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Lessons from politics for the big end of town

Illustration: Michael Mucci.

Illustration: Michael Mucci.

THE way big business sees it, economic reform has ground to a halt because the politicians on both sides have lost the political will to make the tough decisions. But I think big business must share the blame for the stalemate we've reached.

Business leaders have lost confidence in the Gillard government and, having concluded its days are numbered, are uncharacteristically willing to attack it in public. In private, though, most would doubt an Abbott government would be any more willing to grasp the nettle.

Consider the GST. Despite all the good sense Nick Greiner was talking last week about the need to fix it, both sides refuse even to discuss the topic. It was specifically excluded in the terms of reference for Ken Henry's ''root and branch'' review of the tax system (which didn't stop him proposing a similar tax with a different name).

It's not hard to see what the problem is. Each side is afraid that, if it showed the slightest interest in considering the topic, the other side will use this as a pretext to launch a scare campaign.

Or, consider the mining tax. Although it's not true the tax raised no revenue in its first quarter, it is true it raised less than expected, mainly because of the fall in commodity prices.

But prices have recovered from their lows in the first two months of the quarter. As well, the nature of the quarterly instalment process means collections are likely to pick up in later quarters.

Even so, it is true that the compromise tax Julia Gillard negotiated with the big three mining companies was both badly designed and too generous to the miners.

Why did she give in to them? Because the opposition had sided with the miners in opposing the original tax and, in their efforts to destroy the Rudd government, the big miners would have given the opposition huge funding in the 2010 election campaign.

One reason the miners were so opposed to the original tax was that the government caught them off guard with a strange tax they didn't understand. This would not have happened had Labor released the Henry report for discussion well before it made up its mind about which recommendations to accept, reject or modify.

So, why didn't it? Because it was so afraid the opposition would run a scare campaign claiming that Labor intended to implement all of Henry's most controversial proposals.

Next, consider company tax. For reasons I can't fathom, big business has its heart set on a cut in the company tax rate. Labor promised a cut of 2 percentage points, but the deal with the miners obliged it to reduce the cut to 1 point.

Then the combined opposition to this from the opposition and the Greens allowed Labor to renege completely. Although all previous cuts to the rate have been funded by the removal of concessions, big business can't agree on which concessions it's prepared to give up.

This has allowed Labor to shelve the idea. And I wouldn't hold my breath waiting for an Abbott government to find the revenue needed to fund a cut.

Finally, consider all the reform the Hawke-Keating government undertook during the 1980s and early '90s: deregulating the financial system, floating the dollar, phasing out import protection, deregulating more industries than you can remember and decentralising wage-fixing.

What do these reforms have in common? They went virtually unchallenged by the Liberal opposition of the day, under the dominant influence of John Howard and John Hewson.

Are you starting to see a pattern? All the reforms that aren't getting up (or, in the case of the mining tax, got badly botched) have become party-political footballs. And almost all the reforms we did get were bipartisan policy - with the GST and the carbon tax as the notable exceptions (although in both these cases the lack of bipartisanship led to inferior policy).

The point is, it's not so much unhappy voters governments fear, it's their political opponents seeking to take advantage of the voters' unhappiness.

What many business people don't understand about politics is the power of oppositions to influence what governments do and don't do. It's rare for governments to make controversial reforms when they know their opponents are waiting to pounce.

The bipartisan support for micro-economic reform lasted throughout the Hawke-Keating government's 13 years, but broke down after Paul Keating's defeat in 1996. Since then, both sides have gone for short-term political advantage at the expense of the nation's longer-term interests.

So, the first lesson big business needs to learn is that it's not enough to pressure the government of the day to show ''political will''. You must also pressure the opposition to resist the temptation to score cheap political points.

That's particularly the case when it's the opportunism of a Liberal opposition that is discouraging a Labor government from doing what it knows it should.

The second lesson is that big business won't get far until it abandons its code of honour among thieves. That is, when one industry goes into battle with the government to resist a new impost or get itself a special concession, all the other industries keep mum, even though they know the first industry is merely on the make.

Big business looked the other way as the three big miners connived with the opposition to destroy the Rudd government. Its reward was to have its precious cut in company tax snatched away.

Twitter: @1RossGittins

54 comments so far

  • Good Story

    Bob Menzies
    Cannon Hill
    Date and time
    November 12, 2012, 9:15AM
    • Labor and business confidence should never be used in the same sentence - but then, you should already know that Ross from their past & current performance. They kill jobs, not create them. They create welfare dependence and high taxes - that's all they know how to do.

      Date and time
      November 12, 2012, 10:24AM
    • If you are old enough you know that BIG BUSINESS leaders and owners DON"T VOTE ALP and always do everything to undermine them with MEDIA SUPPORT (PACKER MURDOCH) tales of woe is me (as they drive a $400,000 car) , leased of course to get that deduction , check up on the OFF SHORE DEPOSITS on their trusty tablett (another tax deduction ) whilst eating LOBSTER (another tax deduction) then bitch about the GUY living on WELFARE getting 160 a week , whilst saying hey we have work at $2 a day whilst socking 3 billion in a trust fund and doing everything ,everything to keep it (all based on a GHOST STORY),nurturing up and comming politicians to ensure you always get what you want.
      Bit like America democrats deliver better returns on the share market (proven) but the capitalists whinge because they know they have to TOE THE LINE and are suddenly answerable for the actions they commit

      open thy eyes
      Date and time
      November 12, 2012, 11:59AM
    • Good Comment - Open thy eyes - you make a very good point

      Bob Menzies
      Cannon Hill
      Date and time
      November 12, 2012, 12:11PM
    • Yep, good point. And that's the exact problem with western liberal democracies at the moment. Rather than contructing creative policies to ensure economic success for the entire population, it has simply turned into a trivial fight between capitalist economics and general demographics.

      totally indie
      Date and time
      November 12, 2012, 4:19PM
    • The government should go back to the original mining tax. Why have all the pain with no gain? There are plenty of mining companies to take over the leases should any of the present companies leave as they falsely threaten to do..

      Good Logic
      Date and time
      November 12, 2012, 4:35PM
    • "Bit like America democrats deliver better returns on the share market (proven)..."

      yes, that would explain Wall Street's dive the day after obama's re-election

      Date and time
      November 12, 2012, 9:47PM
    • @open thy eyes, so true and so sad!
      My sister married into a very wealthy family and the xmas party are these exact comments including the lobster.
      Also their personal vehicles are registered in the comapny as courier vehicles so they can right off on tax. Just thought i would add another one!

      Date and time
      November 13, 2012, 9:24AM
    • 'open thy eyes' - well said, very well said!

      Rosie H.
      Date and time
      November 13, 2012, 11:00AM
    • @Alex, I think you'll find that has more to do with the Republican that was in the previous 8 years who directly contributed to the GFC occurring at a similar time to the end of his term. Also, just because a market reacts does not mean it is an accurate representation of the predictions made (i.e. you assume the market dive is because people did not have confidence in Obama, but this says little about his actual ability to introduce market reforms).

      Date and time
      November 15, 2012, 8:04AM

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