apparent wavering has caused the opposition to seize the political opportunity to create mischief. They have refused to support the plebsicite and enlisted their leftist army to attack the government for not letting parliamentarians have an unfettered conscience vote. Yes this is politicking plain and simple. Yet Shorten seems to be on a winner, at least for now.

At this stage it is the government that is being blamed for this 'postponement' of SSM. In the long term that may be a different matter, but for now the game for both the opposition and the press is to make Malcolm blink.

So far Malcolm has stood firm, but is making his own party nervous. They see the wavering indecisive vacillating Malcolm. The politically naive Malcolm, the Malcolm who failed to handle the politics of Tax reform or the budget, or the election campaign with any convincing aptitude.

Leaders are decisive, they command respect by willingness to state their position with conviction.
Malcolm started his reign with great expectations, support from the press and an opposition in disarray.

Yet after 12 months, after a much to narrow electoral victory, his party standing is poor even with its own supporters, the opposition is in the ascendant , and the loyal press though still willing to cut him slack question his political nous.

Although it should have been done a lot earlier, he could simply remove one of the questions of his leadership by simply declaring "on SSM it is the plebiscite or nothing".

Super stuff-up!

If there was a single policy that contributed most to the loss of faith in Turnbull and Morrison in this election campaign it has been their ill conceived Superannuation policy. This policy alone turned many from loyal LNP supporters into at the very least skeptics but some into outright enemies.

Given the many and oft repeated claims by a broad spectrum of LNP ministers, including, most pointedly, our current treasurer that "we won't touch super", " the government is not after your money", it is no wonder that many have turned their backs on the party. It has left a deep scar that will heal but not for a while.

Change or stay the course?

Before the election Turnbull and Morrison could have retreated from some of the most controversial parts of the policy, those relating to the lifetime after tax contribution cap of $550,000 and the blatantly retrospective commencement "from 2007". Yes, this would have been a loss of face and it would have lost some credibility, but by any measure sticking to the controversial policy they have lost much more.

After the election however that option is not so easy.

They are left with only unsavory alternatives.

If the Super policy legislation is presented to the parliament in the form in which they were advocated at the election, it will remain as an ongoing scar against Turnbull and Morrison that will haunt them for whatever period they have in office.

If on the other hand they modify it, they will not only have angered their base for no reason, worse still they will repeat the policy flip-flops that contributed to the downfall of both Abbott and Gillard governments. You cannot change the policy you have taken to an election without serious adverse consequences.

Reluctantly I have to accept they have no choice but to present the legislation as proposed at the election, and hope the Senate saves them.

The Senate may well save them

Although this is by no means likely, it is possible that the Senate will reject or insist on modifications to the policy that was taken to the election.

Many in the crossbench owe at least part of their support to their stated position against the government's Super and so will naturally reject the most controversial propositions. So in this case at least Turnbull will get help from the cross bench.

It then really depends on the ALP.  

The ALP was very vocal about the 'Retrospectivity" in the proposed rules but then 'banked' all the savings. This inconsistent approach may have been expedient during an election campaign but now needs to be reconciled. If they dig their heels in and insist on modifications, it will give Turnbull an out. He will be able to modify the policies to smooth over the most controversial parts relating to the lifetime limit on after-tax contributions. It would be hard for the ALP to argue against the removal of the retrospectivity thorn from the policy when they had argued against in during the campaign, but of course this is the ALP and they have done similar policy flip flops in the past.

However the very fact that it gives Turnbull an out may sway the ALP to simply support the legislation as proposed to entrench the resentment by the LNP supporters against Turnbull and Morrison. 

My guess is the ALP won't do this. They won't be able to resist grandstanding and will choose to reject the legislation. I guess we'll see.

In any case if the legislation is rejected, it will give Turnbull the justification to make necessary changes to remove the controversial aspects of the policy and find a middle road to calm LNP supporters. Let's hope he takes that road. He seems doggedly deaf to advice and I fear he may not.

Que sera

The election result just announced, the senate not yet settled, Shorten still doing victory laps, yet the carnival moves on. The hectic activity of weeks gone by; the constant intrusion of political ads, news-grabs of pollies in factories and shopping malls, visibility vests, handshakes, rats being cuddled, incessant analysis by the chatterati, robo-calls, election posters, are gradually fading into memory. We are back to the daily grind. The electorate, judged by this single voter, is 'excited-out'. There has been too much electioneering, over too long a period and we all have our breaking points.

