Breaking news: unions play a central role, for good and ill

Welcome back to a tripartite world, where Labor has returned to power and its union mates are back inside the tent – and at last week’s jobs summit could be seen moving in their furniture. For those who don’t remember the 1983 glory days of Bob Hawke, Paul Keating, consensus, the Accord, and former ACTU secretary Bill Kelty as an honorary member of the cabinet, it will take some getting used to.

For those who’ve been watching only since the John Howard era, it may even seem unnatural. One of Howard’s first acts upon succeeding Hawke and Keating in 1996 was to delegitimise the unions.

He allowed the tripartite committees to lapse, and didn’t reappoint the ACTU secretary to the board of the Reserve Bank. I doubt if many even informal links between ministers and union leaders continued.

The Libs didn’t know the union bosses, and didn’t want to know ’em. They were the enemy – always had been, always would be. Big business bosses, on the other hand, would be privately consulted and were always welcome to phone up for a quiet word with the minister.

This, by the way, helps explain the Reserve Bank’s pro-business bias. Its board is loaded with business worthies - who are there to help keep the central bankers’ feet on the ground – and its extensive program of regular and formal “liaison” with key firms and industries, doesn’t include asking union leaders what they think’s happening.

If you wonder why Reserve governor Dr Philip Lowe’s remarks about wages can sometimes seem naive – even out of “boomer fantasy land” – it’s because he only ever hears the bosses’ side of the story. And I doubt if they ever shock his neoclassical socks by talking about how they exercise their market power.

It’s easy to justify the Liberals’ delegitimation of the unions by noting that, these days, only about 14 per cent of employees belong to a union. But if you find that argument persuasive, you’re revealing your ignorance of our wage-fixing institutions.

Most workers are subject to an industrial award, and there’s a union (and an employer or employer group) on one end of every award, and almost every enterprise agreement. In the Fair Work Commission’s annual wage review – which sets the wages of about a quarter of all employees – it’s the ACTU that stands against the employer groups arguing that times are tough, and they couldn’t possibly afford a rise of anything much.

So, to say the unions have what economists would call a giant “free-rider” problem – a lot of people happy to receive benefits without paying for them – is not to say they shouldn’t be given a seat at the table.

Liberals, business and their media cheer squad may be appalled by sanctification of the unions, but at least Labor’s making it clear it wants business to keep its seat at the table. It will be consulted. This too is Labor’s inheritance from the Hawke-Keating experience: to the extent possible, keep business on side.

The ACT’s second-biggest industry – lobbying – will be busier than ever. It’s third-biggest – consulting – not so much.

What all agreed at the summit is that Labor has taken over an economy with many structural problems that need fixing. Not the least of these is that the wage-bargaining system is broken.

What we learnt last week, from everything ministers said and from the 14-page “outcomes document” is that, in marked contrast to its predecessor, Labor does intend to fix things.

The whole summit, tripartite business is about giving all the key players a say in how things are fixed, giving them a heads-up on the government’s intentions, and an introduction to the minister. About winning support – or, at least, acquiescence – from as many of the powerful players as possible, to minimise the political risks of making changes.

Under Labor’s tripartism, the three parties aren’t equal. The government will, in the end, do what it decides to do. The unions start well ahead of business, because of their special relationship with a Labor government.

They have a further advantage over business: solidarity. The many unions are used to speaking with one, unified voice through the ACTU, whereas business fractures into big versus small, and rival employer groups. The unions know all about playing one business group off against another.

What business has to decide is whether it wants to stay in the government’s tent or walk out. Because, in business, pragmatism usually trumps idealism, my guess is that business will play ball for as long as Labor looks like staying in office.

After the summit ended, the ACTU’s statement said it had always “been clear that we need to get wages moving and increase skills and training for local workers in order for unions to support lifting skilled migration levels. We welcome that this summit has delivered those commitments.”

It was all a talk fest? No, a deal was done and that quote reveals just what the deal was. However, a big part of the business side didn’t support fixing the wage-bargaining system by returning to “multi-employer” bargaining.

What’s clear is that the government will be pressing on with some form of multi-employer bargaining. What isn’t yet clear is what that form will be. Until it’s finalised, business will be busy inside the tent pushing for whatever modifications it can get.

