Australia’s much vaunted 29-year run of uninterrupted economic growth has come to an abrupt end. Markets are shaky, unemployment rising, and we’ve picked an unnecessary fight with our biggest trading partner. How did we get here, and how do we get out?
We recently interviewed Andrew Leigh MP and former opposition leader John Hewson. Here are some of their insights along with additional thoughts from us.
John Hewson gave a blunt assessment of just how divisive and hyper-partisan Australian politics had become over the past three decades.
“Politics has become more and more a game. [A] short-term, opportunistic, mostly negative, divisive game. Ever since the 80s & early 90s, politics has been very short-term. As a result, reform has stalled.”
Andrew Leigh assessed the pros and cons of different modes of bipartisanship.
“Within a bipartisan political system, you don’t want everything to be mushy centrism. There is value in having two political parties that articulate distinct ideologies, and I’m enough of a Hegelian to think that produces useful differences and potentially produce outcomes that are better than you get from ‘group think’. I am certainly under no illusions that we will ever have grand coalitions running the country. Even in wartime, we didn’t do that. The party structure serves Australia well, as a way of channelling the ideological differences that inherently exist within the population.”
First wave of reforms
Australia’s first wave of contemporary macroeconomic reform began with tariff reform, financial deregulation and the floating of the Australian dollar in the 1980s. The foundations for these reforms were laid in the 1960s (particularly for superannuation) and the 1970s (for finance, trade and industrial relations).
Hewson on the first wave: a different kind of debate, that laid foundations for future reforms
“There was a lot of argument in the Fraser years, the Whitlam years. In the end [the debate] wasn’t as destructive and divisive – it was more on some sort of higher plane about the policy. The policy doesn’t seem to matter anymore.
“I supported the Keating tax package in 85 before it came to parliament. Option C [including a GST] was the preferred option. He got rolled by his own party. Hawke and Kelty did that motel room deal to knock it over. As he said at the time: ‘give us the nasties and none of the reform.’
“Hawke wanted to break our link with China over Tiananmen Square. I went to China. I led a delegation to talk the senior Chinese, talked about having to put up interest rates otherwise they would have to put them up higher later and cause a recession. I promoted zero tariff protection – [which] made it easy for Keating to cut any level of protection.”
Leigh on the early years of reform:
“My take on bipartisanship is that one of the areas it has best served Australia is in our tariff reductions that took place from 1973 right through to the late 1990s. What strikes me about those tariff reductions is that they were unilateral. Australia took rocks out of our own harbours – regardless of whether other countries were taking rocks out of their harbours – and that is quite unusual – but served the Australian economy very well. It brought lower consumer prices, greater completive pressure on Australian firms and a more dynamic economy. It was only possible because there was support for those tariff cuts from the conservatives. The 1988 and 1991 tariff cuts were supported by the Liberals. I once asked a Liberal if they thought that if Tony Abbott would have supported the 1991 tariff cut at the time when we had double digit unemployment in Australia – they said ‘no way’. Abbott would have made a partisan issue of that – attacked the government – but the steady reduction in tariffs was good for the economy and is recognised now as one of the factors that spurred productivity growth for the next 20 to 30 years.”
GST and tax reform
The GST has been a feature of Australian politics for decades – sometimes with the parties at war over it, sometimes with solid agreement. In the infamous ‘birthday cake’ interview, just prior to the 1993 federal election, Mike Willesee asked John Hewson whether a birthday cake would cost more or less under a GST. Keating used this mercilessly and went on to achieve what he called ‘the sweetest victory of all’ – the icing on his career-cake.
Nevertheless, the GST would eventually become L.A.W in Australia, with bipartisan support at the federal and state levels of government. Years later, in an interview with Andrew Denton on ‘Enough Rope’ on 7 August 2010, John Hewson said:
“Well I answered the [cake] question honestly. The answer’s actually right. That doesn’t count, I should have told [Mike Willesee] to get stuffed.”
Hewson reflects on the GST in the context of recent events and the possibility of a higher rate:
“The tragedy of the 93 campaign is that we a detailed reform policy in every single area of public policy. The only two things we didn’t address were the republic and native title – which weren’t issues at the time. They became issues after the 93 election.
“Years later, at the Tax Summit in 2015, [NSW Liberal Premier] Mike Baird said he would support raising the GST and [SA Labor Premier] Jay Weatherill backed him. They [Turnbull government] wouldn’t do it. It was easy for Turnbull and them to say that’s a good idea. But they ruled it out. Jay said he couldn’t believe they didn’t take it. In the national interest, not in his particular state interest. He was staggered.”
Leigh on bipartisanship and ‘sharing a drink together’:
“As an economist I tend to think of bipartisanship as a confluence of interests – rather than being the product of particular personal relationships. In the US people talk a lot about the way in which Tip O’Neill and Ronald Reagan could share a drink together and that as having broken down.
“I don’t think the breakdown of bipartisanship in the United States has much to do with the consumption of alcohol in the Oval Office. I think it is much more to do with the way in which the modern-day Republican party has been taken over by much more extreme forces than those that controlled it in 1980s. Likewise in Australia, I’m more inclined to think about the underlying interest of the two parties rather than the personal relationships. Occasionally personal relationship can make a difference – but they are icing rather than cake.
“Reagan never let his political differences with Democrats become personal. He was fond of the Speaker’s motto that political battles ended at 6 p.m. So whenever he phoned O’Neill, he would say, ‘Hello Tip, it is after six o’clock?’ (Chris Matthews, Tip and the Gipper: When Politics Worked).”