Yet curiosity compels questions. The post election review and recriminations have commenced and will no doubt play out over the next few months.

• Was the double D worthwhile? 
• Should the campaign have been shorter? 
• What should have been done differently?
• How to respond to a scare campaign?

The Medi-scare campaign is lionized by the ALP and deplored by the LNP. Behind the scenes it is the the backroom boys, the campaign puppeteers, who will be evaluated in view of their results. But at front-of-house, the leaders must accept responsibility; Shorten the victor by smiles, and Turnbull tainted by under-performance.

Yet these questions are for the short term. More important are those of the future;

• Will this just-over-the-line result lead to a more careful attentive, therefore better government? 
• Will it survive the knife-edge of fortune to last its full term? 
• Will Turnbull have learned any lesson from his disastrous campaign? 
• Will the media take a more sober assessment of information provided by vested interests? 
• Will the media in the future question outright lies from their favoured politician ? 
• Will the promises/mandate by a government that barely gets across the line be respected by an already pugnacious senate? 
• Will the disposition of the cross benchers allow real budget repair? 
• Will Australia lose its AAA under a Liberal party trying to achieve the opposite? 
• Will the ALP vote in favor of economic policies it took to the people, if they are now presented by an LNP government?

Alas que sera, sera. What will be will be. Keep watching.

The Good, the Bad and the Ugly

Although I named this post "The Good the Bad and the Ugly", there is little good in the final outcome of this election, no matter what it turns out to be.

The Good

The most significant single 'Good' is the Pyrrhic victory for those who objected to the ousting of Tony Abbott last September. The electorate has punished the Malcolm Turnbull government where it hurts most, at the 'only poll that counts'. No doubt many of the so called 'Del-cons' have had a role in this. It may not have been the only factor in the swing against the LNP but it was significant as it was indeed an own goal. 

The lesson is clear. No matter which party you are, if the bed-wetter MPs turn against the elected PM in their first term, the party will be punished at the next election. Moreover such a move will divide the party and damage electoral support potentially for multiple terms. No doubt the LNP and in particular those who turned against Abbott are now trying to rationalise their own stupidity.

The Bad

Unfortunately in this category there are too many to mention, but here are some; - 

• The Senate potpouri will make it difficult for either major party to govern. Minority and independent senators avoid unpopular measures, and since the serious job of budget repair requires such measures, budget repair is likely to be postponed. At the same time in order to woo these crossbenchers government decisions will be skewed towards their pet projects. All unsatisfactory outcomes.
• With a hung parliament, as seems most likely, all the above problems will simply multiply. More chaos, more wooing of crossbenchers, more misdirected decisions.
• The voters have lost trust in the major parties and have moved from the centre to the right (Pauline Hanson) and the Left (NXT).( I know Xenophon says he is mainstream and centrist, but that's what they all say. Judge them not by their words but by their deeds. Historically he has voted with the Green Left. ) This makes for a divided electorate that will not favour the very hard and unpopular decisions rebalance the ship of state.
• The LNP is now a more divided party. Turnbull may not realise it yet, but his wings will be clipped and he will have to accept serious changes. If he doesn't he may be ousted. That would only lead to more instability. Many Turnbull supporters have lost confidence in their leader and most likely this will have inevitable consequences.
• The ALP is emboldened. It now feels its policies are winners. These are policies of the Left rather than the centre . Policies to spend more on Education and Health and allow deficits and debt to grow. Whether it gains government in a hung parliament or not, these policies will be more ingrained in the ALP psyche.
• The ALP has not been punished for its reckless spending beyond its terms in government. Our structural deficit is the result of the Rudd/Gillard/Rudd governments' legislating rising spending commitments beyond its terms in government, and without any commensurate rises in incomes.
• ALP has not been punished for shamelessly sabotaging the LNP's attempts at budget repair by denying passage of measures that it has subsequently used in its own election commitments. Will it now pass this legislation?
• The Unions are emboldened. The TURC royal commission uncovered significant and on-going union corruption including extortion, thuggery, and sweetheart deals with Employers that disadvantaged their own members. Neither the ACTU nor the ALP have made any moves to even acknowledge the problem let alone take action against any Union leaders or even change some of their own givernance. The CFMEU  the subject of the most egregious corrupt practices remains a fully endorsed memebr of the SACTU and the ALP to its shame still accepts donations from the tainted union.
• and so on..

