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Politics is about choices: speech to Australian Equipment Lessors Association, Sydney.



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Shadow Treasurer Bob McMullan

Politics is about choices

Speech to

Australian Equipment Lessors Association

Thursday, 4 July 2002 Sydney

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There is a chapter in The New Prince, a book by Bill Clinton’s long-serving political minder Dick Morris, headed Substance over Scandal. His point is that voters put an even heavier discount on scandals than other issues in politics.

Sex scandals occupy a particularly low place in the electorate’s esteem. As the media pries deeper, with less compunction, tact, or decorum than ever before, voters are determined to ignore more and more of what the hounds of the press dig up. Ironically, even as voters are fed a daily diet of sex scandal, they react more benignly than ever before. [p.42.]

It was actually a different quotation from Morris that I had intended to mention to you, but that one seemed particularly apt in the light of some of the developments of recent days. But what Morris points out is that the scandals and frippery that often dominate the news really aren’t that important. And reassuringly for practitioners of politics, he argues they are low order issues when citizens come to vote.

Morris’s message is that ideas and policies matter, they matter much more than scandal and spin. He argues that with the increasing abundance of information, voters increasingly want to think for themselves, and will not buy the prefabricated, predictable opinions of either left or right. Surprisingly, perhaps, Morris’s message is optimistic. ‘Politics is not a mechanical process; it is dominated by ideas,’ Morris writes.

… when a candidate takes an issue position in the thick of controversy, voters … know he has chosen sides. They know the controversial position will make him enemies and alienate interest groups. The issue position becomes a form of symbolic speech, telling us what the candidate is all about. A candidate’s issue positioning may not be much, but it’s all we have. [p. 33.]

Which brings me in a roundabout way to the point I want to make today: As well as being about ideas, politics is about choices - choices between competing sets of ideas.

That is as true in the debate about economics as it is for other areas of policy.

Three recent issues highlight the choices voters face between the Government and the Labor Opposition:

• First, the review of the Trade Practices Act and, related to this, the attacks by Treasurer Peter Costello on the Australian Competition and Consumer Commission chairman Allan Fels.

• Second, the need for voters to be kept fully informed about key economic decisions. I want to reinforce today the argument I made in support of a regular monthly statement by the Reserve Bank of the reasons for its decision on interest rates - whether it had decided to change rates or not.

• Third, there is a clear choice between, on one hand, a government bereft of ideas and with no third term agenda, and on the other hand, Labor’s determination to pursue a reform agenda based on promoting the new productivity revolution.

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Review of the Trade Practices Act

I was very surprised in yesterday’s Australian Financial Review to see Mr Costello join with big business in the attack on Professor Fels and the Australian Competition and Consumer Commission.

I think these comments were very unfortunate, and are a worrying indication of the government’s likely motivation for the review of the Trade Practices Act which it promised during the election campaign.

Professor Fels has been doing a valuable job on behalf of consumers and small business. I make it very clear: the Opposition will be standing in defence of consumers and small business and in defence of the role of Professor Fels and the ACCC. The Opposition will not support measures to restrict the powers and capacity of Professor Fels and the Competition and Consumer Commission to act on behalf of consumers and small business.

There is anecdotal and survey evidence that most small business is strongly behind the ACCC, which it sees as a protector of its rights against big companies. A survey by Australian Business Limited shows manufacturing businesses are wary of the arguments being pushed by the Business Council and others at the top end of town for more generous rules for mergers based on the argument this will create national champions that can compete globally.

The survey of 437 manufacturers found 61 per cent said more big business mergers to create ‘national champions’ should not be allowed. Concerns over the ‘national champions’ argument were even greater among the smaller firms, with 65 per cent of firms employing 21 to 100 workers and 68 per cent of those employing 20 or fewer workers disapproving of more liberal merger laws.

The government’s role in regulating a market economy must be to support a framework for informed competitive markets. Its role should not be to support the claims of individual businesses or groups of businessmen.

Interest rates

My second point is that voters need to be kept fully informed about key economic decisions, such as those the Reserve Bank makes every month on interest rates. For this reason it is vital the central bank release a statement every month on the reasons for its stance on monetary policy - not just when it changes interest rates, as already occurs, but when it decides to leave interest rates unchanged, as it did this week.

Otherwise we are left in an information vacuum, which leads to speculation about the possible motives for the Reserve’s decision. I notice that Robert Gottliebsen, in today’s Australian, outlined several reasons why the Reserve was correct not to raise rates. Retailers selling ‘discretionary purchase’ goods have seen a big fall in their business. He quotes one retailer saying: ‘All of us want to know where is this booming economy?’ Gottleibesen argues the downturn in discretionary spending is being duplicated over a wide area, including food and taxis.

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My colleague Craig Emerson, shadow minister for Innovation, Industry, Trade and Tourism, yesterday pointed out further areas for concern over the robustness of the economic recovery. As Craig argued, recent interest rate rises have raised doubts over the Budget’s forecast of 12 per cent growth in business investment.

This is consistent with the message you gave me when I spoke to this group earlier this year. You were among the first to point out that at that time, even before the Reserve Bank had begun the current round of interest rate increases, businesses were feeling the first effects of the upward pressure on rates. This was because longer-term rates began to climb some months before the Reserve Bank acted.

Three recent business surveys all suggest a weakening investment picture:

• The latest Dun and Bradstreet Business Expectations Survey shows that the business sector’s investment expectations for the September quarter 2002 have fallen further, following an earlier decline recorded in the April survey.

