Ambitious Treasurer ducks real challenges

Treasurer Jim Chalmers. Picture: NCA NewsWire / Gary Ramage

It is not uncommon for newly appointed treasurers to attempt to make their mark early on. They will commission a number of reviews, give a series of speeches and seek to win support within their parties, which will be necessary for any future tilt at the leadership.

The current Treasurer, Jim Chalmers, brought down an early budget in October. But apart from warning us about alarming upcoming increases in electricity and gas prices, it’s not clear that the budget had any impact on his standing. There was, however, an important omission.

There were no fiscal rules laid out, such as achieving a balanced budget over the cycle or limiting the annual increases in real government spending. Even Chalmers’s mentor, former treasurer Wayne Swan, had fiscal rules although he was unable to meet them. This absence is an important clue to the wordy homily Chalmers penned over the break and is published in The Monthly.

(It is surely ironic that former Labor prime minister Kevin Rudd penned a piece in the same publication along almost identical lines – the world has changed, neoliberalism is dead, the social democrat project must be revived, capitalism must be remade.)

Chalmers tries to impress us by quoting Greek philosopher Heraclitus early in his lengthy piece. His attention had been drawn to this source of wisdom from the fifth century BC by a Canberra insider. He would have been better served by fast-forwarding many centuries to the year 1776 when Adam Smith’s magnum opus, The Wealth of Nations, was published.

In relation to Chalmers’s plans to remake capitalism, which on the face of it seems hilariously ambitious, Smith’s warning was as follows: “The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or Senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

But Chalmers isn’t having a bar of this. He thinks he can create a “values-based” system of capitalism – whose values are not clear – by “building a more inclusive and resilient economy, increasingly powered by cleaner and cheaper energy”.

And demonstrating his knack for cliches, he continues: “By strengthening our institutions and our capacity, with a focus on the intersection of prosperity and wellbeing, on evidence, in place and community, collaboration and co-operation. By reimagining and redesigning markets – seeking value and impact, strengthening safeguards and guardrails in areas on unchecked risk. And with co-ordination and co-investment: recognising that government, business, philanthropic and investor interests and objectives are increasingly aligned and intertwined.”

Where do you start? What does this gobbledygook even mean? But one thing’s for sure, Chalmers has decided fiscal repair is unnecessary because his main game is to remake capitalism from the Treasury building in Canberra. Of course, it’s not surprising he has walked away from the task of fiscal consolidation.

After all, this is measurable, whereas the remaking of capitalism doesn’t lend itself to measurement or, for that matter, accountability. And, second, were he to restore the aim of balancing the budget over the cycle, he is starting from an unfortunate point. We are at, or close to, the peak of commodity prices and yet we are still running a budget deficit, with more to come. Given Labor’s ambitious spending plans covering a large number of areas – and all that co-investment cost money – it’s no wonder Chalmers has already moved away from pursuing fiscal responsibility.

Bear in mind the previous Coalition government must shoulder some of the blame here, having spent recklessly and with little regard for effectiveness and efficiency. It is little wonder many voters now have the impression that additional government funding is always available.

Perhaps the most alarming aspect of Chalmers’s discourse is the discussion of markets. In his view, our markets “need renewing and restructuring”. Evidently, “government has a leadership role to play. Defining priorities, challenges and missions – not ‘picking winners’. This is critical to guide how we design markets, facilitate flows of capital into priority areas and ultimately make progress on our collective problems and purpose”.

He concludes by declaring “we want to change the dynamics of politics, towards a system where Australians and businesses are clear and active participants in shaping a better society”. Again, he would have spent his time better by reading Adam Smith. One of his most famous quotes is: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.”

The point is that we are better off not because businesses seek to “shape a better society” but because, in their pursuit of profit (and shareholder return), they provide wide benefits to society through the voluntary exchange of goods and services.

Needless to say, Smith was fully aware of the damage caused by the absence of competition and businesses colluding. But the means of dealing with these cases – through anti-trust laws, for example – is not what Chalmers is talking about.

Moving from alarming to truly terrifying is Chalmers’s notion that superannuation funds can be made to embark on investments that are deemed to be socially beneficial. This is notwithstanding the fact these funds are legally required to act according to the sole purpose of maximising the retirement incomes of their members. It’s almost as if Chalmers wants to outsource some government roles to superannuation funds but sees no downside to this development.

When it comes to social housing, however, the interest shown by the industry super funds has been distinctly underwhelming. Apart from one fund, all others have been adopting a wait-and-see approach. The investment returns on social housing, where tenants pay below market rents and their tenancy is guaranteed, look very unattractive, on the face of things.

Unfortunately, Chalmers’s zeal for remaking capitalism is likely to deflect his attention from dealing with the many challenges we face.

When it comes to the large human services sector that is highly dependent on government funding – think aged care, childcare, disability services – there is a pressing need to achieve better outcomes at a reasonable cost.

Lifting school performance requires a serious commitment that has little do with government funding. Achieving reliable and affordable energy will elude us if the government is not prepared to change tack.

At its most fundamental level, the main game is to lift per capita income through productivity growth. By increasing the size of the pie we are in a better position to redistribute a portion. Simply lifting government spending, raising taxes (in all likelihood) and re-regulating the economy are the wrong way. Chalmers would be advised to turn back.