The Ugly

Elections are generally an 'ugly' time to view a nation's character. This campaign has been no exception, highlighted by some of the most blatant lies and misrepresentations I have come across.

Starting with ads citing half-baked truths and extending to an entire campaign based on an outright fabrication.

The Unions' ads citing cuts in education and health spending fall into the former category. Education and Health spending are both increasing year on year. Similarly the LNP attacking Labor on border control given their stated policy is the same, was only justifiable when many ALP MPs openly contradicted their own parties policies.

But it is the Medi-scare campaign arguing that the "Coalition will privatise Medicare" that was the most ugly aspect of this election. It was a fabrication and at no stage did the ALP believe that the LNP had any intention to privatise Medicare. The push back by the LNP was slow and weak. Who knows what a more forthright rebuttal may have achieved. Nevertheless the Mediscare campaign did a lot of damage and certainly swung many wavering voters to the ALP. It will no doubt take pride of place in political attack campaigns for its success. Call me a purist but I think such tactics are not worthy of any party that wants to govern our country. 

What next

Instead of Turnbull's dream scenario of a re-elected Coalition delivering stable government, the electorate has produced a nightmare of instability and uncertainty. A divided LNP that may or may not form government, a resurgent ALP with policies to cripple the country, a feral senate with multiple crossbenchers with diverse personal/party goals and an electorate in denial, blissfully sailing the Atlantic on the RMS Titanic - pass the champagne please!

Theatre of the absurd

Election times are at the business end of politics. This is where the die is cast and the destiny of the country is determined, well at least for the next short while. There is certainly no shortage of political material. The airwaves are full of it. Political ads by all manner of vested interests, daily proclamations by the party leaders, and a never-ending stream of analysis by the political commentators.

With so much around, what few words could I jot, that have not been written in various forms already?

As a 'lay' observer taking a helicopter view of this political battle I have been struck by the sheer theatre of democracy-in-action. A theatre of the absurd! What creative genius could have conjured up the mix of melodrama, chicanery, hypocrisy, dissembling that we have been presented over the past 6 weeks? It has been a dazzling, if depressing, spectacle and it is not yet over. My guess is we are in for an intense climax over the final 10 days.

Of the array of absurdities that we have witnessed consider just these ; -

• Misleading! 

Perhaps the organisation least expected to do so, the AEC has been misleading voters. Their ad covering the new senate voting rules states that you "must" number 1 to 6 above the line and 1-12 below the line. But this is incorrect, under a "savings provision" any number less than 6 will still be a formal vote, and this applies to votes below the line as well. For details listen to the Ray Hadley Corrects the AEC's Misleading Advertising. 

• Dissembling! The politician's lexicon is replete with imaginative expressions used to obfuscate rather than inform.   In Chris Bowen the ALP have a dissembling guru. Not only has he excelled at delivering the largest number of slogans in the shortest time (see Empty Vessels), but repeatedly, and with a straight face, refers to tax increases as "'saves" and wins first prize with this gem; 

“It is true that we have less fiscal contraction over the next four years.” 

He makes it sound like "larger deficits " was a good thing! And the media let him off with just a quiet chuckle instead of a full blown hissy-fit. You know the type of hissy-fit they had when Abbott ate an onion.

• Hypocrisy! Bill Shorten has repeatedly attacked the coalition's proposed "massive tax cuts to multinationals" forgetting that just a few years ago he advocated the same policy. He advocated a cut in company tax not just for small companies but for such a cut to apply to all companies both large and small. What do you call "someone who acts in contradiction to their stated beliefs"? A hypocrite, or is it simply a politician?

• Gilding the Lily! Morrison and Cormann call a press conference to announce a $67B black hole in ALP costings (Morrison and Cormann caught out on ‘black hole’ but money still risky ground for Shorten.) That lasted barely a few hours, with corrections from the ALP. While it left some egg on a few faces, it may have forced the ALP to come clean on some of their costings, and heralded a major reversal in some ALP policies(see below).

• Chicanery! Now, just a few weeks before the election, in the face of a very real black hole in their costings,"Labor has now accepted more than $33 billion in Coalition spending cuts that it campaigned against in parliament over the past three years" (see Federal election 2016: Labor locks in $33 billion of cuts.) "Sorry guys we have been playing political games for the past three years. We will now accept those changes." What chutzpah! 

