When house prices soar, everyone forgets who suffers most

One of the darker arts of politics involves manoeuvring to ensure that election campaigns focus on issues that favour my side over yours, regardless of whether these are the issues most likely to be pertinent to the nation’s needs over the next three years.

Because the pollies believe us all to be self-centred, they never try to appeal to the greater good. If the world worked the way it should, you’d expect housing affordability – and what each side was promising to do about it – to be a big issue in the coming campaign, but I doubt it will be.

The Libs won’t want to draw attention to it, and though Labor will make noises about how terrible it is for young people, it’s unlikely to have any serious proposal to take the heat out of house prices. It did take a plan to discourage negatively geared property investment to the last election, but now believes this contributed to its defeat, so has dropped it.

As I’ve said before, since home-owning voters far outnumber would-be home-owning voters, neither side wants to be seen as doing anything that stops homes becoming ever-more valuable.

But if you think that’s all there is to the issue of housing affordability, it just shows how narrowly the politicians – and the media – have shaped our perception of the issue. In all the agonising over house prices and home ownership – which has gone on for as long as I’ve been a journalist – we always forget the renters.

If you define housing as having a place to live rather than to own, renters also suffer when house prices soar. The relationship between house prices and rents is far from one-to-one but, even so, rising house prices usually mean rising rents.

The more the number of people moving from renting to owning is restricted by high house prices, the more the growing number of renters puts upward pressure on rents. Rents are rising much faster than prices in general, or than wages.

Our thinking is still heavily influenced by the Great Australian Dream, which sees renting as a temporary state while young couples save the deposit for a home. In truth, many of the roughly one-third of households living in rented accommodation have never had high enough incomes to afford a home of their own.

So, many people will live all their lives in rented accommodation and their proportion is growing as many middle-income couples who, in former times, would have moved on to home ownership, now do so at a much later age – or go into retirement as renters.

The value of the age pension is based on the implicit assumption that retirees own their home. If so, living on the age pension is tolerable. If not, having to rent privately pushes age pensioners below the poverty line. That’s particularly true of single, usually widowed pensioners.

For many years, the federal government dealt with the problem of people on very low incomes by funding the states to provide a lot of what used to be called “housing commission” accommodation, now called public housing.

Trouble is, the rise of neo-liberalism has made government ownership of housing deeply unfashionable. As the Grattan Institute’s Brendan Coates reminds us in a paper issued this week, the national stock of about 430,000 public housing dwellings has barely grown in 20 years, while the population has increased by 33 per cent.

Whereas in 1991 public housing accounted for about 6 per cent of all housing, it’s now less than 4 per cent. Some of this is made up by government-subsidised “community housing”, but not much.

In public housing, rents are capped at 25 per cent of tenants’ incomes. By contrast, Coates says, the typical low-income private renter pays 37 per cent of their income.

When the Hawke-Keating government turned away from public housing, it shifted to paying rent assistance to people on social welfare. But these payments have failed to keep up with private rents.

The Morrison government says spending on social housing is up to the states. But compared to the feds, the states have a lot less money to spare. Anthony Albanese’s Labor has proposed setting up a $10 billion “housing Australia future fund”, the earnings from which would be used to finance the building of additional public housing.

Coates proposes a fund twice that size, which he calculates would provide 3000 extra housing units a year, in perpetuity. Which, he says, would cost the taxpayer very little. He also wants the feds’ rent assistance to be indexed to the cost of renting.

The point is that when people on low incomes become unable to afford private rents, the next step is homelessness.

If, under pressure from all us affluent home owners, neither side of politics is willing to make home ownership more affordable by removing the many tax breaks that make it so attractive as a form of investment, then the least they – and we – can do is reduce the housing pain of those who really struggle to rent a place.

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Net zero can't be reached by magic, but we can ease the pain

Scott Morrison’s long-term plan for net zero emissions by 2050 won’t impress anyone who’s been following Australia’s long and tortuous battle over climate change. But then, it’s not intended to.

His “learning” after miraculously wining the unwinnable election in 2019 is that whatever half-truths he tells voters will be believed by enough of them. Particularly since God is on his side, not the side of those other, untruthful and ungodly people.

No, his Plan – which is not a plan to achieve net zero, just an optimistic forecast that it will be achieved – is largely a political document, intended to be sufficient to convince those voters who aren’t paying attention that he’s “doing more” to cope with climate change.

His goal is not so much to fix the climate as to neutralise it as an issue at next year’s election. Climate change is an issue that naturally favours Labor. He wants all the focus to be on two issues that naturally favour the Coalition: the economy and national security.

He was walking a tightrope last week. He had to discourage voters in Liberal heartland seats who were worried about global warming from trying to send their party a message by voting for liberal independents – as they’ve done in Tony Abbott’s former seat and, briefly, Malcolm Turnbull’s – by convincing them he was serious about reducing emissions.

At the same time, however, he needed to reassure voters in the National Party’s various Queensland coal-mining seats that he wasn’t serious.

His solution was to produce a document that says: the boffins I hired assure me we’re on track to eliminate net emissions by 2050 but, don’t worry, this will be achieved by the miracle of new technology, without anyone feeling a thing.

There’ll be no new taxes, no new regulations forcing people to do things and no new costs on households, businesses or regions. We won’t shut down coal and gas production, and no jobs will be lost.

Does it sound a bit too good to be true? Voters in the Liberal heartland tend to be well educated and well informed. I doubt it will do the trick.

As we’ve seen with the pandemic, when our federal leaders fail to lead, others feel a need to fill the vacuum. The premiers, of course, but also many people from business and the community.

The latest report from Tony Wood and colleagues at the Grattan Institute, Towards net zero: a practical plan, offers a more realistic assessment of the challenge we face, says why we must get more achieved by 2030 and proposes ways this can be done without too much pain.

Perhaps because he’s not standing for office, Wood is frank about the difficulty in getting to net zero. The scale and pace of change involved in a net-zero target are “daunting, but they are outweighed by the consequences of the alternative.

“Factors outside Australia’s control will shape the flow of capital and the demand for our exports, while climate change itself will increasingly threaten Australians’ lives and livelihoods.”

Just so. Only a fool would believe we can avoid pain by doing nothing. We can seek to delay the pain, but that would relinquish our ability to influence our future, as well as making the pain greater.

The longer we leave it to make big progress towards net zero, the more pain we ultimately suffer. But also, our failure to throw our support behind the global push for earlier progress – which is what we’re failing to do in Glasgow this week – increases the risk that the goal of limiting warming to 1.5 degrees will be exceeded by the end of this decade, making it less likely we ever get back below it.

But while it’s foolish to think we can avoid pain, we shouldn’t imagine the pain will be intolerable. And here’s the trick: provided it’s done sensibly, paying a bit more tax and putting up with a bit more regulation is actually intended to reduce the amount of pain, and share it more fairly.

Wood accepts Morrison’s figuring showing that we’re likely to exceed the 26 to 28 per cent reduction in emissions by 2030 we promised to make in 2015. But we’ll still fall short of the 45 to 50 per cent reduction we’re being asked to make and other rich countries are agreeing to.

Wood’s plan for getting up to the higher target is neither heroic nor frightening. While we wait for the technological breakthroughs Morrison’s modelling assumes will come, we should get on with applying the technology we already have.

Generate electricity almost completely from renewables, and step up the move to electric cars and vans by tightening emission standards for petrol-driven cars, giving EVs tax breaks and supporting the spread of charging stations.

This is the first step towards the new green manufacturing industries that will provide the regional jobs for miners and gas workers to move to as other countries stop buying our coal and gas.

It won’t be easy or painless, but it’s not beyond the wit of decent governments.

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Poor Josh Frydenberg: on the wrong tram, heading for trouble

It’s not my policy to feel sorry for any politician – they’re all hugely ambitious volunteers – but I do feel sympathy for Treasurer Josh Frydenberg. He’s not the first treasurer to be strong on party dogma but light on economic understanding, but he’s among the first to be heading into stormy weather light on expert advice from a confident and competent Treasury.

There he was, thinking his first budget would be his last, primping up a pre-election budget that claimed to have fixed the economy and delivered on deficit and debt when that was all in the future and built on nothing more than years of wildly optimistic forecasts, combined with a massive tax bribe whose cost will keep multiplying for seven years.

Do you think that while cooking up the happy forecasts needed to justify his claims of Mission Accomplished and make his tax cuts seem affordable, Treasury warned him of the risks he was running, making himself and his government hostages to fortune?

I doubt it. They wouldn’t have been game to. The Coalition’s politicisation of Treasury, intended to kill its corporate sense of mission and replace it with people who’d proved their right-thinking and party loyalty as ministerial staffers, sent the message that the government wanted people who spoke only when spoken to and kept any contrary opinions to themselves.

