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March 2005 | |
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Interview: Dot.Com Workplace: Dirt Cheap Industrial: Daddy Doesn�t Live With Us Anymore Economics: Who's Afraid of the BCA? International: From the Wreckage Politics: Infrastructure Blues History: Meat and Three Veg Savings: Super Seduction Politics: Popping the 'E-Word' Poetry: To Know Somebody Review: Off the Rails
The Soapbox The Locker Room New Matilda Parliament Postcard
That�s Our Team
 Stay Terra Firma on TaxJanet�s Job No VictoryRoyal Finger LickersWill $20 Restore Carr?Two Ideas
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Politics Popping the 'E-Word'
Many of us here tonight were bitterly disappointed with the election result late last year. A result caused by the collective failure of our policy and campaign architecture at all levels to take into account the importance of the economy to the decisions people make in the privacy of the polling booth. The consequence of this was an outcome for Labor worse than 2001, without the special circumstances provided by the Tampa. So there�s repair work to do but I, for one, remain optimistic about Labor�s prospects. We begin the year with a new leadership team and a renewed commitment to framing an agenda that takes into account the critical importance of the economy. The truth is that at the last election the Australian people examined our risk profile and decided that voting Labor required too big a leap of faith. Unfortunately the Government�s fraudulent interest rates campaign found fertile ground. The challenge for the Labor party at the next election is to put forward an economic policy which we articulate with great clarity, and ensure that it is widely understood. This policy must be modern, reformist and compassionate, and the principles underlying it will be Labor to the core. The number one goal of Labor and the number one expectation of the Australian people is that policy must be based on what is right for the nation as a whole. When we are developing alternative policies we examine all the options, not with an eye to whose support they might attract, but with an eye to their overall impact on our economy and society. Sound economic management has always been a central part of Labor's heritage - often to our political cost. During the recent election campaign there was a lot of commentary about our past economic record. Despite the best efforts of many to rewrite history, Labor has a lot to be proud of when it comes to economic policy. It's important to remember the unparalleled achievements of the Hawke-Keating years. As Geoff Kitney has written, �much of Australia�s long run of relative prosperity has its roots in the Hawke Government�s reform�. While these reforms came at an eventual political cost, they achieved great things for the nation. And I say here tonight we'd do them again, because they were in the national interest. But there were of course failures of economic management during those years. Peter Costello, for instance, railed against the failure of the Keating Government to rein in foreign debt but has proceeded to double it in just nine years. The Keating Government is also associated with the legacy of the recession of the early 1990s when interest rates reached 18 percent (Just as John Howard suffered for many years for the 21 percent interest rates he presided over as Treasurer). We need to learn from our mistakes and look to the future. LESSONS FROM THE 2004 ELECTION It�s important to remember this history as we fast forward to the last campaign and to the cabinet meeting that took place earlier today in Canberra. A clear analysis of the 2004 election result was that Labor failed to convince young suburban Australians with a mortgage, particularly those under financial pressure, we were worth the risk. Labor was routed in the mortgage belt. It�s that simple. Routed in the outer suburbs of Brisbane, Melbourne, Adelaide, Perth and Sydney. The correlation between the number of households with mortgages and greater swings to the Coalition was clear: � In those seats where less than 20% of households are repaying a mortgage the average swing was just 0.7%. � But in those seats where more than 40% of households are repaying mortgages the average swing to the Government was 4.2%. � And 20 of the 25 electorates with the highest proportion of mortgagees recorded swings to the Coalition. � In 17 of these seats the swing was higher than the national average. These included marginal Labor held electorates like Holt, Hasluck, Cowan, Greenway and Kingston and marginal Liberal-held seats like McEwen, La Trobe, Longman, Petrie and Makin. In the suburbs of these seats any rise in rates takes a hefty slice out of the family budget. In greater Melbourne, for example, a small rise in interest rates of a quarter of a percent will cost families an average of $54 per month. In Brisbane it�s $43 a month, and in Sydney we�re talking about an extra $74 in monthly mortgage repayments. That�s why John Howard�s promise to keep rates low resonated so strongly. There�s little doubt the 2004 election was a referendum on interest rates � which party was better placed to keep them down. Howard had the nerve of a burglar � standing up there behind a lectern promising to keep interest rates low while spraying money around at everything