• Fantasizing! - And then of course there is the last minute scare campaign. the ALP claims "Elect us and we will not privatise Medicare". Good one! Healthcare is important, it will have  impact. The fact that the LNP does not want to privatise Medicare either doesn't matter, simply point to the committee set up to outsource back office functions. Don't worry the detail will be lost, just repeat it and get someone trusted to say it. Sure enough enter Mr Hawke, the venerable older statesman. Mr Hawke, you are dissing your legacy, the ad makes you look like a "silly old bugger!"

• Dispensing indulgences! Since the election was called not a single day has passed without one party or another offering millions to some special interest group in a marginal electorate. $100m to a stadium here, $250 m for a job scheme there. "Bribing the electorate with their own money" is alive and well. The problem is that our pollies are actually bribing the electorate with borrowed money. Money that our children and grand children will have to repay! Also what about the electorates that are not marginal. They only wish they were, and may vote independent in future elections. 

The above are just some of the absurdities that have been wrought in this election drama. It has been a truly unedifying spectacle, testimony to the adage that you may not like the sausage if you saw how it was made.

Inconvenient truth on Fairness

In what has become an unplanned serial I have explored some 'inconvenient truths' behind central policy differences between the ALP and the LNP. Previous posts have covered Education and Superannuation. In this post I want to look at Fairness. While Fairness is not really a policy, it has certainly been a principal war-cry of the ALP and the Greens. It was used very successfully against the first Hockey Budget of 2014 and indeed by the senate cross-benchers to justify their stance against government legislation. So it is not surprising that it has been brought into action in this election battle.

What is the Fairness argument?

The Fairness argument is rarely stated clearly. It is usually purveyed by implication or innuendo and takes many forms.

Some of the ways include;-

• The distribution of wealth in Australia is inequitable,
• a small proportion of very wealthy individuals control a disproportionately large share of the country's wealth. 
• The very wealthy get a disproportionate share of services yet they do not pay their fair share of taxes.
• Negative gearing is used by the wealthy to avoid paying their fair share of tax 
• You can always increase taxes on the rich they can afford it.
• The best private schools have plenty of money so should not receive any government funding

The argument is often dressed in softer terms of  "'equity", "fairness" or "justice", but in essence it appeals to the most base element of human nature, envy.  It appeals both to low income earners and welfare recipients who feel they are victims of an unfair system and also to some extent to the struggling middle income group who see real wealth as unattainable. This is a sizable proportion of the community. As a political tool it serves its purpose well. However there are some inconvenient truths.

Inconvenient truth 1; Incentive drives prosperity for everyone

The idea of raising taxes on the rich to bring "social equity" is not new. It has been tried in small and large measure in many countries over the years. At its extreme the communist doctrine "From each according to his ability to each according to his needs "  embodies the redistribution of wealth from rich to poor to create an "ideal" society. While communism actively supported the poor and weak and resulted in a somewhat more uniform standard of living, it did so by punishing the successful, the aspiring, the gifted, the hard workers. The consequences in all countries where it was instituted, in full or in part, was a stultifying lack of incentive to strive, resulting in lower production and leading to universal poverty. Everyone loses. Recall the sheer poverty of the Soviet Union and its iron curtain vassals at its collapse, or the impact of the 'Cultural Revolution' in China with millions dead through starvation.

Any tax that places a disproportionate burden on 'the rich' reduces incentives for all workers and ends up diminishing the wealth of the society as a whole. On the other hand societies that reward hard work inspire the whole workforce and generate prosperity for all. Consider the miracle economy of Singapore for example.

Inconvenient truth 2: Money has no borders

Today with the globalization of commerce money has no borders. Corporations and individuals can readily re-locate to lower tax countries. High taxes on Australian companies and individuals will simply lead to emigration. Indeed with higher personal income tax rates and higher company tax rates than the average around the globe, this has already been happening. For example a high income earner in a global business can readily relocate to Singapore with a maximum personal income tax rate of 20%. Similarly corporations can pick many competing low tax regions for branch or even their head offices.(BHP, James Hardie, etc.)

The bottom line is that Australian personal and corporate tax rates must compete in the global market and failure to compete will accelerate the emigration of the best most productive individuals and companies and diminish the prosperity of all.

Inconvenient truth 3: The politics of envy generates social unrest
Finally the real downside of the "Fairness", or really "class warfare", argument is the impact it has on society as a whole. The more frequent, widespread, and shrill the calls for social equity, the greater the general dissatisfaction of everyone in a society. By constantly repeating class warfare arguments our politicians engender distrust and resentment against each other. This can, if not managed, lead to social unrest. This is a by-product of the "fairness" argument that is too often ignored by our pollies and the media.