In the process, however, most of the people with a deep understanding of macro-economic management have drifted away. People who understood the mysteries of the business cycle, with experience of recessions - and how excruciatingly painful they are for the government of the day.

These are people who know how much worse you make it for yourself – and for the economy voters depend on – by refusing to face the mess you’ve got yourself into, and who know how to help you change trams with as little loss of face as possible.

People game to tell you to stop digging. People who know that the longer you take to accept that the game has changed, the harder it will be to get the economy back on track – and, incidentally, to avoid getting the blame for completely stuffing it up.

People who’ll tell you to blame your about-face on changes coming from the rest of the world, but not to believe your own bulldust. People who’ll tell you to forget about party political doctrine – and the crowing of your opponents - and be completely pragmatic in doing whatever needs to be done to get you and the economy out of the poo.

Here’s what Frydenberg’s experts should be telling him, but probably aren’t – unless he speaks to Reserve Bank governor Dr Philip Lowe a lot more regularly than I imagine he does.

First, worrying about deficit and debt is something national governments can afford to do only when they’ve got an economy that’s growing strongly. The three successive quarters of pathetically weak growth we’ve experienced – complete with rising unemployment and underemployment - may prove to be just a blip, as the budget’s forecasts assume they will, but it’s much easier to believe they show the economy is fast running out of puff.

Recession is neither imminent nor inevitable in the next year or three, but with the economy in such a weakened state it is vulnerable to any adverse shock that happens along – whether of domestic or international in origin.

In such circumstances, it would be economically damaging and fiscally counterproductive (not to mention politically disastrous) to press on with fiscal consolidation rather give top priority to boosting economic activity and getting the economy back into strong-growth mode.

The problem is, the economy seems to be running out of puff because it’s caught in a vicious circle: private consumption and business investment can’t grow strongly because there’s no growth in real wages, but real wages will stay weak until stronger growth in consumption and investment gets them moving.

Policy has to break this cycle. But, as Lowe now warns in every speech he gives, monetary policy (lower interest rates) isn’t still powerful enough to break it unaided. Rates are too close to zero, households are too heavily indebted, and it’s already clear that the cost of borrowing can't be the reason business investment is a lot weaker than it should be.

That leaves the budget as the only other instrument available. The first stage of the tax cuts will help, but won’t be nearly enough. “Structural reform” is always a nice idea, but fixing a problem of deficient demand from the supply side would take far too long to be of practical help.

Over to you, Josh. If you’ve got the greatness in you, this could be your finest hour.

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Our new economic worry: Reserve Bank running out of bullets

Scott Morrison got the government re-elected on the back of a budget built on an illusion: that the economy was growing strongly and would go on doing so for a decade. The illusion allowed Morrison to boast about getting the budget back into surplus and keeping it there, despite promising the most expensive tax cuts we’ve seen.

The illusion began falling apart even while the election campaign progressed. The Reserve Bank board responded to the deterioration in the economic outlook at its meeting 11 days before the election.

It’s now clear to me that it decided to bolster the economy by lowering interest rates, but not to start cutting until its next meeting, which would be after the election – next Tuesday.

If that wasn’t bad enough for Morrison, with all his skiting about returning the budget to surplus he may have painted himself – and the economy – into a corner.

In a speech last week, Reserve Bank governor Dr Philip Lowe made it clear that cutting interest rates might not be enough to keep the economy growing. He asked for his economic lever, “monetary policy” (interest rates), to be assisted by the government’s economic lever, “fiscal policy” (the budget).

He specifically mentioned the need to increase government spending on infrastructure projects, but he could have added a “cash splash” similar to those Kevin Rudd used to fend off recession after the global financial crisis in 2008.

See the problem? Any major slowdown in the economy would reduce tax collections and increase government spending on unemployment benefits, either stopping the budget returning to surplus or soon putting it back into deficit.

That happens automatically, whether the government likes it or not. That’s before any explicit government decisions to increase infrastructure spending, or splash cash or cut taxes, also worsened the budget balance.

And consider this. The Reserve’s official interest rate is already at a record low of 1.5 per cent. Its practice is to cut the official rate in steps of 0.25 percentage points. That means it’s got only six shots left in its locker before it hits what pompous economists call the “zero lower bound”.

What happens if all the shots have been fired, but they’re not enough to keep the economy growing? The budget – increased government spending or tax cuts – is all that’s left.

The economics of this is simple, clear and conventional behaviour in a downturn. All that’s different is that rates are so close to zero. For Morrison, however, the politics would involve a huge climb-down and about-face.

My colleague Latika Bourke has reported Liberal Party federal director Andrew Hirst saying that, according to the party’s private polling, the Coalition experienced a critical “reset” with April’s budget. The government’s commitment to get the budget back to surplus cut through with voters and provided a sustained bounce in the Coalition’s primary vote.

The promised budget surplus also sent a message to voters that the Coalition could manage the economy, Bourke reported.

Oh dear. Bit early to be counting your chickens.

The first blow during the election campaign to the government’s confident budget forecasts of continuing strong growth came with news that the overall cost of the basket of goods and services measured by the consumer price index did not change during the March quarter, cutting the annual inflation rate to 1.3 per cent, even further below the Reserve’s target of 2 to 3 per cent on average.

Such weak growth in prices is a sign of weak demand in the economy.

The second blow was that, rather than increasing as the budget forecast it would, the annual rise in the wage price index remained stuck at 2.3 per cent for the third quarter in a row. The budget has wages rising by 2.75 per cent by next June, by 3.25 per cent a year later and 3.5 per cent a year after that.

As Lowe never tires of explaining, it’s the weak growth in wages that does most to explain the weakening growth in consumer spending and, hence, the economy overall. Labor had plans to increase wages; Morrison’s plan is “be patient”.

The third blow to the budget’s overoptimism was that, after being stuck at 5 per cent for six months, in April the rate of unemployment worsened to 5.2 per cent. The rate of under-employment jumped to 8.5 per cent.

Why didn’t Labor make more of these signs of weakening economic growth during the campaign? It had no desire to cast doubt on the veracity of the government’s budget forecasts because, just as they provided the basis for the government’s big tax cuts, they were also the basis for Labor’s tax and spending plans.

Labor was intent on proving that its budget surpluses over the next four years would be bigger than the government’s – $17 billion bigger, to be precise.

Think of it: an election campaign fought over which side was better at getting the budget back to surplus, just as a slowing economy and the limits to interest-rate cutting mean that, at best, any return to surplus is likely to be temporary.

Morrison’s $1080 tax refund cheques in a few months will help bolster consumer spending, but they’re a poor substitute for decent annual pay rises.

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Without decent policies, Labor would get fewer votes, not more

The main reason so many voters have given up on politics and politicians is their belief that modern pollies care more about advancing their careers than advancing the wellbeing of the nation.

So, were Labor to decide that it lost the election – which dodgy polling encouraged it and everyone else to believe it was sure to win - because it made itself a "big target" by having lots of policies to fix things, rather than "small target" with few policies of any consequence, it would risk confirming voters’ suspicions that it cared more about getting back to power than improving voters’ lives.

Not a great way to garner votes. Particularly because, for reasons I’ll get to, the small-target strategy works better for the party of the business establishment and the status quo than for the party representing those who think the status quo needs reforming.

When you decide that having too many policies was the main reason you lost, it’s only human nature to flip to the opposite extreme of having none. Human, but not smart.

Economics teaches that success in life comes from seeking out the best “trade-off” between conflicting but equally desirable objectives. It involves using your brain to nut out the best answer, not turning it off.

As political scientist Rod Tiffen has reminded us, the no-brain response after elections is that “everything the winning party did is treated as a stroke of genius, and all the loser’s moves were foolish”.

If Labor wants to draw the right conclusions about the various reasons for its failure it will need to put a lot more mental effort into answering the eternal policy question: “what works and what doesn’t?”.

One obvious possibility is that Labor lost partly because it “did a Hillary Clinton,” focusing on the well-educated, socially progressive (and often public-sector employed) section of the party’s base and forgetting about the less educated, less progressive section in outer suburbs and the regions.

Labor’s had the tricky job of straddling these two, very different parts of its heartland for decades. When John Howard perfected the technique of “wedging” your political opponent, the original application involved driving a wedge between the well-educated and the blue-collar parts of Labor’s base. The classic case is the treatment of asylum seekers.

The no-brain response would be for Labor to “go back to” its blue-collar base. Labor can’t win without both ends. But it certainly needs to put a lot more effort into satisfying both ends. What can it do to help the regions than isn’t too blatantly wasteful? How can it look after victims of the inevitable shift from fossil fuels to renewable energy?

With every summer getting hotter, it’s not surprising the Greens had a good election. And the best explanation for the swing to Labor or independents in many well-heeled Liberal electorates is Liberal voters’ growing recognition that we need a government that’s genuine about combating global warming.