With Labor back in power and the unions back walking the halls of power, it’s important to understand the relationship between the two arms of the “labour movement”. Whereas the relationship between the Libs and business is quite informal, the relationship between Labor and the unions is highly formal. They’re not mates, they’re close rellos.

Historically, the unions set up the Labor Party to be their political arm. To this day, those unions that pay dues to the Labor Party still wield considerable influence over it and the members of the federal parliamentary caucus.

Labor parliamentarians are affiliated with particular unions, which gives some of the bigger unions considerable influence over preselections, on who gets to stay leader of the party, and on certain policy matters.

When Labor is in government, businesses in certain industries use their unions to get to the government. This explains why Labor governments haven’t done as much as they should to tighten up our competition law.

And whereas Howard left the Libs with a visceral hatred of industry super funds, Labor’s links with the unions – and the unions’ links with the ticket-clippers of the super industry – mean it can’t always be trusted to favour the interests of super members over super managers.

Read more >>

Economic chaos of Whitlam years not all his fault

Gough Whitlam was a giant among men who changed Australia forever - and did it in just three years. No argument. The question is whether the benefits of his many reforms exceeded their considerable economic costs.

The answers we've had this week have veered from one extreme to the other. To Whitlam's legion of adoring fans - many of whom, like many members of his ministry, have never managed to generate much understanding or interest in economics - any economic issues at the time aren't worth remembering.

To his bitter, unforgiving critics - led by former Treasury secretary John Stone - his changes were of dubious benefit, in no way making up for the economic chaos he brought down upon us.

The truth is somewhere in the middle.

To his many social reforms must be added a few of lasting economic benefit: diplomatic and trading relations with China, the Trade Practices Act with its first serious attack on anti-competitive business practices and - the one so many forget - the Industries Assistance Commission, whose efforts over many years led eventually to the end of protection against imports, removed by the next Labor government.

Not all of his many social reforms have survived. The Hawke-Keating government removed remaining vestiges of his non-means-tested age pension and ended the failed experiment with free university education, which did little to raise the proportion of poor kids going to university, but cost a fortune and delivered a windfall to the middle class at the expense of many workers.

The best modern assessment of the Big Man's economic performance comes in the chapter by John O'Mahony, of Deloitte Access Economics, in The Whitlam Legacy, edited by Troy Bramston.

O'Mahony's review of the economic statistics tells part of the story: "The years of the Whitlam government saw the economic growth rate halve, unemployment double and inflation triple".

But that conceals a wild ride. By mid-1975, inflation hit 17.6 per cent and wage rises hit 32.9 per cent. The economy boomed in 1973 and the first half of '74, but then suffered a severe recession.

From an economic perspective, Whitlam did two main things. He hugely increased government spending - and, hence, the size of government - by an amazing 6 percentage points of gross domestic product in just three years.

Some have assumed this led to huge budget deficits. It didn't. Most of the increased spending was covered by massive bracket creep as prices and wages exploded.

Many of Whitlam's new spending programs should have come under his predecessors and would have happened eventually. Some can be defended as adding to the economy's human capital and productive infrastructure, others were no more than a recognition that our private affluence needn't be accompanied by public squalor.

From this distance it's hard to believe that in 1972 large parts of our capital cities were unsewered. That's the kind of backwardness Whitlam inherited.

The Whitlam government's second key economic action was to pile on top of high inflation huge additional costs to employers through equal pay, a fourth week of annual leave, a 17.5 per cent annual leave loading and much else.

Clyde Cameron, Whitlam's minister for labour, simply refused to accept that the cost of labour could possibly influence employers' decisions about how much labour they used.

From today's perspective, there's nothing radical about equal pay or four weeks' leave. But to do it all so quickly and in such an inflationary environment was disastrous.

When the inevitable happened and Treasury and the Reserve Bank jammed on the brakes and precipitated a recession, Labor's rabble of a 27-person cabinet concluded the econocrats had stabbed them in the back, panicked and began reflating like mad.

What Labor's True Believers don't want to accept is that the inexperience, impatience and indiscipline with which the Whitlam government changed Australia forever, and for the better, cost a lot of ordinary workers their jobs. Many would have spent months, even a year or more without employment.

But what the Whitlam haters forget is that Labor had the misfortune to inherit government just as all the developed economies were about to cross a fault-line dividing the postwar Golden Age of automatic growth and full employment from today's world of always high unemployment and obsession with economic stabilisation.

