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the wind is blowing one way « Previous | |Next »
February 3, 2005

Which policy direction is the ALP going to take, now that it has given the Coalition control of the Senate, and decided that it must engage in hand-to-hand trench warfare in the House of Representatives?How will it endeavour to re-establish its foregone economic credibility?


Now we know the direction the policy wind is blowing. It is a neo-liberal pro-market, involving significant changes in industrial relations and welfare. It's a Treasury wind fanned by the OECD. The OECD pretty much runs the Treasury line says John Quiggin. I notice there is no mention of the current account deficit. Presumably Treasury is covering that up.

This provides an opportunity for the ALP to establish some economic street cred. Remember the ALP said it lost the last election mainly because it had little credibility on economic issues. People were up to their eyeballs in mortgage debt and they did not trust Labor to manage the economy. The public preferred the Coalition.

So, does the ALP use the opportunity provided by the OECD Report go in hard? Does it float in the wind? How would the ALP govern the economy? What is its course of its policy action? What are the faultlines between the ALP and the Coalition, now that the ALP has rejected playing the small target game?

Ross Fitzgerald's op ed piece in The Australian has a suggestion. He starts by saying that "...the ALP now begins the difficult internal debate about the economic and social policy settings it needs to reclaim government." He then links this to the backbench call tax reform to the top tax rates:

Radical industrial changes and hard-hearted welfare reforms could ... have a significant negative effect by changing lives and eating away at the nation's sense of the fair go. Tax reform of the kind proposed by the federal Government's newest ginger group would reduce the amount of money available for social services such as schools and hospitals. This agenda, which is almost certainly being orchestrated by the Treasurer, represents a fundamental leap to a US-style society.

Should federal Labor drift along with this. Should it dig in and fight? If so where? What is the ground it is going to fight on? What does the ALP tell us about these questions?

It is hard to tell. So far there has been no response by the ALP's economic glimmer twins (Swan and Smith) to the OCED's advice to the Howard Government, that the Australian economy needs a reinvigorated reform program to prevent it sliding back to lower growth and lower living standards. The ALP is slow off the mark, suprisingly so when Costello says that the OECD report endorses the Government's economic management and legislative agenda.

Well he would, woudn't he. The OECD document supports the Treasury line. So what is the reform agenda?

The editorial in the Australian Financial Review describes a rough reform agenda that is already in place:

It includes workplace, tax and welfare reform to entice more people into the workforce; deregulating captive public health and school services; and completing the deregulation of vital energy, water and transport infrastructure to attract investment.

So where is the ALP? Is it not meant to be going in hard over the next six months?

When are the glimmer twins going to take the fight to Costello? Do they have what it takes to do so?

Update Feb 4th
The ALP's response eventually came. It says that economic reform under the Howard Government has stalled and this jeapordises Australia's future economic growth. Wayne Swan says:

In a damming indictment of the Government's economic credentials the OECD says that economic reform has slackened off and needs to be reinvigorated. The slacking off has occurred across the board, with all the drivers of economic growth being neglected, including labour market participation, productivity, tax and education.

So what economic reform does the ALP favour, given the free market account of the reform agenda outlined in the AFR?

Wayne Swan mentions marginal tax rates, top marginal tax rates and labour market reform including skills shortages.Is this not the Government's agenda?

There is nothing about the trade deficit either. Is not that silence the Treasury's agenda?

When then is the ALP's economic reform agenda? I reckon it is playing small target by default.

One possibility is tax reform to ease the high marginal tax rates for those people moving from welfare to work? That is necessary and good policy but it is a very expensive bit of reform. Is the ALP serious about this? Or is it shadow boxing? My judgement is that Swan and Smith are faking it.

Ross Gittens agrees. he says that Swan and Smith are political operators who are unlikely to establish the ALP's economic credibility vis-a-vis Costello in the quality press.

| Posted by Gary Sauer-Thompson at 11:07 AM | | Comments (2)


"The OECD pretty much runs the Treasury line says John Quiggin."
No, he actually says (correctly) that Treasury pretty much runs the OECD line on Australia.

There are plenty of tax reforms I'd like to see - not all of them dsitributionally progressive. But I reckon an 'excessive' top marginal rate is fairly low on the list of problems. Trying to outflank Howard on the right is poor economics, and really lousy politics.

derrida derrida
I've gone back and re-read Quiggin's remarks on the relationship between Australian Treasuy and the OECD. He says that he largely ignores:

" OECD reports on the Australian economy, since they are in essence, a Paris republication of the Australian Treasury policy line of the day. The OECD is largely staffed by officials from national treasury departments on temporary postings, and its primary source in consultations is the Treasury."

My statement that "the OECD pretty much runs the Treasury line" is a reasonable interpretation of Quiggin's phrase that the OECD reports are "a Paris republication of the Australian Treasury policy line of the day."

So I will stick with what I've said.

I agree with that you that, if the ALP is trying to outflank Howard on economic reform by being even more rightwing, then that strategy is poor economics and lousy politics. I have argued along with Gittens that the Swan and Smith are fakes--political operators lacking economic knowledge--and so have little idea of the implications of what they are saying.

If they are going to reform the economy they should be addressing the current account deficit, the knowledge economy, and making the economy more competitive and more ecologically sustainable.

The glimmer twins do a lousy job on all these issues.