Can Abbott rebuild the bungled politics of reform?

Australia does need spending cuts and a broader tax base but the political handling of this structural reform has been comprehensively bungled, and the gullibility of voters seriously misjudged.

Can the Abbott government come back from the disasters of the past week to make the real reforms Australia needs? 

A week out from the federal budget, the signs are not good -- the government’s political strategy for selling its reforms is unraveling. 

For a very long time commentators argued structural deficits in the federal budget could only be fixed by both cost-cutting and reforms on the revenue side. Longer term, changes to the pension and tax concessions would certainly be needed.  And yet we were told repeatedly, both pre- and post election, that Treasurer Hockey had a plan that would do it all on the cost-cutting side, without hurting key areas of service delivery, and without pushing up taxes. 

Then two things happened. 

First, Prime Minister Abbott tried to convince the nation that a five-year ‘levy’ was not a tax, and has alienated a large part of his own support base. The budget will show which high-income Australians will pay the new tax. Secondly, the Commission of Audit documents, which were far more ambitious than even their own terms of reference predicted, were dropped in the nation's lap last Thursday.  

Suddenly we were debating a new model of federalism, cuts to the minimum wage (which was not in the terms of reference), handing back more GST ‘revenue’ to states than is actually raised, and shifting half the extravagant paid-parental-leave budget to childcare. Not really ‘savings’ at all. 

The real savings in health, education and pensions require a fair bit of sophistry to justify as being anything other than broken promises. 

To be clear, the budget does need structural reforms to put federal finances back on a sustainable footing. We do need spending cuts. We do need a broader tax base (though there is no clear reasoning for limiting it to a strict 24 per cent of GDP). And we do need to ‘share the pain’ across the economy. 

What’s not needed is chicanery, exaggeration and duplicitous surprises such as the proposed ‘debt tax’. The politics of these reforms have been comprehensively bungled, much in the style of Kevin Rudd’s handling of the RSPT and Henry Review announcements. 

Politically, as many commentators have remarked, Abbott did not need to make as many rash promises before the election as he did -- no new taxes, no changes to health, education, the pension and so on.  

This is a government elected with a 29-seat majority. The promises just weren’t needed. Somebody in the PM’s inner circle has obviously misjudged the gullibility of journalists and voters, thereby ignoring the lessons of history.

Perhaps the best example of how to sell ‘tough love’ to the electorate came with the election of the Hawke government in 1983. That was an era of runaway inflation and soaring unemployment -- but Hawke did set out an agenda in his campaign launch that explained the pain to come, and how it was to be shared. At his February 1983 launch he said: “... in this hour of Australia's worst economic crisis for fifty years, we shall ask all sections of the Australian community to show the common restraint and share the common burden for the common national purpose.”

He laid out a prices and incomes policy that would not cut incomes in nominal terms, but would crimp spending power and business profits, while still allowing economic rebalancing between supply constraints and booming demand. 

In the same speech he promised: “We undertake, immediately on assuming office, to convene a national economic summit conference, fully representative of Australian industry, the Australian workforce and the Australian people through their elected governments ... Its purpose is to create a climate for common understanding of the scale and scope of Australia's present crisis, to explore the policy options, and to ensure that the relevant parties, governments, business and the unions, clearly appreciate the role that each of them will have to play in pulling the country out of its present economic mess.”

What different days. The National Economic Summit was held in April of that year. Hawke described the effect of that summit on ABC Radio in 2012: “We had the representatives, federal government, state government, local government, large employers, small employers, trade unions, churches, welfare organisations. They were given by Treasury all the information that we had and so you had the people of Australia, through their representative organisations, informed in a way that they had never been before.

“... it was out of that that I got an unanimous communiqué except for one person, Joh Bjelke-Petersen, unanimous communiqué agreeing with the analysis and accepting the things that had to be done, getting a constructive relationship between employers and trade unions, reducing the increase in money wages in return for acceptance of the social wage. Virtually all of the success -- the economic success of 1983 -- stemmed from the summit.”

Had Abbott taken a similar approach, the ‘pain’ that must be shared around to get the budget back into sustainable balance might have been understood, and his biggest critics -- welfare groups and unions in particular -- would have been somewhat disarmed. 

Tony Shepherd and his team have done an admirable job given the brief they were set. But they offer what one critic told me was an “accountant’s view of Australia”.

It is not the only view.  To sell a political message this bold and complex, there need to be a few more people around the table.