Thirty years of simple Keynesian policies and unceasing intervention in markets were about to bring to the developed world the previously impossible problem of "stagflation" - simultaneous high inflation and high unemployment - that no economist knew how to fix, not even the omniscient and infallible John Stone.

It was 30 years in the making, but it was precipitated by the Americans' use of inflation to pay for the Vietnam war, the consequent breakdown of the postwar Bretton Woods system of fixed exchange rates, the worldwide rural commodities boom and the first OPEC oil shock, which worsened both inflation and unemployment.

The developed world was plunged into dysfunction. The economics profession took years to figure out what had gone wrong and what policies would restore stability. Money supply targeting was tried and abandoned.

The innocents in the Whitlam government had no idea what had hit them; that all the rules of the economic game had changed. The point is that any government would have emerged from the 1970s with a bad economic record.

Malcolm Fraser had no idea the rules had changed, either. His economic record over the following seven years was equally unimpressive.

It took the rest of the developed world about a decade to get back to low inflation and lower unemployment. It took us about two decades. I blame the Whitlam government's inexperience, impatience and indiscipline for a fair bit of that extra decade.

My strongest feeling is that when the electorate leaves one side of politics in the wilderness for 23 years it's asking for trouble. It's Time to give the others a turn after no more than a decade.

Read more >>

Labor sells its soul to fight deficit levy

If you needed any convincing Labor is a party entirely adrift from its supposed values and purpose, given over now to politicking, expedience and opportunism, just wait for its reaction to Tuesday's budget.

It will vehemently oppose Joe Hockey's deficit levy - no matter how watered down it is by then - and his intention to resume indexing the petroleum excise on the basis of no stronger argument than that they're broken promises.

These are two measures Labor should strongly support if it's sticking to its principles - one that makes the tax system fairer and one that supplements the carbon tax in fighting climate change.

If Labor were truly the social democrat, progressive party it wants us to think it is, it would advocate and fight for bigger government. Bigger not for its own sake, but because there are still many much-needed services and assistance yet to be provided, with governments best placed to provide them.

As we know, Labor can always think of new ways to spend money - the National Disability Insurance Scheme and the Gonski education reforms, for instance - but when it comes to raising sufficient revenue to cover the cost of these genuinely worthy causes, Labor's courage deserts it.

Its conservative critics accuse it of being a big-spending, big-taxing party but, in truth, it's a big-spending, low-taxing party - which can never understand why it has so much trouble balancing budgets.

Labor will carry on about Tony Abbott's ideologically driven plans to destroy the universality of Medicare, but when the scheme's cost grows strongly because the nation wants to take advantage of every new, expensive advance in medical technology, the very initiators of Medicare lack the commitment to do or even say the obvious: if you want better healthcare you have to pay more tax.

You'd think that, lacking the courage of its convictions, not having the guts to raise taxes (the proceeds from the carbon tax and the mining tax were immediately given back, mainly as lower taxes), Labor would be delighted when its opponents did have the courage to stare down the voters' disapproval.

But no, Labor's commitment to principle is now so weak it can't resist the temptation to exploit the unpopularity of an opponent implementing good policy.

By now I can hear the Laborites' plaintive cry: We're only doing what Abbott did! My point, exactly. The party that always claims the high moral ground has descended to the point where its highest claim is: we're no worse than Abbott.

Labor's further descent into political game-playing since it returned to opposition is proof that Abbott is the outstanding politician of his era. The man could not only turn his own side into a party of climate change-denying punishers of boat people and even Australian poor, he can inveigle his opponents into becoming a party than stands for nothing. Getting your own back isn't a policy that much appeals to Australian voters. Nor is opposing everything.

If Labor combines with the Greens to block Abbott's two tax measures in the Senate, it will be doing him a favour: I tried to make the budget fair, but Labor stopped me. So you won't have to vote against me after all.

By blocking a progressive tax change Labor would force the government to rely more heavily on bracket creep which, because of the strange shape of the tax scale Labor left, will now be highly regressive. Then it will be on to opposing any change in the goods and services tax because Labor is far too principled to support a regressive tax.

Speaking of the Greens, they've gone from naive purity (knocking back Kevin Rudd's original carbon pollution reduction scheme because he'd have no choice but to come back with a better one) to abject populism in opposing measures that make the tax system both fairer and more efficient.

