When does bipartisanship happen? When there's mutual self-interest

If you think Labor and the Liberals are always at each other’s throats and never agree on anything, you haven’t been watching closely enough. Sometimes – last week, for instance – they do deals with each other they hope we won’t notice.

When they’ve reached an agreement they don’t want seen, it’s because they’ve colluded to do something that advances their interests at the expense of the voters.

It reminds me of economist Adam Smith’s observation that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public”.

What do we want from our politicians? That they get on with fixing our many problems. When we discover the present lot isn’t doing that, we toss ’em out. In practice, however, it’s not that simple. We’ve long had a system of two-party government, which means that when one side’s no good, we turn to the other one. But what happens when it too proves to be no good? We have no alternative but to return to the first side, which we already know isn’t up to snuff.

That’s the position we’re in now. We tossed out Scott Morrison and replaced him with Anthony Albanese, only to discover he’s not game to do what it takes. So, does Peter Dutton strike you as the good leader we’re looking for? You’d have to be a terribly rusted-on Lib to think so. What now?

Actually, our loss of faith in the political duopoly isn’t new. It’s become clear that the two sides have just about fought themselves to a standstill. Neither side is game to do anything much, for fear of the scare campaign the other side would run.

This explains why voters have been groping towards plan B. In the 2022 federal election, almost a third of voters – a record proportion – gave their first-preference vote to candidates other than from the two majors. Many Labor voters have turned to the Greens, while the growing number of independents was boosted by the six teal independents taking over seats in the Liberals’ heartland. What’s the single biggest source of discontent with the duopolists? Their reluctance to get on with fighting climate change.

We’ve already come close to having a minority government, and there’s high chance we’ll get one at this year’s election. This gives the smaller parties and independents the balance of power, allowing them to achieve braver policies in return for keeping the minority government in power. Not such a bad arrangement.

But this is where last week’s passing of the electoral reform bill comes in. After doing a deal with the Coalition, Labor got it through the Senate despite the vehement opposition of the Greens and, particularly, the teal independents.

As Labor claims, the act involves the most comprehensive changes to the electoral system in four decades. And many of the changes are genuine reforms, limiting how much individuals can donate to candidates or parties, and tightening up rules on disclosing the identity of donors and the timeliness of that disclosure.

Labor claims its reforms will take the “big money” out of election campaigns. Don’t you believe it. It’s true it will stop the Clive Palmers from giving millions to a party, but that was never a big worry. Various loopholes will allow Labor to continue getting big bucks from the unions and the Libs getting much moolah from business and the secret funds in which money has been stashed.

In any case, the act makes up for any loss of donations by greatly increasing the money the parties and independent candidates get from the taxpayer. After an election, candidates who get more than 4 per cent of the votes get about $3.50 per vote. That will be increased to $5 – which you can double because we each cast two votes, for the House and the Senate.

And that’s before you get to a new payment to cover “administration costs” of $90,000 per election for members of the lower house, and half that for senators.

The point is, these old and new payments go to incumbents, giving them a huge financial head start over new people trying to get in. Even before you think of all the expensive advertising you’d like, setting up an office, staffing it, and paying for printing and stationery ain’t cheap.

But sitting members get an electoral office and a staff of five, plus transport and a generous printing budget they use to get themselves re-elected. So, would-be independents have to raise and spend a lot of money to have any chance against an incumbent member.

Which is where the act’s new limit on spending of $800,000 per candidate puts incumbents way ahead of newcomers. What’s more, political parties are allowed to spend $90 million each on advertising, which they can direct away from their safe seats to their marginals.

Get it? The two major parties have cooked up “reforms” that benefit them by stacking the rules against new independents. The Greens aren’t greatly disadvantaged because they’re a party and have incumbents. The existing independents don’t get the extra benefits going to a party, but do now have the advantage of incumbency.

But future independents – including further teals – will find it a lot harder to win seats than before. Why has Albanese done a deal that mainly benefits the Liberals, his supposed lifelong enemies? Because if independents can do over the Libs, next they can do over Labor.

When the chips are down, the duopolists must stick together and put their mutual interests ahead of the voters’ right to choose. If you want proof that our politicians put their own careers way ahead of their duty to the people who vote for them, this is it. I’ve never felt more disillusioned.

But note this: these changes won’t apply to this year’s election. This will be our last chance to register our disapproval.

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Everyone hates government spending - until someone tries to cut it

It seems government spending will be an issue we hear a lot of in this year’s federal election campaign. But remember this: much of what’s said will be influenced by partisanship, ideology, self-interest and populism.

Peter Dutton is making wild claims that need fact-checking. The business press is saying things that aren’t a lot better. And the debate will proceed according to an eternal political truth: while voters never mind you bad-mouthing government spending in general, as soon as you get specific, they start fighting back.

“I’ve always thought the money the government’s giving you was a great waste, but the money – and the tax breaks – I’m getting are vital to the economy.”

It’s obvious that some part of the $730 billion the federal government spends each year must be wasteful, just as some of the 365,000 people it employs must be in excess. But how much is some – at lot or a little? No one’s ever bothered to find out. Much easier to stick to unsubstantiated claims and exploiting voters’ prejudices.

Dutton has been laying it on thick. When he made Senator Jacinta Nampijinpa Price shadow minister for “government efficiency”, he claimed the Albanese government “has spent money like drunken sailors”.

So what spending would he cut? He’ll tell us later. We do know, however, that Albanese & Co have increased the number of federal public servants (not the same thing as total federal employees) by 36,000.

This addition of “Canberra public servants”, Dutton has said, was “wasteful” and meant the public service was now “bloated and inefficient”. It’s an example of “wasteful spending that is out of control”. “We’re not having 36,000 additional public servants in Canberra”.

So is he going to sack them all? He’d be happy for you to think so, but he hasn’t actually promised he would. What he has said is he’d get rid of diversity and inclusion positions, along with “change managers” and “internal communication specialists”.

Whether that would be a good or bad thing, the saving would be chicken feed.

Dutton has tried hard to give the impression all the extra workers are in Canberra. Not true. The proportion of all federal public servants in Canberra has actually fallen to 37 per cent. Most of the extra people are working in frontline services around the states, helping people using the national disability scheme, visiting Centrelink and so forth.

Andrew Podger, a former top Canberra bureaucrat, notes that, at less than 0.7 per cent, the federal public service is now smaller than it was in 2008 as a proportion of the population, with its share of the total Australian workforce having fallen to less than 1.4 per cent.

Dr Michael Keating, a former topmost bureaucrat, says there’s plenty of evidence that the previous Coalition government was underfunding many services. Hospital waiting lists blew out, public schools didn’t get the resources needed to do their job adequately according to the Gonski standards, waiting times for welfare payments and for veterans’ compensation were far too long, and delays in processing visa applications led to more unauthorised immigrants.

Ending or reducing these policy-caused delays explains most of Albanese’s increased government spending. Sound like waste to you?

Keating notes that, according to the latest official estimates, federal government spending this financial year will be almost the same as it was in the Morrison government’s last year, when measured as a proportion of gross domestic product. Sound profligate to you?

He further notes that, when you take total spending by all levels of government as proportion of GDP, Australia is actually the lowest among the 38 members of the Organisation for Economic Co-operation and Development, save for Ireland, South Korea and Switzerland.

And get this: as a proportion of national income (GDP), our spending by all levels of government is more than 4 percentage points lower than the average for all OECD countries. Remind you of a drunken sailor, does it?

According to the opposition’s shadow minister for the public service Jane Hume, “you don’t grow the economy by growing the size of government. Every public-sector job has to be paid for by a private-sector worker”.

I hope Hume is smart enough to know she’s talking nonsense and is just trying to mislead those people silly enough to believe her. This is a defence of private-good/public-bad ideology that makes no sense. Apart from her inference that people who work for the government don’t have to pay taxes, it’s as silly as saying Woolies and Coles don’t add to the economy because every cent they earn comes from their customers’ pockets.

If we left health, education, law and order and all the rest completely to the private sector, do you reckon we’d have an economy that was bigger or smaller than we have today?

Back to Dutton. He says “a major cause of homegrown inflation is rapid and unrestrained government spending”. If it’s the huge spending by federal and state governments during the pandemic he’s referring to, that’s no more than the economists’ conventional wisdom.

But I guess he’s referring to the more recent spending by Albanese & Co. And get this: ignore the wild exaggeration and the business press has been saying much the same thing for months.

Although the argument has been disavowed by Reserve Bank governor Michele Bullock, the business press has been arguing that the government’s spending, especially that intended to ease cost-of-living pressure by subsidising electricity prices and increasing rent assistance for pensioners, is causing consumer demand to be stronger than otherwise and keeping the jobs market stronger than otherwise, so has allowed businesses to keep increasing their prices.

Fundamentally, the business press is right. The way to get inflation down faster would have been to hit the economy harder, with higher interest rates and zero discretionary spending by the government. Instead, the Reserve and the government took the compromise position by aiming for a soft landing and a consequent slower return to low inflation.

I get why the press hasn’t wanted to spell out more clearly its preference for the tougher choice. What I don’t get is why it thinks its business customers would have preferred a full-blown recession.

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Climate change is taking over the news - in case you hadn't noticed

I keep reading psychologists warning that talking about how terrible climate change will be is counterproductive. Rather than causing the deniers to see the error of their ways, it just makes them close their minds to further argument.

