Tax cuts would have cons and pros

Yippee! It's almost Christmas and Malcolm Turnbull has dropped a big hint that tax cuts are coming. Good old rich Uncle Mal has been to see his bank manager, got the overdraft extended, and is determined we'll all have a great Chrissie, no matter what.

Actually, it's all a bit vague at this stage. We don't yet know whether the cuts will even be announced before Christmas, let alone when they'll be delivered. Nor do we have any idea whether they'll be large, small or indifferent.

Wouldn't surprise me if they were on the small side, nor if we got them only as a reward for voting Turnbull back into office at the next election, to be held late next year or in the middle of 2019.

All we actually know is what Turnbull dropped into a speech to the Business Council after affirming his intention to press on with the hugely expensive company tax cuts for big business.

"In the personal income tax space, I am actively working with the Treasurer and my cabinet colleagues to ease the burden on middle-income Australians, while also meeting our commitment to return the budget to surplus," he said.

It wouldn't surprise me if even Turnbull doesn't yet have a clear idea about the size and timing of the cuts. That will depend partly on Treasury's grudging willingness to make it seem they can be afforded "while also meeting our commitment to return the budget to surplus", but just as much on the calculations of his spin doctors.

Will they decide to announce the cuts soon, using them as an attempt to break the circuit of negative media discussion of some problem the government's having, or keep them under wraps until much closer to the time when voters are asked to show their gratitude at the polls?

That Turnbull has dropped the big hint this early in the piece is a sign they're more likely to be chewed up in a desperate but futile attempt to give the government some "clear air", than carefully preserved as part of a grand re-election strategy.

But though uncertainty abounds, there are three iron laws of tax cuts.

The first is that a government's motive in making them is always mainly political. It either fears that if it doesn't cut it will lose votes – because voters are starting to resent how much tax they're paying on any pay rises or overtime – or it hopes if it does cut this will win votes in thanks for its magnanimity.

The second law is that, despite their political motivation, tax cuts always come colourfully wrapped in wonderful economic justifications. By taking this political gift, we're assured, we'll be creating jobs, reducing unemployment and making the economy grow.

It's almost our economic duty to accept the offer of the bloke selling tax cuts for votes.

The third law, however, is that voters' gratitude for being given a little of their own money back is faint to non-existent. A tax cut announced is soon forgotten; a tax cut delivered before an election has next to no influence on the outcome.

But can the budget afford tax cuts? Not if you accept the government's preferred way of measuring the deficit. It says we're still a long way from returning the budget to balance.

The government's prediction we'll be back to budget surplus by 2021 rests heavily on its forecast that wages will soon start growing strongly, much faster than inflation. Maybe.

If Treasury finds a way to maintain that trajectory while paying for tax cuts, it will be by stepping up its over-optimistic forecasts of wage growth. With circular logic, the "bracket creep" such forecasts imply would then be used to justify the tax cuts themselves.

For years we've been told a government that needs to borrow each month to keep itself afloat can't possibly afford to give aid to poor people overseas. But borrowing to cover tax cuts to big business isn't a problem nor, apparently, is borrowing to give voters a tax cut.

The sad truth is that this Abbott-Turnbull government has got neither the conviction nor the honesty to stick to a consistent line on debt and deficits.

In opposition they told us the debt was a frightening crisis, but easily fixed by them. In government they had one go at fixing it at the expense of everyone but their own supporters, but lost public support from that moment, and since then have abandoned any serious attempt at budget repair, merely waiting like Mr Micawber for something (bracket creep) to turn up.

Now it's decided it can't wait even for that, but must give some of it back on the assumption it will turn up – eventually.

But whatever their political motivation, tax cuts do have effects on the economy, so what would they be?

At a time like this, tax cuts would have a similar effect to a decent pay rise, making it a little easier for households to keep spending, giving consumer spending a modest boost and, indeed, creating a few more jobs.

And if you defy federal Treasury and measure the budget balance more sensibly, stripping out investment in infrastructure, you find the recurrent deficit has already been largely eliminated. A small tax cut wouldn't set it too far off course.

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Lure of globalisation battles our instinctive tribalism

What has caused the rise in populism that's threatening the mainstream political parties around the developed world, including here?

Economists tend to explain it essentially in economic terms – the bottom has been given a rough deal for years, and finally is rising up – but other scholars see it much more in social and cultural terms: people objecting to being overrun by incomers. Immigrants, asylum seekers, Mexicans, Muslims, Asians.

In his new book for the Lowy Institute, Choosing Openness, Parliament's most accomplished economist, Dr Andrew Leigh, also Labor's shadow assistant treasurer, readily acknowledges the role of xenophobia in explaining why "openness makes us uncomfortable".

He sees our fear of foreigners as part of our evolutionary make-up, and I don't doubt he's right.

Drawing on the work of British anthropologist Robin Dunbar, he argues that "for most of history, humans lived in groups of about 150 people" – a figure known as "Dunbar's number".

Such groups were big enough for some specialisation, but small enough for everyone to know and trust everyone else. People were born, mated, hunted and died within their small community.

"In this environment, there were two kinds of people: those in your tribe and those not in your tribe," Leigh says.

"It made sense to take care of your tribal members. You shared a lifelong relationship with them. Thanks to inbreeding, the rest of the tribe probably looked a lot like you and you certainly all dressed alike.

"Conversely, outsiders were likely to look a bit different and were probably dangerous. While some groups traded, killing was extremely common."

One in seven people in these kinds of societies met their end as a result of violence by another person, he says.

For about 99 per cent of the time that homo sapiens have been on the planet, most of us have lived in small groups. As a species, that is what we evolved to do.

"Each of us is here today because our primitive ancestors were skilled at either fighting outsiders or avoiding conflict. The rule that 'different equals dangerous' kept our forebears alive."

But while hunkering down in the face of difference might have been a useful evolutionary strategy in the past, the growth of cities changed the equation, Leigh argues.

Cities are bound together by not by familial relationships, but by rules and norms of acceptable behaviour.

For hundreds of years, the most productive cities have been those that welcome visitors. In a primitive tribe, a dislike of difference can keep you alive. In a city, it's likely to just make you poorer.

"In this sense, a distrust of diversity is a bit like wisdom teeth – an evolutionary vestige that once helped us grind up plants, but now are more likely to take us on a trip to the dentist's chair."

Today's backlash against openness, Leigh argues, shows how humans' natural discomfort with difference can be exploited for political gain.

In a seminal study of the politics of hatred, the Harvard authority on urban economics Edward Glaeser noted that the key to building a powerful coalition around hate is to focus voters' anger on an "out group" that is sufficiently large to be taken seriously as a threat, but too small to be electorally decisive.

Remind you of any redheads you know?

So Leigh says that populism – the idea that politics is a conflict between the pure mass of people and a small vile elite – is the product of four main forces.

First, slow growth in living standards when the proceeds of economic growth haven't been shared.

"In societies where prosperity is broadly shared, a cosmopolitan outlook steadily replaces traditional values of religion, deference to authority, and an exclusive focus on the security of our family and tribe," he says.

Second, populism is fostered by the pace at which society and technology are changing. Voters may turn to extreme politics as a way of saying "Stop the world – I want to get off."

Third, populism has benefited from canny political entrepreneurs – Duterte, Erdogan, Trump – able to generate massive free media coverage by attacking rivals and breaking taboos.

Fourth, populism has grown because of a loss of faith in mainstream centrist parties. (Their ever-declining standards of behaviour would have nothing to do with this, of course.)

In the late 1960s, seven out of 10 Australians said they always voted for the same party. Today, the share of party loyalists is down to four in 10.

Seems to me that, though much of the problem is manifest in fear of foreigners, the best way to strengthen cosmopolitan values is to ensure the benefits of globalisation and technological change are shared more fairly.

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Closing out the world won't fix our problems

Talk about a slow burn. It's 10 years since the beginnings of the global financial crisis, the greatest economic collapse any of us will ever see. Things ought to be back to normal by now, but they aren't.

The world is still picking through the wreckage, deciding what should be kept and what dispensed with. What needs to be done differently to restore normality and ensure there's never another disaster like that one.