Labor's professed outrage over Abbott's breaking of promises is utterly confected. I mean, have you ever known Labor to break a promise?

The supposed sanctity of election promises is a recipe for bad government.

No one who cares about good policy - as opposed to seeing their side get back to power - would think it smart to hold politicians to promises they should never have made, or which have been overtaken by events.

Much better to do something damaging to the economy or unfair to particular classes of people than to break a promise? Hardly.

The sensible answer isn't to insist on promises being kept come hell or high water, it's to insist politicians stop making promises they aren't certain they can keep.

Read more >>

Abbott's anti-union push not what it appears

If you were a conspiracy theorist it would be easy to see Tony Abbott's actions against unions as revealing his true dastardly intentions despite all his soothing statements before the election.

But I see it just as standard Coalition behaviour, motivated more by a search for political advantage than by a desire to free the economy from the scourge of unionism. Indeed, when the union movement finally expires - which can't be too many years off - I'd expect the Coalition to shed a private tear at the loss of such a useful whipping-boy.

When you contemplate the royal commission into union corruption, remember that, since the days of Malcolm Fraser, all Coalition governments set up such commissions. We know they sometimes backfire against the government or employers, and rarely lead to the conviction of many unionists. Royal commissions are about raising a hue and cry, not getting wrongdoers into jail.

As politicians on both sides well know, unions have long been on the nose with the public. This is partly because it's always easy for proprietors of the established order to portray unions as troublemakers and partly because of the public's race memory of the way the unions were always staging disruptive strikes in the decades up to the mid-1980s (yes, that long ago).

The Coalition wouldn't still be so keen to press the public's anti-union button, however, if the unions weren't still so closely associated with its political opponent, the Labor Party - a linkage that, if anything, strengthened as Julia Gillard sought to shore up her leadership against the ever-present threat from Kevin Rudd.

This is not to imply there's no corruption in the union movement. There is, just as there is among businesses - and politicians, for that matter. Just how widespread corruption is in the union movement is hard to know and the royal commission is unlikely to tell us, though you can be sure the relatively few instances it uncovers will be highly publicised.

A second ulterior motive is the Coalition's resentment of the way the unions channel big donations to Labor, but never to it. By contrast, business will donate to Labor rather that the Liberals whenever it thinks Labor's likely to win.

And, of late, we've seen signs of a third level of political prejudice against the unions. How is it the "end of entitlement" seems to apply far more to manufacturers than to farmers or formerly government-owned airlines?

Could it be because highly protected manufacturing tends to be highly unionised, with the unions playing a leading role in fighting for continued government assistance, particularly when Labor is in power?

It's worth remembering that manufacturing is the traditional base of the union movement. Manufacturing's declining share of total employment is part of the explanation for the movement's decline.

Manufacturing's further decline will hasten the eventual demise of the unions - or perhaps their relegation to the public sector. Just 13 per cent of private-sector workers are union members, compared with 43 per cent of public-sector workers, making 18 per cent overall. But note that only 19 per cent of manufacturing workers are members.

You may think the public's strong reaction against WorkChoices contradicts the idea that unions are on the nose. Not really. The unions' advertising at the time rightly alerted part-time and casual workers to the greater scope for unreasonable employer behaviour under WorkChoices, but while this made many anxious it led few to conclude the answer was to join a union. For many workers, unions are a relic from a bygone age.

Remember that the Coalition's attempt to extract political mileage from the unions, bad employers' attempt to blame the unions for their poor relations with their own staff (e.g. Qantas) and the national dailies' attempt to suck up to big business, all involve leaving the public with the impression the unions are a much bigger bogyman than they actually are.

What the people with the hidden agendas will never tell you is that more than 80 per cent of enterprises don't have a union presence. Only about 40 per cent of employees are covered by collective agreements, some of which have been drafted by employers without union involvement.

If the government really did stamp out union corruption, or prompt Labor to cut its ties with the unions (thus depriving many union leaders of an attractive career path), or shame union leaders into giving up their lucrative fees as trustees of industry super funds, it would get the union leadership back to its knitting, giving their movement a better chance of surviving.

Read more >>

The polls may have changed, but Labor hasn't

Am I the only person to be amazed by the way - if the polls are to be believed - the swapping of a leader has transformed the Labor government's election prospects from dead in the water to level-pegging?