So this column isn’t for them. Rather, it’s to speak to the rest of us – those who don’t try to tell the scientists they’ve got it all wrong – to review the latest evidence that climate change is already upon us (what sane person could not have realised it?) and getting worse as each year flashes by our eyes.

I fear for my five grandkids’ future (as I may have mentioned before) but, to tell the truth, I’m glad I’ll be dead and gone before it reaches its worst. What we must do, like all those who voted teal at the last election, is to press both major parties to speed up our efforts and make Australia a leader rather than a laggard in the global push to limit how bad it gets.

Professor Albert Van Dijk of the Australian National University, an expert on precipitation, is part of an international team of researchers who’ve issued a report, the Global Water Monitor, using data from thousands of ground stations and satellites to document the effect of last year’s record heat on the world’s water cycle.

“We found global warming is profoundly changing the water cycle,” he says. “As a result, we are seeing more rapid and severe droughts, as well as more severe storms and flood events.”

Van Dijk says the most obvious sign of the climate crisis is the unprecedented heatwaves that swept the globe in 2023. Some 77 countries experienced their highest average annual temperature in at least 45 years. This “gave us a glimpse of what a typical year with 1.5 degrees Celsius of warming may look like,” he says. Warming consistently more than 1.5 degrees above pre-industrial levels is expected to have extreme and irreversible impacts on the Earth’s system.

“The high temperatures were often accompanied by very low air humidity. The relative air humidity of the global land surface was the second-driest on record in 2023. Rapid drying of farms and forests caused crops to fail and forests to burn.

“Lack of rain and soaring temperatures intensified multi-year droughts in vulnerable regions such as South America, the Horn of Africa and the Mediterranean ... This continuing trend towards drier conditions is threatening agriculture, biodiversity and overall water security.”

Get this: “The world’s forests have been soaking up a lot of our fossil fuel emissions. That’s because plant photosynthesis absorbs carbon dioxide from the atmosphere. Large disturbances like fire and drought reduce or even reverse that function.”

Rising sea surface and air temperatures have been intensifying the strength and rainfall intensity of monsoons, cyclones and other storm systems, Van Dijk adds.

We saw this when Cyclone Jasper battered northern Queensland and severe storms formed in south-east Queensland, leaving a trail of destruction. The cyclone moved much slower than expected, causing torrential rains and widespread flooding.

Enough of that. Australia’s Climate Council, a community funded organisation created by former members of the Climate Commission after it was abolished by the Abbott government in 2013, has created a “heat map” using thousands of data points from the CSIRO and help from the Bureau of Meteorology.

If we assume, perhaps optimistically, that all countries meet their present UN commitments to reduce emissions, the heat map predicts that western Sydney will swelter through twice as many days above 35 degrees and three weeks above 35 degrees every summer.

Temperatures will be worsened by the “urban heat-island effect”, as materials such as asphalt and concrete amplify heat by as much as 10 degrees during extreme heat.

Melbourne, too, faces double the number of days above 35 degrees by 2050. Will it take that long for the Australian Open to be moved?

Which brings us to last month, when six transmission line towers in Victoria were destroyed by extreme wind gusts from thunderstorms, leading to about 500,000 people losing power. The intense winds knocked trees onto local power lines or toppled the poles. Some people went without electricity for more than a week.

A month earlier, severe thunderstorms and wind took out five transmission towers in Western Australia and caused widespread outages. In January 2020, storms caused the collapse of six transmission towers in Victoria.

And, of course, in 2016 all of South Australia lost power for several hours after extreme winds damaged many transmission towers.

Recent research by Dr Andrew Dowdy and Andrew Brown, of the University of Melbourne, suggests that climate change is likely to cause more favourable conditions for thunderstorms with damaging winds, particularly in inland regions. But more research is needed to confirm this.

Van Dijk gets the last word: “Overall, 2023 provided a stark reminder of the consequences of our continued reliance on fossil fuels and the urgent need but apparent inability of humanity to act decisively to cut greenhouse gas emissions.”

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Why fixing negative gearing would be a positive for our kids

Life wasn’t meant to be easy for our politicians – which is as it should be. Poor old Anthony Albanese. No sooner has he got away with breaking his promise on the stage 3 tax cuts than he’s besieged by people demanding more tax reform.

Trouble is, they all want different things, and every one of them could cost him votes as fat cats who stand to lose some tax break join forces with the opposition to run a great scare campaign, claiming it’s ordinary voters who’d be hit.

Despite the many things wrong with our tax system, the two big parties have wedged themselves into a corner on reform. Neither side’s game to do anything for fear of what the other side would say.

But when, unsurprisingly, polling showed that most people approved of Albanese’s decision to switch about $7 billion a year of the tax cuts away from those at the top and give them to those in the middle and bottom, the would-be reformers swarmed out of the woodwork.

First out was the (Big) Business Council, terribly worried about the lack of investment and the need for greater productivity. I’ll check their claims another day.

Then came two of our best economists, Professors Ross Garnaut and Rod Sims, proposing to bring back the carbon tax, only bigger and better. As I wrote last week, it’s a good idea.

But the one to watch, another old favourite, is the talk of finally doing something to curb the negative gearing of investment properties, which really took off 20 years ago after John Howard decided that the capital gain on property and other investments should be taxed at only half the rate applying to income from actual work.

A rental property is negatively geared when so much of the cost of buying it is covered by a loan rather than your own savings that the interest bill and other expenses exceed the rent you earn.

Why would anyone deliberately set up a business to run at a loss? Because the loss is deductible against your income from work. On a small investment of your own money, you sell the property a few years later at a big capital gain, only half of which is taxed. Not bad, eh?

Former Treasury secretary Dr Ken Henry reminds us that the rental property sector’s deductions are now so huge they exceed the rental income, making it not a net taxpayer. Taken together, all those landlords contribute nothing but are being subsidised by the mug workers.

What should worry Albanese is that the Greens are now pushing negative-gearing reform as part of their efforts to rebrand themselves as the party that cares about renters and first-home buyers.

If Labor doesn’t start showing it wants to improve the daunting prospects facing the younger generation, it risks losing its share of the youth vote to the Greens. The Libs needn’t worry, they’ve lost most of their share already.

Some years ago, the Grattan Institute proposed allowing landlords’ rental losses to be deducted only from other “passive” income, not wage income. There must be some recognition that capital gains shouldn’t be taxed at their full, inflated amount, so the 50 per cent discount should be cut to 25 per cent.

Another approach would be to allow losses to be deducted against wage income only if the investment property was newly built. This would overcome the objection that investors usually buy established homes, thus adding to the demand for homes without adding to their supply, and so pushing prices up out of reach of first-home buyers.

Now, the business people who see themselves as losing from the restriction of negative gearing – the real estate agents and home building companies – always claim it would do great damage to renters and home buyers alike. Don’t believe it. When economists try to estimate the likely effects, they find them to be small. Average house prices would fall by just 1 or 2 per cent, they say. So much for the death and destruction.

But these sums underestimate the likely benefit to young buyers. While the fall in the average price of all houses and units may be small, that’s because most house prices would be unaffected. Entry-level homes, the kind bought by mum-and-dad investors and first-home buyers, would become more affordable because those prices would fall by a lot more.

What’s more, a recent study finds that the share of households who own their home rather than renting it would increase by a huge 4.7 percentage points. Nor would it surprise me if, in practice, the effect was greater than the economists’ figuring suggests.

Even so, fixing negative gearing is no magic answer to housing affordability, and the Albanese government’s efforts to increase the supply of housing, particularly in the parts of cities where people prefer to live, is another part of the answer.

Albanese and Treasurer Jim Chalmers say they have no plans to change negative gearing, but that’s what they said about changing the stage 3 tax cuts – until they were ready to move.

And with the Greens using negative gearing as a bargaining chip in the Senate, progress is far from impossible.

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The two big parties have wedged themselves into a corner on tax

Politicians want us to think things like the stage 3 tax cuts are matters of high principle: keeping solemn promises or redirecting tax relief to those who’ve been doing it toughest. But the sad truth is, it’s just as much about the two big parties using tax promises and tax scares to damage the other side and win elections.

The great lament coming from the big end of town is that the latest squabbles just go to show how, between them, the two sides have no interest in achieving the major tax reform the country so desperately needs.

And big business is right. The pollies have no interest in proposing any needed but controversial change that would leave them open to cheap shots from the other side. In consequence, our tax system is deteriorating. It’s neither as fair as it should be, nor as effective in raising the money needed to pay for the ever-growing list of services we demand of government.

But before I elaborate, note this: business people, like many of us, use the word “reform” to mean changing the system in a way that leaves them paying less tax while others pay more. Specifically, they want to increase the goods and services tax so that we can afford to reduce the rate of company tax and the income tax paid by people at the top. When they call for “genuine reform” after Labor has halved the intended tax cuts for top earners, that’s what the bosses are on about.

But don’t forget this: Anthony Albanese has gone for the best part of two years happy to let these greatly unfair tax cuts proceed rather than be condemned as a promise-breaker. Only in the past week or three has he changed his tune.

Why? Because party polling and focus group feedback told him all the cost-of-living pain had finally caught up with him. His popularity had slumped, and he was in danger of losing next year’s election, with the rot starting at a Victorian byelection in a month or so’s time.

But while I’m casting aspersions, I have little doubt that, had Albanese allowed the stage 3 cuts to proceed as already legislated, the first person to point to how badly low- and middle-income earners had been treated would have been Peter Dutton.

