Economic reform gets filed under too hard

For years we had to listen to vacuous debates about the ­urgency of budget repair when these claims were largely a furphy.

Jim Chalmers and Josh Frydenberg face off in the Treasurers’ Debate.

Neither major political party has anything resembling a plan to balance the budget, much less pay down government debt. And that’s before even discussing their collective unwillingness to reform the economy.

For years we had to listen to vacuous debates about the ­urgency of budget repair when these claims were largely a furphy; claims made by the same politicians who now preside over record-breaking debt and deficits without a hint of a blush. There is nothing wrong with debt as long as it is manageable and targeted at meaningful spending: for ­example, productivity-enhancing infrastructure or social goods that enrich our society.

But right now the deficit is structural. Recurrent expenditure is outstripping taxation returns. Unless this is addressed, debt will continue to grow. We are on course to have more than $1 trillion of national debt in the coming years, and neither major party is prepared to chart a course back towards a balanced budget. Debt as a percentage of gross domestic product is higher than it was when Gough Whitlam was prime minister, and his administration is still held up as economic vandals by conservatives. At least the Whitlam years produced lasting social reforms.

The Coalition has committed to a tax-to-GDP cap of 23.9 per cent, as though that is some sort of gold-star promise. Spending to GDP is currently up at 27.8 per cent. Unless these percentages are brought into line with each other we will continue to rack up government debt, just as inflation and interest rates are rising, which in time will make servicing the debt more difficult.

Were it not for the political manoeuvring both major parties are engaged in to try to win the election, some Liberals would like to slice into spending and some within Labor would like put up taxes. Or, to be less binary, both major parties would welcome the opportunity to do a little of each to help balance the books.

But that’s not going to happen with an election just around the corner, and perhaps not even in its aftermath. Having played the rule-in-rule-out game all campaign, it will be hard for either major party in government to ­deviate from their do-nothing campaign commitments.

Fiddling with the books without acknowledging the need for significant reforms to the tax system and the federation misses the point anyway. We are overdue for a rewriting of both, overdue for a tax summit to put all ideas on the table. But I see no evidence this will happen, irrespective of which party forms government in two weeks.

Developing nations can grow their way out of debt by enlarging their economies, so debt as a percentage of GDP falls even though they continue to run budget deficits. India, for example, has done this for many years with only modest levels of economic reform. But a developed country such as Australia can’t do that because we can’t deliver ­consistently high enough economic growth figures, coming off such a high base to begin with.

There is no escaping the reality that developed countries can stay fiscally responsible only by keeping one eye on structural ­deficits and the other on continual economic reform. At the ­moment we are doing neither. Our political leaders are failing the nation they serve and not ­living up to the legacies of those who came before them.

The major parties claim a hung parliament risks chaos ­because the crossbench would hold each to ransom. For what? It is not as though either party has an economic agenda for change worth embracing, such that the crossbench would thwart it. You have to be doing something meaningful in the first place for the crossbench to play the role of villains.

What the majors really mean is a hung parliament will put on the agenda some policy requirements they don’t want to discuss. In the Coalition’s case, this includes an integrity commission with teeth. Perhaps budget repair also could become a negotiation point, particularly if the so-called teal independents were to ­control the balance of power and support Labor in government ­because Scott Morrison wouldn’t budge on an integrity commission.

The teal independents are running in electorates with high levels of economic awareness, traditional safe Liberal seats. These independents are focused on what political scientist Ronald Inglehart termed “postmaterialism” in his 1977 book The Silent Revolution. The thesis is that when material wellbeing is satisfied, people can vote according to their postmaterial value structures – beyond hip-pocket tendencies, or any other fear threatening their security.

The wealthy electorates in which teal independents are ­challenging Liberal MPs are the traditional Liberal heartland where voters have become disillusioned with the lack of small-L liberalism in the modern Liberal Party. Their focus in this campaign has been on climate change, gender rights and integrity. But many traditional Liberal voters in these electorates are just as dismayed at the lack of economic-reforming mongrel within this government; it’s just that such policy disagreements don’t capture the attention of the media or special interests.

Perhaps teal independents could justify backing Labor in minority government if it committed to serious budget repair? Or they could force the Coalition to reclaim its one-time mantle as responsible economic managers to win their backing? I don’t have high hopes of either; these ­independents appear focused elsewhere, just like the rest of the parliament. The search for MPs or wannabe MPs with economic-reforming convictions is a ­seemingly fruitless endeavour, the crossbench included.

Our leaders like to ­remind us that Australia is doing comparatively well economically on the international stage. Debt levels in like-for-like developed nations around the world are much higher than here. This is true, but other nations doing ­extremely badly managing their finances doesn’t justify us doing the same.

While economists on the ­fringes are advocating for Modern Monetary Theory, few politicians are willing to do the same. MMT essentially argues that nations such as ours don’t need to be constrained in their spending. In other words, print money and let the good times roll! No need to even issue bonds when accruing debt. Former US presidential candidate Bernie Sanders advocates this ­approach, if you can believe that. Think about how close he came to becoming president, and Donald Trump suddenly doesn’t look so uniquely bad.

Members of the political class here, while unwilling to sign up formally to the radical theory, are borrowing from its logic as they use spending promises to chase votes, almost entirely unconstrained by the structural deficit. It remains to be seen how viable this is into the ­future, politically and economically, with rising inflation and ­interest rates.

Peter van Onselen is a professor of politics and public policy at the University of Western Australia and Griffith University.