Is that all it takes? Can the mere replacement of an unpopular woman with a popular man make a world of difference? Does it transform Labor's six-year record in government from disastrous to fair enough?

(Admittedly, Kevin Rudd's reinstatement has been accompanied by a change of faces among senior ministers, but I doubt Labor's miraculous recovery in the polls owes much to that nice Mr Bowen replacing that terrible Mr Swan.)

It's possible Rudd's improvement in the polls won't last but, regardless, we're witnessing a fascinating case study in the power of personality and perception versus policy reality and objectively measured economic performance.

Talk about the triumph of presidential politics. Could the superior TV persona of Rudd count for so much? Does the resurrection of Rudd mean Labor's no longer perceived to have stuffed up the economy? Does the removal of That Woman suddenly throw the spotlight on Tony Abbott's less-than-sparkling TV persona?

(The punters' perceptions of the relative attractiveness of Rudd and Julia Gillard are opposite to those of most of the people who've had personal dealings with the two. And Abbott in the flesh can be charming.)

Until evidence emerges to the contrary, I'm prepared to accept the possibility Rudd is a reformed character. After all, for him to have failed to realise the need for changed behaviour during his years in the political wilderness he would need to be pretty dumb.

And there's precedent for party leaders changing their spots: Bob Menzies (weak in his first stint, masterful in his second) and John Howard (ditto).

What I can't accept is that the restoration of Rudd constitutes any significant change in substance as opposed to packaging; in Labor's policies or its long-established operational strengths and weaknesses.

Has it suddenly acquired the courage of its convictions? Have its ministers gone from being career political apparatchiks to true believers? Has it switched from relying on its spin doctors' chicanery to relying on diligent salesmanship, from its obsession with criticising its opponents to untiring explanation of its policies' merits?

The most obvious demonstration of Rudd's lack of significant policy change is his decision to "abolish" the carbon tax, but replace it with an emissions trading scheme. Really? Abbott is right: whatever you call it, it amounts to a tax (just as his planned "levy" to finance his nanny-subsidising paid parental leave scheme is nothing other than a tax).

Bringing forward the move from a fixed to a floating carbon price by just a year hardly constitutes a radical policy reversal. And even the supposed fall from $24.50 to $6 a tonne in the carbon price may prove smaller than expected if the Europeans act to get their price back to where it's high enough to change behaviour, or even if our dollar falls against the euro.

Rudd's regional resettlement arrangement is unlikely to calm the frenzy over boat people. And it would be surprising if his imminent announcement of a tripartite agreement to put flesh on his seven-point plan to raise productivity proves path-breaking.

Actually, the haste with which he's wheeling out his policy adjustments is reminiscent of Gillard's behaviour after she toppled him: do some quick patch-ups (on carbon, boat people and the mining tax) before rushing to the polls to take advantage of her (as it proved, non-existent) honeymoon with the voters.

And there's another, more worrying parallel with Gillard. She was foolhardy enough to take a Treasury projection of budget surplus many years into the future and elevate it to the status of a solemn promise. When the projection proved astray (as they usually do) she endured several years of searching for real or cosmetic budget savings before being forced to an ignominious admission of failure.

The new Treasurer could have seized the opportunity to step back from the debt-and-deficit trap his predecessor had fallen into, but what did he do? Seized Treasury's latest projection of a return to surplus in more than three years' time (!) and made it a promise. This when the economy has already slowed to less than this year's growth forecast.

If the policy patch-ups keep coming with such haste this week and next, know the announcement of an election date isn't far off. And when you hear the Treasurer is producing an "updated economic and fiscal outlook", know the election announcement is imminent.

The pre-election fiscal and economic outlook documents produced by the econocrats a week or so into the campaign are always immediately preceded by the government's own statement, just so any revisions to the outlook are announced by the pollies, not their bureaucratic servants.

Read more >>

Labor first out of blocks in race to mislead

I guess you've heard the news: the Gillard government has obtained new analysis of data from the Bureau of Statistics showing that Tony Abbott's election commitments inflict brutal damage on working families, particularly those in western Sydney, increasing taxes and cutting support to families.

According to Treasurer Wayne Swan, Abbott's commitments include scrapping the tripling of the tax-free threshold, axing the new schoolkids' bonus and abolishing family payments from the household assistance package introduced in June last year.