These days, tricky politics trumps good policy. And neither side has a monopoly on hypocrisy.

It’s been almost a quarter of a century since our last large-scale, controversial tax reform: John Howard’s introduction of the GST. And that brought him within a whisker of being tossed out. Since then, talk about tax has become the biggest and best political football for the two parties to kick back and forth as they try to gain the advantage in election campaigns.

The Liberals portray themselves as what Dutton called “the party of lower taxes”, while damning Labor as “the party of tax and spend”. Many voters find this easy to believe, and it does have a degree of truth, even though taxes were at their highest as a proportion of gross domestic product in the early noughties under Howard.

The main thing that pushes tax collections up is bracket creep, “the secret tax of inflation”, according to Malcolm Fraser, and collections hit the heights whenever a government, of whatever colour, leaves it too long before giving some of it back in a tax cut.

What’s true is that Labor is more inclined to spend on health and education and all the rest, leaving it under greater pressure to let taxes rise. But, as we saw particularly under Scott Morrison, the Libs are more inclined to underspend on things such as aged care, while allowing waiting lists for non-urgent surgery and at-home aged care packages to build up. You hope the dam doesn’t burst until the others are back in power.

The Libs never propose explicit tax increases before elections but whenever Labor wants to pay for something by cutting back concessions to the better-off, the Libs make a meal of it. When, next time, Labor reacts by promising not to make any tax changes, you give credibility to some groundless rumour that it intends to bring back death duties.

What makes unpopular tax reform even more unlikely is the game of chicken the parties play, which they call “wedging”. I propose some extreme tax change I know the other side won’t like, hoping they’ll oppose it. If they do, I accuse them of being opposed to tax cuts. But they invariably see the trap and refuse to oppose my change. Meaning we often end up with a bad policy going ahead unchallenged.

The original stage 3 was partly intended to swing one for the Liberals’ well-off supporters. But also, to tempt Labor to oppose it, proof positive it was the high-tax party.

But get this: now Labor has broken its promise and made the tax cuts far more politically attractive, the wedge is on the other foot. Should Dutton vote against Labor’s broken promise, he’ll be accused of raising the taxes on “middle Australia”.

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Don't let the political duopoly block the little guys

What could be better for democracy than taking the big money out of election campaigns? Both Victoria and NSW have made moves in this direction, but the feds have done nothing. Until now. The Albanese government’s working on plans for reform.

Last month, the parliament’s Joint Standing Committee on Electoral Matters, now chaired by Labor’s Kate Thwaites, tabled an interim report recommending sweeping reforms to the rules on donations to political parties.

Thwaites wrote that the evidence the committee heard allowed it to “develop clear goals for reform to increase transparency in election donations and curb the potentially corrupting influence of big money, to build the public’s trust in electoral and political processes, and to encourage participation in our elections”.

The committee proposes that limits (“caps”) be set on the maximum permissible donation and the maximum spending by election candidates. Caps would also apply to “third parties”, such as big organisations seeking to influence the election outcome.

The maximum donation that could be made without the donor’s identity having to be disclosed should be lowered from the present $15,200 to $1000. And the disclosure would have to be made at the time, not months later after the dust had settled.

The Labor majority report also urged a new system of increased public funding for parties and candidates in the light of the effect these changes might have in discouraging private donations.

The committee didn’t specify how the caps on donations and spending would work but left it for the government to decide.

Wow. Wouldn’t all that be an improvement? What’s not to like?

Well, I can think of a big risk. At present, the two major parties are at loggerheads, with the Coalition committee members issuing a minority report. They’re particularly – and rightly – opposed to Labor’s desire to regulate donations from big business while exempting donations from big unions.

But as I’ve written before – and will keep writing – the big political development of our time is not the continuing struggle between Labor and Liberal, but the continuing decline of the two-party system of government, as the bad behaviour of both sides turns an ever-growing proportion of voters away to the minor parties and independents.

I think it will become rare for one side to have a comfortable majority, and common to have a minority government. If so, whichever side forms government will be more dependent on winning the support of the crossbenchers – which, I hope, will make them more reformist.

My interest in this is not just that it affects the economic policies governments will be pursuing, but that economists have given much thought to the way small numbers of big firms – “oligopoly” – find ways to compete that are better for them and worse for their customers.

One thing economists know is that the two parties of a duopoly commonly settle into a carve-up of the market that makes life cosier for both of them.

Oligopolists collude – tacitly, of course, since overt collusion is illegal – to keep prices and profits high. This leaves them exposed to some new firm entering their market and taking business away from them by undercutting those excessive prices.

So oligopolists devote much attention to finding ways to raise barriers that stop interlopers entering their market. Often, this involves persuading governments to raise those barriers for them. All for the greater safety of the customer, naturally.

Do you see the parallel with the threat the teals pose to the Liberals, and the Greens pose to Labor? Except that, in the two big parties’ case, when they combine to repel intruders, they don’t have to extract a favour from the government because they are the government.

Surely, there’s some hidden solution to neuter those pesky minor parties that the two big guys could cook up?

Well, the teals, in particular, needed huge donations from badly dressed internet billionaires (and lesser mortals) to knock off so many sitting Liberal members. So maybe we can toughen up on donations in a way that wins much approval and looks even-handed without people noticing it’s disadvantaged the interlopers more than us.

If we have fewer funds from donations, but more public funding, that advantages the established parties because, although every candidate gets the same dollars per vote, the funding you have to spend in this election campaign was determined by how many votes you got last time.

Oh, you didn’t run last time? What a pity.

But that benefit is small compared with the advantages of being the incumbent. Sitting MPs and senators get better paid than most of us, but they also get electoral staff, cars, travel allowances, printing allowances and much else.

All this support is justified as helping the pollie give their constituents good service. But it’s easily diverted to helping them get re-elected. When pollies shake many hands at a school fête, are they just doing their job, or shoring up their vote? Both.

When the government comes up with its plans to reform election donations and spending, we’ll need to examine their implications carefully.

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Gilding the budget lily: Labor brings in the creative accountants

This month’s budget is not as profligate as its critics claim, but nor is it the deficit-disappearing, penny-pinching budget it was tricked up to be.

When ministerial staffers use words to gild the fiscal lily, it’s called spin doctoring. When the government’s bureaucrats show the treasurer and, more particularly, the finance minister how to do it with numbers, it’s called creative accounting.

So, never fear, Jim Chalmers and Katy Gallagher didn’t need to pay PwC a motza to explain how to make the budget seem better than it was.

No, not the way the former NSW Coalition government paid KPMG to show it how to make its budget balance look better by moving the state’s trains off-budget. Nor has the same firm been paid by another part of the state government to write a report on why it was a bad idea.

There was something a bit odd about the media’s treatment of Chalmers’ second budget. Because the budget’s purpose is to reveal the government’s plans for taxing and spending in the coming financial year, the media give all their attention to the budget balance for the coming year.

Which, this time, is expected to be a deficit of $14 billion, rising to $35 billion the following year, with the budget projected to stay in deficit through to at least 2033-34.

Usually, the media ignore the estimated budget balance in the present financial year, which will end on June 30. It’s “old”. But not this year. This time, a surplus of $4 billion is expected.

Once the media got wind of a surplus, they lost interest in anything else. A surplus! First surplus in 15 years! What an achievement. And after being in power for only a year. How could you get more convincing proof of Labor’s skill as a manager of government finances?

Now, let’s be clear. The expected surplus is perfectly believable, and not the product of creative accounting. But it is the media displaying their economic ignorance.

For a start, in a budget of $630 billion a year, in an economy of $2600 billion a year, a surplus of a mere $4 billion is nothing to get excited about. It’s really a balanced budget, just as much as a deficit of $4 billion would be near enough to a balanced budget.

More significantly, the notion that any treasurer, no matter how wonderful, could turn an expected deficit of $78 billion into a surplus of $4 billion in the space of a year is fanciful. If any pollie should get the credit for it, it would have to be Chalmers’ Liberal predecessor, Josh Frydenberg.

Only he had enough time to do the things capable of helping produce such a result. With the benefit of hindsight, what Frydenberg did was greatly overstimulate the economy, adding to a surge in inflation as well as causing the unemployment rate to fall to 3.5 per cent so workers and businesses paid a lot more income tax.

Another way to look at it is that, had Treasury been better at forecasting, Frydenberg could have forecast a return to budget balance in his last budget.

But this didn’t stop Chalmers and his spin doctors from claiming the credit for himself. Consider this from the budget papers: “The improved fiscal outlook since October largely reflects government decisions to return tax upgrades to budget.”

Talk about twisting the truth. Chalmers wants to take all the credit because, confronted with an unexpected surge in tax collections of $88 billion, he only spent a bit of it.

But, surely, it was the silly media that made all the fuss about the surplus, not that nice young Mr Chalmers. Well, that’s certainly what his spin doctors want you to think – all the adulation came from the crowd.

But they were subtly pushing an easily distracted media in a favourable direction. Consider this. The usual practice in the construction of budget tables is to highlight the coming “budget year”. Not this time. This time it was the old year that got highlighted. So, the $4 billion surplus was shown in bold type, not the $14 billion deficit.

(By the way, as The Australian Financial Review has reported, had Frydenberg’s $690 million [yes, million] deficit in 2018-19 – the one that presaged all the Libs’ happy election talk about “back in black” – been calculated using the same accounting rules under which Chalmers’ surplus was calculated, it would have been a surplus of $7 billion. But no, this isn’t a fiddle, either. The decision to change the rules was made, in prospect, many years earlier by some finance minister named Penny Wong.)