A lot of people were surprised the retribution didn't happen at the time: bankers sent to jail, famous economists and their theories discredited, presiding politicians pushed out to pasture, their reputations in tatters.

For a long time, it looked as though the same people who brought us the disaster were kept on to clean up the mess. "Sorry about that. Poor execution. Nothing wrong with the basic policies, of course. Won't let it happen again."

Now, however, there's a revolt by disillusioned and angry punters evident in many developed countries: the Americans voting in an outsider oddball like Trump, the Brits voting to quit the European Union then knackering the government trying to arrange it, the French electing a president from neither of the two main parties, the Germans re-electing Mummy Merkel, but only after reducing the combined vote of her party and the main alternative to their lowest share since the war.

It's a similar story in Oz, where last year's election saw one voter in four avoiding the two main parties and the resurrection of One Nation to scourge the establishment.

Fancy footwork by the Rudd government at the time allowed us to escape the GFC with only a few scratches. Turns out it's not that simple. The economy's been below par ever since and, for the past four years, our growth in wages has been as weak as in the other advanced economies.

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Trouble is, when the pressure for change comes from the grassroots rather than frank admission of failure on the part of the policy elite, the great risk is that we'll flip to populism – policies that are popular because they sound like they'd make things better, when they wouldn't really because they misunderstand the deeper causes of the problem.

Much of the discontent has centred around globalisation – the breaking down of barriers separating countries.

Globalisation is a popular target because it can be blamed for the fall in jobs in manufacturing as well as the admission to our country of people who look different and have strange habits. Are they taking our jobs or just taking over our country?

But though it's true that some of the jobs lost in manufacturing have shifted to other countries (providing employment and income to people much poorer than any of us), our compulsive fear of foreigners blinds us to the much greater role played by automation.

As Dr Andrew Leigh, federal Labor's shadow assistant treasurer and a former economics professor, writes in a new book for the Lowy Institute, Choosing Openness, advances in technology have been shifting jobs from the farm to the cities, and now from manufacturing to the services sector, continuously since Australia became a federation.

This means attempting to "make Australia great again" by restoring protection – reducing our openness to the world – can't work. We'd have trouble establishing many new factories, and those we did would employ a lot more machines than workers.

What restoring protection would do, however, is raise the prices of all the goods we protected – starting with cars, clothing and footwear – worsening the cost of living of all working people.

It's too easy to forget the benefits of globalisation along with the costs.

Apart from being a bit too late, trying to return to White Australia would rob us of greater human links with rapidly developing Asia, where we all know our best hope of future prosperity lies.

Overall, we've gained more than we've lost from the successive waves of new technology, as well as from the way we opened our economy to the world in the 1980s. Trying to re-erect the shutters would be a costly mistake.

Overall, employment has just kept growing – which is not to deny that many less-skilled men formerly employed in manufacturing have not been able to find satisfactory employment.

The sensible conclusion is that there have been losers as well as winners, but little has been done to help the losers – with the winners required to do more to kick the tin.

"The chief challenge," Leigh says, "is to deal with the inequality that can accompany technological change and economic openness.

"This is not just a matter of fairness; it is also essential if we are to deal with the political backlash against openness.

"A spate of studies in economics and psychology have shown that humans exhibit loss aversion [we prefer to avoid losses more than we prefer making gains] and are more conscious of headwinds than tailwinds.

"Open markets require egalitarian institutions," Leigh concludes.

He's right. This is the key principle of reform we lost sight of after the departure of Hawke and Keating.

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Turnbull, Morrison holding their own on the economy

Whatever is holding Malcolm Turnbull and his government behind in the polls so consistently, it doesn't seem to be their handling of the economy.

Voters' responses to special questions in the September Fairfax-Ipsos poll are hardly a ringing endorsement of the Coalition's economic policies, but it is clearly ahead on points.

On which party has the best policies for managing the economy, the Coalition is preferred by 38 per cent of respondents, hardly overwhelming, but comfortably ahead of Labor's 28 per cent, with the Greens scoring a mere 3 per cent.

Decades of polling show voters almost invariably see economic management as one of the Coalition's comparative strengths. This poll shows that pre-judgment has not been shaken by the Turnbull government's struggles.

We need to remember, of course, that, since the Howard government's reforms more than 20 years ago, the day-to-day management of the economy is carried out by the Reserve Bank, not the elected government.

Since then, governments of all persuasions have benefited from the central bankers' steadying hand on the tiller.

As Treasurer, Scott Morrison has had his critics but, even so, his latest approval rating of 42 per cent exceeds his disapproval rating of 38 per cent.

And that's a vast improvement over Joe Hockey's position in April 2015, some months before he lost the job, when his disapproval exceeded his approval by 25 percentage points.

It's hardly surprising that Morrison's approval among intending Coalition voters far exceeds his approval among Labor voters.

What is surprising – and to his credit politically - is that his approval rating among Labor voters is almost double his disapproval rating among Coalition voters.

On the question of preferred treasurer, Morrison scored 38 per cent, comfortably ahead of Labor's shadow treasurer, Chris Bowen, on 29 per cent.

This, too, compares favourably with Hockey's margin of just 1 percentage point over Bowen in July 2014, just two months after Hockey's delivery of the government's hugely unpopular first budget.

This suggests Turnbull and Morrison's tactic in this year's budget of trying to bury all memory of that budget – and switch to using tax increases rather than spending cuts to repair the budget – is helping on the popularity front.

On the question of whether Turnbull or Tony Abbott has provided better economic leadership as prime minister, Turnbull's support of 56 per cent is more than double Abbott's 25 per cent.

Truly, Abbott and Hockey's popularity was unrecoverable after that disastrous first budget.

It's also noteworthy that, at 74 per cent, Labor voters' preference for Turnbull over Abbott far exceeds Coalition voters' preference of 66 per cent.

Some in Turnbull's party may see this as confirmation of his lack of conservative purity; the more savvy will see it as evidence of his potential to win votes from the other side if permitted to move closer to the "sensible centre".

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Big business influence wanes as public rejects ‘bizonomics’

The collapse of the "neoliberal consensus" is as apparent in Oz as it is in Trump's America and Brexitting Britain, but our big-business people are taking a while to twig that their power to influence government policy has waned.

Their trouble is the way the era of micro-economic reform initiated by the Hawke-Keating government in the 1980s eventually degenerated into "bizonomics" – the pseudo-economic belief that what's good for big business is good for the economy.

Part of this is the belief that when you privatise a government-owned business, or outsource the delivery of government services to for-profit providers – when you move economic assets and activity from the "public" column to the "private" column – you've self-evidently raised economic efficiency and wellbeing.

Provoking an engrossing debate between economists, Dr Mike Keating, a top economic adviser in the (no relation) Keating era, used a post and a rejoinder on John Menadue's blogsite to claim the early reformers believed that who owned a business wasn't as important as whether privatising it would make its industry more competitive or less.

True, Mike. Trouble is, the advisers and ministers who followed the Keating² era weren't so discerning, nor so scrupulous.

In those days, the goal of making industries more "competitive" meant turning up the competition from imports, or removing government regulation designed to inhibited competition between local players.

These days, following the degeneration to bizonomics, making industry more competitive means granting concessions to make chief executives' lives easier.

I remember when part of the Keatings' motive for dismantling protection against imports was to cure Australia's lazy business people of their predilection for running to Canberra for help whenever times got tough.

No more rent-seeking, was the cry. But the degeneration from economics to bizonomics amounted to wholesale rent-seeking by business. Is productivity improvement weak? Obviously, that's the government's fault for not pressing on with economic reform.

What reform? Cutting tax on companies and high income-earners and increasing the tax on consumers. Shifting the legislative power balance between employers and their workers even further in favour of employers.

Sorry, but as has been well demonstrated by Malcolm Turnbull's refusal to increase the goods and services tax, his inability to cut the company tax rate for big business, and the public's overwhelming disapproval of the Fair Work Commission's decision to cut Sunday penalty rates (complete with the Coalition's attempt to deny paternity of the bastard child), those days are ending.

These days, it's not just leftie troublemakers who doubt that benefits going direct to big business will trickle down to the rest of us, it's every punter in the street.

Another element of bizonomics is governments in many anglophone countries maintaining the facade, but not the substance, of business regulation.