• The ABS Australian Business Expectations survey has more companies expecting their capital expenditure to fall in the coming September quarter than those expecting an increase, signalling a deterioration since the June quarter 2002.

• The Australian Chamber of Commerce and Industry’s Survey of Investor Confidence this week revealed that an increasing proportion of firms expect their own investment levels to fall over the next six months.

The evidence highlighted by Robert Gottliebsen and Craig Emerson suggests the medium term outlook may be less robust than has been believed until now. After all, the Budget papers suggest that the drivers of economic growth for 2002-03 are likely to be consumption spending and business investment, the very areas that are now in question.

While it is important to note that the Australian economy has performed remarkably well for more than a decade, there are other questions over Australia’s economic outlook.

Even before the emergence of the latest corporate accounting scandals in the United States, intelligent commentators were raising serious concerns about the medium term prospects for the US economy, which would have clear implications for the Australian economy.

Furthermore, it is clear from recent Reserve Bank statements that the central bank has heightened concerns about inflationary pressures beyond the end of 2002. Also, the return of interest rates to a more neutral rate would have important implications for the labour-intensive housing sector, which is highly sensitive to interest rate rises.

These uncertainties should give us all cause to consider how much further the Reserve Bank should continue to pursue the rising interest rate path outlined by Governor Ian Macfarlane in his recent evidence to the House of Representatives Economics Committee.

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One critical reason for caution is that increases in interest rates will place many Australian households under unprecedented financial stress.

A survey by public affairs consultants Hawker Britton and market researcher UMR shows that almost one in three Australians with mortgages will be in trouble if interest rates rise by 2 percentage points, and even a rise of 1 percentage point will see one in seven struggling to make payments. The Reserve Bank has warned repeatedly of the dangers of rising household debt.

Last month I highlighted research by Deutsche Bank which showed that a 2 percentage point rise in rates would leave Australian households paying a higher proportion of their income in interest payments than ever before. Deutsche Bank calculated the burden of interest rate repayments with the Reserve Bank’s overnight cash rate at 6 per cent - a variable mortgage rate of about 8 per cent - and found that households will pay a bigger share of income in interest repayments than at any time over the 15 years of its study. That means in effect that Australians will pay a bigger share of their income in interest payments than ever before.

With typical arrogance, Mr Costello dismissed this argument as ‘a statistical type of trick’. Try telling that to households struggling to pay their mortgages. He is clearly out of touch with ordinary Australians.

The average household now has much higher debt, compared with income, than ever before. So even with a relatively low interest rate, households will be paying substantial amounts of their income in interest repayments. Further rate rises will add to the pressure.

Bureau of Statistics figures last week demonstrate household debt has doubled under the Howard-Costello government. Household debt has leapt from 82 per cent of disposable income in 1995 to 122 per cent at the end of March. In other words, households now owe $122 for every $100 they earn. Household mortgages have grown by an average 18 per cent a year since 1995. There are no signs the growth of debt is abating.

I acknowledge there are a variety of factors pushing for an increase in interest rates. One of the key factors here is the slackness if budget policy. The budget balance collapsed dramatically since the first year in which figures for 2001-02 were included in the forward estimates. In 1998-99 it was estimated that the Budget this year would have a surplus of $14.6 billion.

Yet by the time the Budget was brought down in May this figure had collapsed to a $1.2 billion deficit - a $16 billion deterioration. This deficit is entirely Peter Costello’s own work. It is not the result of an unfavourable economic environment, but rather of an explosion of spending over several years.

The government managed to deliver a deficit despite being awash with cash, thanks to its record as the highest taxing government in Australian history. Taxpayers are paying more in income tax today than they were before the tax cuts two years ago that were meant to compensate for the GST.

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Yet in spite of this Mr Costello couldn’t manage to deliver a surplus in the 2001-02 budget year just ended.

The reform agenda

Voters face a choice between a government which has exhausted its reform agenda, and the Labor Opposition’s calls for a 21st century reform agenda.

I was interested to read the Prime Minister’s comments in Germany this week, in which he outlined a reform agenda he had proposed way back in 1980, and on which he claimed to have achieved victory.

Mr Howard nominated five major economic reform challenges he said he had identified back then as being critical for Australia: taxation reform, industrial relations reform, tariff reform, financial deregulation and achieving and maintaining Budget surpluses.

He even gave Labor credit for achieving two of the reforms: tariff reform and financial deregulation. Historians will argue about whether Labor should also be given credit for other legs of his agenda, but that’s not my point today. The underlying message in Mr Howard’s comments was that his reform agenda was complete.

I don’t believe that’s the view of the Australian people, who want their government to articulate the next reform agenda. Neither John Howard nor Peter Costello have anything to say about the new economic reform agenda.

Yet there is a crucial task for government in pursuing a new reform agenda, with the goal of boosting productivity through greater investment in education and innovation, research and development.

Australia must build on the productivity boost delivered by the Hawke-Keating reforms. It must take advantage of the new productivity revolution, based on innovation and technological change, a field given far too little attention by the Howard-Costello government. Improving productivity is the key to delivering sustained improvements in employment and living standards.

Conclusion

But as Dick Morris suggested, voters in the end will make their own choices about what each side of politics offers. I am astonished that people take John Howard seriously when he keeps parroting his line about the need for reform. The evidence is to the contrary. His is a government of complacency and expedience, the antithesis of reform. He avoids facing the difficult choices Australia must make if it is resume the productivity surge brought by the reforms of the Hawke-Keating years. It is an important part of the business of politics that we make those choices as clear as possible. That is what I have tried to contribute to today.