Now we get to the creative accounting, which the Centre for Independent Studies’ Robert Carling, a former NSW Treasury officer, has pointed out. The budget papers make much of the claim that “the government’s spending restraint has limited real [note the real] payments growth to an average 0.6 per cent over five years from 2022-23 to 2026-27”.

Wow. Now that’s what I call restraint. What an achievement. Elsewhere in the papers we’re told that this compares with real average spending growth of about 4 per cent in the eight years before the global financial crisis, and 2.2 per cent over the eight years before the pandemic.

Wow. What restraint the Albanese government is showing. Except that pollies usually quote budget figures over the four years of the budget year plus three years of “forward estimates”. So, why is the 0.6 per cent an average over five years?

Because the extra year includes in the sum the pre-budget year ending in a month. And, purely by chance, real government spending in 2022-23 is expected to fall by 4.3 per cent.

By contrast, real spending in the coming year will grow by 3.7 per cent. Then comes projected annual real growth of 0.6 per cent, 1.9 per cent and 1 per cent.

Why the huge fall this year? Partly, I suspect, because of the effect of temporary pandemic spending programs coming to an end. But also because the indexation of various spending programs was lagging the huge rise in the consumer price index, which is the inflation measure used to calculate the “real” change.

What’s worth remembering from this little fiddle is: never trust calculations of average spending growth into the future. The first year will be close to the truth, but the projections for subsequent years will always be way too low because they’re based on the assumption of unchanged policies, whereas it’s certain that spending plans will have grown by the time we get there.

The first treasurer to con me with this averaging trick was Chalmers’ former boss, Wayne Swan. But Swan got his comeuppance by making himself a laughing-stock when he treated Treasury’s forecasts of future budget surpluses as in the bag. Turned out they weren’t.

The assumptions that policies won’t change and that targets will always be achieved are the reason the budget papers’ “medium-term” projections of deficits and debt 10 years into an unknowable future shouldn’t be taken seriously.

In both sense of the word, they are calculated to mislead.

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Avoiding a tax-cut backlash will be harder than Albanese thinks

Anthony Albanese, who never impressed me when a warrior of the NSW Labor Left, has impressed me greatly by the way he’s conducted himself since becoming prime minister. He wants to raise the standard of political behaviour. Everyone gets listened to with respect, and every election promise he made not to do this, and not to do that, is honoured, no matter how inconvenient.

Having lumbered himself with those promises, Albo is taking the long view. His first term will be used to win voters’ respect and trust, creating a foundation for him to be more comfortably re-elected, with a program of more controversial reform.

Which brings us to the much-debated stage three tax cuts, designed by his political opponents to favour high-income earners at the expense of low and middle earners, something anathema to a Labor government but already put into law.

Many have been urging Albanese and his Treasurer Jim Chalmers to rescind the tax cuts or at least cut them back. But it now seems clear Albanese has made up his mind that the cut, no matter how deleterious, must go ahead. A clear promise was given, and must be kept. Can you imagine the outcry if it wasn’t? Peter Dutton would never let it rest.

Well, I can imagine it. But if Albanese thinks that keeping the promise will mean no outcry, he’s sadly deluded. Once the punters see how little they’re getting compared with how much the fat cats (including a particularly fat economics journo) are getting – once everyone sees the official “what-you-save tax table” published by every masthead – there’ll be a lot of anger.

And guess who’ll be leading the cry. Do you really think Dutton won’t have the front to turn on his own government’s tax cuts? He was trying it out in his budget reply speech last week: “Labor’s working poor”. How about “the struggling middle class”?

Albanese needs to do two things: get Treasury to give him an advance look at that what-you-save table, and get some pollie with a better memory to remind him how “bracket creep” works and how resentful middle income-earners get when they see more and more of every pay rise disappearing in tax.

Because the income tax scale isn’t indexed for inflation, every pay rise you get increases the average rate of tax you pay on the whole of your income – whether or not it literally lifts you into a higher tax bracket. And because the brackets are closer together at the bottom of the scale, bracket creep hits lower incomes harder than middle incomes. But middle incomes are hit harder than high incomes because those people already in the top tax bracket can’t be pushed any higher.

Bracket creep gets greater as inflation increases. The inflation rate’s been unusually high, which has led to higher pay rises, even if they haven’t been big enough to match the rise in prices. Even so, your latest pay rise is having slightly more tax taken out of it than the previous one. So bracket creep is another, hidden reason you’re having trouble keeping up with the cost of living.

If we never got a tax cut, the average rate of tax we pay on all our income would just keep going up and up forever – unless, of course, we never got another pay rise.

This is why every government knows it must have a tax cut every few years if it wants to stop the natives getting restless. But the stage three tax cut we’re due to get from July next year hasn’t been designed to compensate people at the bottom, the middle and the top proportionately to the degree of bracket creep they’ve suffered since 2017-18, when the staged, three-step tax cuts were announced.

Quite the reverse. According to estimates by Paul Tilley, a former Treasury officer, people earning up to roughly $70,000 a year will get tax cuts too small to fully reverse the rise in their average tax rate over the period.

Those earning between $70,000 and $120,000 a year will have their average tax rate cut back to what it was in 2018, whereas those earning more than that – that is, more than 1.5 times the median full-time wage – will get their average tax rate cut to well below what it was in 2018.

Now let’s look at what you save in dollars per week. Albanese says the tax cuts begin at $45,000 a year. The national minimum full-time wage is $42,250. So, people on very low wages, and many with part-time jobs, will get nothing.

On $55,000, you’ll get a saving of $2.40 a week. On the median full-time wage of about $80,000 you’ll get $16.80 a week – that is, no “real” saving. On $120,000, it’s $36 a week.

Meanwhile, me and my mates (and members of parliament), struggling to get by on $200,000 and above, will get a saving of $175 a week, or $25 a day.

Good luck selling that lot, Albo.

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How budget spin doctors manipulate our first impressions

These days, federal budgets are just as much marketing and media management exercises as they are financial and economic documents. That’s because the spin doctors’ role has become central to the way Canberra works. This is just as true under Labor as the Coalition. Media management is a characteristic of government by the two-party duopoly.

Budgets are actually the management plan for controling the government’s spending and tax-raising over the coming financial year. Because you can’t do a budget without first making guesses about what will be happening in the economy at the time, the budget documents contain detailed economic forecasts and commentary about what it has supposed will happen.

These forecasts are taken very seriously on budget night, but rarely referred to again. That’s because this era of dominant “monetary policy” (manipulation of interest rates), conducted by an independent central bank, means it’s the Reserve Bank’s forecasts that matter.

We’ve had those already, on Friday. The financial markets care more about the Reserve’s opinions than the government’s because they’re always trying to guess what the central bank will do to interest rates. What’s more, the RBA revises its forecasts quarterly, so the budget forecasts soon become outdated.

All this means the government’s forecasts can’t be very different from the Reserve’s. Differ by more than half a percentage point, and you get headlines about a split between Treasury and the central bank. Nothing the econocrats hate more (even though there’s unceasing rivalry between the two outfits).

A separate question is what effect the budget, and particularly the new measures it contains, will have on the economy: on gross domestic product, inflation and unemployment. Now that the macroeconomic fashion (aka “best practice”) dictates that the management of demand be left to the central bank – except in emergencies, such as the pandemic – the budget papers will contain little discussion of this.

But the inescapable fact remains that, the federal budget being so big relative to the economy, everything it does affects economic growth. That’s true whether the economic effects were intended or are the unintended consequence of politically driven decisions. All budget measures are political but, equally, all have economic consequences.

At this time of year, many people say they don’t know why the government is bothering to hold a budget when it has already announced the changes it’s making. Well, not quite.

What’s true is that, these days, budgets – and the days leading up to them – are highly stage-managed by the spin doctors. These people are based in the PMO – prime minister’s office – with extension into every minister’s office, via the minister’s press secretary. All paid for by the taxpayer, naturally.

The spin doctors’ job is to use the “mainstream media” to convey to voters an unduly favourable view of the government and the things it’s doing. They do this by exploiting the foibles of journalists and their editors.

Hence, the common trick of releasing potentially embarrassing information late on a Friday, when it’s less likely to make the bulletin. The hope is that, by Monday, the under-reported story is passed over as “old”.

The spinners have the great advantage of a near monopoly over news about what the government is doing. Much of this news is put into press releases, but much is held for selective release to journalists and outlets that are in favour with the government. Write a piece like this one and don’t expect to be popular.

In the olden days, many budget “leaks” really were leaks, the product of journalists talking to bureaucrats and putting two and one together to make four. These days, bureaucrats are forbidden to speak to journos, so most budget leaks have come from the spin doctors, intended to soften us up for what’s to come.

Sometimes, something – say, that the government has decided to increase the JobKeeper payment only for the over-55s – is leaked to just one or two news outlets to “run it up the flagpole and see who salutes”. If it goes over well enough, it will happen. If there’s a big adverse reaction it may never be heard of again.

Any bad news is usually officially announced ahead of the budget, so it won’t spoil the budget’s reception on the night. Lots of small but nice decisions will be announced early, so they don’t get overlooked on the night.

But, particularly if there has been a big pre-announced unpopular measure, the spinners will save some nice, un-foreshadowed hip-pocket measure for unveiling on the night. This, being the only major budget measure that’s “new”, will dominate the media’s reporting. I call it the cherry on top.