They tell the public it's protected by laws governing treatment of consumers, employees, shareholders, taxpayers and others, but then rob the regulatory agencies – in our case the ACCC, Fair Work Ombudsman, ASIC and the Tax Office – of the resources they need to adequately enforce the laws they administer.

In this game of nudging and winking, it didn't take long for business to realise that, its chances of apprehension being tiny, obeying any law it found standing in the way of higher profits was now optional.

And that, though they could never admit it, this was the way governments of both colours secretly wanted it to be.

This is what explains the plethora of business law-breaking being uncovered by Fairfax's Adele Ferguson and other investigative journalists. What's notable is the way the business lobby groups have failed to condemn corporate lawbreaking.

A few decades of bizonomics have left our big business chiefs with the assurance they possess a God-given right to have their every demand accommodated by governments.

Sorry guys, apart from the lack of evidence that allowing you to aggrandise yourselves leaves the rest of us better off, democracies don't work that way.

In the end, power derives from voting punters, not corporations making generous donations to party coffers. The donations work only as long as the pollies can use them to amass enough votes for a government trying to swing it for biz business.

That's what's no longer happening, and the sooner you wake up to it, the sooner you can move to profit-making Plan B: find it within your business, not by lobbying Canberra.

The pollies have already got the punters' message. That's why the Coalition is becoming less willing to do your bidding and Labor has realised getting tough with business has more upside than down.

If this means you stop donating to either side, so much the better.

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Governments share power with multitudinous lobbyists

You may think the media is full of the argy-bargy of politics, full to saturation point. There is, however, a level of politics we rarely hear about. You may not have noticed, but it raised its ugly head at the time of the budget earlier this month.

One sign was the anger, almost outrage, of the big banks when, on budget night, Scott Morrison surprised them by announcing a small new tax on them. Why weren't we consulted about this, they shouted.

Just a few days earlier, Education Minister Simon Birmingham surprised us by announcing the government's conversion to needs-based federal grants to schools, a la St David of Gonski.

The Catholic school authorities were deeply saddened. Birmingham's plan was to gradually unwind decades of special sectarian deals, the most recent of which had been made with the previous Labor government.

Why in Heaven's Name weren't we consulted before this unholy decision was made public, they cried.

When I heard both interest groups making their loud complaints I reacted the same way. Who the hell do these guys think they are?

You and I don't expect to be consulted before governments announce their policy decisions, so what gives these people the right to special treatment?

Well, I'll tell you: it's because that's the way they're used to being treated. Governments are considering making changes affecting a powerful and vocal interest group, so they – and more particularly, the top bureaucrats in the relevant government department – engage in private discussions with industry leaders and lobbyists.

If Birmingham decided on a new school funding arrangement without consulting the most-affected interest groups, it must have been because he knew they'd move heaven and earth in their efforts to ensure it didn't happen.

And, come to think of it, it's not all that unusual for new tax measures to be announced in the budget without prior consultation. You could justify this as necessary to ensure people aren't able to profit from inside information.

But I suspect it happens also because Treasury likes it that way. In the annual preparation for the budget, which goes on for months, Treasury ensures decisions about tax changes are made just days before budget night. That way, there's no time to consult and no time for ministers to be dissuaded from acting.

So the consultation happens after the move has been announced, when the government would lose face if it backed down too far.

Indeed, major tax and policy changes are invariably put into an industry consultation phase before being legislated. You can justify this practice by saying the world's become a complicated place and that the affected industry will always have an understanding of the practicalities of implementation that's superior to the bureaucrats'.

But there's more to it. I think industry representatives are routinely consulted on policy matters affecting them because, in practice, elected governments have come to share their power with a multitude of lobby groups.

You and I don't see the huge extent of contact that occurs between peak industry groups, consultant lobbyists and visiting executives, on one hand, and ministers, parliamentarians and bureaucrats on the other.

Indeed, we non-Canberrans don't realise the extent to which lobbying has become that city's second-biggest industry. That's particularly so if you include Canberra's small army of economic consultants, who earn their living by concocting "independent" modelling which, purely by chance, always seems to prove their clients' case.

And that's not counting the big four accounting firms which, when they're not doing "independent" modelling for the small fee, give extensive – and no doubt expensive – consulting advice on policy questions to government departments.

Why do they need such advice? Why is policy expertise moving from the public service to outside consultants? Because the yearly imposition of "efficiency dividends" on government departments means they keep getting rid of their policy experts. The words "false economy" spring to mind.

For an idea of just how big the lobbying industry has become, consider this. Buried in the budget was an announcement that the government had accepted the recommendations of a review of the financial system's arrangements for resolving external disputes.

Some lobby groups were unhappy with this decision, so last week they issued a press release saying so. It was issued in the name of six industry groups: the Mortgage and Finance Association of Australia, the Customer Owned Banking Association, the Australian Collectors & Debt Buyers Association, the Association of Securities and Derivatives Advisers of Australia, the Australian Timeshare and Holiday Ownership Council, and the Association of Independently Owned Financial Professionals (each with their own logo).

But if all the industry groups and other lobbyists did was issue press releases there would be little to worry about. Lobbying in public is just the tip of the iceberg. What matters is all the private contact with bureaucrats, ministers and politicians, particularly crossbench senators, we know nothing about.

Late last year I wrote prematurely about an eye-opening book by Dr Cameron Murray and Professor Paul Frijters, Game of Mates, which has finally been published.

The book reminds us that one way moneyed interests gain influence in the halls of power is by rewarding co-operative senior bureaucrats and politicians with post-retirement patronage. You too could be gamekeeper-turned-lobbyist.

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Labor-like budget ticks all the boxes for Turnbull

For students of the politics of economics – my special subject – this clothes-pinching budget has been a feast. Oh no, it's "Labor-lite". Shocking!

Actually, it's a budget that ticks all the boxes for Malcolm Turnbull and, by extension, his parliamentary followers – something their silent acquiescence suggests they realise.

You don't need brains to see a Labor-lite budget. What's harder is to see that it's not as out of character as some suppose.

True, the song Turnbull and Scott Morrison are singing now is very different to the one they sang in last year's budget.

But the beginning of wisdom is to see that, these days, what each side of politics offers is an ever-changing mixture of ideology and pragmatism.

The bedrock is pragmatism: what must I say or do to win the next election? Pragmatism rules because of the way politics has been professionalised, becoming a career ladder you climb from newly graduated ministerial staffer to (you hope) prime minister.

But ideology has its uses. Mainly, to gratify the prejudices of the party base and enhance your supporters' loyalty to the tribe. It gives then a warm feeling. It also helps to jolly along union or business donors.

Then there's the third, usually unmentioned factor: Consistency, no need for.

When you're constantly changing the mix, increasing or decreasing the pragmatism component, you can't be too worried about getting caught changing your story from what you said before.

Since the responsibilities of office change little from year to year – similarly, the advice of the econocrats – the two sides' rhetoric while in government is more similar than when they're in opposition. Everyone changes their tune when they come to power.

As for the boxes this year's budget ticks for Turnbull, the first is it shows him taking firm steps to get the trajectories of budget spending and taxing heading in a better direction, giving the budget substance at a time when its forecasts and projections would soon be exposed as optimistic, even fiddled.

It shows Turnbull having the sense to cast off the wishful ideology foisted on him by the economically uninterested Tony Abbott (egged on by the Business Council's lesser geniuses, to whom he foolishly outsourced the commission of audit) that, despite eight income tax cuts in a row, only cuts in spending were needed to get the budget shooting back to surplus.

By doing so, Turnbull was accepting the budgeteers' orthodoxy that budget repair always involves tax increases as well as spending cuts, and joining ranks of all previous successful Liberal prime ministers, starting with John Howard and his goods and services tax.

Nor is Turnbull the first PM to succeed partly by pinching the best of their opponents' policies.

Second box: it shows Turnbull coping with the bills left by Labor – the National Disability Insurance Scheme, schools funding and (eternally) Medicare – in ways that are politically shrewd and not terribly distorting economically.

Solving the NDIS cost problem by linking it to a barely perceptible increase in the Medicare levy in two years' time. Switching to a cheaper version of Gonski-style needs-based school funding. Imposing a new $1.5-billion-a-year indirect tax on the hated big banks – for whom he's been leaking votes by running cover against a royal commission – to help reduce the structural budget deficit.