The government tripled the tax-free threshold from $6000 to $18,200 a year from July last year, we're told, delivering tax cuts to all taxpayers earning up to $80,000 a year. Most of these people received savings of at least $300 a year, with many part-time workers receiving up to $600.

The schoolkids' bonus is worth $410 a year for primary school students and $820 a year for secondary school students to families who receive family tax benefit part A.

The household assistance package increased payments to families who receive benefit part A by up to $110 per child and by $70 per family for those receiving benefit part B. The median family income in Fairfield is $106,000. This family, with two children both in primary school, father working full-time on $86,000 a year and mother working part-time on $20,000 will be almost $1500 a year worse off, we're told. The mother will pay $600 more in tax and they will lose $820 in schoolkids' bonus and $72 in other benefits.

The median family income in Penrith is $118,000. This family, with two primary and one high school student, the father earning $70,000 and the mother on $48,000, will be $2300 a year worse off, we're told. The father will pay $250 more in tax, the mother will pay $300 more, and they'll lose $1640 in schoolkids' bonus and $108 in other benefits.

Terrible, eh? There's just one small problem. This stuff is so misleading as to be quite dishonest.

For a start, this is just politically inspired figuring, which doesn't deserve the aura of authority the government has sought to give it by having it released by the Treasurer with a reference to "new analysis of Bureau of Statistics data" and allowing the media to refer to it as "modelling".

It's true you'd have to look up the bureau's census figures to get the details of the median family in a particular suburb, but after that the "modelling" could be done on the back of an envelope.

There's a key omission from Labor's description of its wonderfully generous household assistance package: why it was necessary. Its purpose was to compensate low and middle-income families for the cost of the carbon tax. Since the Coalition promises to abolish the carbon tax, Abbott has said that all the compensation for the tax will also go. (Strictly speaking, the schoolkids' bonus is linked to the mining tax, but the Coalition is also promising to abolish this tax, and Abbott has said the bonus, too, will go.)

The trick is that Abbott has yet to give any details of how or when these concessions would go and what they'd be replaced with. But this hasn't inhibited Labor. It has happily assumed what the Coalition intends and is presenting its assumptions as hard facts.

The most glaring omission from Labor's calculation of the hip-pocket effect of all this is its failure to acknowledge the saving households would make from the abolition of the carbon tax.

Based on Treasury's original calculations, this should be worth about $515 a year per household, including $172 a year from lower electricity prices and $78 a year from lower gas prices.

Some Labor supporters argue that even if the carbon tax is abolished, prices won't fall. This is highly unlikely. The state government tribunals that regulate electricity and gas prices would insist on it. And a Coalition government would no doubt instruct the Australian Competition and Consumer Commission to police the wider price decrease.

Labor's repeated claim to have tripled the tax-free threshold from $6000 to $18,200 a year has always been literally true, but highly misleading. That's because it conveniently ignores the complex operation of the low-income tax offset.

When you allow for this offset, which Labor has reduced and changed without removing, the effective tax-free threshold has increased by a much smaller $4500-odd from $16,000 to $20,542. This explains why the tax cut arising from the seemingly huge increase in the threshold is so modest (for many, $5.80 a week) and also why the move yields no saving to anyone earning more than $80,000 a year. For them, the threshold increase has been "clawed back".

The idea of a Coalition government bringing about an actual increase in income tax is hard to imagine. Labor omits to mention Abbott has promised a modest tax cut, though he hasn't said when it would happen.

Labor also omits to mention that the generous schoolkids' bonus replaced its earlier 50 per cent education tax refund, which offered savings of up to almost $400 a year on the eligible expenses of primary school students and up to almost $800 for secondary students.

Labor has assumed that Abbott would merely abolish the schoolkids' bonus without reinstating the education tax refund. Maybe he would; maybe he wouldn't - he hasn't yet said. But only a one-eyed Labor supporter would trust Labor to read Abbott's mind.

It didn't take the announcement of an election date to ensure the informal election campaign would begin as soon as we were back at work in January. It's a daunting thought.

But at least it gives people like me plenty of time to demonstrate the dishonesty of the claims being made.

Read more >>

How our political prejudices affect confidence

I've realised we won't be satisfied with the state of the economy until the Liberals get back to power in Canberra. That's not because Labor's so bad, or because the Libs would be so much better, but because so many people have lost confidence in Labor as an economic manager.