As a former treasurer, John Kerin, demonstrated in 1991 – much to the disapproval of Paul Keating - there is no genuine need for reporters to be locked up and allowed to see the budget papers well before the treasurer delivers his speech at 7.30pm, immediately after the ABC evening news.

But the budget “lockup” persists to this day because of its great media-management advantages. It’s of much benefit to have the treasurer’s made-for-telly (that is, full of spin) budget speech broadcast in prime time, rather than after lunch. (The smaller disadvantage is that the ABC gives the leader of the opposition – not the shadow treasurer – right of reply, at the same time on Thursday night.)

The other advantage of a lockup is that letting journalists out so late in the day gives them little time to ask independent experts what they thought of the budget. Rather, they’ve spent six hours locked up with Treasury heavies. (I remember one saying to me, long ago: “Not much there to criticise, eh?” )

This media manipulation usually ensures the media’s first impressions are more favourable to the government than they should be, getting the budget off to a good start with the voters. Only on day two do the interest groups finish combing through the fine print and finding the carefully hidden nasties.

All pretty grubby, but true.

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In politics and the economy, Christianity is increasingly suspect

A question for Easter Monday: would Australia be better governed if our political leaders were practising Christians? Would the economy work any better?

One thing that’s changed since last Easter is that we’re no longer led by a prime minister happy to let his Christian faith be known. By contrast, I wouldn’t know what Anthony Albanese’s religious views are, if any.

Another thing that’s changing is the decline of adherence to Christianity in its many denominations. This is partly the immigration of many people of other religions, but mainly the growing indifference of many from formerly churchgoing families. And, perhaps, the growing number of university graduates.

According to the 2021 census, the proportion of people identifying as Christian has fallen from 61 per cent to 44 per cent in a decade, with those reporting “no religion” rising from 22 per cent to 39 per cent.

So, it’s no exaggeration to say we now live in a post-Christian society. Nor that a growing number of people have a low opinion of those who profess to be Christians. They’ve said or done something bad – well, what would you expect?

Actually, that’s a good question: what do we expect of Christians? How differently would a professing prime minister behave to one who kept their religious opinions to themselves?

I think the main expectation of most people – certainly, most young people – would be for Christians to be always on about their opposition to abortion, same-sex marriage and gender-changing.

Plus, their God-given right to discriminate against those in their churches, schools or hospitals who don’t conform to these views.

Is this the view of themselves and their mission – and their God - that Christians and their leaders are happy to convey to the rest of the nation? That Christ died on the cross to preserve a narrow view of sexual morality?

To be fair, it’s only when clergy speak on such controversial matters that the media take much notice of what they say. An archbishop preaching a sermon on Love One Another gets a headline only on Good Friday.

But I suspect it’s only on matters of (their view of) sexual morality that the churches go out of their way to attract media publicity. By default, this is the churches’ burning message to the nation.

If that’s all Christianity has left – if it now sees itself as an oppressed minority fighting to protect its right to discriminate on religious grounds – then whether our prime minister is an out-of-the-closet Christian is of little consequence for the governance of the nation and the health of the economy.

As we saw with Scott Morrison, such a prime minister won’t prevail against the weight of the nation’s support for sexual freedom and opposition to discrimination on sexual or religious grounds.

The worst we could expect is feet-dragging on the goal of increasing women’s role in politics and the paid workforce.

But this is not the Christianity I grew up with, nor does it fit with the values and behaviour of the many Christians I still mix with. Everything I know about the church and its Saviour tells me sex is just a small part of its definition of what it means to live a “moral” life.

The imitation of Christ is about loving your neighbour as yourself – and defining “neighbour” very broadly. It’s about honesty and meticulous truth-telling, about justice tempered by mercy, about forgiveness and fairness.

And, from what I read in the New Testament, it’s about Jesus’ preoccupation with the poor and strictures on the rich: “Sell everything you have and give it to the poor.”

When I heard a secret recording of Morrison speaking at a prayer meeting, the sentiments and phrases reminded me of my parents and all the prayer meetings I had attended.

But in watching Morrison’s words and actions as prime minister, my recurring feeling over the four years was that nothing about them reminded me of Jesus.

He was not the only prime minister to pander to, and play on, the worst features of the Australian character. Punishing boat people who arrive without an invitation. Telling the underprivileged that “those who have a go, get a go”.

Ignoring the law to use robo-debt to falsely accuse people the mean-spirited regard as dole bludgers. And insisting on keeping unemployment benefits well below the poverty line.

If we could get a prime minister who acted in a less un-Christian way, it wouldn’t matter much who or what he believed in. The economy would be fairer, and we could all enjoy our prosperity with a clearer conscience.

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Voters turn from the big parties, increasing political competition

John Howard is right to describe the NSW election result as a “conventional change of government”. An old and disfigured government was tossed out and the other side given a go. It’s common when a government’s been in power for a decade or more. But don’t let this convince you nothing’s changed about the way we vote.

What’s happening is that the longstanding two-party system of government is breaking down before our eyes. Years of bad behaviour by the Coalition and Labor are leading more people to vote for minor parties and independents.

This means it’s become rare for any government, state or federal, to be elected with a big majority. Majorities now tend to be narrow, and minority governments are common, particularly at state level.

The big two are always telling us a “hung parliament” would be a terrible thing, causing “chaos and confusion”. Not true. They say this because it would be a terrible thing for them, requiring them to do deals with people they hate, to get the numbers to govern.

The “crossbenchers” usually drive a hard bargain. NSW’s four-year, fixed-date elections were forced on Liberal premier Nick Greiner in 1991 by three independents. Julia Gillard’s short-lived carbon tax was forced on her by the Greens, when she fell short of a majority in 2010.

So weaker governments are bad for the major parties, but good for democracy and voters, who get more to choose from.

Why is any of this the business of an economics writer? Because the nature of competition between a few big players in a market – “oligopoly” – is a subject economists study. And two-party government has a lot in common with markets dominated by two huge companies – duopoly.

But first, a closer look at the latest election. The “landslide” to Labor is looking a fair bit less than it looked on Saturday night. Chris Minns hasn’t yet secured a majority, and if he does, it will be narrow. Why? Because so many people are voting for minor parties and independents. At this stage in the counting, 28 per cent of voters spurned the big two. This compares with almost 32 per cent at the federal election last May, where the big swing away from the Liberals gave Labor just a narrow majority.

In NSW, the Greens look to have retained their three seats in the lower house, with independents looking sure of eight seats, and probably more. One of the new independents was backed by teal money.

An American economist named Harold Hotelling is famous for talking about a beach with two ice-cream sellers. From the swimmers’ perspective, the best place for them would be one at the quarter-mark and the other at the three-quarter mark. This would minimise the distance anyone had to walk to get a cone.

But Hotelling figured that the two would end up back-to-back at the centre of the beach. Why? Because that was the way each could ensure the other got no more than half the “market share”.

The social psychologist Hugh Mackay says that the key to competition is to focus on the customer, not your competitor. That’s just what oligopolists and our political duopolists don’t do.

If there’s one thing most people don’t understand about politics it’s the way each big party obsesses about what the other side’s doing, and how it will react to what they do.

It was this that caused Anthony Albanese to go to last year’s election promising to do nothing that could offend anyone much. Promise to make needed but controversial changes and the other side launches a scare campaign. It’s only when politicians tell us how bad the other side’s policies would be that we’re tempted to believe them.

The two sides are always trying to “wedge” each other by announcing a bad but popular policy and hoping the other side will be silly enough to oppose it.

Trouble is, they rarely fall for it. They sidestep the wedge by supporting the policy. Which means both sides end up agreeing to do bad things. This is why Albanese agreed to the AUKUS pact sight unseen and, earlier, to stick with the stage three tax cut that’s biased against Labor voters.

This is where the minor parties come in, particularly those sharing the balance of power in the Senate. They can use their power to stop, or at least tone down, the bad policies the government of the day foolishly locked itself into.

Consider this. Last week Climate Change Minister Chris Bowen loudly vowed not to negotiate with the Greens over his “safeguard mechanism”. But by Monday, wiser heads had prevailed, and a deal was done, making the mechanism much more effective.

The big two each offer voters a policy package-deal not very different to the other one’s. Whichever package you pick will include policies you don’t like. But the minor party and independent “new entrants” to the political market give consumers a wider choice by forcing the big guys to “unbundle” their packages.

Sounds more like democracy’s supposed to be.

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Want a better economy? Design better policies, don't just pick sides

A wise person has said that our brains love to make either-or choices. Which is why it’s wise not to waste much energy on the concocted furore over Treasurer Jim Chalmers’ 6000-word essay musing on future economic policy.

The world is a complicated place, and so are the choices we make about what we need to do get an economy that improves the lives of the humans who constitute it, including those at the bottom, not just the top.

But our brains look for ways to simplify the many choices we face. The simplest choice is binary: between A and B, black or white, good or bad. This fits with our tribal instincts. My tribe versus the rest, us and them, the good guys versus the bad guys.

Our two-party political system has been built to keep things simple. And thus, to minimise the need for hard thinking. Many people don’t have time to decide what they think about this policy or that, so they pick a political party and outsource their thinking to it.

“Am I for it or against it? Tell me what my party’s saying, and I’ll know what I think.” There’s plenty of survey evidence that people who voted for the government – any government – are more inclined to think the economy’s going well, whereas those who voted for the other side think it’s going badly.