Third box: this budget neutralises two of the greatest areas of voters' concern, where Labor is permanently perceived by them to have the comparative advantage: health and education.

And this at a time when, largely thanks to factors beyond their control, we're not travelling too well in the areas permanently perceived by punters to be the Libs' comparative advantage: managing the budget and managing the economy.

Fourth box: this budget takes a Liberal party drifting ever-further to the hard right, and yanks it back to the sensible centre, where elections are won.

Fifth box: this budget shows Turnbull as leader rather than follower of his ever-more reality-detached backbench.

It at last gives voters a glimpse of the fair-dinkum Malcolm – the one saying what we all know he really believes – and whom many people whose vote is up for grabs were hoping and expecting to be led by after the unlamented demise of Abbott.

Last box: Turnbull's return to the centre has at last wrong-footed the formerly sure-footed Bill Shorten, exposing his pretence of putting the public interest ahead of partisan advantage – if we can't have our version of needs-based school funding, let's block the Libs' version – and prompting him to shift to left of centre, with his plans to increase taxes on high income-earners.

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Politicians addicted to the appearance of economic success

I realised Australian government was fast approaching peak fake when I read Laura Tingle of the Financial Review's revelation that Malcolm Turnbull's Snowy 2.0 announcement was timed to favourably influence the imminent fortnightly Newspoll result.

When our leaders progress from being mesmerised by opinion polls to trying to game them, that's when we know the country's in deep, deep trouble.

It's long been clear that, acting on their belief that "the perception is the reality", the political class – Labor and Coalition – has focused less on attempting to fix problems and more on being seen to be fixing them.

But trying to game the political polls takes faking it to a new level: being seen to be seen to be trying to fix things.

It hardly needs saying that Snowy 2.0 was just a stunt, designed to excite the media and portray Turnbull as the great Nation Builder, while being no more than a feasibility study of a scheme that's probably not feasible, would end up costing at least double what we were told it would and, if it did eventuate, would come years too late to help with the energy crisis.

Since faking progress – conning the media into conning their voting customers – is a lot less time-consuming than pondering real solutions, you fill the vacuum by attacking your opponents' policies and record – even though such attacks rate sky-high on the hypocrisy Richter scale.

The pollies must know from their focus groups how this slagging off of opponents serves only to alienate the voters – and discourage most young people from taking any interest in politics.

But since they have little in the way of genuine policies to outline and explain, and have to keep burbling on about something, they don't seem able to stop themselves saying things that make the public change the channel.

Veteran Australian National University political scientist Professor Ian McAllister says trust in politicians is at its lowest than at any time since he started surveying it all the way back to 1969.

The other group whose perceived trustworthiness has declined badly are the media. Purely coincidental, I'm sure.

Sometimes I wonder if the pollies haven't turned the hostility between them up so high that it's no longer possible for any flesh-and-blood prime minister to survive for more than a year or two. When every day is a minefield, the sharpest leader will often put a foot wrong.

Certainly, the leadership instability we've seen since the ejection of John Howard shows no sign of abating. Whoever's leading the Coalition by the time of the next election – likely to be late next year because of last year's double dissolution – it's hard to see the Coalition surviving.

But who could convince themselves Bill Shorten's the man to restore stable government and the steady pursuit of good policy?

The superficiality of the way we're governed these days has made our politicians even more prone to short-term thinking, to the quick fix.

This explains the difficulty we're having getting both sides to accept a more disciplined, objective approach to the selection of infrastructure projects.

Infrastructure isn't something you use to improve the nation's productivity – its ability to move people and goods around efficiently; its accumulation of human capital – it's something you use to buy votes in particular electorates for particular reasons.

Speaking of getting a fix, pollies on both sides and levels of government have become addicted to announcing new mining projects, notwithstanding that the resources boom turned to bust long ago.

No one in their right mind would think now is a good time to build a mega coal mine in the Galilee Basin, but that hasn't stopped either the Turnbull government or the Palaszczuk government from offering huge subsidies to get one going.

And when politicians are waving their cheque books, you can usually find some enterprising miner – usually foreign and often tax-haven-based – confident of their ability to extract more from the government than the government extracts from them, even if history tells us most go out backwards.

There's a large element of con trick in mining projects. Their supposed attraction is the many jobs they're said to create. But these numbers are invariably hugely exaggerated and, in any case, relate only to the construction phase.

The one thing new mines don't do is create many jobs, barring the first few years.

What they do is create short booms and long busts for nearby towns. They're the bringer of all the joys of going cold turkey.

Viewed from the front, however, they look like Christmas. No wonder our vision-bereft politicians are addicted.

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Why we've never had 'Gonski funding'

It turns out Christopher Pyne was right: Julia Gillard's version of the Gonski school funding reform was indeed "C​onski".

The con was that the funding changes Gillard put into law in 2013 – which Labor and the teacher unions christened "Gonski" and have virtuously defended from Coalition attack ever since – bore only a vague resemblance to what leading company director David Gonski's panel recommended in its report to the government in 2011.

In a speech last week, Dr Ken Boston, a member of the panel and former NSW Education Department director-general, argued that much of what people think they know about "Gonski" is wrong. He listed four common beliefs that are mistaken.

First, many people believe the Gonski report said additional funding was the key to improving education.

Wrong. "The Gonski report did not see additional funding as the key to improving Australian education. It's most critical recommendations were about the redistribution of existing funding to individual schools on the basis of measured need," Boston said.

"The report envisaged the amount allocated to independent schools being based on the measured need of each individual school, and the amounts allocated to Catholic and government systems being determined by the sum of the measured needs of the individual schools within each system – a process of building funding up from the bottom."

This was in sharp contrast to the process of the last 40 years: top-down political negotiation by the federal government with state governments, independent school organisations, church leaders, teacher unions and others, he said.

The outcome had been that the funding allocations to the three sectors – independent, Catholic systemic and government – were arrived at without any agreed and common system of assessing real need at the level of each individual school.

School funding has been "essentially based on a political settlement, sector-based and largely needs-blind", whereas the Gonski report proposed that it be determined on an educational, not political basis, be sector-blind and entirely needs-based, as well as being bottom up, not top down.

But Gillard rejected Gonski's recommendations and stuck with the old, religion-based arrangements.

"We concluded that an additional $5 billion might be needed on top of the $39 billion being spent annually by the state and federal governments, because of the commitment given by the federal government [Gillard], after the review had started, that no school would lose a dollar as a result of the review.

"This was an albatross around our necks," Boston said.

The second common misunderstanding was that the Gillard and second Rudd governments, having adopted Gonski's approach, then reached "Gonski agreements" with the states, promising additional "Gonski funding" over six years.

Nothing Gonski about it. Gonski recommended that the loading for non-government schools as a proportion of "average government school recurrent costs" – a biased formula that meant public funding for new places for children in disadvantaged government schools automatically increased the federal government grants to non-government schools, without any consideration of disadvantage – should cease.

Gillard, supposedly that great champion of needs-based funding, kept the biased formula alive.

Gonski recommended that the basis for general recurrent funding for all students in all sectors be a "schooling resource standard" for each school, set at a level comparable with schools with minimal educational disadvantage.

To this should be added loadings for schools according to their social disadvantage – low socioeconomic status, English language proficiency, school size and location, and indigeneity​.

Calculation of the resource standard and the size of the loadings should be done by a "national schools resourcing body", similar to the former Schools Commission. Gillard wouldn't touch it.

"Like the Coalition government, Labor has ducked the fundamental issue of the relationship between aggregated​ social disadvantage and poor educational outcomes, and has turned its back on the development of an enduring funding system that is fair, transparent, financially sustainable and effective in promoting excellent outcomes for all Australian students," Boston said.

The third misunderstanding – which Boston labels "the Fairfax view" (not this time, Ken) – is that most of the problems facing Australian education would be solved if we got the last two years of "Gonski funding".

It's true that, so as to disguise the true cost of Labor's politically gutless, bastardised version of Gonski, it was to be phased in over six calendar years, with the bulk of the cost loaded into the last two years, 2018 and 2019.

