The Australian
CRISIS TIME: WE CAN TAKE A STAND — OR SOLVE A PROBLEM
PAUL KELLYEDITOR-AT-LARGE
Everyone loses when our democracy is at loggerheads with economic progress
The question for Australia and many Western nations in the Trumpian age of populism and debt is whether democracy’s selfdestructive flaws are reaching a tipping point — is democracy becoming incompatible with economic progress?
The question for Australia and many Western nations in the Trumpian age of populism and debt is whether democracy’s selfdestructive flaws are reaching a tipping point — is democracy becoming incompatible with economic progress?
This is the debate Australia needs to have. It is the debate the US, one way or another, cannot avoid under Donald Trump. It is the debate Britain, post-Brexit, is starting to confront. It is the central dilemma facing Europe, from France to Italy.
In their 2014 book The Fourth Revolution, authors John Micklethwait and Adrian Wooldridge write: “For better or worse, democracy and elephantiasis have gone hand-in-hand. Our politicians have been in the business of giving us more of what we want — more education, more healthcare, more prisons, more pensions, more security, more entitlements. And yet — there is the paradox — we are not happy.
“Having overloaded the state with their demands, voters are furious that it works so badly. From Seattle to Salzburg the worry is that the system that has served the West so well has become dysfunctional, that ‘things are on the wrong track’ … In America the federal government has less support than George III did at the time of the American Revolution. America continues to tax itself like a small government country and spend like a big government one.”
This critique of US polity remains true today. It is increasingly true of Australia. Have you noticed Australians getting even more angry and raging about rotten, hopeless, inept politicians yet demanding governments must do more, spend more money, intrude into more aspects of daily life, resolve more problems, regulate the path to solving every problem from racism to childcare needs to obesity to corporate greed?
Voters loathe the system yet demand more of it — and the more the politicians fail, the angrier the public gets.
In her recently released book Still Lucky, social researcher Rebecca Huntley asks of Australians: “Why do we hate politicians but love government?” Good question — it is the great Australian paradox.
Huntley finds “an almost permanent sense of insecurity exacerbated by economic downturn, the disruptive effects of new technology, cuts to the public service and changes to industry conditions”. She suggests “the idea of secure, protected and well-paid employment” — one of the pillars of the old lucky country — “has been destroyed”.
Fear and insecurity drive people to protect what they’ve got. They drive their anger about inequity, the sense the better-off are ripping off the system. This is the universal narrative flowing from the 2008-09 global financial crisis.
Worried about income and job pressures, people fight politicians to retain every cent of benefit from welfare, health and education spending and, fearing they now live in a rip-off society, say it’s time companies and high-flyers paid their own way. The social contract is deteriorating.
The political debate in Australia today is 80 per cent redistribution and 20 per cent income and growth generation.
This typifies a nation turning on itself. It is the western European disease. If perpetuated, it will end in grief.
Micklethwait and Wooldridge say the Western state is in a condition of “bloat” and that it is the direct consequence of democracy. They brand the state an “omnipresent nanny”.
Politicians of the left and right bid for votes by raising nearly endless expectations the state can do more. It is extraordinary to think historian AJP Taylor said that in 1914 “a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state”.
Life got a lot better in the century after 1914 but the “happiness of the greatest number” is hardly working in 2017.
As current numbers prove, every effort to reverse the growth of the state has failed — from Margaret Thatcher in the 1980s, to Bill Clinton in the 90s, to the Hawke-Keating-Howard era, to deluded hopes that globalisation would do the job.
State expansion is now fuelled by huge forces — demography, the ageing population, benefit entitlement culture, weak growth and poor productivity. The Abbott and Turnbull governments have tried to restrain state expansion and spending, but the opposing forces are too great.
While the government has made some progress in spending restraint, you need only to read Senate Hansard to grasp the hopelessness of the situation. Senators rage about the injustice of any spending cuts (outside the top end), compete with each as the battlers’ friend, and almost always prefer tax rises as the means to resolve the nation’s unsustainable spending levels.
They do so with public support. There is scant evidence the government has persuaded the public that deficits and debt are the public’s problem. We are in the eighth year of budget deficits under which borrowings are being used to finance living standards because of the annual gap between spending and revenue.
The consequences are documented each year in budget papers, the latest evidence coming from the Business Council of Australia 2016-17 budget submission. It says: “A perfect storm is looming. Structural spending pressures continue to build rather than abate. These pressures come principally from an ageing population which will significantly increase demand for pensions, health and aged-care services and new programs such as the NDIS.
“Structural deficits of at least 3 per cent are being locked in creating (in today’s terms) some $50 billion additional debt each year. The consequences are inevitable and unpalatable. Closing this gap would require taxes to rise by $5300 per household per year or $2000 per person.”
The government’s late 2016 budget review projected real spending growth will blow out to 3 per cent a year beyond 2020-21 compared with 1.8 per cent for the current four-year period.
The BCA report says: “Put simply, this means that spending growth will outpace the economy’s capacity to pay. We are facing a structural spending and deficit problem that will not correct itself. Without action, the fiscal gap will grow ever wider — until it provokes a painful economic correction involving both cuts to services and higher taxes.”
There is an absence of will in the parliament to correct this problem. The electoral incentives to act do not exist. The Senate is a veto chamber, dominated by gesture politics where it is more important for parties, big and small, to take a stand rather than solve a problem. Taking a stand is good politics; it plays to your sectional voting base, big or small.
This week the Menzies Research Centre released the first of its reports on our national challenges, headed by businessman Tony Shepherd, who says “the average Australian” no longer cares “about the deficit and the borrowing required to fund it”. It is unsurprising Shepherd says the nation faces a “genuine crisis” over the budget.
In Australia the trend is unmistakeable — it is the growing nexus of bigger government and populist democracy. As Micklethwait and Wooldridge say: “People have voted again and again for the state to do more. But it is not as if either democracy or the state looked any better for it. Government backed by the general democratic will … has seldom been as unloved or inefficient. Freedoms have been given up but the people have not gotten much in return.”
Democracy in Australia is sinking into a self-destructive spiral. The sickness at its heart is the demise of individual responsibility and expecting more from the state when the national interest says state responsibilities should be cut, not increased. Our democratic system now works to undermine economic progress.
We are facing a structural spending and deficit problem that will not correct itself