Too much of the outrage over Chalmers and his essay has come from media outlets whose business plan is to pander to the prejudices of a particular “market segment”.

Economists like to think of themselves as rational and objective, but economics and economy policy are highly susceptible to binary choices, and fads and fashions.

All I’ve seen over the years has made me a believer in the pendulum theory of history: we tend to swing from one extreme to the other. After World War II, people – particularly in Britain and Europe - were very aware of the failings of the private sector, so they decided to nationalise many industries.

By the time Maggie Thatcher and Ronald Reagan arrived, people had become very aware of the failings of government-owned businesses. So they decided to privatise many industries.

The big binary issue in economic policy is broader than privatisation, it’s government intervention in markets. Should governments intervene as little as possible, or as much as is necessary? To put it in the comic book terms beloved by Chalmers’ partisan critics: we face a choice between the free market or socialism.

Except that we don’t. My point is that the truth – and the ideal place to be – is unlikely to be found at one extreme or the other. It’s much more likely be somewhere in the middle.

To me, this is what economics teaches. It’s why economists say we should make decisions “at the margin” and are obsessed by finding the best “trade-off” between our conflicting objectives.

We want to be free to do as we choose, but we also want to be protected from instability (high inflation and high unemployment) and unfair treatment in its many forms.

The period of deregulation and privatisation instigated by the Hawke-Keating government in the mid-1980s, known locally as “micro-economic reform” motivated by “economic rationalism”, eventually degenerated into a belief in public bad/private good under subsequent governments, and was dubbed “neoliberalism” by leftie academics.

While the inclination to favour business and sell off government businesses remained under the former Coalition federal government, it had no commitment to minimising government intervention. Its willingness to impose its wishes on electricity and gas producers, for instance, was often on display.

And while the big reforms undertaken in the name of economic rationalism – floating the dollar, deregulating the banks, ending import protection, and introducing national competition policy – have served us well, many of the privatisations and efforts to outsource provision of government services have not.

In 2023, we’re left somewhere between the two extremes, with an economy that’s not working nearly as well as we need it to. Chalmers and Labor’s other ministers will have to intervene – but do so in ways they’re reasonably sure will make matters better rather than worse.

That’s the hard part, and their econocrat advisers aren’t nearly as well-equipped as they should be to tell them “what works and what doesn’t”.

Why not? Because we’ve done far too little hard thinking about the problems, preferring to take refuge in the happy delusion that the answer lies at one extreme or the other.

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Maybe Left versus Right is turning into smart versus not-so

Here’s a funny thing to think about on a holiday Monday: what if all the well-educated people voted Labor and the lowly-educated voted Liberal or National? How would that change our politics? A preposterous notion? Not as much as you may think.

As I’ve mentioned once or twice before, the great political stereotype is that the Liberals are the party of the bosses, while Labor, with its link to the union movement, is the party of the workers. So the people who own and manage the country vote Liberal, whereas the people who do as they’re told vote Labor.

This is the basis for the Liberals' instinctive confidence that they’re the natural party of government. Such belief is reinforced by their having spent far more of the past 75 years in office than their opponent has.

The better-situated, better-off suburbs in any city tend to vote Liberal, while the inner and outer, less-desirable suburbs vote Labor. Most people living in country areas and voting for the Nationals tend to be on modest incomes, similar to the stereotypical Labor voter.

The owners and managers tend to be pretty happy with the world as it is, whereas those further down the pecking order, with less wealth and less income, can always think of things they’d like to see changed. The Liberals defend the status quo, while Labor is the party of “reform”.

This is the basis for the standard perception of politics as a conflict between the privileged Right and the discontented Left.

But what if this conventional setup was changing - being undermined – before our eyes? We all know that strange things happened in last month’s federal election. As usual, we’ve tried to understand these from the top down. How the parties’ share of the national vote changed, then looking by state and even at the 151 electorates.

But Luke Metcalfe, founder of the property and data analytics consultancy, Microburbs, (and, as it happens, a nephew of mine), has done a bottom-up, more “granular” analysis.

He’s taken the Australian Electoral Commission’s voting figures by polling booth and matched them with all the detailed demographic information for corresponding small statistical areas in the 2016 census. They’re not a perfect fit, but they’re a good guide.

Metcalfe finds that “we’re seeing a continuation of the trend in the [2019] federal election, where the Coalition’s support base is shifting towards poorer, less-skilled, less-educated people born in Australia”.

When Labor lost in 2019, many people noticed the swing against Labor in regional mining seats in the NSW Hunter Valley and Central Queensland. What few noticed was the swing to Labor in many safe Liberal seats.

This time, Metcalfe says, rich, educated professionals swung 11 to 12 per cent against the Coalition, while the country’s working poor - the fifth of polling booths paying the lowest rent, earning the lowest incomes and with the least skills - swung only 3 to 4 per cent against it.

As we know, much of this shift away from the Liberals came via the teal independents in Liberal heartland seats in Melbourne, Sydney and Perth. The teal seats’ most dominant characteristic was their high levels of “educational attainment”.

Unsurprisingly, income and education are highly correlated. But Metcalfe says it’s education, not income, that’s doing the driving.

Many people think they’ve detected in recent election results a growing divide between city and country in Australia, but also in Britain and America. But maybe it’s more about the better-educated concentrating in the big cities – where the best-paying jobs are – leaving the less well-educated in outer suburbs or back in country towns, feeling the world has changed in ways they don’t like and thinking of voting One Nation.

Some political scientists think voters in the rich economies are dividing between the globalists and the nationalists. In the same vein, David Goodhart famously explained Brexit as a battle between those who could live and work “anywhere” and those who had to live “somewhere”.

But it still gets down to education and the way ever-rising levels of educational attainment - particularly among women – are remodelling the party-political landscape.

Take climate change. The better educated you are, the more likely you are to accept the science, believe we should be acting, and not be worried about either losing your job in the mine or paying a bit more for power.

Wouldn’t it be funny if the party of the workers became the party of the well-educated, while the party of the bosses became the party of the battlers?

I can’t see that happening, it’s too incongruous. There’s no way the Coalition could get enough seats without the Liberals’ leafy heartland. But it will need radical policy change to get the well-educated back into the fold, or into bed with the Neanderthal Nationals.

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Why Albanese will bring public servants in from the cold

The election was so much about getting rid of Scott Morrison that few but the party faithful turned to Anthony Albanese with great hope and enthusiasm. He’s not the most charismatic bloke you could meet. Yet almost everything we’ve heard from him so far has been encouraging.

From his victory speech on, he’s said everything you’d want him to say. He made a promise which, to be fair, his predecessor never made and so never broke: to govern for all Australians.

Morrison was in the divide-and-conquer mould. He was the most tribal prime minister I can remember. My tribe, your tribe; us and them; good guys, bad guys; lifters and leaners.

Kevin Rudd had to be strong-armed by his colleagues to give the job of ambassador to the US to his vanquished party predecessor, Kim Beazley, a job for which he was highly qualified.

Rudd wanted to prove his magnanimity by giving it to a Liberal worthy – a gesture that John Howard, nor his protege Morrison, would never have made. To them, the spoils of office went solely to the winners.

I remember when “jobs for the boys” was considered a strictly Labor vice. Morrison has filled the Administrative Appeals Tribunal with Liberal cronies. The Libs have pretty much appointed only people from the employer side to the Fair Work Commission. The convention used to be 50/50.

Albanese said he wanted to bring Australians together. “I want Australia to continue to be a country that, no matter where you live, who you worship, who you love or what your last name is, places no restrictions on your journey in life.”

Of course, grand election-night declarations are like New Year’s resolutions: a lot easier to make than to stick to, day after day, as old habits try to reassert themselves.

As we wonder what kind of PM Albanese will make, two things are worth remembering. First, unlike the Liberals, Labor sees itself as the unnatural party of government, the boys and girls from the wrong side of the tracks.

If the Libs have a superiority complex – if they act like they own the place and can make their own rules – Labor is the opposite. As outsiders to power, they tend to be on their best behaviour in the Big House, to worry about using the right fork.

Paradoxically, they’re more likely than the Libs to stick to the conventions rather than overturn them, more likely to consult widely – the unions come back into the tent, but business stays in – and more likely to seek, and take, advice from officials.

Second, as Julia Gillard demonstrated, prime ministers from Labor’s left faction try to prove they’re not really left-wing by being surprisingly right-wing in the policies they pursue. She was fawning towards the Americans, did too little to reverse the anti-union excesses of Howard’s WorkChoices – did someone say we had a chronic problem with weak wage growth? – and her effort to lift schools’ performance by using the publication of metrics to encourage greater competition between the public and private sectors was a faddish idea that didn’t work.

But, against those two positives, remember this. Whenever a government lowers standards, its opponents always promise to restore them. Nevertheless, the two major parties are obsessed with each other and determined the other side won’t gain an advantage.

So, the moment the new government is criticised for some behaviour and replies that it’s only what the last lot did, you’ll know the game is lost.

Recent Coalition governments have seen the public service as an enemy – the voting figures show Canberra is very much a Labor town – and have progressively cut back admin costs and public service numbers. Morrison went further, telling public servants he didn’t need their advice on policy matters. Much policy expertise has been lost in consequence – as witness, the administrative fumbling of the vaccine and RATs rollouts.

On coming to office, both Howard and Tony Abbott sacked many department heads they considered had been too close to the previous Labor government. There’s little doubt this was also intended “to encourage the others”, making them fearful of losing their own jobs should they be judged as less than fully co-operative.