This was $4.5 billion, which the Turnbull government has cut to $1.2 billion over the four years to 2021.

Even so, "providing the so-called 'last two years of Gonski funding' will not deal with the fundamental problem facing Australian education. Neither side of politics is talking about the strategic redistribution of available funding to the things that matter in the schools that need it, on the basis of measuring the need of each individual school," Boston said.

The fourth common misconception is that the two sides of politics are poles apart. At one level, yes. What they have in common, however, is that neither is genuinely interested in moving to needs-based funding.

"The government and opposition are fluffing around the margins of the issue, and neither appears to understand the magnitude of the reform that is needed, or – if they do – to have the capacity to tackle it," Boston said.

"Equity and school outcomes have both deteriorated sharply since we wrote the Gonski report. Some stark realities now shape the context in which governments – state and federal – must make decisions two months from now about how Australian education might recover from its long-term continuing decline.

"The present quasi-market system of schooling, the contours of which were shaped by the Hawke and Howard governments, has comprehensively failed.

"We are on a path to nowhere. The issue is profoundly deeper than argument about the last two years of 'Gonski funding'," he concluded.

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How Shorten is wedging Turnbull at our expense

Eighteen lobby groups ranging from the Business Council to the ACTU have pleaded with political leaders on both sides to "stop partisan antics" and reach agreement on reform of the energy market, ending all the uncertainty. Fat chance.

They're quite justified, of course. When businesses are making hugely expensive investments in generation plants that may last for 50 years, they need to know what the government's rules are – and that the other side won't come along and change everything.

But such a plea assumes our politicians are prepared to give the good government of the nation top priority.

They're not. On both sides top priority goes to winning the next election.

These days, the two sides of politics are quietly busy getting issues lined up in a way that gives them the advantage in that election.

The pollies play an unending game of "wedge and block". You try to take a position on a particular issue that drives a wedge between the different wings of the other party.

It has to decide whether to be pragmatic and take the position it knows is popular with voters, or stick with the position it nominally stands for and favours the interests and prejudices of the party's base.

If it takes the popular position you've taken, it's successfully blocked your move (but left its heartland unhappy). If it stands its traditional ground, its base is happy, but it's lost votes to you.

You've successfully driven a wedge between it and the voters, putting you on the way to winning.

Each side's goal is to manoeuvre the other side into a situation where the election campaign is dominated by those issues that favour you.

You seek to wedge the other side on those issues where you have a natural advantage (your biases align with the voters') while blocking the other side's attempted wedges on issues where it has the natural advantage.

Labor voters are proud of its advocacy of the national disability insurance scheme and the Gonski schools funding reform, yet Julia Gillard damaged both by trying to use them to wedge Tony Abbott at the 2013 election.

She belatedly proposed an increase in the Medicare levy to help fund the NDIS, hoping Tony No-tax-increases Abbott would oppose it, so she could accuse him of hating the disabled.

Abbott woke up and quietly agreed to the tax increase.

Gillard delayed the introduction of Gonski until the election year (meaning most Coalition states wouldn't sign up) hoping Abbott would oppose it and she could accuse him of hating public schools.

Abbott and his elite private-school shadow cabinet denigrated "Conski" until he woke up and claimed he was on a "unity ticket" with Labor on schools funding – a commitment he ditched the moment he'd won the election.

Look behind all the present argy-bargy between the pollies and you see Bill Shorten trying to keep alive all the key policy issues that got him so close to winning last year's election.

He's having remarkable success retaining last time's wedges against the government because Malcolm Turnbull is hamstrung by the dominant hard right faction on his backbench, which is insisting on doctrinal purity.

Last week internal party pressure caused Turnbull to disown talk of tightening the capital gains tax discount for rental properties, even though this would have blocked Labor's use of opposition to negative gearing to attract younger voters (as well as helping the budget).

Far more voters' kids go to government than non-government schools. We desperately need to move to needs-based funding regardless of school sector, so we can get on with the more pressing issue of lifting students' performance.

But Gillard's version of Gonski is way too expensive (incongruously, because of Labor's visceral fear of offending elite private schools).

It's clear the minister, Simon Birmingham, is working on a compromise, but Labor is refusing to countenance anything but "the full Gonski".

It wants to keep the issue alive and the Coalition successfully wedged.

Most voters accept the reality of climate change and want effective action to help limit it, but with the minimum increase in energy prices.

People of goodwill developed a face-saving way for Turnbull to make progress on emissions reduction without much increase in retail prices, called an "emissions intensity scheme".

Since Labor has a similar scheme, Turnbull could have blocked the climate change wedge without political risk. But the disguised deniers sitting behind him were so opposed he had to swear off it.

Neither side of politics has any interest in finding a compromise that would give our energy sector the policy stability needed for it to adjust to the world's low-carbon future.

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Shorten's New Year's resolution: practice what I preach

People are always complaining that our politicians – on both sides – are "out of touch". They're too high and mighty to understand the things that are annoying ordinary people in ordinary life.

This is a big part of the reason almost one person in four voted for a minor party in last year's election. The political establishment just doesn't get it.

But one of our pollies does claim to have got the message. Wading through all the usual guff in the start-of-the-year speech Bill Shorten gave last week, I came upon a passage so surprising I thought it worth recording.

"Restoring ... faith in the system is the threshold challenge for politics today. Rusted-on supporters and deep tribal loyalties are not what they once were," he said.

"There is one certainty in 2017: people are disengaged from politics and they're distrustful of politicians.

"To many Australians the political system is broken – and more than a few don't trust us to fix it.

"I say 'us' because virtually everyone in this room [at the National Press Club] is considered part of the problem, part of the political class.

"Rightly or wrongly, fairly or unfairly, we are seen as members of the same insider club, letting down the rest of Australia.

"This sense of alienation isn't a local curiosity – it's a global phenomenon. Strong enough to take Britain out of Europe – and put Donald Trump in the White House.

"And in these unusual times, politics-as-usual doesn't cut it any more.

"Yes, we are an adversarial democracy, built on the clash of ideas – I honour that. My job, as Leader of the Opposition, is to oppose what I believe is wrong. My job ... is to put positive ideas forward.

"But this year I am going to remind myself as often as possible: people first, politics last. I can't guarantee I'll always get that right – but I'm certainly going to try.

"Because Australians are sick to their core of the petty schoolyard bickering, he-said she-said, the tit-for-tat.

"They're not opposed to genuine debate about the future – but they are over the smallness of so much of the national political conversation ...

"Mind you, that counts for nothing if [scandals over politicians' expense claims make] people think we are acting in our own interests, instead of theirs."

Wow. But this column is no free ad for Team Shorten. I wanted to record it because it was so true, but also to help the man stick to his New Year's resolution.

Actually, it shouldn't surprise that Shorten "gets" all that. Our politicians aren't "out of touch" because that's why their parties (and sometimes, we taxpayers) spend thousands every year conducting focus groups with ordinary voters.

I bet that some of the phrases Shorten used were lifted straight from Labor's market research. Someone in the group blurts out some pithy opinion, everyone else says "Yeah, that's right!" and the researcher writes it down for future use.

As the "political class" knows, the punters love having their own opinions fed back to them. I'd also bet that both parties' rival researchers tell them much the same things about what voters like and dislike.

But if the pollies know how much we hate the way they carry on, why do they keep doing it?

Because some of the things they do still work, even though we hate them. Because they want to win the next election at all cost, and so are willing to do things that bring them immediate advantage, even though they add to the long-term fouling of the collective political nest.

Because many of the unconvincing things they say are intended to shore up the faith of the party faithful, not persuade the rest of us.

Because both sides are afraid that if they're the first to stop behaving badly, the other side will wipe the floor with them. Economists call this a "collective action problem", which can only be fixed by some outside authority imposing a solution on both sides.

Back to Shorten's resolution. It would certainly be a big change to Labor's behaviour since its success at last year's election left Malcolm Turnbull with such a tiny majority.

Labor has followed a sneaky strategy of giving the appearance of co-operation and positivity while quietly seizing opportunities to frustrate the government's program, making it look impotent and unstable.

To keep same-sex marriage alive as an issue for the next election, it has blocked Turnbull's plebiscite, using the excuse that the gay community wanted to avoid the risk of an abusive debate.