It’s quite possible this is of less concern to the blue-collar end of Labor’s heartland, particularly if it can be (falsely) convinced the immediate cost to household budgets would be high. But for Labor to tone-down its climate policy would risk it getting an even lower primary vote as more of its progressive base shifted to the Greens and, in the case of the Senate, didn’t flow back.

Labor needs reminding that life wasn’t meant to be easy for reformist parties. The party of the business establishment and the status quo always starts with a built-in advantage. They’re the people who surely must be better at running the economy and who stand for minimal change – the thing we all fear.

That’s why the Libs can get elected with no policy other than blocking the rise of all those Labor trouble-makers, and why Labor gets elected only by making the case for change. Why vote for a Labor status quo when you can vote for the original and best?

One of the Libs’ most effective lines was “Labor can’t manage money so they’ll come after yours.” Labor’s eternal vulnerability on the money question is why it would be folly for it to lay most of the blame for its failure at the feet of its one money man who does command the respect of econocrats, economists and business people, Chris Bowen. All the people who wanted to win votes by promising to spend big on education and health, scapegoating the poor blighter who had to find ways to pay for it all.

Similarly, when Labor relegates to a junior role a highly regarded former economics professor, Andrew Leigh, simply because he’s not a member of any faction, it reinforces voters’ suspicion that Labor members put their own careers ahead of the country’s good governance.

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Why did Labor lose? Not because of its tough tax plans

It’s been a week since the election so, naturally, by now a great many of the people who work in the House with the Flag on Top – politicians, staffers, journalists – know exactly why Labor lost and the Coalition won: those hugely controversial dividend franking credits.

There were other reasons, of course, but franking credits is the big one. How do I know they know? Because this is what happens after every election.

The denizens of the House take only a few days to decide on the single most important factor driving the result. Surprisingly, each side of politics – the winners and the losers – almost invariably comes to the same conclusion.

And once they have, the concrete around the notion sets quickly and what started as a theory becomes received wisdom, something any fool knows and part of the building’s corporate memory.

Months later, political scientists will come up with different, much more “evidence-based” explanations, but by then it will be too late. No one listens to them because the die has been cast.

Which is why it may already be too late for research by Dr Richard Denniss and others at the Australia Institute to debunk the quite misguided notion that it was all the people who’d be hurt by the franking credits policy voting against an evil-intentioned Labor Party.

When you see Denniss’ quite startling findings it should also disabuse you of the notion that, particularly in a country as big and varied as ours, a party’s loss of an election could ever be, as the academics say, “mono-causal” rather than “multi-factorial”.

Labor’s performance was disappointing (for its supporters, anyway), not disastrous. The composition of the House of Reps has changed surprisingly little. So it may surprise you, but shouldn’t, that as well as there being lots of electorates that swung to the Coalition (measured on a two-party-preferred basis), there were also lots of electorates than swung to Labor.

Get this: the seats that swung to the Coalition were mainly those whose voters had low incomes, whereas the seats that swung to Labor tended to be those whose voters had high incomes.

Among the seats with the 10 biggest swings to Labor were five from Victoria, three from NSW and one each from WA and the ACT. The swings varied from 3.7 per cent to 6.6 per cent.

In all but two of those seats, they had at least twice the proportion of high income-earners (people in the top 20 per cent) than the national average. Under the Coalition’s three-stage tax plan, voters in the same eight electorates are estimated to get tax cuts in 2024 varying from 49 per cent more to double the national average.

Across Australia, the average value of franking credits per taxpayer is $695 a year. In those eight electorates (five of which are held by the Coalition), the average value ranges from $1213 to $2578 a year.

Now let’s look at the 10 electorates with the biggest swings to the Coalition – six in Queensland and four in NSW. The swings varied from 6 per cent to 11.3 per cent. All of the seats had less than the national average of people with high incomes. And for all but one of them, the average tax cut in 2024 will be below the national average.

How much do they get in franking credits? All 10 seats get less than the $695-a-year national average. Between 83 per cent and 16 per cent of the average, to be precise.

Looking more generally, electorates with more people on low and middle incomes tended to swing to the Coalition, whereas electorates with more people on high incomes tended to swing to Labor.

Next, since it’s the (well-off) retired who would have been hit by the plan to end refunds of unused franking credits, the researchers looked at the voting trend for electorates with a high share of voters over 65.

They found only a very slight tendency for such electorates to move their votes to the Coalition.

So, what should we make of all this? Well, for a start, the figures allow us to rule out some possibilities, but leave others open.

They seem to refute the contention that many well-off retirees (or even prospective well-off retirees) moved their votes away from Labor because they were deeply opposed to the planned changes to franking credits.

They leave open the possibility than many less well-off voters moved their vote away from Labor because they disapproved of the way well-off retirees were to be treated. If so, they were being very magnanimous towards people better off than themselves.

Possible, but not likely. It’s easier to believe they (or, at least, some of them) were renters voting against Labor in response to the real estate agents’ scare campaign claiming Labor’s plan to limit negative gearing would force up rents.

Turning to the higher-income electorates, there’s little sign of many people moving their votes away from Labor because of their opposition to its franking credit plan – or to its move against negative gearing, for that matter.

According to Denniss, it looks like renters voted to help their landlords keep their tax lurks, whereas the landlords voted for Labor’s offer of free childcare and the restoration of penalty rates for their tenants.

Well, maybe. What can be said with more confidence is that it’s hard to see much sign of an outbreak of class warfare.

Moving on from Labor’s controversial tax changes, the success or near success of independents running in Liberal seats such as Warringah and Wentworth in prosperous parts of Sydney, and Indi in rural Victoria, makes it easier to believe the swing to Labor in so many high-income electorates was motivated by a concern that Australia needed a more convincing policy to combat climate change.

As for the swing against Labor in many low-to-middle electorates in Queensland and NSW, my guess is they felt Labor was neglecting their worries about jobs and the cost of living.

It’s never as simple as many workers in Parliament House convince themselves.

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Now the pilot's back, economy flying on a wing and a prayer

It’s always nice for the country to be led by someone who’s obviously got God on his side. When he prays for a miracle, he gets it. And the challenges facing the economy are such that Scott Morrison may need all the divine assistance he can summon.

The Coalition – and their dispirited opponents - should remember the fate of the last chap who won an unwinnable federal election: Paul Keating in 1993. By the time the next election arrived, voters were, in Queensland Labor premier Wayne Goss’s words, “sitting on their verandas with baseball bats”.

The Liberals shouldn’t forget the miraculous nature of their win. After their years of infighting and indiscipline they richly deserved to be thrown out, but were saved by Morrison’s superior campaigning skills and his success in convincing people with nothing to fear from restrictions on franking credits and negative gearing that they should be fearful (not sure what God thought about that).

This was not a historic vindication, just a reprieve. Carry on the way you have been, and your fate will only have been delayed.

And remember: Keating’s reprieve came as part of the 25 years Australians spent trembling at the thought of a tax on services as well as goods. “If you don’t understand it,” Keating told the punters, “don’t vote for it.”

We’ve now had such a tax for almost 20 years. And would you believe? Turned out the GST was no biggie. What brave souls we are.

Come July, we’ll have gone an amazing 28 years without a severe recession. Starting to sound ominous.

Look around the world – trade war between America and China, China’s faltering economic miracle, America’s boom that must bust, Japan and Europe with chronically weak economies and Brexit Britain about to shoot its economy in both feet – and it’s not hard to think you see our next recession in the offing.

Certainly, it has to come some time. But I don’t see one as imminent. What many don’t realise is we have enough troubles of our own, without help from abroad.

Ever since the global financial crisis in 2008-09, and more so since the busting of our mining construction boom in 2013, our economy has been acting strangely, behaving in ways it used not to.

If Morrison and his Treasurer, Josh Frydenberg, understand the way it hasn’t been back to business as usual, they’ve shown little sign of it.

If they haven’t yet got the message – perhaps because a politicised Treasury hasn’t been game to give them news they won’t like – enlightenment, in the form of being hit on the head by the bureau of statistics, may not be far off.

Ever since Treasury’s optimistic forecasts encouraged Labor’s Wayne Swan to claim to be delivering four budget surpluses in a row – a claim Frydenberg repeated in the April budget – the econocrats have just shifted forward another year their unwavering conviction that everything will soon be back to the old normal.

It hasn’t happened throughout the Coalition’s two terms. The economy’s just kept grinding along in second gear, failing to reach the cruising speed the econocrats profess to see coming.

It hasn’t happened because the economy’s productivity – output per unit of input - hasn’t improved as fast as it used to, and what little improvement we’ve had hasn’t flowed on to wages. It’s because wages haven’t grown faster than prices, as we’ve come to expect, that so many people are complaining about the cost of living.