Nothing could be better calculated to ensure ministers are surrounded by yes-persons. It takes a wise and strong manager to see the benefit of having around them people game to say, “Are you sure that’s a good idea, boss?” when considered necessary.

Albanese has promised not to sack any public servants, and he hasn’t so far. Replacing the head of his own department is, by modern convention, an entitlement of the new prime minister.

Politicians are prone to paranoia. Labor is right to trust the public servants. In my decades of speaking to them privately on policy issues, I can’t remember when they’ve expressed to me any criticism of government policy or lack of confidence in the government of the day. To do so would be unprofessional.

Public servants aren’t omniscient. But I’d rather have a government listening to their advice than trying to wing it.

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Why the political duopoly is losing market-share

If you hadn’t noticed, economic policy and politics are closely entwined. And economic journalism is a just specialty within political journalism. But some parts of economics – agency theory and industrial organisation, for instance – are surprisingly useful in understanding how politics works.

The big surprises in this election weren’t the election of Labor, but the steep decline in the two major parties’ share of the primary vote, and the emergence of climate action as the big vote-shifting issue, even though it got little attention in the campaign, especially compared with the focus on the cost of living.

Some decades ago, the two big parties’ share of the primary vote was 90 per cent. By the last election, the non-mainstream vote had risen to a quarter. But this time it jumped to a third, leaving the big guys sharing roughly a third each.

Despite its win, Labor’s third was its lowest since the 1930s, and amazingly low for the winning party. Though the Coalition’s share was bigger than Labor’s, it fell far more this time.

Why are fewer and fewer people prepared to vote for either of the two majors? Why is the two-party system in decline? The economists’ basic neoclassical model of markets assumes intense price competition between a large number of small firms.

In real life, many markets are characterised by “oligopoly” – they’re dominated by a small number of large firms. Many decades of firms pursuing economies of scale do a lot to explain why we see so many oligopolistic markets.

In the sub-discipline of “industrial organisation”, economists seek to explain why oligopolistic markets differ from that basic model of “perfect competition”. They’ve found that the few big firms are not so much competitors as rivals. Their huge size gives each of them “market power” – more control over the prices they’re able to charge – but they watch each other like hawks, and never make a move without considering what the other big firms might do in reaction to their move.

They live in fear of losing market-share. With only two huge firms – a duopoly – the rivalry is that much more intense.

Few people realise that, though our political duopolists paint themselves as poles apart ideologically, the main thing that influences the choices they make is what the other side’s doing. Governments are constrained by oppositions; oppositions are constrained by governments.

See what this does? It makes the rival parties more alike. When I see you behaving badly but getting away with it, I decide I’ll do the same. And if you’re not sticking your neck out on climate action, I decide I’d better not risk it either.

That’s why so many people complain the parties are “all the same”. An economist called Harold Hotelling formulated a rule that two firms serving an area – ice cream sellers on a beach, for instance – will tend to gravitate to the same central location. Why? Because they want to reduce the chance of the other side getting a bigger share of the market than they do.

This, of course, reduces the choice available to customers. So, does it surprise you that, as the two sides of politics become more similar – as they crowd around the political centre – more people set up fringe parties, and more people vote for them?

For many years, the Liberals used climate change as a stick to beat Labor over the head, making Labor more cautious in what it proposed. For years that’s mean Labor’s lost many first-preference votes to the Greens. But this time the Libs lost votes to the teal independents in Sydney, Melbourne and Perth, and both sides lost votes to the Greens in Brisbane.

Yet, just as commercial firms have become bigger over the decades, so politicians and their parties have changed. Economies of scale are one reason for fewer, bigger firms, but another technique we’ve used to get richer is “specialisation and exchange”. The more we specialise, the more efficient we get at doing whatever it is we do.

By now, we have specialties within specialties. We have experts who know more and more about less and less. Politics used to be a game for amateurs. People who’d done well in their careers, switched to politics to “give something back”.

These days, politics has become more professionalised, more a lifetime career where, upon graduating, you start at the bottom as a research assistant for a union or a minister, and work your way up, becoming an MP, then a minister, then who knows?

The more professional politicians become, the more they focus on advancing in the political game, and less on the things they got into politics to fix. They used to have to guess at what the voters wanted; now the majors spend a fortune on polling and focus groups. They’re more inclined to give the voters what they now know they want, and tell them what they know they want to hear.

Voters have shown less loyalty to a particular party the more they suspect the pollies are advancing their own cause, not the public’s. The minor parties and independents are more like the amateur politicians of old: they turned to politics after a career elsewhere and they did so because they cared about a few particular issues. A growing number of voters find these issue-driven politicians more attractive.

The main political parties have changed, too. They used to be grassroots, bottom-up movements with many members. Now, they have few members and those they retain tend to be a lot more hard-line than the people who just vote for the party.

With the professionalisation of politics, the two majors have become more top-down. Just as the interests of executives don’t always align with those of their shareholders and supposed masters, so it is with political parties. Economists see this as a principal-and-agent problem.

The two majors have become more like franchise operations. All the big decisions are made at the centre by the professional managers, leaving the franchisees to just flog the product. These days, the party’s policies are made at the top, with party members getting little say.

In the old days, the branches’ main right and function was to preselect the candidates who would represent them in parliament. They tend to favour candidates who are well-known and well-liked in the district – maybe a former mayor – who’ll work hard attending school fetes and advancing the electorate’s interests.

As we’ve seen in this election, leaders and people at the centre increasingly insist on parachuting in someone with a higher profile and greater leadership potential. The party faithful increasing resent this.

The people at the top must wonder why they still need branches at all. Short answer: they still need enough volunteers to door-knock and man the booths on election day.

We saw that Labor’s attempt to foist Kristina Keneally on some electorate cost it the seat. In the Liberals’ leafy heartland, I suspect the locals’ thought that they might see a lot more of an independent member contributed significantly to the teals’ success.

It’s not at all clear the teals will be one-term wonders. And it maybe the days of either major party ruling with a comfortable parliamentary majority are gone.

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Replacing the misbehaving ScoMo is an easy act for Albo to follow

It is a truth (almost) universally acknowledged by Labor politicians that it’s near impossible to reform from opposition. Be too ambitious, make yourself too big a target, and the government will happily use the many advantages of incumbency to shoot you down.

That’s because all reforms have opponents, and most create losers as well as winners. That’s why, after being reminded of this truth at the 2019 election, Labor made itself as small a target as possible. Part of this was for Anthony Albanese to neutralise most of Scott Morrison’s vote-buying promises by matching them.

Back then, Morrison convinced himself that – apart from having God on his side – his miraculous win was owed to his cunning strategy of painting Labor as the party of tax-and-spend, and the Liberals as the party of lower taxes. He tried repeating the strategy this time.

The first part of his mantra was true enough. The second was bulldust. As independent economist Saul Eslake has demonstrated, in the highest-taxing stakes, the just-departed government runs second only to the Howard government.

Find that hard to believe? You’re forgetting the invisible magic of bracket creep. The loophole in Morrison’s promise not to raise taxes – which Albanese matched – is that it doesn’t include bracket creep. And now that inflation’s back, bracket creep proceeds apace.

Many of the reforms we need – fixing aged care, reversing the squeeze on universities and TAFE, making homeownership affordable, exploiting our chance to become a renewables superpower – would cost big bucks and require greater and changed taxation.

But Albanese’s problem is not just that he’s promised not to increase taxes while making a huge and blatantly unfair cut in income tax in two years’ time, or even that he’s inherited a big budget deficit and huge debt overhang.

That much you see from the budget papers. What you can’t see is the extent to which the Morrison government has been holding back the tide of higher spending by cutting public service jobs, increasing waiting times, cutting NDIS packages and finding excuses to suspend people’s dole payments.

This dam had to burst after the election. And it will do so at just the time when the econocrats are telling Labor the budget deficit must go down, not up.

What was it Paul Keating used to say about excrement sandwiches? Come on down, Albo.

But all is not lost. For a start, on expensive and controversial reforms, Albanese should follow the aforementioned Eslake’s advice and copy John Howard. He got elected in 1996 with a promise to “never, ever” introduce a goods and services tax. So he made an honourable escape by having such a tax fully developed for presentation at the next election.

It was approved – by a whisker. As Eslake reminds us, not since 1931 has any first-term federal government failed to secure a second term.

“Labor needs in its first term to lay the groundwork for a more expansive mandate for its second term,” Eslake recommends.

Next, Labor does have a mandate – both direct and indirect, via the higher votes for the Greens and teal independents – to proceed with climate action, an anti-corruption commission “with teeth”, gender equality, and commitment to the Uluru Statement from the Heart “in full”.

Except for climate action, none of these historic reforms will greatly trouble the budget accountants.

However, as Professor Mark Kenny, of the Australian National University (but formerly of this parish), has helped us see, this election was about something deeper: “The urgent need to rescue longstanding governing norms around transparency, accountability, ministerial standards, trust and honesty and, of course, the viability of the public service.”

Morrison’s approach, he says, was “divide and dither”. “Accountable government, national unity, evidence-based policy, and democratic accountability [whether voters give his performance a tick or a cross] are all on the ballot at this election.”

Let’s get personal. The biggest reason Albanese is now PM is that he’s not Scott Morrison. The biggest policy question in this election, the one almost everyone in the great majority who didn’t vote for the Coalition wholeheartedly endorsed, was: “would you like to see no more of Scotty from marketing?”