So what does this mean for our election campaign?

Evidently the Fairness argument can be aimed at virtually any policy that the LNP proposes. If it proposes to remove the 'temporary' Deficit levy paid by high income earners then it is pandering to the rich. It does not matter that if the LNP had not removed the temporary levy it would have been breaking its own and the ALP's commitments to the electorate.

If the LNP proposes to reduce Company taxes over a decade, then the ALP declares it is pandering to business interests notwithstanding that reductions in corporate taxes lead to greater employment, high wages and growth in the economy.

Even with the proposed Super changes that have caused widespread resentment among many LNP supporters, the ALP says "its not enough, the rich can pay more".

So the ALP/Greens have plenty to go on about. Australia has many successful, rich people who live in expensive homes and drive expensive cars. They serve as obvious targets to stoke the envy in all of us.

At the same time it must be said the LNP has failed to address these arguments head on. This is not entirely surprising. With half the electorate already paying no net tax, there are many voters with a vested interest in the current state of affairs. They may see any lowering of taxes for "the rich" as a potential extra cost to themselves. Consider the recent QandA 'hero' who by his question concisely embodied this attitude.

"Why are 'the rich' getting a tax cut and I don't get anything"

Forgetting of course that he has not been paying any tax and has been the recipient of welfare that was paid for, at least in part, by those 'rich' he envies. Australia's problem is that this 'entitlement' mentality is becoming increasingly pervasive.

Countering the 'Fairness' argument

Convincing the electorate that by reducing taxes on companies and high income earners will generate incentives that will work to produce growth and "raise all boats", is not an easy task. But there are some non-confrontational approaches to sell the message. Consider these 2 ; -

1. Set an INCLUSIVE vision to which we can ALL aspire

Our PM, Mr T, has tried to sell a vision for Australia with 'Innovation' as the key to 'jobs and growth' in an 'agile' economy.
The problem with this vision is that most older and less educated voters will not feel they are part of this vision. For many it is a warning of potential redundancy in a new, modern world in which they have no part.

The LNP, or Mr T, should carefully phrase his statements to include all Australians. When he talks about aspiration it has to apply to everyone.

Perhaps something like; 

"Australia is a lucky country, with plentiful natural resources and an inclusive culture that takes care of the needy and provides equal opportunity to all to achieve their maximum potential. We want to build on past success in developing not only our resources and agriculture but to develop new industries that employ all our people.  We will aspire to do this through incentives for investment in education, research and development and new industries. At the same time no one will be left behind.  We will strive to provide equal opportunity to everyone to access social services, education healthcare and employment. We will ensure our welfare safety net provides for the needy. While we approach the future with enthusiasm we will not abandon the industries that provide work for the much of our workforce. We will move gradually to create an Australia in which every Australian can participate productively."

Perhaps a bit wordy but then again it may suit Mr T to a T.

2. Repudiate EVERY claim by the ALP/Greens about 'unfairness'

Do not allow any claim of "unfairness" without repudiation. Left without a response gives the impression that the claims are justified and sets long-term perceptions.

There are always good arguments to counter claims of 'unfairness'; -

• Company taxes are lower in countries that have high growth economies. This leads to more jobs. We want to grow our economy to make everyone prosper
• Negative gearing is used extensively by low and middle income earners and contrary to ALP arguments they get a higher proportionate tax saving than high income earners. 
• Lowering the tax rate for middle and high income earners can be addressed with two points; -
• bracket creep has been eliminating the progressive nature of tax, the tax cut is therefore required to ensure the progressive nature is maintained
• Super measures in the budget provide benefits to lower income earners and make significant imposts on high income earners
• and so on

It is important to avoid the technicalities of these arguments, indeed the economists can handle that. The point is be willing to face the claims head-on, present the other side of the argument and not to leave any claims unchallenged.

Time to face Fairness head on

The election is still many weeks away yet the Fairness argument is being actively used as a weapon of choice.

If the LNP fails to speak up and quietly acquiesces to this false narrative, no matter which party wins the election, incentive will continue to be squeezed out of the system and over time our prosperity will dwindle.

Inconvenient Truths on Superannuation

In my last post (Inconvenient truths of Education spending) I covered the problems with Education spending election commitments, today lets look at Superannuation.

As with education, Superannuation is another key election battleground with each party claiming they are making the system more sustainable by clamping down on unreasonable concessions to wealthy individuals.