Were it less self-interested it would have advised gays that few great social advances come without pain, and that failing to take advantage of the public's present mood of approval risked having to wait many years for what they want so badly.

Just to make life hard for the government, Labor has ignored its principles and sided with Liberal dissidents and rich superannuants claiming Turnbull's super reforms were "retrospective" and sided with asset-rich oldies opposing Turnbull's reform of the age pension means test.

And now, it seems, Labor's preparing to side with elite private schools objecting to the government redirecting some of their lolly to more needy students.

What were you saying about voters being sick of rival politicians playing tit-for-tat, Bill?

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Politicised Treasury bites own tail, covers for Turnbull

Shadow treasurer Chris Bowen is right: One of the Abbott-Turnbull government's various acts of economic vandalism is its politicisation of the once-proud federal Treasury.

Among Tony Abbott's first acts upon becoming prime minister in 2013 was to sack the secretary to Treasury, Dr Martin Parkinson.

Even so, Parkinson was left in place for more than a year before being replaced by John Fraser, a retired funds manager, hand-picked by Abbott.

Fraser had risen through the ranks of Treasury under the formative influence of the legendary John Stone, until he left in the early 1990s to make his fortune in the money market.

When Fraser returned in triumph to take the top job, singing the praises of Margaret Thatcher, Ronald Reagan and David Cameron's austerity policy in Britain, it seemed clear he hadn't spent the intervening decades keeping up with developments in thinking about fiscal (budgetary) policy.

The Abbott government's next act of politicisation came a few months later with the publication of Treasury's fourth five-yearly intergenerational report.

It had been turned into a partisan propaganda rag, full of dubious figuring intended to prove the Abbott government's failure to return the budget to surplus as promised was all the fault of the previous Labor government. The media tossed the report aside.

The latest stage in the politicisation of Treasury came last week with its publication of a report on The Effectiveness of Federal Fiscal Policy, commissioned from Professor Tony Makin, of Griffith University.

If you've never heard of Makin's work, you'll be surprised to learn he regards fiscal policy as utterly ineffective and probably counterproductive.

If you have heard of it, you won't be. Makin's views on the ineffectiveness of fiscal "activism" – using budgetary stimulus to assist recovery during recessions – are well known, unchanged and unchanging.

He's the go-to guy for anyone who'd like an independent report asserting that fiscal policy doesn't work – never has and never could.

In all the decades since Makin made up his mind on this question, all the academic theorising and empirical evidence from the real world have served only to confirm the wisdom of that decision.

His paper's "review" starts by rubbishing that deluded fool John Maynard Keynes – who, presumably, will never attain the intellectual heights reached by Makin and his mates – and praising such giants of the profession as Robert Mundell, Marcus Fleming, Robert Lucas and Thomas Sargent.

It then reprises Makin's well-rehearsed argument that the Rudd government's budgetary stimulus – undertaken at the urging of the then Treasury secretary, Dr Ken Henry – was unnecessary and unhelpful.

And finally it does a lot of hand-wringing about the rapid growth in the public debt (especially when you exaggerate the size of the debt by quoting gross rather than net, a trick Makin seems to have learnt from Barnaby Joyce), the burden being left to our children, and the need to make reducing recurrent government spending our top fiscal priority.

One small problem – the last time Makin ran his anti-activism line, in a paper commissioned by the Minerals Council, Treasury issued a detailed refutation. Makin seems to have taken none of its substantive criticisms into account in his Treasury-commissioned version.

This is a measure of the extent to which politicisation has changed Treasury's tune.

Apart from correcting various factual errors, old Treasury noted that the 1960s-era Mundell-Fleming open economy model Makin uses relies on extreme assumptions that don't hold in Australia's case, and certainly didn't hold during the global financial crisis.

Makin is unimpressed that, at that time, such lightweights as the International Monetary Fund and the Organisation for Economic Co-operation and Development heaped praise on the Rudd government's budgetary stimulus.

So why has new Treasury chosen now to pay one of its former critics to repeat his ill-founded criticisms?

One reason is that Fraser left Treasury not long after it had advised the Hawke government not to use fiscal policy to respond to the severe recession of the early 1990s, but to rely solely on monetary policy (lower interest rates).

Henry and others in Treasury eventually realised how bad that advice had been. Indeed, Henry's advice to Rudd was influenced by a determination not to repeat the mistake. But Fraser had left the building by then and didn't read the memo.

Another reason is that, now, both the IMF and the OECD are urging the Turnbull government to help strengthen the economy by increasing its spending on worthwhile infrastructure.

What's more, some guy called Dr Philip Lowe has been saying the same thing. Forcefully.

Makin has been hired to tell these idiots they don't know what they're talking about.

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Our politicians go populist at their peril

If I were an Australian politician I'd think hard about the ascension of Donald Trump before I drew conclusions for local consumption.

When someone so unattractive surprises us by winning, it's tempting to conclude he must have done so because of a massive surge of anger over immigrants, Muslims and jobs lost through trade agreements.

We connect this with the Brexit surprise and the resurrection of One Nation and conclude we're witnessing a worldwide populist uprising against globalisation and "neo-liberalism".

Pollies on both sides wonder whether they should protect their backs by reverting to more protectionist policies, rejecting more Chinese investment and shouting louder about Australia-first.

But such a reaction much exaggerates the popularity of populism in America – as is clearer now more of the vote has been counted.

First, note that Hillary Clinton got over a million votes more than Donald Trump did. He actually got fewer votes than Mitt Romney in 2012 and John McCain in 2008.

How is such a wide discrepancy between the popular vote and the electoral college result possible? Because the many smaller states get a disproportionate number of votes in the college.

So Trump won because he got more votes in the right places – three or four smaller "swing states" in the midwest Rust Belt, which normally vote Democrat.

It's true Trump won these states because enough white males without college educations found his plain-talking and promise to "make America great again" – that is, bring jobs back to the Rust Belt – more attractive than establishing a Clinton dynasty.

But let's not kid ourselves America is seeing a nation-wide upsurge in populist protectionism, any more than One Nation's ability to exploit an ill-judged double dissolution represents an existential threat to Labor or the Coalition.

Next, remember populist sentiments can't be satisfied. They're about the expression of emotion – anger, frustration, envy, fear of foreigners, resentment of city-slickers and the better-educated – not about rational choices.

They're about wishing the world hadn't changed and wishing some saviour could change it back.

Populism is about ignoring the things that have changed for the good – such as much lower prices for clothes, groceries, hardware, electronic goods, cars and much else – and assuming we can reverse the changes we don't like without losing the benefits we've come to take for granted.

Populism is about explaining the decline in employment in manufacturing, and the shift in economic activity from the Rust Belt to the Sun Belt, solely in terms of free-trade agreements – which were made by governments and so supposedly can be reversed – while ignoring the much greater role played by technological change, which happened in spite of governments and can't be stopped by governments.

It's perfectly possible for America to make no further trade agreements, but only an American could delude themselves that their government could tear up longstanding agreements with other countries while those countries sucked it up.

Protectionist moves lead to retaliation by your trading partners. That leaves both sides worse off.

Consider all the wild promises Trump made to con the Rust Belt's white male workers into voting for him: a wall along the Mexican border, a 35 per cent tariff on Mexican imports and 45 per cent on Chinese imports, plus renegotiation of the North American free-trade agreement.

Assuming he wanted to, he can't actually do these things. Assuming somehow he could, they wouldn't fix the problem the way his dupes imagine, while introducing a new set of problems.

This says it won't be long before the Rust Belt's plain talkers realise they've been conned.

Add to them the majority that didn't want him in first place, and the many who held their nose and voted Republican because they couldn't stomach any Democrat, and it's not hard to see Trump setting records for the time it takes a president to become thoroughly on the nose.

Sound like a winning formula for our pollies to copy? Since populism fosters aspirations that can't be satisfied, it's suited to new, minor parties, but a high-risk tactic for parties that stand a chance of getting to government and having to deliver on the expectations raised.

None of this says the Rust Belt revolters don't have legitimate grievances.

A small group of business heavies and well-educated city-slickers has grabbed almost all the benefits from the structural change that's so disadvantaged the rust-belters, without governments – even Democrat majorities – doing much to oblige the winners to share with the losers.