that moves. It�s like going on a three day bender in a Salvation Army uniform and hoping no one will notice. Unfortunately for Labor, he got away with it this time. Well, we won�t let him get away with it now. There he is, having a cabinet meeting today, pretending to engage in long overdue economic reform. A meeting forced on him by an avalanche of criticism from the IMF, the OECD and the Reserve Bank that highlighted his complacency about our future economic prosperity. It�s just like Access Economics said late last year: �if recent spending has done little to spur future growth, Australian policy makers have muffed a last chance to cement out current prosperity for some time�. One of the greatest acts of economic vandalism seen in recent memory was the Government�s $66 billion spending spree. The Howard Government�s claim to fiscal responsibility has been blown away by this economic vandalism, and by the $121 billion in new spending sprayed out between the 2001 and 2004 elections. Needless to say the Reserve Bank wouldn�t be talking about infrastructure bottlenecks and skills shortages if just a fraction of this money were invested wisely. Today he points to unions and welfare cheats as he tries to wash his hands of the imminent rate rise. Got a problem with infrastructure? Blame the disabled. Got a problem with skills development in this country? Blame the unions. One thing we know about John Howard � when he points one way it�s best to always look in the opposite direction. This is Labor�s political opportunity. The Government has been caught red-handed playing politics with the economy, playing politics with interest rates, and trashing the national interest. Out there in mortgage land, they won�t be impressed. THE SUBURBS AND DEBT-PIONEERS Understanding the economic and social and psychological impact of higher debt levels is fundamental to any appreciation of today�s electoral politics. While many of us would like to think that voters� decisions are based solely on the common good, no sensible Australian would cast a vote without an eye to their mortgage and credit card debts. Clearly, thinking that our strong messages on health and education would override these concerns about debt was na�ve and wrongheaded. No credible alternative government can downplay the importance of the economy relative to its broader agenda. It�s a mistake we won�t repeat this time around. Consider this: Australians are paying more interest as a proportion of their income than they were 15 years ago, even when interest rates were at their peak (9.3 percent in September 2004 versus 8.9 percent in the late 1980s). So any rise in rates today will have a bigger impact on disposable income than was the case in the late 80s and early 90s. This is what made the economy in general, and interest rates specifically, such a potent issue in 2004. But we must also look at longer term trends. What sort of a society and what sort of an economy are we becoming? Some say that our society is being divided into winners and losers from recent economic change. This is partially true. There are many winners and many losers, divided from each other by postcodes. In the richest postcodes � like postcode 2027, Darling Point � less than one percent of residents live in poverty, around 50 percent of workers are professionals, and median house values are $4.35 million. But the poorest five percent postcodes � including postcodes 2839, Brewarrina and 3177, Doveton � account for a quarter of all unemployment, child abuse and other social ills in their states. Think of this: just 2.1 percent of Victoria�s postcodes and only a slightly larger percentage in New South Wales account for 25 percent of all people who go to gaol each year. Labor�s mission � more than that, it�s very soul � is dedicated to lifting up people in postcodes like Brewarrina and Doveton. Whilst it�s true that the benefits of the economic boom are slowly making it to even these places, for us �trickle down� will never be enough. But in between these two extremes lies another group of people no less important to the Labor Party � middle income earners � many of whom are living in the postcodes Ed Husic tried so desperately to win for us on October 9. Some in this group are rising; others sinking. It�s a broad group comprising all manner of earners � nurses and teachers, professionals, labourers, bankers and tradespeople. Included in this group are an increasing number of small businesspeople and self-employed contractors. They are increasingly making their own choices about their children�s education and their family�s health care � choices we must always respect. They have seen their housing values rise. But all of this freedom has come at a cost � the cost of greater economic pressure from rising health and education costs and rising mortgages. In an interesting recent article, David Burchell wrote about newly thriving sections of south-western Sydney, with their big back yards, modest swimming pools and four wheel drives. According to Burchell, many of these �westies� have �used fragile low-interest debt to finance their home cinema and their backyard pools. Many are working longer hours than ever before � and their marriages and relationships are showing the strain�. Despite these pressures, he believes the mood of the south-west is optimistic, reflecting an increasing �sense of