What has concealed the truth from us is our rapid, immigration-fuelled population growth. The other rich countries’ populations haven’t been growing nearly as fast. This has given us a bigger economy, but not a richer one.

Of late we have had a partial – and probably temporary – rebound in the prices we get for our mineral exports. Combined with years of bracket creep, the boost to mining company profits (and their tax payments) has finally made Frydenberg’s budget look a lot healthier than the economy does.

Weak growth in real wages (plus continuing bracket creep) mean weak growth in the disposable income of Australia’s households. Which, in turn, means weak growth in the economy’s mainstay, consumer spending.

All this became unmissable when the economy slowed to a crawl in the second half of last year. Predictably, the April budget took this to be little more than a blip on the onward and upward trajectory.

But all the economic indicators we’ve seen since the budget – weak inflation, no improvement in wage growth – suggest the weakness is continuing.

Another respect in which the economy has been behaving strangely is that employment – particularly full-time jobs - has been growing much more strongly than the modest growth in the economy would lead us to expect.

It’s this that Morrison and Frydenberg trumpeted during the election campaign as proof positive of their superior management of the economy. Fine. But the rate of growth in employment is slowing and the rate of unemployment, having fallen slowly to 5 per cent, seems now to be going up, not down.

With the election out of the way, the Reserve Bank won’t wait long before it cuts interest rates to try to give the economy a boost. The $1080-a-pop tax refund cheques after June 30 will also help, provided Morrison can get them through Parliament in time. More earnest prayer required, I think.

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Morrison's miracle election may turn out to be the easy bit

The great risk from Scott Morrison’s miraculous victory is that it will lead politicians on both sides to draw conclusions that worsen our politics and our policies. Bill Shorten offered us a chance to change the government and change the nation, and was answered with a firm No Thanks.

It’s a great win for the Coalition, but a loss for economic policy. The voters’ "revealed preference" is for more personality, less debate of the tough choices we must make to secure our future in a threatening world.

The first lesson the pollies will learn is that disunity doesn’t have to be death. Almost six years of fighting like Kilkenny cats can be forgotten during the eternity of a five-week election campaign, provided you put all the focus on the latest guy, and his predecessors are kept hidden.

The second lesson the pollies will learn is that the only safe strategy for oppositions is to make themselves a "small target", with only a few, popular policies, so all the focus is on the failings of the government.

Whatever policy changes you may be thinking of making, keep your intentions to yourself and don’t, whatever you do, seek a mandate for change.

Almost 28 years of continuous growth have rendered Australians a timorous nation. No national emergency, no need for change. As Kevin Rudd was the last Labor leader to understand, what voters crave is change without change. Promise it. (Since such a thing is impossible, deliver something else. Expect a backlash.)

Politicians have understood all this since Dr John Hewson (his PhD said: "knows more about economics than politics") used Fightback – "the longest suicide note in history" – to lose the unlosable election in 1993.

Labor forgot this because it wanted to be seen as less negative and destructive than Tony Abbott, and because, knowing Shorten lacked charisma, it decided policy substance was the best substitute. As it turned out, wrong.

In this era of unreal reality game shows, and multitudes of disillusioned, disengaged voters, the most successful politicians are those best at show biz. Morrison may not be the lovable larrikin Bob Hawke was, but he comes a lot closer than Hawke’s union mate did.

Morrison spent five weeks performing for the cameras to the exclusion of all others, and the electorate warmed to what it saw. Perhaps what Labor needs is a casting director.

The third lesson the pollies will learn is that the eternal reality of conflict between the classes must always remain covert. Any overt attack on privilege does more to fire up the defences of the well-off than to whet the appetites of those missing out.

In this country, the only envy that works is the downward variety. Envy the jobless for being able to eat without working, or the Indigenous for the extra help they get? Sure.

This government has spent its time beating up on boat people, public servants and those on welfare and, in the process, has gained more votes than it’s lost.

The well-off may have benefited from a lot more good luck (as I have) than it suits them to admit, but they are adept at convincing the punters than an attack on my five dollars is an attack on your five cents.

Labor fashioned a policy to pay for more of the spending on health and education voters genuinely want by reducing the tax breaks of the top 10 per cent (including the top 10 per cent of retirees), but almost every oldie was convinced they’d be a victim.

Same with the way the nation’s real estate agents put the frighteners on their tenants over negative gearing.

Highlight the conflict between the generations and you’re smacked by the demographic reality that voters get older every year, and the over-65s far outnumber the young.

In this election it was the Morrison government that made itself a small target so all the focus would be on Labor’s perceived policy losers.

Believing he had nothing to lose, Morrison staked everything on offering the world’s most expensive tax cuts.

But did he lie awake in the early hours of Sunday morning wondering how on earth he’d pay for them without the budget heading back into deficit? About the hugely optimistic forecasts of the economy’s early return to strong growth used to bolster his economic record? About the requirement that there be zero real growth in government spending per person over the next four years?

Morrison has no policy to control electricity prices, no convincing policy on climate change, no policy to halt the rising cost of health insurance, no policy response to any downturn in the economy, no solution to “cost of living pressures” and no plan to increase wages except yet more waiting.

The day may come when he decides winning the election was the easy bit.

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Where’s the money coming from? Ask me after the election

A key issue in this campaign has been whether government should be bigger or smaller. But that’s not the way either side has wanted to frame it. As usual, both sides prefer to be seen as offering more government spending and tax cuts and a return to big budget surpluses. In election campaigns, the rules of arithmetic are flexible.

A twist this time is that Scott Morrison is using his promised super-mega $300-billion tax cuts to support his claim that the Libs are always the lower-taxing party, whereas Labor is invariably the party of higher taxes.

But such massive tax cuts surely require big cuts in government spending? Oh, gosh no. Where did you get that idea? As he and Treasurer Josh Frydenberg have repeatedly said, they’re willing to "guarantee the essential services that Australians need and deserve".

For their part, Bill Shorten and Chris Bowen are promising to reverse a lot of the government’s previous alleged spending cuts in health and education, while more than matching the first stage of the government’s tax cuts and achieving bigger budget surpluses than it would. They would square this circle by "paying for our commitments by closing loopholes for the top end of town".

Only this week did Labor produce its detailed costings and figurings. We’ll come to that.

Apart from this week’s last-minute additions, all the government’s costings and figurings were outlined in the April budget, of course, and confirmed a few days later in the pre-election update.

Actually, this government has a rather chequered history on the unmentionable subject of whether government should be bigger or smaller. The obvious advantage of a bigger government is that it provides more of the services we love, and doesn’t skimp on their quality. The obvious advantage of a smaller government is less tax to pay.

When Tony Abbott came to government in 2013 determined to end debt and deficit ASAP, he pledged to do so solely by cutting government spending and avoiding any tax increases (apart from his temporary budget repair levy on high income-earners).

Trouble is, voters were so appalled by the sweeping cuts to health and education he proposed that his government’s standing in the opinion polls plunged, never to recover. The Senate blocked many of his cuts.

The episode revealed what economists call the "revealed preference" of voters (not what they say, but what they do). They may like tax cuts and hate the idea of new or increased taxes, what they really don’t want is smaller government.

In subsequent budgets, the Coalition pretty much abandoned the notion of cutting its way back to surplus (apart, of course, for its regular cuts in things most voters didn’t worry about – public servant numbers and payments to people on welfare).

It tried to limit the growth in government spending by following a rule that any new spending proposals had to be offset by equivalent cuts. Apart from that, it sat back and waited for "bracket creep" to raise tax collections to the point where the deficit disappeared.

Except for Malcolm Turnbull’s first budget, in 2016. Here he proposed to phase in a cut to the rate of company tax, and covered part of its cost by pinching Labor’s plan for huge increases in the tax on tobacco, and doing his own versions of Labor’s plans to tax multinational companies and reduce superannuation tax concessions.

In the end, most of the plan to cut company tax was abandoned, but the tax raising measures stayed – a point to remember when Morrison and Frydenberg try to give you the impression it’s only Labor that increases taxes or cuts back tax concessions (or increases taxes via bracket creep).

When Danielle Wood, of the Grattan Institute, looked more closely at Frydenberg’s budget, she found the government had fiddled the figures to exaggerate the extent to which it had limited the growth in government spending so far, and now was claiming to be able to limit its average real growth to just 1.3 per cent a year over the next four years – something no government has ever come close to achieving.

The ageing of the population and the huge demands this will make on the budget make it even harder to credit.

Now Dr Peter Davidson, principal adviser to the Australian Council of Social Service, has taken Grattan’s work and dug even deeper. He finds that, after you allow for expected population growth, real spending growth per person would be zero.

We’re told that, still in real terms, spending on tertiary education is expected to fall by 0.6 per cent each year, while spending on dental health, and on family payments, are each expected to fall by 0.7 per cent.