For once in their lives, rather than going lower when they see the Yanks go lower, our pollies should, to quote Michelle Obama, "go high when they go low".

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Why Trump won't be as big and bad as many fear

Sorry, but I find the ascent of Donald Trump more fascinating than frightening. If it's all going to be so terrible, how exactly is he going to make it happen?

If you take literally all the things he's said he'll do, it will be a disaster. But anyone who believes all the things politicians say in the heat of election campaigns isn't too bright.

It wouldn't surprise me if many of the people whose votes got him elected don't know half of what he promised, don't much care what he promised and certainly don't expect him to deliver.

They voted for him because, in their anger with the business and political establishment, they wanted to give the system a kick up the bum. The less he sounded like a proper politician, the more they thought him the man for that job.

Because Trump isn't part of the standard two-party system and didn't win the election the orthodox way, it's more relevant than usual to ask what motivated him to run for president.

It wouldn't surprise me if he was more interested in proving he knew the right buttons to press to be president, or was popular enough to be president - that he could ensure he was the last contestant voted off the island - than he was in actually doing a list of things to "make America great again".

How keen will he be to take on four years of 18-hour days making unending judgment calls?

When you think of all the struggle needed to "drain the swamp", he strikes me as more Phony Tough than Crazy Brave.

Much of the commentary we've seen so far is very "great man theory of history". Trump is such a wild man, he'll single-handedly destroy the American alliance, end America's world supremacy, start a global trade war that reverses globalisation and resumes the Great Depression, and maybe provoke a shooting war with China.

Was that in his first term, or would it take two?

Sorry, I lean more to the view that history is a product of pre-existing trajectory, random developments and the interaction of powerful political and social institutions.

They say that in the race of life, you should always back Self-interest because at least you know it's trying. I'd also put a couple of bob on Inertia.

In the coming history of the Trump administration, I see big roles for self-interest and inertia, aka the status quo.

Start with the Republicans. The hated usurper Trump, rather than dumping them in it, has had a famous victory in their name, ensured Republican majorities in both houses of Congress, and acquired control over countless perks and preferments.

If you were in the Republican caravan, what would you be doing? Sucking up.

There's an army of worthies - academics, think-tankers, bureaucrats, retired generals, former lobbyists, business people and Wall Street bankers - who spend their careers moving in and out of taxpayer-funded jobs in Republican administrations.

Trump will be knocked over in the rush to be his special friend. The thousands seeking a gig will have two dominant motivations: a share of the spoils of office and a say in the shaping of policy.

There's probably only one Republican in the country who agrees with every item on Trump's supposed to-do list, and that's the man himself.

If so, every other Republican will be hoping to persuade Trump to drop this, tone down that, add this and put that one on the backburner.

Do you really think he's going to spend his 18-hour days ensuring every bright sales idea written on the back of an envelope during the campaign remains inviolate?

What about all the real, professional econocrats, diplomats and generals? "Alienate our closest allies? Start a trade war? Good idea, Mr President."

Remember, too, that presidents often have trouble getting their policies passed by Congress, even when it's of the same political colour.

There's far less party discipline in the American political system, with individual congress people requiring a small bribe (hopefully, only something for their constituency) before they toe the party line.

They're also anxious to keep sweet with the main interest groups that contributed to their campaign costs.

Which brings us to Washington's other big industry, the lobbyists. They're going to meekly bow before Trump's sacred list of bright ideas, are they?

No, they're going to go on doing what they're so handsomely paid to do: mould the actions of president and Congress to fit the perceived interests of their generous customers.

Who are these big-spending interest groups? Well, the ones with the most money to splash around are the ones representing the most successful and powerful industries. The gun industry, for instance.

But, right at the head of the list, Wall Street - the people whose greed caused the global financial crisis, who got bailed out by the taxpayer, avoided going to jail and left millions of ordinary people to pick up the pieces of their lives.

Many of those ordinary people are those who voted for the larrikin Trump, hoping he'd give Wall Street an almighty kick up the bracket - he being a regular plain-talkin' guy, just like them.

Get it? The business and political establishment is still running the place, still ensuring their interests are put ahead of those of the lesser mortals silly enough to vote for Trump.

Now Trump has no choice but to turn to them, seeking their help in running the joint and implementing his brave plan to put them and their paymasters back in their box.

They'll be falling over themselves to help - and mould the egotistical Trump to their masters' will.

It's a recipe for inertia and preservation of America's system much the way it's always been.

Trump's amazing defeat of the political establishment isn't so much the revolt of the put-upon punters, as just another political con job.

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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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Election result need not be a setback for good government

Maybe those who complain about a boring election campaign are condemned to an exciting election finish. Many in the establishment – particularly the business establishment – have convinced themselves the country is off to hell in a handcart, but it doesn't have to be like that.

The nation won't be ungovernable provided Malcolm Turnbull is willing to negotiate with the minor parties when necessary – hardly a new experience for governments, which rarely have a majority in the Senate.

Nor does it follow that the government will be unable to hasten the budget's return to surplus.

As a study by the Australia Institute has demonstrated, much of this year's budget can be legislated, particularly with a little compromise.

In any case, the budget is not the economy. And, contrary to any casual impression you may have absorbed, the prospects for the economy remain reasonable.

Brexit is bad news for the Brits, and adds to Europe's many problems, but it's not big enough to greatly affect the rest of us. The US economy is gathering speed.

The messy election result won't have much effect on the economy. Business loves whingeing about "uncertainty" – when it's got nothing else to do or say, that's what it does – but the period of transition from the mining investment boom is getting towards its end and, as it does, the rest of business will be getting on with it.

The economy has been growing at a rate that's about average, and the best guess is it will continue doing so. It has been creating additional jobs and this should continue.

For all that, however, there are messages for politicians on both sides from this election. How well they listen will determine how well we are governed over the next three years.

(Don't fall for the one about how we'll be back to the polls in no time. The more-excitable always say that at times like this.)

The first message comes from the continuing decline in people voting for the major parties. The proportion of voters giving their first preference to a minor party reached almost one in four.

This is not surprising when you remember how standards of conduct have fallen: the broken promises, the scare campaigns, the negativity and automatic opposition to whatever the other side says, the statements that are true in some sense but have been crafted to mislead.

The plain fact is that the mainstream politicians have forfeited our trust and lost our respect.

Many of us have concluded they're all liars, and we tune out whenever they start slagging each other off, or arguing about who has the bigger hole in their costings. They could save themselves much energy if they learnt not to bother doing this.

The message for the government is that it must broaden its appeal if it wants to attract a comfortable majority of two-party-preferred vote.

Any lapse into infighting between Abbott and Turnbull supporters will be the final proof the Coalition is no different from Labor.

The Coalition campaigned on its plan for jobs and growth (which boiled down to a cut in the rate of company tax), while Labor campaigned on the public's worries about cuts to government spending on education and health.

Labor's success in this argument explains why it did so much better than expected.

The Coalition suffered from the lingering resentment and suspicion provoked by Tony Abbott's first budget, which attempted to fix the deficit almost solely through cuts to the spending on health, education and welfare depended on by low and middle income-earners, while protecting the earnings of businesses supplying services to government and the tax breaks enjoyed particularly by high income-earners.

Many of those measures were abandoned, though some remain "zombie measures", rejected by the Senate but still on the government's books.

The memory of that deal-breaker budget was kept alive by Scott Morrison's insistence that the budget had a spending problem, not a revenue problem. (Surely Turnbull will use this opportunity to find Morrison "a job to which you're better suited".)

The message for the Coalition is obvious: it must switch to budgeting for all Australians. That means tax increases as well as spending changes that seek genuine efficiencies in contracting with business suppliers (drug companies, for instance), not just cost-shifting to the public.

The message for Labor is that its strategy of not being as obstructionist towards the government as Abbott in opposition was towards it, and of making itself a big target in the election by proposing "positive policies" (such as limiting negative gearing), worked well.

So now is not the time to revert to Abbott-like spoiler behaviour – if I wreck the joint they'll have to give up and hand over to me.

When they combine, the two sides can get anything through the Senate. Labor can win itself voter respect for being sane and sensible without bowing to the government's every wish.