The conundrum is why so many people could be so dissatisfied when almost all the objective indicators show us travelling well: the economy growing at about its trend rate, low unemployment, low inflation, rising real wages, low government debt - even a low current account deficit.

And yet the media are full of endless gloom, not to mention endless criticism of the Gillard government. Last week the NAB indicator of business confidence dropped to a 10-month low. And while the Westpac-Melbourne Institute index of consumer confidence recovered almost to par, that's a lot weaker than it ought to be.

Admittedly, the good macro-economic indicators do conceal a much greater than usual degree of structural adjustment going on. But these adjustments - which are generally good news for consumers - seem to be adding to the discontent rather than the root cause of it.

The Gillard government has been far from perfect in its economic policy, but you have to be pretty one-eyed to judge its performance as bad. Similarly, only the one-eyed could believe an Abbott government would have much better policies. It's likely to be less populist in government than it is opposition but, even so, Tony Abbott is no economic reformer.

Gillard's problem is not bad policies, it's Labor's chronic inability look and act like our leader and command the public's respect and comprehension. This is a government that doesn't believe in much beyond clinging to office, and the punters can smell its lack of principle.

To be fair, on the question of economic competence Labor always starts way behind the ball in the public's mind. Decades of polling reveals the electorate's deeply ingrained view the Libs are good at running the economy and Labor is bad.

This is what feeds both the Libs' born-to-rule complex - their utter assurance that all Labor governments lack legitimacy - and Labor's barely concealed inferiority complex.

The Hawke-Keating government did manage to turn the electorate's conventional wisdom on economic competence around for most of its 11-year term.

Labor in its present incarnation has never been able to pull this off. It's lost its race memory of how to govern. All this is compounded by the manner of Gillard's ascension, her non-maleness, her inability to make the punters warm to her and the uncertainties (and broken promises) of minority government. But the problem was apparent before Labor decided it could stomach Kevin Rudd no longer.

It's true the media environment is more unhelpful than it was in Hawke and Keating's day. Increased competition has made the media more relentlessly negative - more uninterested in anything but bad news - which must eventually have some effect on the public's state of mind.

In their search for a new audience in response to the challenge of the digital revolution, part of the media has become more partisan and more unashamedly hostile to all things Labor.

You see this in the radio shock jocks, but also in the national dailies, which have adopted the Fox News business model of telling a section of the potential audience what it wants to hear, not what it needs to know.

It seems a universal truth of the commercial media that the right-leaning audience is both more numerous and better lined than the left-leaning.

So, for instance, a favourite commercial tactic at present is to search for, and give false prominence to, all stories that portray our almost-dead union movement as a threatening monster about to engulf big business.

Boosting productivity equals making industrial relations law more anti-union. End of story. When Treasury people give speeches that fail to echo this infallible truth it's a clear sign they've been "politicised" and we need to find a few hyper-ideological economics professors to misrepresent what they said.

When Hawke and Keating were in power, business leaders judged it wise to keep their natural political sympathies to themselves and work with the elected government.

But with Gillard so far behind in the polls, so ineffective in maintaining relations with big business, with the general media so anxious to accentuate the negative and a significant part of the serious press telling them how badly they're being treated and holding out a microphone, it's not surprising big business people have become so unusually vocal in their criticism of Labor.

When God's in his heaven and the Libs rule in Canberra, business people jump on anyone they consider to be "talking the economy down". But so great is their loathing of the Gillard government that business is leading the chorus of negativity. How they see this as in their commercial interest I'm blowed if I know.

While John Howard was in power, the index of consumer sentiment showed respondents who intended voting for the Coalition to be significantly more confident about the economy than those intending to vote Labor. At the time of the 2007 election, however, the two lines crossed and Labor voters became significantly more confident than Coalition voters.

The latest figures show the overall confidence index at 99, while the Labor voters' index is up at 124 but the Coalition voters' index down at 79. Since Coalition voters far outnumber Labor voters, it's clear a change of government would do wonders for measured consumer confidence.

The same would probably be true for measured business confidence. Suddenly, business would be back talking the economy up, and the partisan media would revert to backing up our leaders rather than tearing them down.

But how much difference that would make to the objective economic indicators is another question.

Read more >>

Shonky advisers have led Rudd badly astray

Kevin Rudd has his back to the wall. He's no fighter, but he has little option but to stand and fight for his bitterly resisted resource super profits tax. With luck the experience will help turn him into the more substantial figure we need to lead us.

