The defeat of Queensland's LNP government and the near-fatal wounding of Coalition Prime Minister Tony Abbott have together dealt a major blow to business confidence in Australia. Both events were quite unforeseen as the country's movers and shakers took their usual long summer break, enjoying the cricket and tennis and spending time with families and friends. In the space of just over a week, political expectations were shattered and assumptions about government intentions thrown into confusion.
The crisis in confidence is not just about government policy directions. Such lack of clarity is not uncommon in the rough and tumble of democratic politics and is a regular factor in corporate decision-making, along with the many other variables affecting commercial markets. This time the doubts strike much more deeply, into long-held views about the relationship between the business community, represented by major companies, such as members of the Business Council of Australia, and the political system.
While the fundamental role of corporate interests in market economies makes them highly influential with governments of all political stripes, the business community has always had a close affinity with conservative, Coalition governments. When Coalition governments come to power, particularly with substantial majorities, business has a natural expectation that new governments will adopt significantly more business-friendly policies than their predecessors. In recent years, it has put its weight behind a set of "reforms" (i.e. preferred policy changes), including reduced regulation and corporate tax, privatisation of public assets and outsourcing of government-funded services to private sector providers.
Most of these business-friendly policies are unpopular with the median voters whose support is necessary for electoral success. The reform strategy has therefore typically been suppressed or fudged during election campaigns and revealed post-election, often in conjunction with a tough first budget. As a rationale for the sudden about-turn, Coalition governments have relied on the supposed discovery of a previously undisclosed fiscal crisis, which justifies a repudiation of electoral commitments. Following the 1992 precedent of Jeff Kennett in Victoria, they have regularly used the device of a "commission of audit" dominated by business interests to provide extra support for shifting the policy agenda.
As I have argued previously, increasing levels of fiscal transparency in recent years have steadily undermined one of the key assumptions behind this strategy. It is no longer credible for an incoming government to claim surprise at the dire state of government finances. The charter of budget honesty and medium-term budget forecasting have forced governments to reveal the general state of government accounts before an election. The establishment of the Parliamentary Budget Office, under the Gillard minority government, has added another authoritative voice to public debate about the federal fiscal outlook.
The conditions of 1996, when the new Howard government could plausibly argue that the extent of the fiscal deficit ("the Beazley black hole") had come as a surprise, are long gone. Treasurer Joe Hockey tried to follow suit, with claims of a desperate fiscal crisis that called for drastic (and unheralded) measures. But the argument rang hollow because there was no new, hitherto undisclosed, evidence to back it up. The fiscal situation after the election was much as was predicted before the election. The fiscal outlook may have weakened since, particularly on the revenue side. But these revenue shortfalls were entirely predictable, and indeed widely predicted.
The lack of fiscal surprises thus left Abbott and Hockey with no plausible excuses for breaking pre-election commitments not to cut spending in areas such as health and education. Abbott, in particular, emerged as a dodgy politician who would say one thing to get elected and then do another, once his election was secured.
Abbott's commission of audit found itself similarly wrong-footed. With no unforeseen fiscal crisis as validating background, its recommendations (when they were eventually published at the time of the 2014 budget) lacked any compelling rationale. They consisted of a long wish-list of familiar business-friendly policies from which the government was free to pick and choose. Many of these policies, such as the rationalisation of government agencies and the push for more privatisation and outsourcing, were to be expected anyway from an incoming Coalition government. A commission of audit, with its implication of uncovering hidden problems and advocating new solutions, seemed an unnecessary and outmoded device.
Few members of the business community seem to have noticed the political sea change resulting from greater fiscal transparency and from the diminished legitimacy of unheralded post-election "horror" budgets. Many have been surprised at the Senate's resistance to key elements of the "reform" agenda and at the continuing unpopularity of Abbott and Hockey. The Queensland election was the eye-opener. Against all expectations, a strong conservative leader, Campbell Newman, embarking on a radical reform agenda, with a massive parliamentary majority and active business support behind him, was thrown out after only one term in office. Suddenly, the same fate seemed not only possible, but even probable, for Abbott and the federal conservative government.
Moreover, the Queensland result also destroyed the standard assumption that a government with a comfortable majority could use its expected second term to go even further to impose its own stamp on policy. An increasingly volatile electorate means incumbent governments can no longer take re-election for granted.
No wonder the business press has been so full of gloom. The chances of enacting unpopular reforms appear increasingly remote. Reform-minded elites can no longer hope to capture the policy agenda through post-election fiscal crises. Nor can they rely on voter inertia to encourage incumbent governments into risking voter unpopularity as they cruise to a second term. The country seems doomed to suffer a series of short-term, populist governments incapable of effective government.
Is such pessimism justified? Not necessarily. One common mistake is to assume that "reform" must always be unpopular. Much depends on the nature of the changes proposed. One of the major problems with the business community's preferred program is that some elements are so clearly biased in favour of the better-off. Services affecting the poor and disadvantaged are to be cut while privileges to the rich are to be left intact or increased. Popular opposition to the Abbott-Hockey 2014 budget, it should be remembered, is not solely, or even primarily, about broken promises. The fundamental objection is that the budget appears to be unfair in protecting the interests of the wealthy. The charge of electoral dishonesty is simply an extra weapon to use against a policy one dislikes, as it was for Abbott and the carbon tax.
Since Newman's annihilation and Abbott's near-death experience, some business leaders are at last beginning to face this issue. They are calling for discussion of changes on the revenue side that might disproportionately affect the well-off. Up to now, the preferred revenue option has been an increase to GST, which is regressive in impact. But we are now hearing talk about the taxing of superannuation and a possible assets test for the pensioner's family home. Even negative gearing and family trusts are surfacing in some public debate. Clearly, many of the government's key backers are prepared to countenance moves back towards the political centre as a means of improving the government's chances of survival.
The political conditions are now ripe for some major compromises that may help to reduce the medium-term budgetary problems. The Senate crossbench is the key. If senators see that the government is prepared to make concessions and to go some way to sharing the pain of budgetary adjustment, enough of them will fall in to line behind the next budget. But whether the Prime Minister and Treasurer can publicly and unequivocally consume enough humble pie remains to be seen.
Two general lessons emerge from the current debacle over the budget. One is that incoming governments cannot expect to use a supposedly unforeseen fiscal crisis as an excuse for shifting the policy agenda in a radical direction that is opposed by most voters. Business leaders who encourage conservative politicians to adopt this tactic are leading them into a political dead-end. No major policy change should be contemplated unless it can attract a reasonable level of public support. The Abbott government and its supporters can still learn this lesson, but time is running out.
Secondly, pre-election commitments have continuing impact. Oppositions should think carefully about what they commit to do (or not to do) if elected. They should resist the temptation to make foolish promises that will come back to haunt them. Avoidance of difficult issues and knee-jerk rejection of unpopular government measures may boost their immediate polling numbers. But in an era when everything is recorded and nothing forgotten, such opportunism can build up crippling constraints for the future.
Moreover, oppositions need to see the value in making positive commitments that go beyond simplistic motherhood statements and foreshadow significant policy directions. Conventional wisdom has recognised the value of such pre-commitment for incumbent governments seeking re-election, such as Howard and his GST. But that may be too late in a more volatile electoral climate, where parties can count on only one term in government in which to impress the voters. So far, the Labor Party has given little indication of being willing to take this risk.
Richard Mulgan is an emeritus professor at the Crawford School of Public Policy at the Australian National University. email@example.com
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