Spending on employment services is expected to fall by 2.5 per cent a year and on social housing by 2.7 per cent.

You may believe that would happen should the Coalition be re-elected, but I don’t. It’s possible Morrison has a dastardly secret plan to "do another Abbott" after the election, but it’s much easier to believe the government was just fudging the figures to make it seem it could afford big tax cuts as well as achieve big surpluses.

Meanwhile, Labor’s costings reveal that "closing loopholes for the top end of town" is a misleading way to describe its various cutbacks of tax breaks affecting high-income earners and plan to restore the Coalition’s budget repair levy for another five years.

But the costings are just that – costings of individual promises. Nowhere are we told what the various tax-raising measures add up to, nor what the various spending measures add up to.

We are, however, told that the former would exceed the latter by $17 billion over the next four years. Oh, well that’s OK then.

Bit too tricky for my liking. When it comes to the size of government, neither side wants to spell it out truthfully before the election. Thanks, guys.

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A politician always wins, but this time the choice really matters

If you judged it by the way Labor's been so quick to match the Coalition’s backdated doubling to $1000-a-year of its tax cut for middle income-earners (good idea) and now the Coalition’s plan to help first-home buyers (con job), you’d be justified in thinking that, despite all their furious arguing with each other, there’s little to choose from between the two sides. For once, however, such a conclusion would be dead wrong.

Not for many moons have voters faced such a clear-cut choice between Labor and Liberal.

It’s true that, if you judge the pollies by the way they behave, they’re just as bad as each other. Both sides refuse to answer the question, never say yes or no when they could dissemble, keep saying tricky things calculated to mislead, claim to “feel your pain” when they don’t, keep badmouthing each other and answering a question about their policies by attacking their opponents’ policies, and make promises they’re not sure they can keep.

And – one we’ll need to watch out for if Labor wins – claim to be much more high-principled than the government while they’re in opposition, but then do just the same when they’re in government, justifying it by saying they’re no worse than the last lot.

All true. But where the two sides are very different is in the policies they’re offering. And, although the more unpopular of those policies may or may not make it through the Senate, this is one time I’m inclined to agree with Paul Keating when he repeats his saying that “when you change the government, you change the country”.

Since it’s true that governments lose elections far more often than oppositions win them, the standard practice is for oppositions to make themselves a “small target” – to promise little of substance – so all the focus is on the many things the government has stuffed up.

Not this time. This time it’s the government making itself a small target – running on its economic record, with few policy promises bar its $300-billion tax plan – while Labor has so many controversial policies to go with its popular ones the Libs have been spoilt for choice.

Only the naive believe the battle between the classes ever ended, but in this election it’s more in-your-face than any time since the days of Labor’s Arthur Calwell. The Libs say Labor wants to increase taxes rather than cut them, but it would be more accurate to say it wants to make the well-off (including the well-off retired) pay more tax, while using the proceeds to increase government spending on health, education, childcare and much else, with what’s left over used to repay some of the government’s debt.

Labor plans to abolish tax refunds of unused dividend franking credits for those not on the pension, wind back negative gearing and the capital gains tax discount, reduce superannuation tax concessions, tax family trusts and restore for four years the 2¢-in-the-dollar budget repair levy on income above $180,000 a year, not to mention cancel the second and third stages of the Libs’ tax cuts.

In other words, Bill Shorten and Chris Bowen plan to use both sides of the budget to affect the biggest redistribution of income from high income-earners to low and middle income-earners we’ve seen in ages.

By contrast, the Libs are fighting tooth and nail to protect the tax breaks favouring property investors, self-funded retirees, high-income superannuation savers and business people who’ve gone for years using family trusts to reduce the tax they pay – most of which concessions were introduced by the Howard government.

As well, the Libs’ seven-year, three-stage, super-mega tax plan would favour high income-earners – individuals earning more than $100,000 and, particularly, $200,000 a year – to a degree more generous/blatant than I can remember.

The first stage, which is limited largely to middle income-earners, would give them an immediate cut in their average tax rate of no more than about 1¢ in every dollar they earn. That’s pretty much it for low and middle income-earners.

High income-earners have to wait for stage two (July 2022) and stage three (July 2024) before they get much. But then the heavens would open. Cuts in average tax rates would range from 1.5¢ in every dollar for those on $110,000 to 4.5¢ in the dollar for me and my mates on $200,000 and above.

Next, more than ever before, this election sees Labor going for the young vote (negative gearing, better childcare, preschool and universities) while the Libs defend actual and prospective self-funded retirees.

Except for Scott Morrison’s last-minute, few-details first home loan deposit scheme (which Labor matched within an hour or two). It sounds better than is, mainly because access to it would be limited. Further falls in house prices would do far more to help – but no pollie wants to say that.

Then there’s the minor matter of the adequacy of our contribution to the Paris Agreement’s effort to limit global warming. Here, too, the choice is wide, ranging from the Coalition (just pretending) to Labor (real but inadequate) to the Greens (full blast).

All that remains is a threshold question: will your choice be aimed at benefiting yourself and your family, or the wider community and “those less fortunate than ourselves”?

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Only the stupid think the cost of climate change is simple

You know an election campaign has run off the rails when the pollies start hurling the results of economic modelling at each other. Voters find it incomprehensible and cover their ears, and the only people who think it proves something are the pollies themselves and the journalists silly enough to imagine their incessant demands to “show us your modelling” will expose the truth.

The more you know about modelling, the less it impresses you. There’s a place for economic modelling, but it’s in a seminar room, being pulled apart by experts, not in the argy-bargy of politicians seeking election, vested interests seeking more bucks, and journos who think their customers will just love a bit more meaningless conflict.

Thinking people know and accept that the future is unknowable. Unthinking people delude themselves that somewhere out there is an expert with a magic box – or maybe a crystal ball - who can give them a sneak peek at what only God knows in advance.

The only truly honest thing a modeller could tell you (which their need to earn a living invariably stops them doing) is: What on earth makes you think I’d know?

In the public debate, modelling is about misleading people – unknowingly or, more often, knowingly. It’s used like a drunk uses a lamppost: more for support than illumination.

There are two approaches you can take to modelling results. One, believe all results that fit with your prejudices and ignore all those that don’t. Two, be sceptical of them all and don’t accept any results where you haven’t been told which assumptions are the main drivers of those results.

Although Prime Minister Scott Morrison has only an unconvincing policy to achieve the 26 to 28 per cent reduction in greenhouse gas emissions by 2030, to which Australia has committed itself, the media is pounding Opposition Leader Bill Shorten to reveal the “cost” of his promise to reduce emissions by 45 per cent by 2030.

For reasons I don’t understand, Shorten is displaying a degree of honesty rarely seen in Canberra and claiming he doesn’t know the cost. The media can tell a lie when they see one, and are almost apoplectic in their efforts to extract the truth from him.

To the media, it’s a simple question, so it must have a simple answer and Shorten must know it. If he knows but won’t tell us, this can only be because the cost is absolutely horrendous. His climate change spokesman, Mark Butler, says it’s impossible to know the cost – but that’s obviously another lie.

Which, in a way, it is. It’s not possible to know the cost with the remotest degree of accuracy, but it’s perfectly possible to fudge something up and say it’s the cost.

What cost is that? The cost of whatever suits. Cost to the budget? Cost to the economy? Cost to the economy that ignores any benefit to the economy? Cost to the economy that ignores the cost of not doing anything?

Shorten’s in trouble because - for once – he isn’t playing the game the way the denizens of the House with the Flag on Top expect it to be played. Why won’t the man do the honourable thing and pay some “independent” economic consultancy to do some modelling that proves the cost would be minor?

An old political rule says that, whenever you leave a vacuum, your opponent will be happy to fill it for you. Enter Morrison, waving modelling carried out by Dr Brian Fisher, a former head of the Australian Bureau of Agricultural and Resource Economics, and now a consultant to the mining industry.

Fisher denies being a climate change sceptic and says the government didn’t sponsor his modelling. He’s been modelling the cost of acting against climate change since his time at ABARE in the 1990s and invariably finds it to be surprisingly high (I can remember decades ago writing to explain why his results weren’t as bad they could be made to sound).

His latest modelling finds that Labor’s policy would cause gross national product to be at least $264 billion, and as much as $542 billion, lower than it would otherwise be in 2030. By then the wholesale price of electricity would be up to 67 per cent higher than otherwise. Real wages would be up to 10 per cent lower than otherwise, and employment would be up to 300,000 lower than otherwise.

For what it’s worth, other economists who are experts on climate change have said these estimates of the costs are (to put it politely) far too high.

What’s more important to understand is that econometric models are built on a heap of assumptions – assumptions about how the economy works, and assumptions about what will happen in the future.