All Rudd's instincts - and those of the Hollow Men on whose counsel he relies - must be to ditch or greatly water down a tax he now discovers has proved hugely unpopular with the miners and which an economically uncomprehending business community doesn't like the sound of.

For a man who's always searching for a soft cop - those "reforms" that are riding high in the opinion polls, such as health care and, formerly, action on climate change - this must have come as a great shock to him.

But Rudd has no choice but to stand and fight. Having instantly shredded his credibility with his cowardly decision to cut and run from his emissions trading scheme when its popularity slipped, he simply can't afford another blow to his reputation.

If that's not enough, there's this: almost all the nice things he's promising to do if he's re-elected - cut company tax, help small business, further subsidise superannuation and the rest - hang off the resource tax. No tax, no goodies.

Normally, a prime minister has room for tweaks to placate the vested interests, but this time Rudd has none. His credibility is too low.

And the precedent of weakness he set with all his cave-ins to miners and other rent-seekers over the emissions trading scheme means giving the miners something this time would be more likely to further incite their greed than calm them.

Rudd is a weak man fallen among thieves. He may be from Queensland, but his moral compass now comes courtesy of Sussex Street. I'm sure he remains convinced of his own uprightness, but clinging to office comes first.

Actually, for a bunch that puts political expediency above all, Rudd's cynical advisers have made a succession of bad calls. They imagined they could give in to the rent-seekers on emissions trading without being seen as an easy mark on every subsequent business issue.

They quailed at the thought of defending "a great big new tax" at a double-dissolution election, and deluded themselves that if they ditched the emissions scheme no one but a few greenies would care.

They commissioned the Henry tax review without thinking through the implications of having it lob just before an election. Then they imagined they could turn it into a get-out-of-jail-free card.

Introduce a big new tax on a group for which no one had much sympathy - the big, largely foreign-owned mining companies - then use it to pay for a raft of supposed reforms, carefully chosen for their vote-catching abilities, without adversely affecting the return to surplus.

And this lucrative tax came with the economic rationalists' Good Policy seal of approval, co-signed by Dr Ken Henry and Professor Ross Garnaut. Economic imprimaturs don't come from any higher authority.

One small problem: the resource tax is so pure - so carefully designed to ensure it doesn't do all the bad things it's being accused of - that it's impossible for anyone who's not a paid-up economist to understand.

Worse, its most prominent feature, the allowance rate set at the long-term bond rate, makes every ignorant Fin Review reader (and most of the business commentariat) imagine they can see the glaring flaw Henry and Garnaut missed. Yeah, sure.

We must assume that, unlike all the rest, the miners themselves have studied the complex design of the tax and disabused themselves of this beginner's error. But are they going to dispel or to exploit the business punters' illiteracy? One guess.

Did Rudd's whatever-it-takes political smarties see that one coming? I bet they didn't. Nor did they foresee the way the miners, aided by a hostile state government, would use the tax to heighten the West Australian electorate's resentful delusion that their state's propping up the rest of the economy Back East.

Did it occur to the political experts that all Tony Abbott had to do to solve the Liberals' acute lack of election funding was to oppose the tax then pass the hat round the miners? I doubt it.

Did it occur to the spin doctors that getting the business community and even the wider electorate to accept the wisdom and fairness of this tax would require an enormous effort by expert wordsmiths to formulate and feed ministers with simple ways of explaining the otherwise incomprehensible, rather than relying on their usual tricks of emotive slogans and manipulating the news cycle?

I doubt it. You can see that from the way some smarty decided to rename the Henry report's resource rent tax as the resource super profits tax. The half-baked notion was to heighten the great unwashed's resentment of foreign mining giants.

What it actually did was heighten the resentment of the miners and the sympathy of the wider business community by rubbing in the notion that this was an additional tax on company profits, levied at 40 per cent. That's a false perception, but it acted as red rag to a bull.

Had the perception managers understood the economics, they would have realised the measure was more a complex-calculated price for the use of natural resources owned by the Australian people than a tax, and renamed it something like the "reasonable royalty charge".

Rudd has been badly served by his spin doctors and advisers. They've led him astray and dropped him in it. If he's got any sense he'll switch to giving the electorate what it's shown it wants: a leader who is honest, straight-talking and principled.

Read more >>