But are they?

Inconvenient Truth 1:

Super is not meeting its core objectives to enable individuals to achieve self-funded retirement and reduce the welfare burden on the state.
In earlier posts (Not so super , Making Super work and Super Solutions ), I wrote at some length about the failures of our Super system so here is just a summary;

• Under current prevailing conditions of inflation, contribution rates, rates of return, most workers will have to rely on an aged pension in their retirement.
• A person on minimum wage, after sacrificing 9.5% of their salary for 30 years, will have an annual pension return of a mere $6,000 pa. This is not nearly enough to meet their living costs and well is below the Single Person Aged Pension rate of $20,498 pa. 
• A person on average earnings will earn $15,000 pa from their super after 30 years, still below the aged pension. 
• You have to be earning above $150,000 pa to be self funded on retirement.

• Projection to 2050 shows that this will not improve (see National Commission of Audit) 
• By 2050, the same proportion of the workforce will be on pensions as there are today
• By 2050, Government expenditure on pensions is expected to increase by over 40%

In short, the Super system is broken.

Inconvenient truth 2:
The policies of neither party attempt to remedy the failure of the system. Indeed by their changes they further threaten its viability.

Both parties have prepared a whole raft of changes to Superannuation. So whichever party wins the electtion there will be changes.  The proposed changes are detailed widely (see 2016 Federal Election: What superannuation and retirement policies can you expect? ) but here are just the core elements; -

The LNP plans to ; -

• Introduce a transfer balance cap of $1.6 million on retirement balances.
• Lower the concessional contributions cap to $25,000.  
• Lower the 30% contributions Tax income threshold from $300,000 to $250,000.
• Introduce a $500,000 lifetime cap for non-concessional (after-tax) contributions. 
• remove the age and working status limits on contributions

The ALP plans to ; -

• Introduce a 15% Tax on super pension investment income in retirement when it reaches above $75,000.
• Lower Contributions caps similar to LNP (but not fully confirmed)
• is yet to indicate its position on some of the LNP provisions announced in the budget

As we are in the throes of an election campaign these policies are ill-defined and may be massaged given electorate reaction. 

But the direction is clear. Both parties plan to clamp down on what are seen as overgenerous concessions to the wealthy and collect some much needed funds for the very real need for 'budget repair'. 

But are they throwing out the baby with the bathwater?

I have not seen any modelling of the impact of the changes proposed by either party and I suspect we wont during the election campaign. The parties will avoid this scrutiny because their measures are likely to impact negatively on the effectiveness of super for achieving self funded retirement. By targeting high income earners some individuals will no doubt fall below the self funded threshold resulting in an increased number of retirees relying on the aged pension and further increasing the welfare burden on the state. Certainly the constant fiddling with Super has already undermined confidence in the system.

Rating the measures

With a system already failing to meet its objectives what could the government have done? And how do the proposed changes measure up? 

No doubt the treatment of Superannuation has been very generous to the very well off, and capping of the concessions is justified.  The LNP's introduction of an indexed cap on the tax free retirement balance is a sensible way to limit concessions.  If inflation indexed $1.6 m represents the single person threshold for self funded retirement then the government should encourage all contributions up to that point but give no concessions above that value.  

For example consider the following Super rules as an alternative to those proposed by the parties.

While the retirement balance is below the $1.6m threshold;-

• there should be no limits on the value of non-concessional contributions
• similarly there should be no limit on the value of concessional contributions. Why limit the contribution in any year when there is a limit to the total?
• the tax discount on concessional contributions should be expressed as a discount on the marginal rate of the individual, say 50%. This avoids the arbitrary 'class' defining cut-offs between the 'average' and the 'well-off' that seems to be a point of debate by small minded politicians.
• retain the concessional tax rate on a superannuation fund's earning during accumulation phase, I would stick with the current 15%

Once the balance reaches the $1.6m threshold there should be no tax concessions at all.

• no compulsory deduction from salary
• no concessional contributions at all
• no non-concessional contributions

Withdrawals in any year that would take the balance below the $1.6 m threshold should be limited to at most 5% of the fund.

Of the key measures announced by the parties only two stack up as being beneficial. The balance cap serves to limit tax concessions for the wealthy without affecting the goal of self-funded retirement. Similarly the removal of age and work status related limits on contributions encourages individuals to contribute to their super.