Dr Richard Denniss, of the Australia Institute, offers this list of things no one knows, but modellers have to make assumptions about if they want to claim they know what some policy change will cost: how far and how fast the cost of renewable energy and battery storage will fall; how far and how fast the cost of electric cars will fall; how quickly firms that face higher energy prices will adapt by increasing their efficiency; how the introduction of new sources of electricity generation and storage will disrupt the business models of today’s highly profitable electricity retailers; how regulation of energy prices will increase or decrease the monopoly profits of energy and petrol companies; how much the trend to household electricity generation and storage will increase the efficiency of the national grid by reducing problems with seasonal peaks in demand; whether the batteries of electric cars will be a form of free storage for the national grid; and how long it will take for autonomous vehicles to transform car ownership and use.

Still think the cost of Labor’s emissions policy is a simple question with a simple answer - that’s believable?

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A present-laden kiss from Santa won't make healthcare better

Whenever voters are asked what are their main issues of concern, one worry always comes top: healthcare. That explains why we’re hearing so much about health in this ever-so-exciting election campaign.

Bill Shorten wants to talk about health because it’s one of the issues voters always regard as better handled by Labor than by the Coalition. (Voters habitually favour the Coalition on running the economy and on taxation, which explains why these are Scott Morrison’s favourite topics.)

But this time the Coalition’s also keen to talk about all it’s done – and is promising to do – on health because it blames Labor’s last-minute social media scare campaign – that the Libs had plans to “privatise” Medicare – for its loss of seats in the 2016 election.

The truth is, by international standards Australians have good health and a good healthcare system, which doesn’t cost all that much.

So why is healthcare always our biggest worry? Perhaps because of the well-publicised waiting times for elective surgery in public hospitals. Or because most medical specialists charge fees far higher than the Medicare benefit, with the gap paid out of the patient’s pocket.

Australia’s health system is more reliant on out-of-pocket payments than most other rich countries. Part of this is the ever-rising cost of private health insurance.

This explains why the things politicians say about healthcare during election campaigns invariably involve spending more money. Governments boast that they’re spending record amounts (which is always true because both prices and the population keep rising) and promise to spend a bit more.

This time, Labor claims the Coalition has “cut” healthcare spending – by which it means that the Coalition hasn’t spent as much as the previous Labor government had planned to – and is promising to restore that funding (mainly in the form of the feds picking up a higher share of the states’ spending on public hospitals) and to spend more on reducing the out-of-pocket costs of cancer patients.

Are you detecting a pattern here? Because the health system has long been about as privatised as it could be – private hospitals, private health insurance, subsidised fee-for-service payments to self-employed GPs and specialists, co-payments for pharmaceuticals and for doctors who don’t bulk-bill – governments can never spend enough.

As presently organised, our system is a bottomless pit. Governments could never satisfy the demand that doctors and hospitals could generate if left to their own devices.

When you add federal and state, healthcare is by far the biggest and the fastest growing category of government spending – and thus the biggest reason we need to pay more in taxes each year.

It’s also our fastest growing employer. It’s certain to keep growing rapidly, not only because of the ageing population but also the ever-rising cost of advances in medical technology.

This isn’t bad, it’s good. The richer we get, the more we can afford to spend on top-quality healthcare. But that’s not to say we couldn’t be getting much better value for the dollars we spend.

Because our present badly organised system is driven mainly by doctors’ – particularly specialists’ - desire to protect and increase their incomes, whichever side of politics is in office, federal or state, spends most of its time between elections trying to hold back the growth in health spending.

They do this mainly by crude methods such as allowing backlogs and waiting lists to build up, freezing the level of Medicare rebates, increasing patient co-payments and delaying the approval of new pharmaceuticals.

Then, when an election looms, they approve a raft of new drugs, promise to spend more on a few things chosen to appeal to voters, and to spend $X million shortening surgery queues which, for some mysterious reason, seem to have built up.

That is, at elections both sides play Santa, not Mr Fix-it. Any plan to reform something would be bound to have some brand of specialists howling for your blood, and conning old ladies into monstering their local member.

In consequence, progress in reducing waste and improving the quality of care is slow. Doctors earn their living by fixing people who are sick. There’s little incentive to do what makes more sense: divert more of the spending into encouraging people to avoid getting sick in the first place.

After that comes more emphasis on early detection: better for the patient, better for the taxpayer. And the best way to improve prevention and early detection is to divert more money into “primary care” – by GPs and other health professionals, such as specially trained nurses, physiotherapists, psychologists etc.

GPs need to be shifted from providing acute care – charging a fee every time someone turns up for a consultation – to receiving larger payments from the government for accepting responsibility for helping a particular patient deal with a particular chronic condition, such as diabetes, for a period of time.

The Coalition’s record in making progress towards such a better, more integrated system is, at best, mixed.

The parts of Labor’s policy it doesn’t want to talk about – setting up a federal-state Australian healthcare reform commission – and the specifics of how it would keep its promise to encourage cancer specialists to bulk-bill, hold the promise of systemic improvement. But also the risk that the extra spending did more to help specialists' pockets than patients'.

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The great election diversion: arguments about tax, tax, tax

No one’s more interested in taxation than me, but there’s got to be more to this election campaign than claims about which side is high taxing and which low taxing, and interminable arguments and scare campaigns about franking credits and negative gearing.

Fortunately, the nation’s best and most independent think-tank, the Grattan Institute, has taken a much broader view of the issues to which the winning side should pay most attention in its Commonwealth Orange Book (an allusion to the red book and the blue book that the public service prepares to present to whichever side wins).

To help voters put the election issues into context, however, Grattan starts by comparing our performance on a broad range of indicators with nine comparable countries.

On standard of living – measured by gross national income per person – our $62,800 a year is well behind the United States ($75,900) and less behind the Netherlands ($68,100), Germany ($66,900) and Sweden ($64,900), but ahead of Canada ($57,300), Britain ($54,900), Japan ($54,300), New Zealand ($48,800) and South Korea ($48,400).

So we’re in the middle of the pack of rich countries. We can afford high quality public services (paid for by moderately high taxes) and afford to treat the disadvantaged with consideration.

But, despite all the times Scott Morrison repeats the words “strong economy”, our living standards have stagnated in recent times.

At 73 per cent, our rate of employment – the proportion of the working-age population with jobs – is at the low end of the range (New Zealand is on 77 per cent), but all countries are comfortably above America’s 70 per cent – a sign that all’s not so well in Trump’s supposedly strong economy.

A good check on our present success is our NEET rate – the proportion of people aged 15 to 29 who are not in employment, education or training. At 11 per cent we’re level with New Zealand, and better than Canada, Britain and the US, but worse that Germany, Sweden and the Netherlands.

Could do better. We need to fix the almighty mess we’ve made of vocational education and training.

On income inequality, our gap puts us towards the wrong end of the pack: equal with New Zealand, worse than Sweden, the Netherlands, Germany, Canada and even Britain, but better than South Korea, Japan and the pinnacle of inequality, the US.

We could greatly reduce inequality simply by paying the $3 billion a year it would cost to raise the dole by $75 a week – a truth Bill Shorten shouldn’t need a protracted inquiry to tell him. That $3 billion, by the way, compares with the estimated annual cost of Morrison’s tax plan, when fully implemented, of $35 billion a year.

We do surprisingly badly on housing, with fewer dwellings per 1000 adults than all the others bar South Korea. And with median housing costs as high as 23 per cent of disposable income, we’re dearer than everywhere except Holland.

Less surprising is how badly the land that used to boast about its cheap power is doing. These days, only German households pay more for electricity than ours do. Despite our ever-growing exports of LNG, our industries pay more for gas than the Canadians, Kiwis and Americans.

And, thanks to the policy dominance of the climate-change deniers, our electricity use generates far more carbon emissions than the others do. A lot more reform of the reforms needed.

Our relatively low funding of schools, and its division on a sectarian basis – the religious get more than the non-religious; some religions get more than others – hasn’t left our kids' performance looking good in international comparisons.

If you ignore the poor deal we give our Indigenous (as we usually do), our health system ranks well. Our life expectancy at birth is bettered only by Japan, and the cost of our healthcare as a proportion of national income is at the lower end (and only a bit more than half what the Yanks pay for their appalling system).

Even so, there’s room for us to get better value for money, and our out-of-pocket healthcare costs are higher than everywhere except Sweden and South Korea.

Which brings us to the quality of our governance. In Australia, trust in government is low and falling. In international comparisons, we’re about middle of the pack on trust.

But Australian cynicism is now at an all-time high – only a quarter of us think “people in government can be trusted to do the right thing” – the lowest since the survey began in 1969.

Grattan says there’s a growing sense that people in government look after their own interests, or those of powerful groups, rather than the public interest.

Many other democracies have stronger rules on political donations and lobbying, designed to keep special-interest influence in check. Most rich countries restrict political donations or party spending in some way. We don’t.

