One of the many advantages of getting on in years is that you have an increased chance of having seen things before.
The recent Commonwealth budget is like a DeLorean ride back to the future – a regression towards how we were before Hawke and Keating, with Opposition support, reformed our economy to make it more competitive globally, providing higher standards of living for everyone.
At federation, Australians had the highest standards of living on the planet. I say “standards” because we have always had a relatively egalitarian distribution of living standards, not as unequal as in the United States or the United Kingdom, say. For unskilled people with little capital, Australia has always been the lucky country. That is good; it’s one of the things that defines us and that we must never lose.
Inequality has increased a bit since the 1980s in Australia (from a so-called “Gini ratio” of about 0.28 to one of about 0.33). But this is a relatively moderate worsening. We are now 23rd least unequal of 34 OECD countries in income distribution, and 12th least unequal of 174 countries in wealth distribution (see Peter Whiteford, Income and Wealth Inequality: How is Australia Faring?).
According to Australian Bureau of Statistics data, South Australia has resisted the worsening trend since 1994/95, with the Gini ratio actually falling from 0.30 to 0.29.
But apart from resisting becoming more unequal, we do not want to lose our high standards of living relative to the rest of the world.
The economic policies followed persistently for the first 80 years after federation protected our egalitarianism at the expense of our standards of living. We fell from having the highest living standards to having the 17th highest living standards in the early 1980s. These are the policies which we are now moving back towards in our DeLorean.
In our first 80 years as a nation, wage arbitration drove a reduction in our competitiveness which was offset by tariff and quota protection from foreign competition for companies producing in Australia for the Australian market. Our exports (and imports) fell as a share of our economy because of our high costs and low productivity growth. Imports were expensive. There was an entrenched balance of payments problem because of the fixed, but occasionally-devaluing) exchange rate. Tariffs were high and import quotas were widespread.
Bank interest rates were controlled (capped). As a result, there was persistent excess demand for bank loans including for housing mortgages. Wise people sucked-up to their local bank manager who had the power to allocate a cheap mortgage – otherwise it was off to one of the expensive non-bank lenders, if any could be found. All bank interest rates were regulated by the Reserve Bank or, before 1959, the Commonwealth Treasury.
Public ownership of productive assets was widespread – not just ports and railways and power stations and airports, but ships and trains and planes. There were government factories that made clothes.
We were xenophobic. The White Australia policy was abandoned in my lifetime. I remember country people telling me in the 1950s how sad it was that you could not hear English spoken in Rundle Street anymore.
Personal income tax reached a marginal rate of 65 per cent. Company tax was 48 per cent.
And so it went. Government was everywhere in the economy and in the society.
Until Hawke and Keating in 1983.
The bank levy shows most clearly which way the political wind is now blowing – towards a resurrection of our government-dominated past.
They started the revolution to take government ownership and regulation out of the economy. They cut income taxes and government spending as a share of the economy. There were losers in the formerly protected sectors, most of whom were absorbed in the rapidly expanding export and domestic economy sectors. Our standards of living, on average, increased rapidly. Inequality increased marginally.
The latest federal budget (and the response to it by the Opposition, let alone the Greens, other minor parties and independents) is unmistakably a reversion towards the past: big spending, big taxing, Big Government, politically driven by a fairness agenda. But this approach will not be fair for future generations or even the unestablished, younger, generation today, who see job opportunities evaporating before them and who will be left to repay the government debts that we are incurring.
The best bit of the budget – the increase in the Medicare Levy (on nearly all income earners) to pay for the NDIS – is opposed by Labor, which wishes to restrict this to upper income earners (in the name of “fairness”, of course). We are now to have a new government airport in Western Sydney, as well as a new, government-financed, freight railway from Melbourne to Brisbane.
The budget deficit steams on into the future. Commonwealth debt continues to mount. Will company tax be cut in the face of our government spending circumstances? Would it be “responsible” to do so – notwithstanding that we now have a company tax rate that is seriously uncompetitive internationally, including with our friends across the Tasman in New Zealand?
The worst bit of the budget is increased banking regulation and the “levy” on the big four banks plus Macquarie Bank. The notion that this set of measures will not affect interest rates offered and charged by the banks, as well as dividends paid to shareholders, many of them superannuation funds, for obvious reasons, is absurd. People should be aware that business dealings with banks are commercial transactions, like buying a second-hand car, renting an apartment, taking a tour in Asia, or purchasing anything on the internet. If you don’t understand the advice you are buying from your bank, take along someone who does.
It is no accident that our banks are at the top of the ASX in capitalisation – they are very good, and highly competitive, at what they do as financial intermediaries. They are a world class act in terms of banking activities. This has been driven by stiff competition as well as effective regulation. They are not perfect – but then nothing is – certainly not our political system and our politicians as a class. Talk about the pot calling the kettle black!
The bank levy shows most clearly which way the political wind is now blowing – towards a resurrection of our government-dominated past. Who would have thought that the Liberals would cave in so badly? But then, it has always been Labor that has set the philosophical direction in Australian politics, whoever is in power.
I await with trepidation the next state budget from people who have taken South Australia a long way down the “strong government” path already – with alarming consequences for economic growth and jobs for young South Australians.
Richard Blandy is an Adjunct Professor of Economics at the University of South Australia, an Emeritus Professor of Economics at Flinders University, and a regular contributor to InDaily.
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