Beware the economic perils of populist Palmer

It's all fun and games when populist politicians play sport with policy. They're not the ones who have to pick up the pieces.

Clive Palmer’s political theatrics might make Canberra more interesting, but beware of politicians with a populist agenda. In the scramble to be everyone’s best friend, Abbott’s opposition risks creating an agenda that simply doesn’t add up.

So far the opposition to the federal government’s budget has been steadfast. Last week the Labor Party announced plans to block $11.4 billion in budget savings, a position that requires cooperation from both the Greens and Palmer United Party.

Collectively they have taken the same approach that Tony Abbott used while in opposition. Rather than presenting sound alternatives -- admittedly Clive Palmer offered alternatives, albeit not of the credible variety -- the opposition is happy to simply say no to just about everything.

With the budget so overwhelmingly unpopular, the approach makes sense politically. But it also makes for a fairly underwhelming alternative government.

But does it really matter? Most of these policies are unpopular. Shouldn’t we simply be glad to see the back of them?

When considering the budget, I’m struck by the need to consider both the short-term and long-term implications of various budget proposals.

In the short-term, our budget is mostly in fairly good shape. And with net debt at a low level, we have plenty of scope to stimulate our economy if required. The federal government’s headline cash balance in 2013-14, at 3.4 per cent of nominal GDP, was artificially boosted by the Coalition to create the illusion of crisis.

As a result, blocking these budget proposals has minimal near-term consequences, does not impede our ability to response to a crisis, and may help to support the economy through a fairly uncertain period.

But in the long-term it gets more complicated. Australia faces a number of structural issues that are set to blow a hole in the budget over the coming decades. An ageing population will narrow our tax base and weigh on income taxes and the GST -- since older Australians tend to spend less on goods and services (A new grey area for retailers, March 24).

The end of the mining boom and the associated decline in the terms-of-trade will also create a significant problem for tax revenue. The current outlook by the federal government, which sees tax revenues returning to near their pre-crisis decade average, seems hopelessly optimistic.

Based on that, our tax base is simply too narrow to meet the public’s needs. This isn’t necessarily a problem in the near-term -- as I mentioned above net debt is at a low level -- but with an ageing population the demand for government services will expand at a rapid pace, placing increasing pressure on our long-term budget position. 

In the absence of tax reform, we cannot sit idly by and allow these imbalances to grow unchecked. Reform is required and the Coalition has offered that; the opposition have unfortunately presented no credible alternative.

I’m the first to admit that many of the recommendations featured in the budget were distasteful. For example, scrapping the carbon tax and deregulating university fees seems awfully short-sighted (Tinkering with education will tear through Australia’s social fabric, June 26). Unfortunately the Coalition left too much of the heavy lifting to those least able to bear it.

But the position taken by the opposition is tantamount to saying that there is no burden at all. It’s the equivalent of sticking your head in the sand and hoping for the best.

Those opposing the Coalition’s cuts are effectively saying that they can rein in the deficit without making tough choices. It sounds an awful lot like the rhetoric coming out of the Abbott camp prior to the election -- when they promised to eliminated the deficit without any new taxes and cutting nothing from major policy areas.

It stunk then and it stinks now. Whether you’re the punter in the street or a major news organisation, we should have learned our lesson. Never again should we allow a politician to present a wildly populist agenda without asking him or her to fully justify their position against the available facts.

How does Bill Shorten plan to address our long-term budget challenges? How is it possible to meet those challenges without addressing the aged pension, medical costs or raising taxes?

The same must be asked of Clive Palmer, who has quickly established himself as not only the most important person in the Senate but also the most populist. He cannot do everything he has proposed without doing severe damage to our long-term budget position; he’s banking on everyone remaining so outraged by Abbott’s offering that they simply won’t notice.

The reality is that reform does need to take place. It should have happened years ago, but short-sightedness from both sides of the aisle prevented that. A position that advocates for no budget reform is not a credible position.

But that doesn’t mean that reform has to take the structure suggested by the Coalition. There is a range of options available that could address wasteful spending or our excessive tax concessions -- most of which accrue to the exceeding wealthy -- while simultaneously reducing the burden on those least able to bear it.

Unfortunately nobody in the opposition or in the minor parties is suggesting these reforms. They are happy to simply block everything and hope nobody realises that their budget proposals don’t add up.

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