Election 2025: Liberal Party needs to redefine its cultural and economic purpose

Peter Dutton and John Howard during a Liberal Party campaign launch in the seat of Mackellar in Sydney in April. Picture: Getty Images

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The fundamental question that must be asked in light of Labor’s thumping victory is whether as a nation we have lost the war on economic dependency.

It would appear to be over for the moment. The problem will be that once dependency is entrenched into the political culture, the economy will eventually bite back. The only question is when.

Labor’s re-election poses deeper challenges to this problem being addressed before it produces the type of shock that will ultimately resolve it for us.

Anthony Albanese’s victory will enlarge, and likely embolden, what was already a left-wing dominated outfit of mainly former union officials who support the notion of increasing social benefit provision out of the budget, imposing ever-increasing restrictions on working conditions and raising real wages without necessarily driving productivity.

The balance on the executive of the party is now tilted towards the Left, the national conference dominated by the Left and depending on the final outcome of the election, it will be lineball on whether the Left has supremacy in caucus.

That will result, unless Albanese moderates or imposes himself, in a cabinet more likely dominated by the Left.

The focus collectively is on what they have refashioned as Labor values, which is more of a return to historical belief of universal state provision of social benefits without the type of mean-tested targeting that Peter Walsh, Paul Keating and others in the 1980s imposed.

It should be remembered that under the Hawke/Keating government’s model, Labor got outlays as a percentage of GDP down to around 23 per cent. This was lower than the long-term average under John Howard and Peter Costello the next decade, and is significantly lower than the Albanese government’s spending as a proportion of the economy.

This was based on a fundamental belief that social and welfare benefit should be for the truly disadvantaged.

The challenge under a second-term Albanese government, dominated as it will be, is a different internal constituency wedded to the monetisation of the state; means-tested targeting has been replaced with dependency on a universal basis.

This is a problem for the Liberal Party as well. The loss of economic direction for the Coalition is not only a crisis in and of itself for the party, it is a potential crisis in waiting for the nation.

There were signs the Coalition was beginning to shift the debate last year on the question of whether people saw a cost-of-living crisis as one to be solved with more welfare dependency or better economic management. It was showing signs of starting to win that debate, with Labor spending reaching epidemic proportions at a time inflation was still running hot. Where it failed was the lack of intellectual conviction in this argument.

Peter Dutton failed to carry this argument through. In fact it became an absent part of the Coalition’s confused narrative from January this year when Labor flicked the switch.

This led to decisions that raised legitimate questions about the Liberal Party’s commitment to this as an ideal, let alone a principle upon which policy needed to be constructed.

The cost of economic dependency isn’t always immediate as in theory it affects only your grandchildren if related to the eventual cost to the budget and the economy.

When it arises in an immediate inflation, it has to be reversed, as the impacts on cost of living become evident.

The Coalition failed to win that debate. It could not translate the argument against dependency when what was on offer for a mismanaged economy was more dependency.

That doesn’t mean it is over. Far from it. And particularly if the risk of entrenched dependency continues under a second term of Labor that fails to change course.

Jim Chalmers is right that the current debt to GDP is manageable. What is not is a structural deficit of 2-3 per cent, with spending to continue to outpace revenue into the future.

Each deficit piles on to the debt position. So at what point, in the next 10 to 20 years, does the interest bill become the biggest spending item of the budget. In the US just this week, interest on debt for the first time exceeded spending on defence.

This is the structural problem that exists beyond the cyclic windfalls, such as those that delivered the Treasurer’s two budget surpluses.

With an even greater union influence now more entrenched under a second-term Albanese government than existed under Bob Hawke and Keating, one has only to look at the ACTU’s new demands; the internal constituency for Chalmers becomes harder to manage against the idea that government exists to effectively supplement people’s income.

For the Liberal Party, this issue becomes the foundational principle around its rebuild. There will be superficial analysis on how this occurs and endless arguments over nothing. But one crucial difference that has failed to be recognised in its approach has been to confuse the starting point for the principles upon which a belief in small government as constructed.

Dutton may have been a cultural believer in small government but appeared less so than an economic believer in small government. It is this that separates the current party ethos from that on which the Howard model was based. Howard was a conservative on social issues and the US alliance but the evolution of his thinking was founded in the economic principles of small government triggered by Gough Whitlam. This is what put him at odds with Malcolm Fraser.

Dutton lost the argument by trying to position Liberals as a party of lower taxes and better budget management, by saying it was a rebuild of the Howard approach when it clearly was not. The Liberal Party needs to redefine its cultural and economic purpose.