themselves as individuals�. These people are not confined to Sydney�s west; they�re spread right throughout the suburbs of Australia�s major cities. I call them the �debt pioneers� � people forced or willing to take on levels of debt and social risk their parents would never have accepted. The biggest chunk � over 80 percent - of household debt is housing related. Massive mortgages are the norm for those people who�ve recently bought a home. It�s not surprising then that the growth in house prices has been paralleled by rapid growth in household debt. The figures are staggering � in the space of less than 9 years household debt has risen from $289 billion in March 1996 to $818 billion in September 2004. As a percentage of household disposable income it has climbed from 85 per cent to 155 per cent over the same period, amongst the highest in the developed world. Interest payments as a percentage of household income are the highest on record, even higher than the high interest rate period of the late 1980s. Little wonder the Australian electorate is risk averse when it comes to the economy and any perceived prospect of economic mismanagement by the alternative government. That�s why these debt pioneers matter so much electorally. But risk isn�t something that impacts only on the middle. Right across the community � from the richest to the poorest � people expect governments to protect and respect the personal wealth they�ve created, no matter how huge or how humble that amount may be. Good economic management must become our great passion because if prosperity and wealth creation falters it�s ordinary working people who get hit first. This makes increasing the wealth of the nation a basic priority that goes to the heart of what it means to be Labor. Therefore Labor must unashamedly assert its belief in the rights of every Australian to enjoy the benefits of their hard work. We celebrate wealth creation. The difference between us and the Coalition is that we�re going to do more to help every Australian enjoy the benefits of economic growth and wealth creation, not just the lucky few. REBUILDING CREDIBILITY - FOUR PRIORITIES In the 1960s Donald Horne proclaimed we were the �lucky country�. What he really meant was that we had lazy leaders who sat back and let us live off exports from the farm and the quarry. We had failed to invest in our people and technology. Unfortunately we are in danger of becoming the lucky country again, led by an increasingly complacent � and arrogant - government that hopes growth in countries such as China will let us recline once more and simply export more minerals and energy to pay for imports. But as a nation, we can�t afford to rest on our laurels. After 14 years of economic growth we cannot just sit back and live off the reforms of the 1980s and early 1990s, ushered in by the Hawke and Keating Governments, that underpin our current prosperity. Labor made the difficult decisions then, and we must again seize the moment and have a real reform agenda that delivers genuine and sustained economic growth. The next round of Australian prosperity must be created here in Australia. We must do the hard work, and make the tough decisions, to make it happen. We must have policies, and programs, that make the economy more competitive and boost exports. Policies that boost our productivity by fostering competition, invest in education and innovation, carve out new markets for exports, and reward effort. Ultimately, this is the best way to stay true to our core mission � which has always been to improve the living standards of every Australian by strengthening the economic and social fabric of the nation. This is central to any hope we have of rebuilding economic credibility in the suburbs and increasing the wealth of all our people. I see four major priorities. The first is strong economic management. There are a number of Golden Rules that must be stamped on the forehead of each shadow minister:
These rules are necessary for one simple reason: reckless spending � like the Howard Government�s $66 billion pre-election bribes � is fiscal insanity and puts pressure on interest rates. If interest rates go up in the near future, every Australian will know who to blame: John Howard for spending his way to victory, and Peter Costello for lacking the strength to stand up to him. Now, I�m a fan of the Simpsons. And it strikes me that Costello to Howard is like Smithers to Monty Burns. His love is boundless and he�ll never cause him the slightest inconvenience. It�s a match made in heaven � endless cowardice waiting on endless arrogance. If the Government had spent a fraction of their outrageous election spending sprees � worth well over $100 billion - on the productive capacity of the economy, our skills crisis and infrastructure bottlenecks could have been addressed. What a reckless frittering away of our prosperity they�ve embarked on. So I see my job as keeping a tight rein on our spending, and making sure when we spend, it�s done in ways that benefit our economy and society. It�s said of central bankers that they are the people who take away the punch bowl when the party gets started. So I guess I�ll be the guy who does the political and economic equivalent of cancelling the next shout at the pub. A tough job, but it�s what Labor has to do � be tough on spending � if we are to keep pressure off