All the other measures impose limits that discourage savers and only undermine what little faith the electorate still has in Super as a source of self-funded retirement.

Looting the electorates'piggy bank

The grab for the glistening Superannuation gold is counterproductive. The industrious will be discouraged from saving, Aged Pension welfare costs will rise, and governments will no doubt have soon spent whatever few dollars they saved from these measures and once again be looking for funds.

Inconvenient truths of Education spending

With the election still (too many) months away there is already so much excrement flying around one must keep their head down. Yet I cannot help raising some inconvenient facts that seem to be ignored in the political brouhaha.

Lets take just a look at education spending. Leave behind all 'opinions' and look at just those facts that are not disputed by any of the political parties or the commentariat.

The inconvenient facts are just these; - 

Inconvenient fact 1:

Australia has substantially increased its education spending in real terms over the last decade. Yet, in the same period, Educational outcomes have not improved but if anything deteriorated.

Inconvenient fact 2:

Across the world educational spending does not correlate with educational outcomes. (see Figure 1 below and the earlier post Education Spending scores an "F" giving some background.)

Given these inconvenient facts how can anyone justify more spending on education?

The LNP has just committed some $1.2B to the states for education, this comes after their more sensible proposition to limit spending at the 2014 budget. Still this is far less than the ALP's commitment of $4.5B over the forward estimates, amounting to ~ $37B over the next 10 years. 

Even if Australia had zero debt, and had money to burn, it would be a reckless politician who simply threw more money at a problem that has undoubtedly become worse despite more money. Yet our politicians are doing just that. Simply ridiculous! Clearly this is not their own money. Even a politician would not put more of their own money into an enterprise that generated less desirable outcomes by his so doing.

And yet our professional media, the 'last bastion of truth', is sitting mum. They are very busy, massaging, organizing and presenting election policies in the manner most convenient for their preferred political party. Yet they ignore the inconvenient truths. As if we were in the fairy tale and no one is willing to say it, "the emperor is naked"!

Spending more money on education is not the answer.

Time to take the initiative

Fervor to fiasco

Consider the widely acclaimed Tax reform agenda touted by the newly elected PM just a few months ago. Announced with great enthusiasm and a clear set of guidelines;

 "A reform package must at the very least, raise the revenue we need, share the burden fairly across the community and do so in a way that incentivises employment, investment and innovation." Rebuilding Foundations of Reform 5 Nov 2015

Much has happened in the ensuing months that has tarnished this simply stated and noble goal. Serial qualifications of what will be 'in' or 'out' have muddied the waters. An eloquent Mr T has waffled his way around the subject, with everything 'on the table' except of course GST, and no negative gearing, well perhaps a little bit, but only where it is really justified.

His opponents are well nigh saying 'I told you so', and while his adherents and the media are maintaining the faith, for now, they are eyeing for exits. His numbers, the pedestal on which he justified his ascension, are wavering.

So too Scot Morrison. He joined the Tax reform crusade with great gusto, but his early propositions were beaten down, no doubt by Mr T, leaving ScoMo looking stupid. Saying one thing one day only to withdraw it the next. No wonder he has taken to saying little. Recall the much heralded presentation to the Canberra Press Club. A roomful of economists and political journos well primed with earlier hints of major pronouncements waiting in anticipation to receive... naught. That went over like a lead balloon. No doubt Scomo is not happy having his reputation as an effective 'doer' being trashed even before delivering his first budget.

This political ineptitude has left the electorate nervous about what the budget will bring. With its self- generated constraints and a looming double D can the government pull something out of the hat and regain the popularity it was bestowed for having disposed of Abbott?

Take the initiative now...

The government has shown remarkably poor judgement in the execution of the Tax Reform Debate. The vacuum left by vacillating between what is 'in' or 'out' has enabled the opposition to take the high ground by announcing their own policies and contrasting their decisive position against that of the government. It has shown in the polls. So it is time that the government takes the initiative and sets the narrative for the upcoming budget. 

Detailed policy measures can be left to the budget itself, however the narrative sets the scene, gives the media something to discuss and incidentally highlights ALP's role in creating the massive government debt and the reckless spending that led to our ongoing structural deficit. It also builds on why the LNP was elected in the first place, to be good economic managers.

A suggested Budget Narrative is presented below (this is reprinted from an earlier post Hypothetical Budget FY17 )

Budget FY17 Narrative

Size of government
All money raised by government is revenue foregone by individuals and corporations. Therefore it is incumbent on the government to remain as small as possible but have sufficient revenue to effectively and efficiently deliver the services the electorate mandates.