The feds are lagging the states in establishing an effective anti-corruption or integrity commission, in requiring timely disclosure of political donations, publishing ministerial diaries and in imposing a lobbyist register without glaring loopholes.

The failure of both sides to act at the federal level undermines the effectiveness of state measures.

So, turns out we do have issues other than tax we should be focusing on.

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We'll get a very clear choice at the election

The federal election campaign could be as soon as August and no later than May. So which side is shaping as better at managing the economy?

Sorry, I won’t be answering that question. If you’re smart enough to choose to read this august organ, you’re smart enough to make up your own mind – which you probably already have.

The partisan or tribal approach to politics – if my side’s proposing it, it’s what I prefer – is a common way of economising on thinking time.

But I’m paid to scrutinise the propositions coming from both sides, so let me offer some pointers to help those who do want a better understanding of the choice available.

The first point is one that will be forgotten from the moment the election’s called: the main instrument used to manage the economy through the ups and downs of the business cycle is interest rates (“monetary policy”).

So the day-to-day management of the economy is done not by the politicians in Canberra, but by the econocrats at the Reserve Bank in Sydney. Neither side has shown the least indication of wanting to change this.

It means that, apart from making decisions affecting the activities of particular industries (the banks, the live meat export trade) or such minor concerns as the natural environment, the elected government’s main means of influencing the broader economy is via its budget: the taxes it raises, the things it chooses to spend on, and the gap – the deficit or surplus – it leaves between the two (“fiscal policy”).

It’s now clear the election campaign will focus on taxes and government spending. Rather than sticking to the usual approach of making itself a small target against an unpopular government by saying “me too” to most of the government’s policies, Labor is making itself a big target, with various policies the Coalition has opposed.

So in this campaign we’ll be given a wider choice than usual, with each side conforming more than usually to their left versus right stereotypes. Labor will be promising to spend more on health and education than the Coalition, offering bigger tax cuts than the Coalition (in the first few years, anyway), and promising to reduce deficit and debt faster than the Coalition.

Against this, Malcolm Turnbull has used the big tax cuts announced in the budget to position the Coalition as the low spending, low taxing side, compared to Labor’s big spending, big taxing alternative.

This glosses over the Coalition’s own record on tax and spending, but there is some truth to the characterisation.

Remember, however, that neither side is promising anything but a temporary fix to bracket creep, because neither side is confident of its ability to contain the growth in government spending. So it’s probably closer to the truth to say that, however much Labor taxes and spends, the Coalition will do a bit less.

But how on earth can Labor promise to spend more, tax less and improve the budget balance faster?

Thankfully, we won’t be hearing much of the “Where’s the money coming from?” cry because Labor has a not-so-secret weapon: it has already announced policies to increase tax collections by reducing negative gearing and the capital gains tax discount, further reducing superannuation tax
concessions, taxing family trusts, ending cash refunds of unused franking credits, raising the top income tax rate by 2 percentage points to 49 per cent, and abandoning the cut in the rate of company tax for big businesses.

These measures should increase taxes by about $30 billion over four years and almost $200 billion over 10 years. They’ve been costed by the Parliamentary Budget Office, so there’s also likely to be less campaign argy-bargy over the costing of promises.

Labor has matched the government’s $530-a-year tax cut for middle and above-middle income-earners and raised it to $928. But it’s still considering whether to match the second step of lifting the 32.5 per cent tax upper bracket limit from $90,000 a year to $120,000 in July 2022. It’s unlikely to match the third step of lifting that limit to $200,000 in July 2024.

This tells us that neither side is particularly generous to genuinely low income-earners, and both have an exaggerated impression of where the middle is.

The big difference between the sides emerges for people earning more than $90,000 a year (which is almost 60 per cent higher than the median income), to whom the Coalition is offering much bigger tax cuts – while Labor would actually raise the tax rate on incomes above $180,000, as well as aiming most of its reductions in tax breaks at high income-earners.

So Labor would make income tax more redistributive, whereas the Coalition would make it less so. If that doesn’t offer voters a real choice, I don’t know what would.

But all is not as clear-cut as it sounds. For a start, both sides are engaged in a tax-cut bidding war while the budget is still in deficit with a rising debt. Both sides are relying on the government’s quite optimistic forecasts and projections in the budget. What if they don’t come to pass?

Also, what politicians promise and what they can get passed by Parliament are two different things. As Phillip Coorey of the Financial Review has revealed, the likely composition of the Senate after the election – fewer, but more conservative cross-benchers - should make it easier for the Coalition than for Labor to get its policies into law.

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Bank inquiry will change the course of politics and policy

The misbehaviour by banks and other big financial players revealed by the royal commission is so extensive and so shocking it’s likely to do lasting damage to the public credibility and political influence of the whole of big business and its lobby groups.

That’s particularly likely should the Coalition lose the looming federal election. If it does, that will have been for many reasons. But it’s a safe bet that pollies on both sides will attribute much of the blame to the weeks of appalling revelations by the commission.

With Labor busy reminding voters of how much effort during its time in office the Coalition spent trying to water down the consumer protections in Julia Gillard’s Future of Financial Advice legislation and then staving off a royal commission – while forgetting to mention the tough bank tax in last year’s budget – the Coalition will surely be regretting the closeness of their relationship.

Some Liberals may see themselves as having been used by the banks, notwithstanding the latter’s generous donations to party coffers. So, even if the Coalition retains office, it’s likely to be a lot more reluctant to be seen as a protector of big business.

A new Labor government is likely to be a lot less inhibited in adding to the regulation of business, and tightening the policing of that regulation, than it was in earlier times.

Should Malcolm Turnbull succeed in getting the big-company tax cut through the Senate, an incoming Labor is likely to reverse it (just as Tony Abbott didn’t hesitate to abolish Labor’s carbon tax and mining tax).

Many punters are convinced both sides of politics have been bought by big business, leaving the little guy with no hope of getting a fair shake from governments.

But that view’s likely to recede as both sides see the downside as well as the upside of keeping in with generous donors. This may be the best hope we’ll see of both sides agreeing to curb the election-funding arms race.

I’m expecting more customers for my argument that, in a democracy, the pollies care most about votes, not money. If they can use donations to buy advertising that attracts votes, fine. But when their association with donors starts to cost them votes, they re-do their calculus.

The abuse of union power during the 1960s and ‘70s – when daily life was regularly disrupted by strikes, and having to walk to work was all too common – left a distaste in voters’ mouths that lingered for decades after strike activity fell to negligible levels.

This gave the Libs a powerful stick to beat over Labor’s head. Linking Labor with the unions was always a vote winner. Every incoming Coalition government – Fraser, Howard, Abbott – has established royal commissions into union misbehaviour in the hope of smearing Labor.

But the anti-union card has lost much of its power as the era of union disruption recedes into history. The concerted efforts to discredit Julia Gillard didn’t amount to much electorally, nor this government’s attempt to bring down Bill Shorten.

From here on, however, the boot will be on the other foot. It’s big business that’s on the nose – being seen to have abused its power – and it is being linked with big business that’s now likely to cost votes.

All this change in the political and policy ground rules just from one royal commission, which may or may not lead to prosecutions of bank wrongdoers?

No, not just that. This inquiry’s revelations come on top of the banks’ longstanding unpopularity with the public and the long stream of highly publicised banking misbehaviour running back a decade to the aftermath of the global financial crisis.

And the bad story for banks, fund managers and investment advisers piles on top of continuing sagas over the mistreatment of franchisees and a seeming epidemic of illegal underpayment of wages to young people and those on temporary visas.

That’s not to mention the way fly-by-operators rorted the Vocational Education and Training experiment, ripping off taxpayers and naive young people alike, nor the mysterious way the profits of the three companies dominating the national electricity market at every level have blossomed at the same time retail electricity prices have doubled.

Times have become a lot more hostile for business, and only a Pollyanna would expect them to start getting better rather continue getting worse. Should weak wage growth continue, that will be another factor contributing to voter disaffection.

Why has even the Turnbull government slapped a big new tax on the banks, tried to dictate to the private owner of Liddell power station and now, we’re told, plans to greatly increase the petroleum and gas resource rent tax?

Take a wild guess.

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Next election will offer voters more genuine, wider choice

Even if we don't end up having a federal election this year, rest assured, it will feel like a year-long campaign. But whenever it occurs, it's likely to determine the fate of neo-liberalism, aka "bizonomics".

Though the two sides like to paint every election as a clear choice between good (us) and evil (them), many voters have concluded all politicians are the same – liars and cheats.

But that's truer of the way they behave than of the policies they espouse on some key issues.

The plain fact that neither side has enough committed supporters to guarantee it election means victory goes to the party that attracts more of the uncommitted voters in the middle.