It can help with the compromises. And when the government's fighting the good fight against powerful interests (such as the two big pathology companies, and the Coalition greedies​ making spurious claims about retrospective super changes) it can resist the unworthy temptation to take advantage of it.

With Labor now hopeful of winning next time, any budget nasty it helps the government fix now will be a problem it won't have to fix then.

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Shorten gains tactical advantage over Turnbull

Various of the tax changes the Coalition government is taking to the election are things it earlier said it wouldn't do. And various of the tax changes it now says it wouldn't dream of doing are things it earlier dreamt of doing.

What's more, various of the tax increases it ended up copying from Labor – the further swingeing increases in the excise on tobacco, the crackdown on multinational tax shirkers and the cutbacks in superannuation tax concessions for the wealthy – it had earlier criticised Labor for doing.

Partly because of its change of leader, the Coalition has had trouble deciding what it will or won't do. But also, I suspect, Malcolm Turnbull is the kind of leader who tends to make up his mind in semi-public, weighing the pros and cons before deciding which way to jump.

Labor, on the other hand, made up its mind early about its key policies. That's partly in response to the public's reaction against Tony Abbott's extreme negativity while in opposition.

It's also because, lacking much to offer in the personality department – and anxious to counter memories of division and instability in the Rudd-Gillard-Rudd years – Labor decided to be the first Opposition since John Hewson and his phonebook-sized Fightback! program to make itself a large target not a small one.

It's been announcing policies for about a year and talking incessantly about its "positive policies" on 100 topics.

The broader point, however, is that the parties aren't nearly as far apart as it suits them to have us believe during election campaigns, when they're whipping up partisan feeling and trying to convince us the choice we make between them will determine whether the economy heads for heaven or hell.

What in recent months we've observed more clearly than usual is the parties manoeuvring for advantage in this year's election campaign.

Most of us have highly stereotypical, caricatured views of the parties' respective strengths and weaknesses.

The Liberals, being the party of the bosses, are better at running things, particularly the economy. They're better at keeping inflation and interest rates low (except that, at present, they're probably too low). They're better at keeping the budget on track, avoiding wasteful spending and excessive taxation.

Labor, being the party of the workers, is better at ensuring wages and working conditions are reasonable. It will do more to keep unemployment low. Being less of a monetary taskmaster, it will do more to ensure government spending on health and education is adequate.

Or so we imagine.

The goal of the parties' manoeuvring is to ensure the main issues over which the election is fought are those that suit their perceived strengths relative to their opponents'.

When an issue arises that favours your opponents, you neutralise it as quickly and quietly as possible – even if that involves going against your stated values.

When, for instance, Abbott tells us of his implacable opposition to higher taxes, so Julia Gillard tries to "wedge" him by proposing a 0.5 percentage-point increase in the Medicare levy to help pay for the national disability insurance scheme, hoping he'll oppose it, he quickly agrees to the increase.

Since the media know election campaigns are about conflict – not about making sure your audience understand what the pollies are doing to them – this two-party conspiracy to raise our taxes is never mentioned again.

Bill Shorten may not have Turnbull's good looks, but I suspect his long experience in the union movement makes him better at political tactics.

Turnbull's vulnerability is that he's easily portrayed as a rich man – Mr Harbourside Mansion – who's out of touch with ordinary Australians, and is in politics to deliver for the Libs' big business backers.

There's a spate of stories about the banks mistreating their customers, so Labor promises a royal commission into banking. Turnbull says that would be quite unnecessary, especially since we already have that ferocious attack dog the Australian Securities and Investments Commission on the job.

What's more, though he's been cutting the commission's funds until now, now he'll increase them.

Who do you think won that skirmish?

At a time when young people are being priced out of home ownership, Labor promises to act against negative gearing. Turnbull thinks of doing something similar, but decides against it. He's defending negative gearers, claiming Labor would cause house prices to collapse.

Who do you think won that skirmish?

There's a spate of stories about big foreign companies paying next to no tax in Australia. Labor promises new taxes to catch them. Turnbull follows suit. What's more, though he's been cutting the Tax Office's funds until now, now he'll increase them.

Because Labor is, as we're always being told, the tax-and-spend party, it has proposed some big tax increases to be paid by smokers, foreign companies and rich superannuants.

It proposes to use the proceeds mainly to restore the funding to health and education cut by the Coalition.

Turnbull copies Labor's three tax increases, but uses the proceeds to help pay for a tiny tax cut for the top quarter of income-earners and a 10-year phased cut in the rate of company tax which, he claims, will do wonders to generate "jobs and growth".

The public believes companies should be paying more tax, not less. Who you think jumped the right way on that one?

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How to unspin the budget

You can't look hard at the budget and its glitzy packaging without being reminded of Rob Sitch's highly educational TV show, Utopia.

My colleague Peter Martin has detected that the Turnbull government, as distinct from its Coalition predecessor, is less ideological and more evidence-based in its policy making. Its reforms to superannuation and Work for the Dole are prime examples.

That's good news. Even so, the more intelligent and articulate Malcolm Turnbull hasn't been able to withstand the pressure to use spin doctors to massage his messages to the electorate.

A better term for that dubious profession is "perception manipulators". They "operationalise" one of modern politicians' core beliefs: the perception is the reality.

The world of government is such a complicated place that reality is seen only in glimpses - which is hugely fortunate for our pollies because the reality is usually much harder and more costly to fix. It's a lot easier to manipulate the punters' perceptions of that reality.

Scott Morrison has been relentless in insisting that the budget is not just another budget, but an economic plan for jobs and growth.

Really? Name the budget that hasn't been a plan for jobs and growth.

So why the fuss this year? Because, to quote Morrison, "Australians have clearly said we must have an economic plan". How does he know what Australians have clearly said? Because that's what a few of them said to the Liberal Party's focus groups.

Feeding back to voters the sentiments they've expressed in your focus-group research is a standard perception manipulators' trick.

My guess is the government had a collection of end-of-term and pre-election bits and pieces it wanted to get up, but felt it should package them as an "overarching narrative" by saying they were a plan.

A plan about what? The usual: jobs and growth. Just about everything you do - raise the tax on cigarettes, stop wealthy people like me saving too much in tax-sheltered super accounts - can be portrayed as helping to promote jobs and growth. And they were.

Every non-plan plan needs to come in impressive packaging. The plain and earnest budget papers prepared by Treasury and Finance have long been accompanied by an overview booklet prepared by the spin doctors and disparagingly referred to by the econocrats as "the glossy".

This year there are four glossy documents, not one. And whereas the original majored in fancy graphs and tables, the extras add a lot of colour pics of good looking punters. It's fiscal bling.

Even the budget website has had the interior decorators in. You now have to click through a host of pretty fluff to find what you need.

Key to the success of perception manipulation is the use of magic words - words with strong positive or negative connotations, words that arouse emotions.

What words are guaranteed to frighten punters? Try "debt" and "deficit". What word gladdens the hearts of business people? "Growth".

And of the punters? "Jobs". They may not claim to know anything much about economics, but one thing they do know: there can never be enough jobs. Claim to be creating them and you're well on the way to the punters' tick.

This time the magic-word workhorse is "middle". Almost all Australians believe themselves to be middle class, on incomes near the middle. The higher your income, the less your ability to know where the middle is.

Morrison never actually said his tiny tax cut for people earning more than $80,000 a year was aimed at middle-income earners, all he said (correctly) was that the threshold had been set just above the average full-time wage.

That was enough to have innumerate political journalists - particularly at the ABC - saying it for him.

Trouble is, almost a third of wage-earners are part-time, not full-time. And plenty of taxpayers aren't employees. What's more, the relatively small number of people on super-high incomes means that the "average" or mean taxpayer's income is well above the middle (or median) taxpayer's income.

All this explains why the tax cut will go to only about the top quarter of taxpayers. That's the middle?

These days, no self-respecting perception manipulator fails to pull some "modelling" out of his bag of tricks. The results of the modelling are almost invariably misrepresented, being made to sound more significant than they are.

The spin meisters​ pray the media won't actually look at the modelling, and their prayers are almost always answered.

You can blame it all on ever-declining standards of political behaviour - which Turnbull's arrival has failed to arrest - or you can share the blame with a media that allows itself to be manipulated.

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