interest rates and invest in the future economic prosperity of our country. We all know that our current prosperity is built on the reforms of the Hawke and Keating Governments. But the Government refuses to build on that prosperity � they�re content to coast along applying yesterday�s solutions. But yesterday�s solutions won�t address the challenges of tomorrow. We need new answers to guarantee future prosperity. We need more than economic policy that�s designed to buy support at election time. It must be modern, reforming and compassionate. Part of that reform must include putting incentive back into our tax system. So the second thing we must do is provide greater reward for effort. The Liberals tell us constantly that they�re the low tax party. We know from experience the reality is different. They have given us the highest taxing government in our nation�s history. In the last year four out of five taxpayers missed out on a tax cut. The Government is already reaping more than $100 billion extra a year in taxes compared to the tax take it inherited from Labor � a staggering $12,000 extra in tax will be paid by households next financial year compared to 1995/96 even with the tax cuts due in July. As a result, effective marginal tax rates are far too high � for everyone.
All of this was brought to middle Australia by the Howard Government. This symbolises a fundamental dishonesty that lies at the heart of the Liberal Party�s belief system. They�re not the party of low taxation; they�re the party that taxes us big between elections so they can bribe swinging voters before each new election. They�re the party that talks about welfare reform but shirks the real reform that would encourage people off welfare and into work, by dealing with crippling effective marginal tax rates. Now entering its tenth year in office the Howard Government's policy neglect is bordering on criminal. With social security spending now surging past $80 billion per year it can only blame itself for its failure to deliver reforms. There are only so many times it roll out the welfare reform headlines - and then do nothing. After nine years in Government we know who to blame for incentive sapping effective marginal tax rates. After nine years in Government we know who to blame for only two in every hundred sole parents having access to childcare and training support. After nine years in Government we know who to blame for the 700,000 disability pensioners being left to rot with no help with rehabilitation and re-skilling. After nine years in Government we know who to blame for the confusing array of payments that waste precious resources to administer. Surely it says something about this Government that its best idea is to make the system even more complex by creating two classes of payment for people with a disability. Like in the 2004 campaign, Labor won�t squib important reforms we need in tax and welfare. Our policy will restore incentive to a tax system that currently fails to reward hard work, and invest in the capacity and skills of those who move from welfare to work. The third priority is to address skill shortages and the bottlenecks in basic infrastructure. We need a long term commitment to infrastructure investment to make our economy internationally competitive. The same goes for R&D and skills. In the mining industry alone, skill shortages are leading to massive costs and delays for major projects employing thousands of Australians and earning billions in export incomes. Across all industries there will be a shortage of over 130,000 skilled workers in key trades and industries over the next five years. Major economists agree this is putting pressure on inflation and, in turn, interest rates. We have to do a lot better than this. We have to work with the private sector to provide people with opportunities to upgrade their skills so that our workforce and our economy can power into the future. Part of the answer lies in better work and family policies that help parents with skills to stay in the workforce, and better welfare to work measures to get sick and injured and older skilled workers back on the job. Our participation rates are far too low. And the fourth thing we�ll need to do is improve our export performance. Australia�s poor trade performance is one of the greatest obstacles to future growth and prosperity. The last time Australia ran a trade surplus was in 2001. Since then we have gone from an annual surplus of $3.2 billion to a $25.4 billion deficit. Contributing to the turn around has been a 9 percent decline in our exports of goods. This is a direct result of Howard Government failure. And here�s the terrifying thing; things would have been even worse if we didn�t have the best terms of trade for 30 years, due to rising prices for minerals and other primary products. Without these favourable terms of trade, our current account deficit would be at 9 percent of GDP. A poor pay off for 14 years of economic growth. The next round of Australian prosperity has to be created here in Australia. We have to do the hard work to make it happen. We have to get back to having policies to boost exports. Policies that involve more investment in education, encouraging innovation and helping producers find markets. And the good news for us as a Labor Party is that turning us into an export economy is especially good for working