Monday, August 12, 2013

How controversial change can still be achieved

As you see from Tony Abbott's unceasing attack on new taxes and both sides' wariness on calls for an increase in the goods and services tax, the politicians on both sides are certain voters are united in not wanting to pay a cent more in taxes.

This certainty is unshaken by much opinion polling seeming to suggest the contrary.

Which makes it remarkable that, with a minimum of fuss a few days before this year's budget, both sides agreed to raise all rates of income tax by half a percentage point from next July, and that this decision prompted hardly a peep from the public.

It's even more remarkable that this remarkable event has passed almost completely unremarked. The nation's usually unshut-upable media commentariat forgot to comment. Why? Because this highly unusual event happened so quickly and without controversy.

If you're not sure what I'm talking about, it's the decision to partially fund the national disability insurance scheme by increasing the Medicare levy from 1.5 per cent to 2 per cent. But why did this potentially unpopular event cause no controversy?

First, because the tax rise was directly linked to a popular new government spending program. The economic rationalists' long-standing disapproval of "hypothecation" is too rational by half. It fails to understand that accepting the need for higher taxes is an emotional judgment, that government and its budgets have become so huge and complex people can't see the connections any more and have become alienated from the process.

People are reluctant to give governments an open cheque: "How do I know what you'll use it for?" It amazes me economists can't see that people are attracted by the logic of a normal consumer transaction: if you want some item you have to pay for it; if you pay out money you expect to get something back in return.

But the second reason the decision to raise income-tax rates aroused little public opposition is because it became bipartisan. When oppositions oppose government reform proposals, the media seize on the controversy and give it much publicity.

All those who fear they may be adversely affected have a flag to rally around. And it's not just that. Many people take their attitude to a policy proposal from the stance adopted by the party they habitually support.

But when the potential opponents of a measure have no champion to rally around or see little sign of public sympathy for their objections, they tend to shut up and go along with the herd.

It surprises me that the advocates of controversial economic reform keep banging on about the need for our politicians to "show leadership" - that is, risk being tossed out of their jobs - when the clear lesson of history is that the Hawke-Keating government showed so much leadership in initiating micro-economic reform as it knew John Howard and John Hewson wouldn't seek partisan advantage by opposing reforms they, too, believed in.

Look at the way Labor toyed with a broad-based consumption tax while in government, but bitterly opposed it when the Howard government proposed it. And then, once in government, never for a moment considered modifying the supposedly evil tax.

Look at the way the Coalition took a carbon emissions trading scheme to the 2007 election to match Labor but then, when relegated to opposition, vociferously condemned essentially the same scheme. Previously silent climate-change deniers were let out of the closet.

And now look at the way Abbott opposes Labor's overt subsidies to the moribund motor vehicle industry but then opposes its reform of the fringe benefits tax on company cars because it would remove a hidden subsidy to the industry.

Or look at the way he criticises so many of the more recent tax increases and other measures Labor has used to try to plug the budget deficit, while carefully avoiding promising to reverse them in government.

The conclusion is clear: these days there's little ideology or principle in the opposing positions the parties adopt, just opportunism. You would implement much the same policy if you were in government but, since you're in opposition, you seek to gather the support of whoever is disaffected with the policy.

Our rival management teams are always seeking advancement by concocting difference where little exists. So the key to getting controversial reforms implemented is not to urge governments to be brave but to persuade their opponents to exempt this particular measure from their efforts to differentiate themselves, foster discontent and collect the support of disaffected minorities.

Obviously, two-party democracies work on oppositions opposing. But that doesn't require them to oppose absolutely everything.

This approach isn't likely to work, however, if the term "reform" is merely being used to disguise business rent-seeking. You do need genuine national interest.