Mugged by reality
In Australia, further waves of economic reform followed, with an eye to improving efficiency and productivity. The reforms included tariff cuts, partial decentralisation of wage setting, privatisation of government assets and broader microeconomic reforms.
Successive governments also introduced reforms that coaxed fiscal discipline, broadened the tax base, raised national saving, and improved the sustainability of large spending programs such as those in health, welfare and education.
Then, in September 2008, the global financial crisis hit Australia. PM Rudd announced the first stimulus package, which included pre-Christmas payments totalling $4.8 billion for pensioners, $3.9 billion in support for families, and $1.5 billion for first-home buyers.
Opposition leader Malcolm Turnbull said the Coalition would back the stimulus package. ‘It has our bipartisan support,‘ Mr Turnbull told a media conference. ‘It gives justice to Australia’s aged pensioners, in particular, who have been doing it tough.’
Leigh on the GFC:
“We had bipartisan support at the outset – the 2008 fiscal stimulus package was supported by the coalition. But that quickly unravelled. Part of that I think was the influence of the US policy debate on Australia. Turnbull as leader was listening to a range of the Republican economists – who were saying that you needed to put in place permanent income tax cuts – rather than temporary stimulus payments. It would have been catastrophic for the budget. He then went on to also oppose the 2009 package which we know was textbook designed – you do household payments because they are quick, you do infrastructure because it has a high multiplier effect. You put them together and you have what the OECD, IMF, Joe Stiglitz (American Nobel Prize winning economist) has described as ones of the world’s best stimulus responses. But we didn’t have bipartisanship there. Instead, Turnbull set about driving around the country with a debt truck – complaining about levels of gross debt which are a fifth of what we have today. He chose to make the partisan call.”
COVID-19 and today
In 2020 we’re are facing the biggest health crisis the world has seen since the Spanish flu of the early 1900s. We are also seeing an economic crisis: a giant, unprecedented economic ‘pause’, which will be studied for decades to come. On 30 March 2020, the Australian Government announced a third COVID stimulus package totalling a staggering $320 billion, or 16.4% of GDP.
On 8 April 2020, the Australian parliament reconvened to pass $130 billion wage subsidy legislation. There was no shaking of hands across the dispatch table, but our political leaders showed outstanding bipartisanship to ensure the smooth passage of the lifesaving and job-saving legislation.
“Make no mistake, today is not about ideologies. We check those at the door,” said PM Scott Morrison.
“Bipartisanship does not imply unilateralism. It also does not imply silence,” said Labor leader Anthony Albanese, arguing for the parliament to continue to sit regularly and work constructively through the crisis.
Hewson on the challenges of today:
“When politicians say, ‘I’m in the business to make a difference’, they shouldn’t add the words ‘for myself’ – it should be for the nation. That’s the biggest weakness we’ve got.
“The only way you will get bipartisanship now is for a leader – through leadership – to stand up and say we are not going to play the short-term game anymore. We are going to focus on the issues that really matter.
“Something like climate: the Morrison Government is arguing among themselves and whether there should be a transition to zero emissions. The pandemic is a dress rehearsal for other catastrophic threats, and we should learn and be better prepared. The climate imperative is to achieve a low carbon society over the next three decades – we can’t just keep kicking the challenge down the road.”
Leigh’s thoughts on the future and the changing face of politics:
“One final observation. If you think that the new world of politics involves more rapid turnover in government – then bipartisanship will increasingly depend on having an opposition that is ready to hit the ground running in a policy sense. And that depends on outside institutions – like think tanks. Grattan and Lowy have been important in helping to frame policies, for not just Federal Labor but also a range of oppositions around the country. We need more investment as a country in making sure that oppositions are ready to govern and that will hopefully lead to more bipartisanship – by ensuring that those oppositions don’t just play politics but actually promote good policy outcomes.”
The COVID-19 crisis is not like previous ones, but we can learn from the past about how best to respond and recover. One lesson: we need sustained bipartisanship if we are to achieve sustainable economic development. Since the 1980s, bipartisanship has ebbed and flowed – peaking at times of economic, social and military crises. Each time it has appeared, bipartisanship has been quick to disappear, and in ordinary times the aperture of partisanship has opened wider. Bipartisanship is even more important now than in the GFC, because of the multifaceted nature of this crisis, and the fact that especially vulnerable people are in the middle of it. To meet the challenges of the post-COVID world, we need a political reset.
Another lesson: free trade stops wars, makes goods cheaper, and raises incomes. In the post-COVID world, free trade will be even more important than usual – and even more difficult. The challenge of trade is broader than just avoiding protectionism. The world needs to move from linear production chains – dig, ship, make, trade, dispose – to circular ones, using renewable resources that are recycled, reused and recovered. In Australia’s case, we need to reimagine a country that is not built on exporting raw fossil fuels and iron ore, and importing refined fuels (which are in short supply), but instead a country that harnesses the abundance of our renewable resources, to make exportable products such as green steel, and to become a renewable energy exporting superpower.
We need to braid together the threads of bipartisanship that have been exposed during the GFC, COVID and other global calamities, and work together in the national interest to keep Australia lucky in the twenty-first century. We need a true national cabinet that replaces COAG, focuses on results rather than ideology, and maybe even tackles properly the third rail of economic reform: taxation.