This has long been a factor encouraging both sides away from extremes of left or right and towards the more moderate, "sensible centre". They've retained only enough pro-business or pro-worker positions to keep their voting, donating and polling-booth-staffing "base" motivated, as well as to provide some product differentiation.

The standard approach of recent decades has been for each side to seek to neutralise those issues where the other side is perceived by voters to have the advantage, by saying "me too", while trying to highlight those issues where it has the perceived advantage over its opponents.

Polling released last week by Essential, shows the Liberals' great perceived strengths are national security and terrorism, and management of the economy, whereas Labor's strengths are (in ascending order) education, health, housing affordability, the environment, industrial relations and climate change.

Note that almost all the contentious issues are economic, broadly defined. Voters see little to distinguish the two sides on population growth and asylum seekers. The government's already pushing hard on national security and terrorism, but Labor will run from any argument over these issues, where it starts well behind in voters' estimations.

Of late, however, the parties have departed from the standard script. Realising he lacked the charisma to get away with mimicking Tony Abbott's virtuoso performance of total negativity against the death-wish Rudd-Gillard-Rudd Labor, Bill Shorten thought he had little to lose by abandoning the small-target strategy of most oppositions, and went to the 2016 election with some relatively daring proposals on tax increases, particularly on restricting negative gearing and the capital gains tax discount.

Despite the conventional wisdom that touching negative gearing would be political suicide, Shorten's bravery was rewarded. Now look at the speeches Shorten and Malcolm Turnbull gave last week, and you see both sides planning to widen, rather than narrow, the policy distance between them.

Abbott was someone with conservative social values and hard-right economic views that fitted well with a party base that's be drifting to the right for many years. But he knew better than to highlight such views when seeking enough middle-ground votes to win the 2013 election.

Which leaves Turnbull with a big problem. His oft-stated position as a small-l liberal means much of his parliamentary party neither likes nor trusts him. To keep them behind him, he's had to loudly espouse policy positions – on big business tax cuts, weekend penalty rates and saving coal mines, for instance – that are far to the right of majority, middle-ground opinion.

The further Turnbull's party base has forced him away from the centre, the more Shorten has been emboldened to move his own policies further leftward from the centre than his predecessors would ever have dared.

It's clear Turnbull will go to the election offering no real plan to achieve Australia's Paris climate change commitments and making no more than sympathetic noises about the supposedly soaring cost of living, while claiming that big business tax cuts would trickle down and allow big pay rises.

In the meantime, the ever-continuing budget deficit won't stop the government also promising a tax cut for ordinary workers.

In echoes of Labor's winning policies at the 2007 election, Shorten will promise concrete action on climate change and on winding back the parts of Work Choices' attack on collective bargaining that Kevin Rudd and Julia Gillard weren't game to.

A rhetorical challenge for Shorten will be to shift the punters from their misconceived concern with the soaring cost of living, to the real problem: weak wage growth.

Despite that weak growth, I doubt many voters will be greatly tempted by the promise of modest tax cuts. A test of Shorten's leadership credentials will whether he has the courage to avoid matching Turnbull's promise.

But with Turnbull sticking to his plan for big-business tax cuts, and his resistance to reform of negative gearing and wage-fixing, this election may well determine the fate of the era of bizonomics.

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Don't jump to conclusions on big bad Trump

Keep your shirt on. The world as we know it may be ending, but if so it won't be for a while. And maybe things won't change as much as feared.

Yesterday the experts were confidently predicting Hillary Clinton would be president. Today they are predicting Donald Trump's presidency will be a disaster with equal confidence. How do they know?

I find it hard to imagine Trump's ascendancy won't end up being bad for our economy, for the rest of the world and the Americans themselves.

But that's a long way down the track and lots of unexpected things could happen between now and then. Maybe even a few good things.

The thing of which I'm most certain is that the election of a climate change-denying president will further delay a serious response to the challenge by America and, through its bad influence, the rest of us.

But, hey, we are probably too late already. So no (extra) harm done. And Donald, you and I will be dead long before it gets really bad.

Sorry, back to the present. Don't forget the guy doesn't even get the job until January. And even then he may not yet have assembled the full range of his thousands of appointees.

Not that there is likely to be any shortage of volunteers. They won't be America's finest, but there will be plenty of people keen to be the president's friend.

The delay will give Wall Street and the world's share markets plenty of time to change their mind about Trump - several times.

Remember, share markets took no time to decide Brexit was the end of the world and only a little more to decide it wasn't.

And every new presidency starts with a honeymoon, in which all the people who voted him in rejoice - a new start for America! - some of the people who didn't wish they had, and everyone is glad to be shot of the last lot and all their failings.

Nothing very bad will happen in the honeymoon.

If one of the first new policies to go forward is Trump's plan to end decades of neglect by renewing America's public infrastructure, that would be a good thing of itself, would boost the US economy and spread a little growth on to the rest of us.

At the other extreme, should Trump lose no time in starting a trade war with China, everyone would lose - the US, China and the rest, with Australia prominent among those last.

This is where we must trust that America's celebrated "separation of powers" comes to the rescue, allowing other, wiser heads to prevent Trump from being as foolhardy as he said he would be.

Of course, the one prediction every Aussie voter can make made with confidence is that Trump, being a politician, will fail to keep most of his promises. Good.

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Liberals ignore the moderate middle at their peril

It's amazing to realise that the greatest threat to the success of the Turnbull government comes from the Liberal Party. Malcolm Turnbull's biggest enemies are inside his own government, not outside.

If he's to make sufficient progress with controlling the budget and reforming the economy to warrant re-election in three years' time, he needs to mix budget restraint with fairness, and combine efficiency with equity.

This, after all, was the formula the Hawke-Keating government used to stay in government for 13 years, despite all the things it did to get the budget back to surplus after the deep recession of the early 1980s and all the controversial reforms it made to open up the economy.

Remember that the people with the most reservations about those reforms – deregulating the banks, floating the dollar, removing protection – were its own supporters.

Only much later did Labor's true believers adopt Paul Keating as one of their heroes. And it was only by making uncharacteristic changes that Hawke-Keating came to be remembered as one of our greatest governments.

The people making trouble for Turnbull within the Liberals seem to have learnt none of that. They haven't even learnt the lesson of their latest near-death experience: low and middle income-earners won't vote for you in sufficient numbers if they suspect you don't represent their interests.

It's much easier to argue that Turnbull lost votes because his party had pushed him too far to the right than because he wasn't as far to the right as a noisy minority thought he should be.

Turnbull lost votes partly because, to get the party's permission to rescue it from certain defeat under Tony Abbott, he had to agree to leave untouched various extreme policies the whole country knew he didn't believe in.

Labor's Medi-scare was effective because Abbott's attempt to dismantle bulk-billing with his $7 co-payment exposed the party's lifelong antipathy to Medicare that a chastened and wiser John Howard had cloaked with his claim that the Libs were the best friend Medicare ever had.

Turnbull's policy for the reform of superannuation tax concessions was the epitome of the carefully balanced policies we need more of if we're to have reform without fear of electoral defeat.

It was a micro reform in that it reduced the tax system's distortion of saving choices, and it will contribute significantly to reducing the budget deficit, but do so in a way that reduces the concession to the undeserving well-off (including me) while making the scheme fairer to low income-earners and women.

And yet the Liberal dissidents' greatest push is to modify the super reforms in favour of a relative handful of high-flyers. If Turnbull – and the more moderate, sensible elements of the parliamentary party – let this push succeed there could be no better demonstration of the party's instability and its continuing commitment to governing in favour of its well-off cronies, not ordinary voters.

The first rule of Australian politics is that Aussies won't vote for extreme parties. That's why, over the decades, both sides have moved towards the middle ground.

But it's remarkable to realise that, while Labor has been working hard to house-train its left wing, the Libs have been drifting further to the right, allowing extremists to dominate its state branches and more and more hard-liners to be elected to the parliamentary party.

Although the pragmatist faction still has most adherents in Parliament, much of the party is now out of step with the community on social issues and obsessed with furthering the economic interests of the well-off, not the punters.

Too many in the party have become self-indulgent and inward-looking. Let's play favourites between Tony and Malcolm. Let's let the old men continue blocking the talented young and the female. Let's make the party utterly unattractive to the younger generation.

In short, too many in the party have lost touch with electoral reality. In this they've been led astray by noisiness of their media cheer squad and the libertarian think-tanks. The Murdoch press has yet again demonstrated its inability to deliver the tabloid voter.

In this election the Coalition stuck its neck out by making an unpopular cut in company tax its main policy proposal. And yet big business seems to have failed to offer much support in the way of donations.

If that doesn't give the Liberals pause for thought, nothing will. Apparently, big business thinks itself so virtuous – so synonymous with the nation's interests – that even the Libs owe it a living.

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