It’s simple. The surest way for Albanese to ensure his re-election is to be a better, more likeable PM than that other one.

Just be more truthful, more respectful, more humble, more answerable, more willing to admit your mistakes, more inclusive, more even-handed, more charitable towards the needy, more willing to answer the question, and more protective of Australia’s reputation abroad.

Be less prevaricating, less divisive, less bulldozer-like, less willing to help mates and punish enemies, and less unable to let that five-letter S-word pass your lips unqualified.

I think Albanese’s already got that message. “I want to bring people together and I want to change the way that politics is conducted in this country,” he’s said. Australians have “conflict fatigue”.

Being a saintly prime minister won’t be easy. But think of it this way: conduct-wise, being ScoMo’s successor won’t be a hard act to follow.

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Election: a win for the punters against the party professionals

Listening to Anthony Albanese’s victory speech on Saturday night – promising to be a better, more inclusive leader than his predecessor, to help the needy as well as the party heartland, to work hard fixing as many of our problems as humanly possible – my inner accountant came out. Yes, but how will you pay for it all?

If ever there was a case of oppositions not winning elections but governments losing them, this is it. Much more than usually, this election result was voters rejecting not so much the Liberal Party and its policies, but the party’s leader and his divisive, often disrespectful way of conducting himself and his preoccupation with clinging to a fossil-mining past rather than striving for a future as a renewable energy super-power.

What motivated all those people – particularly women – in the most prosperous parts of Sydney and Melbourne to break the habit of a lifetime and vote for a teal independent rather than the Liberal member they had no special gripe against?

It was their overwhelming desire to see and hear no more from the most un-Christlike Christian they could imagine. A bulldozer, indeed. It’s significant that the people they voted for were well-educated, successful businesswomen. Female equality was also a big motivation for the Liberal revolt.

So too, Scott Morrison’s puzzling resistance to the obvious need for a federal anti-corruption commission “with teeth”. If he had nothing to fear, what was his problem?

But it wasn’t just the teals. What about the resurgence in the Greens’ vote, and all the Liberal and Labor voters in Brisbane who switched to the Greens? It’s obvious from the two separate revolts against both major parties that the need for more urgent action against climate change was the election’s single biggest issue.

This despite the majors’ desire to avoid talking about climate change – which the media meekly accepted. It’s significant that both the Greens and the teals were promising much earlier and bigger reductions in emissions. Albanese ignores this message at his peril.

The one issue the majors were happy to debate was the cost of living. So, with the media’s willing acceptance, this became the central issue of the campaign. The great cost-of-living election, with the Reserve Bank making a guest appearance.

Really? Where’s the evidence of that being a key influence on the result? Well, I guess it’s the main reason Labor – the party promising to increase wages – did take a number of seats away from the Libs, in the way the two-party textbook says elections should work.

But we’ve yet to see whether Labor won enough of those seats to form a majority government.

The notion that minority government is a recipe for instability bordering on chaos is a self-serving lie spread by the two majors.

Look at the record – federal and state – and you find that the deals the majors have done to guarantee “confidence and supply” not only achieve stability, they allow the crossbenchers to achieve valuable reforms – often to do with transparency and accountability – that neither of the majors fancies.

With the Gillard minority government, the main gain was a tax on carbon – which, had it survived the depredations of Tony Abbott, would have left us much better-placed today.

We seem to have moved to a non-praying prime minister, but if I were Albanese I’d be praying to be left in a position where I had to let the Greens or the teals impose on me a much more adequate policy on climate change – consistent with the electorate’s now-revealed preference.

This election is no ringing endorsement of Labor, Albo and his small-target policies. The new government has won with an amazingly low primary vote. Timid Labor was not the nation’s first preference.

The election is a step-change in the public’s long-running move away from the two-party system. It was the voters’ message to the Lib-Lab duopoly: “Stuff you and your how-to-vote cards, I’m doing it my way.” If Labor thinks it’s just the Libs with a problem, it’s not thinking.

Albanese’s other problem is that his small-target strategy involved tying one hand behind his back. What he thought he had to do to win government is the opposite to what he now must do to prove himself worth re-electing.

He has inherited a big budget deficit and massive public debt, and will be under great pressure to get that deficit down.

How? He’s promised to deliver the Liberals’ hugely expensive and unfair tax cut in 2024, while promising no tax increases. By cutting spending on health, education, welfare and the NDIS? They’re the things he’s promised to spend more on.

You want to do something about unaffordable homeownership? That requires increasing the tax on home-owners and investors. Where’s Harry Houdini when you need him?

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Infrastructure spending has degenerated into wasteful vote buying

The capacity of our politicians to take a good economic policy idea and pervert it into a partisan waste of taxpayers’ money never ceases to appal.

Once I was a big supporter of greater spending on infrastructure projects, even when most of the cost had to be borrowed. That’s because well-chosen projects will add to the economy’s productivity – say, by reducing the time taken to get from A to B – and thus more than pay for themselves over time.

But for that, you have to be sure to pick only those projects that offer economic and social benefits well exceeding their costs. When a politician doesn’t bother with that, but picks projects just on winning votes, you can’t even be sure people in the chosen electorate will gain much benefit.

In this election campaign, the Morrison government’s promise to add transport infrastructure spending of $18 billion to our already high public debt in the hope of buying votes in key electorates, would not only involve wasting much money. It would also “crowd out” spending on more valuable things, such as education, aged care or research.

Of course, Labor plays the same game. In this election, however, it’s proposing to waste no more than $5 billion. (This is a big improvement on the 2019 election, when Labor wanted to spend $49 billion, against the Coalition’s $42 billion.)

It would be good to have some knowledgeable person keeping tabs on these huge sums. And fortunately, there is: Marion Terrill, of the Grattan Institute.

In her assessment of the two parties’ promises this time, she notes that the emphasis on winning votes in key marginal seats is quite unfair. Those of us not in marginal seats get little of the moolah. And some states get a lot more than others. The Coalition is offering nearly $900 per Queenslander, compared with about $500 a person in NSW and Victoria.

As for Labor, it’s offering close to $400 a person in Victoria, with Queenslanders next on about $200 each.

Total bribes are well down this time because billion-dollar projects are less prevalent, with the Coalition offering just five (in ascending cost, the Sydney-Newcastle rail upgrade, the Brisbane-Gold Coast rail upgrade, the Beveridge intermodal terminal in Victoria, the Beerwah-Maroochydore rail extension and the North-South Corridor in South Australia) and Labor offering just one (the Melbourne suburban rail loop).

Note, however, that none of these six projects has been assessed by Infrastructure Australia as nationally significant and worth building. Only one of them has actually failed the assessment (the cost of the Maroochydore rail extension was found to exceed its benefits), with the other five being proposed without completed assessments.

Terrill says it’s prudent to be stepping back from last election’s megaproject binge. For some years, the engineering construction industry has been warning about its limited capacity to deliver the existing pipeline of projects, let alone add to it. Even before the pandemic, employment in the sector had surged by half, and supply-chain disruptions had made it slower, more difficult and more expensive to find materials.

With the recent slowing in population growth, maintaining and upgrading existing assets should take priority over big new projects. But both parties have promised to spend more on new projects than upgrades. Pollies always prefer the flashier projects.

But while big projects are down, tiny projects are way up. Two-thirds of the Coalition’s promised spending is on projects costing $30 million or less, and nearly half of Labor’s. We’re talking commuter station car parks and roundabouts.

My guess is this is about spending less money overall on projects targeted towards many more key electorates. That is, it’s about greater vote-buying efficiency. Presumably, the voters in these seats find the projects attractive.

But that doesn’t make the money well-spent. Terrill reminds us these tiny, hyper-local projects violate a longstanding principle that the Feds stick to infrastructure of national significance, leaving the small stuff to state and local governments.

They know a lot more about what’s most needed where, meaning that when the feds blunder in with their vote-buyers, things often go amiss. Many commuter car parks promised at the last election had to be cancelled, Terrill says, because there were no feasible design options, feasible sites or because the rail station was being merged with another.

How were the young political staffers with their whiteboards in Canberra supposed to know that?

Terrill notes two further objections. First, “the quality of the projects promised in the heat of election campaigns is poor,” she says. The tiny projects are too small to be assessed by Infrastructure Australia and, as we’ve seen, the big ones get promised without completing proper assessment.

Second, she says, “government decisions should be made in the public interest, and those making the decisions should not have a private interest – including seeking political advantage with public funds”.

“A better deal for taxpayers would be for whichever party wins government on Saturday to halt this spending on small local infrastructure, and focus instead on nationally significant projects that have been properly assessed by Infrastructure Australia,” Terrill says.

In an earlier report, Terrill argued that the next government should strengthen the transport spending guardrails. It should “require a minister, before approving funding, to consider and publish Infrastructure Australia’s assessment of a project, including the business case, cost-benefit analysis, and ranking on national significance grounds”.

This would go a long way towards increasing the social and economic benefit from projects, while reducing their use to buy votes with taxpayers’ money.

And all that’s before you get to cost-overruns. Back in 2020, Terrill reported that the Inland Railway was originally costed at $4 billion, whereas the latest estimate was $10 billion. Melbourne’s North-East Link had gone from $6 billion to $16 billion. The Sydney Metro City & Southwest underground had gone from $11 billion to $16 billion. Incompetence or deliberate understatement?

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