families, something about which Evan, as an exporter, has had a lot to say. Exporters on average pay higher wages, provide better working conditions and more job security, have superior health and safety records and invest more in training than non-exporters. And because exporters are more inclined to negotiate enterprise agreements rather than rely on award safety nets only, this makes them good for hard working, innovative trade unions too. You won�t hear much from Howard or Costello about these four pressing priorities. The Government doesn�t have a broad based reform agenda. They have one, and only one, narrow agenda � the destruction of unions and taking away the basic rights of workers. BEYOND ECONOMICS So if we can establish strong economic management credibility by making the case for these four priorities, we will make winning the 2007 election a more likely proposition. But we can�t forget that while economics is crucial to winning back the suburbs � perhaps 80 percent of the electoral equation �we face other important electoral challenges too. There�s something else we must combat. The crashing symbols of the interest rate debate at the last election took place against the steady drumbeat of a new type of cultural politics that John Howard has been playing successfully since 1996. I think it�s easy to understand what�s happening here. It�s something that�s been recognised by American writer, Thomas Frank, in his recent book What�s the Matter With Kansas? Frank puts much of the success of the Republicans in the U.S. down to their ability to maintain a powerful feeling of cultural resentment among economically vulnerable voters over issues like race, religion and abortion. I believe John Howard and his strategists are trying to do something similar. Instead of getting angry about the GST or the rising costs of health cover and education, he�s convinced many Australians to get angry instead about reconciliation, asylum seekers and now abortion. He�s continually sending messages to small but decisive groups of voters with strong opinions about these types of issues. John Howard uses cultural politics to camouflage and obscure the fallout from his economic stewardship � financial pressure, lack of services, mounting debt, and the conflict between being a good worker and a good parent. People know that the prosperity they enjoy comes at a price � increased workloads, greater exposure to financial risk - and they worry that, while they're spending more time at work and less time at home, commercial values are weakening the bonds of family and community. Their response to the economic and family squeeze expresses itself in moral as well as economic ways. This is in part why conservative values seem to be triumphant and why, for instance, the Family First party has been successful in the suburbs. When Family First directs their preferences to the Liberal Party, our job is to point out that while John Howard talks the talk of family values, he fails to walk the walk. While he cuddles up to Family First his policies on tax and the work-family balance are doing more to put financial and time pressure on Australians than ever before. Labor can't ignore cultural concerns. Neither should we simply respond by following the conservatives down the road of promoting fear, fundamentalism and intolerance. It's beholden on us to explain how our economic and social policies can complement the material gains of economic progress by promoting social stability, rebuilding community and encouraging better values than the crass and over-commercialised ones that are coming to dominate our culture. CONCLUSION It�s been three years since I last spoke to the Fabian Society about why we lost a federal election. It was January 2002, and I spoke then about connecting with what I called the �missing middle� - getting in touch with the communities who have deserted Labor since the early 1990s � and appealing to the needs and aspirations of families in the suburbs. Now, I enjoy being here, but I hope we don�t make a habit of meeting like this! Next time perhaps we can talk about how and why we won a federal election. To turn our electoral fortunes around we need to rebuild our economic credibility in the suburbs, day by day, week by week. This challenge we face is more than just crafting a superior economic message. It's about promoting economic cohesion as well as economic growth. I want to remind people that economics is a moral as well as a social science, a means to an end, and about creating a better society as well as putting extra dollars in people's pockets. We can and will prevail in the suburbs by also winning a debate about what constitutes a good society. You can�t have a fair prosperity in isolation from a fair society. Ordinary people are asking what the wealth we�re generating is for. They want to know what their hard work delivers for themselves and their country. They want growth and opportunity, not just redistribution and compensation. They want to know it will produce a better place for them and their kids to enjoy. Economic wealth conjoined with good Australian values of fairness, inclusion and security is what Australians in the suburbs want and that�s the way forward for Labor. This speech was presented to a Fabian Society forum at NSW Parliament on February 22
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