Most interest in the federal election has been on whether the Liberal-National Parties (LNP) or Labor will win control of the lower house and form government. That makes sense. But the race for the Senate is in many ways more interesting, unpredictable and has very important consequences.
On current polling, Tony Abbott and the LNP will win government, but without the Senate they will not be able to pursue their agenda. At the moment, the Greens have balance of power in the Senate and they are openly hostile to the LNP. However, that could be about to change.
I don’t normally get the opportunity to give a budget reply speech, but this year the ALSF invited the Australian Taxpayers Alliance to address their annual budget seminar, so I was given the chance to rant to some eager young politicians of the future. This is what I prepared for the talk…
In the coming decades, policy makers will need to make a choice between embracing the green-left policy of higher taxes, allow our country to slowly go bankrupt, or undertake difficult reforms to health and pensions that are politically unpopular. Those are the only choices. Few people on the centre-right will admit it now, but the truth is that most politicians (including the “good” ones) are probably going to choose a mix of higher taxes and eventual bankruptcy.
For political wannabes, this is a killer question. It goes straight to the issue of why you want to be involved in politics.
Imagine a free-market economy with no government welfare. Some people earn high incomes and others earn low incomes. Now consider that some kind hearted bureaucrats come along and want to introduce a government policy to help the low-income earners. How should they do it? Let’s consider two options.
Option A is where the government introduces a very specific payroll tax that only applies to businesses that employ low-income earners. The lower the employee income, then the higher the payroll tax. Businesses that only employ high-income earners do not have to pay anything. Obviously, this tax will hurt businesses that concentrate on low-skill activities (cleaners, retail sales) but it will not hurt businesses that concentrate on high-skill activities (law firms, accountants). Because of the tax on low-skilled businesses, some of those businesses close down, others decide to employ fewer people, and others decide to shift towards high-skill activities… so some low-skilled workers lose their jobs.
The money raised from this tax is then paid as a subsidy to low-income earners, including to people who have lots of assets and people who are from rich families. While the tax caused some low-skilled people to lose their job, those people do not receive any of the subsidy. The subsidy only goes to people who have kept a low-income job.
While the federal election is still seven months away, consideration of another election got me delving into an old hobby of mine and checking up on the many small political parties that sit on the fringe of the political game. Most people don’t know most of these parties even exist, and that’s not likely to change soon… but as a way to procrastinate from what I should be doing (my PhD) I thought I’d offer a very short guide about the smaller parties.
For the sake of this article I’m going to ignore the big three players — the coalition (including Liberal, National, Country Liberal & Liberal National Parties), the Labor Party, and the Greens. If you haven’t heard of them before, then this article probably isn’t for you.
I’ve split the remaining parties into three groups. First the “big little parties” which round out the top ten political parties based on the 2010 Senate election plus a few others that are likely to be top ten this year. Then there is the “micro-right”, and finally the “micro-left”. I hate the false “left-right” dichotomy, but unfortunately that’s still the way most people consider politics.
BIG LITTLE PARTIES
Family First — first came to attention with electoral success in South Australia, FF really came to national attention when they got a Senator elected in 2004. Though they now have no federal representation, they did score 2.1% of the vote in 2010 which gave them fourth place. The party is generally pidgin-holed as a Christian party, but under the leadership of Bob Day they have tried to shift their focus towards a more small government agenda, while keeping a fair amount of Christian social conservatism. This means they are slightly differentiated from the many “big government conservative” parties discussed below. Not a bad choice for conservative “tea party” types.
Sex Party — the “anti Family First” party came onto the scene in 2010 and engaged Family First about moral issues. While not getting anybody elected, they did manage 2% of the vote which put them just behind FF in fifth place. The party primarily promotes civil liberties and a socially progressive agenda, as well as gender quotas in parliament, but they haven’t been drawn too much into economic debates. Sometimes seen as an economically safer version of the Greens.
Liberal Democrats (LDP) – Australia’s only libertarian political party has been around since 2001 but has only had electoral success at the local council level. The party received 1.8% of the Senate vote in 2010 which put them in sixth place. The LDP is clearly the most free-market party in Australia (the only party to promote real spending cuts), as well as being one of the most socially progressive (marijuana legalization and gay equality). The only choice for libertarians, classical liberals and Ron Paul types.
Late last year I published an article with Agenda (the public policy journal of ANU) that critiqued the Treasury “modelling” (sic) of the Rudd government stimulus that followed the global financial crisis. It is an article that I started writing a long time ago, but sat in the “to do” pile for too long.
My main point was that the Treasury approach was hopelessly inadequate, a point that is abundantly clear to any economist who glances at their attempt, and has been readily admitted by some Treasury friends. As I wrote in the article:
“The biggest problem with the Treasury model is that because it misunderstands the issue of international crowding out, it drastically underestimates the impact on net exports. In addition, it entirely ignores the issues of domestic crowding out, monetary policy responses, and the costs of repaying the debt. While its estimate for the private savings response to the stimulus is at the low end of the range, this is the least of the problems.
“The ignorance of open-economy macroeconomics suggests that Treasury has neglected much of the advances made in macroeconomics over recent decades, and its strange assumptions on domestic crowding out and private savings response show that it has forgotten much of its own research. As Harvard economics professor Robert Barro said in 2009 when the US was debating its own stimulus policies, ‘The financial crisis and possible depression do not invalidate everything we have learned about macroeconomics since 1936’ (Barro 2009).”
Before the budget came down, Campbell Newman described it as a “once in a generation budget”. That is certainly what Queensland needed. Our long-term budget position is actually worse than the audit report or old budget papers claim, since they don’t factor in the growing fiscal pressures over the coming decades caused by an aging population. Put simply, current policies are unsustainable, and some tough decisions are needed.
The first thing to note is that the government decided to give up on fixing the 2012/13 budget.
They have allowed the operating deficit to increase from an estimated $4.9 billion (Audit) to $6.3 billion, and the fiscal deficit to increase from an estimated $9.5 billion (Audit) to $10.8 billion. This is perhaps understandable since the federal government has been playing games with their grants (shifting money around to try and manufacture a federal government surplus) and the lag time involved in reforms. So the real place to watch is the estimate for the 2013/14 budget balance.