Historically, average Australian government revenues have been below 25% of GDP. While in recent years this has blown out due to both additional spending and lower tax revenues, your LNP government will return the revenue to and then ensure it remains below this historical average.

Equity

It is incumbent on governments to ensure any spending is equitable across all sections of the electorate. Within any budget there will be individual measures which advantage some sections and disadvantage others, but taken as a whole the measures in any budget will fall equitably across all sections of the community.

Equity also applies to generational equity. It is immoral for the current generation to continue to spend more than it earns and leaving the debt to future generations. Therefore the government will always strive to reduce government debt and to bring the budget into balance.

Current Economic environment 

While we firmly believe in the above two principles, we find ourselves in a difficult situation.

• The large increases in expenditure initiated under the Rudd/Gillard/Rudd governments and the subsequent collapse of the mining boom have caused a wide and widening gap between Government income and expenditure creating a ongoing structural deficit.
• The current gap between Expenditure and Income is such that we are failing our own limits on the size of government. Last year government revenue rose to just under 26% of GDP and due to the on going deficit we are failing on generational equity as well.
• However our structural deficit cannot be redressed in a single cycle, as the consequences of introducing measures to redress it could be counter-productive putting further pressures on the economy and reducing government revenues.

Our strategy 

Given these constraints we see it prudent to take gradual but significant steps to redress our issues, with an emphasis on growing the economy while maintaining but not growing government.

This implies; -

• Addressing inequities in welfare and superannuation systems whereby lower income earners subsidize higher income earners.
• Limiting personal tax relief to the real savings achieved by the above measures.
• Ensuring full compliance with government policies, applies to corporate and personal tax collections, welfare payments etc.
• Increasing the productivity within government departments.
• Increasing productivity within business by eliminating red-tape and high-cost industrial relations practices.

Start now...

There is no time to lose. Start now.

Spending or Revenue?

The recurrent argument about whether we have a spending or a revenue problem brings to mind my own experience back so many years ago. As a 10 year old I was given an allowance of but 2 shillings per week. Yes it was shillings and yes it was a long time ago.

 With such a well defined sum I was most scrupulous about my spending. My weekly 'treat' was the Saturday movie matinee at the local cinema, the Coronet in Bondi Junction. Armed with my 2 bob, I set off by tram, 3 pence each way, paid my 1 shilling admission and settled in for a full three hours of entertainment. In those days going to the movies was an outing to be relished, with cartoons, the odd serial, "The Lone Ranger" or "Rocket Man", and after intermission the featured movie. On my way home I indulged myself with 3 pence of chips, wrapped in newspaper, and a potato scallop. A full afternoon for two bob. I still remember this much loved ritual after all these years.

I knew exactly where my money was being spent and I made sure it was spent on what I wanted. I also know I had a serious revenue problem, as I did not have enough money for chocolate freckles or cobbers or indeed the cream-bun that I also desired. I explained this to my mum in a vain attempt to justify a raise. She disagreed suggesting I really had a spending problem. That I should make do with what I had and perhaps should miss out on the movies one week and indulge in the other vices I felt were entitlements. She even suggested I could walk instead of catching a tram.

Of course I coped without those extra 'necessities ' and learned to live within my means.

All in all a good early lesson on many levels.

Firstly living within a budget requires giving up some things, things you may really want.
Secondly there are some things you may really want but you can do without.
And, finally, people will have different perspectives on the same problem.

These very same lessons seem to apply to our government 'deficit' problem today.
Our politicians have a different perspective on this problem because they come at it from different sides.

The ALP see it as a Revenue problem. They have a long list of must have programs like Gonski, Healthcare, Disability Insurance and so on, that require increased expenditure and complain the government is not raising sufficient funds for these essential programs. By defining it as a revenue problem they are providing 'justification' for increasing taxes to raise revenue. 

The LNP however are motivated primarily by the need to ensure the budget is balanced. They do not want to raise taxes especially since government expenditure as a proportion of GDP is already at historical highs. So they look critically at the ALP wish list and identify what we may want but can do without. Hence the case against funding of Gonski among other things.

There are of course compelling arguments for all the ALP must-haves, and I don't pretend to have properly addressed these arguments. I too had compelling arguments for my wish list of must-haves with my Mum, but in the end a responsible adult took control.

We too sorely need a responsible adult to take control of our budget deficit.