After this year’s startling rises in global temperatures and climate-related disasters, we may need to move the goalposts. Scientists at the European Union’s Copernicus Centre estimate that Earth’s average surface temperature was already 1.23°C higher by August 2023 than in pre-industrial times. At that rate, the temperature anomaly will top 1.5°C by 2035.

By chance, 2035 is also the next milestone year for which all countries must put forward new targets under the Paris agreement. And last week the International Energy Agency, the OECD’s energy counterpart, warned that current policy settings mean the world is on course for temperatures to be 2.4°C warmer by 2100 than in days of old.

The IEA is funded by Western governments, including Australia. It advocates a rapid “clean energy transition” to net zero emissions — but it knows that success ultimately depends on support from key developing countries, especially China and India. So its pitch is diplomatic; where activists see climate disaster ahead, the IEA sees a glass half full. Before the 2015 conference in Paris, the agency notes, its equivalent modelling found global warming would lift average temperatures in 2100 by 3.5 degrees.

The IEA’s latest report, Net Zero Roadmap: A Global Pathway to Keep the 1.5°C Goal in Reach, updates its 2021 Roadmap ahead of the coming COP28 ministerial meeting on climate in Dubai. Essentially, it’s a blueprint for ministers and their governments: if you’re serious about reducing greenhouse gas emissions to net zero by 2050, something like this is what you should be aiming for.

Its advice is pitched at countries in general: it offers no specific recommendations to any of them. But on one key question in the Australian debate — is it right to expand coal and gas fields for exports? — the IEA’s stance puts it clearly in line with the Greens and against the two major parties.

“There is no need for investment in new oil and gas projects,” the IEA’s executive director, Turkish energy economist Fatih Birol, declared at the report’s launch in Paris. A few countries would still use oil and gas in a world of net zero emissions, or NZE, but the IEA estimates global demand for fossil fuels will peak in this decade and then fall precipitously. That makes new investments a risky proposition.

If the IEA’s roadmap to NZE is followed, which is unlikely, global oil consumption will be just 7 per cent of today’s levels by 2050, gas consumption just 5 per cent, and consumption of coal just 2 per cent. But, as the report keeps pointing out, we’re not there yet.

Laura Cozzi, the IEA’s director of sustainability, technology and outlooks, pointed out that global emissions in the energy sector hit a new record level last year despite significant falls from 2019 levels in advanced economies. Certain unnamed countries, she noted, are still building new coal-fired power stations, expanding fossil fuel projects and heavily subsidising fossil fuels. She summed up the world’s prospects of keeping global warming to 1.5°C: “Not. Good.”

And yet the IEA’s key message is that it’s still possible. “While the global pathway to net zero by 2050 has narrowed, it is still achievable,” Dr Birol concluded. “It is too soon to give up on 1.5°C.”

Why? Partly, perhaps, because if the IEA gave up on that goal then governments would be free to do so as well. But partly, too, because the transition is going very well in some respects — and if governments and business bring the same focus to where they’re lagging, they could dramatically change the global trajectory.

First, the good news. In some key areas, the world is moving fast enough to meet the milestones set out in the 2021 roadmap. In two of them, it’s on track to do better than that. All this is bending the curve of our trajectory from fossil fuels to renewables, but governments have to maintain momentum by progressively tightening that curve.

For example: the decline in future global warming under current policies from the 3.5°C the IEA estimated in 2015 is not enough, but it is a dramatic start. It reflects significant shifts in government policies, business costs, technological development and investment decisions.

Back in 2015, the report implies, the IEA was expecting the global energy sector to be emitting about 42.5 gigatonnes (Gt, or billion tonnes) of greenhouse gases by 2030. Eight years later, it now expects the same sector to be emitting 35 Gt, a drop of 7.5 Gt, or 18 per cent, in just eight years.

Okay, numerous factors are involved in that. They include reduced economic growth as a result of Covid, technological breakthroughs in many areas, and the IEA’s past underestimation of the scale of the shift to solar. That aside, though, government, business and people have changed their priorities in some areas to abandon unsustainable ways of doing things in favour of sustainable ones.

The IEA report estimates that almost half of that 7.5 Gt difference in its new and old forecasts of the energy sector’s 2030 emissions has come from breakthroughs in just one sector: solar energy. It kept expecting solar energy’s dazzling growth to fizzle out, but got that very wrong; instead, solar’s price kept falling, demand kept rising, and month by month it has been replacing coal and gas power. The report estimates that by 2030, under existing policies, solar and wind will each generate roughly 15 per cent of the world’s electricity.

In Australia, solar already has that share of the market, wind slightly less. Our problem lies in creating the storage and transmission capacity to operate a system based on intermittent power sources. Australia is the world’s number one in per capita use of solar, but its transmission network was built for another age, and it has a charming tradition of allowing its farmers to be the world’s number one NIMBYs.

The IEA’s report unfortunately sheds no light on how we should fix these problems. But it does tell us that solar energy use is growing even faster than its 2021 report hoped for, and wind almost as fast, and their combined growth has provided 5 Gt of the 7.5 Gt saving in 2030 emissions.

Another 1 Gt comes from another renewable (or potentially renewable) source: electric vehicles. Here too, like everyone else, the IEA was caught by surprise. In 2015 it expected that electric cars would make up 2.5 per cent of the global car market by 2030. Now it predicts they will make up almost 40 per cent — or more if policies and research moves to bring them on faster, especially for trucks and commercial vehicles.

Some of their growth is due to policy shifts. Governments in the European Union and the United States stared down the car manufacturers, imposing tough emissions standards that forced them to switch strategy to focus on making electric cars. India and some other developing countries rolled out financial incentives and charging stations to replace the masses of tuk-tuks (two-/three-wheelers) on their roads. And, like the boom in solar, the boom in electric cars was made possible by China’s goal of creating new global industries it can dominate (though that has its own problems).

On some issues, some governments are getting serious about trying to stop global warming. And if they’re not, business is doing it for them. The IEA reports that in the last two years business investment in low-emissions energy grew by 40 per cent to US$1.8 trillion, more than Australia’s entire annual output. That’s just as well, because from 2022 to 2030, on the IEA’s roadmap, it will need to grow to US$4.5 trillion.

“We now estimate that global manufacturing capacities for solar PV and electric vehicle batteries would be sufficient to meet projected demand in 2030 in the updated NZE Scenario, if announced projects proceed,” the report concludes. “This progress reflects cost reductions for key clean energy technologies — solar PV [photovoltaic], wind, heat pumps and batteries — which fell by close to 80 per cent… between 2010 and 2022.”

The glass is half full. Unfortunately, it is also half empty.

The IEA’s roadmap to NZE has not changed much since 2021, but its presentation has. Reading it, you’re struck by the repeated entreaties for “fair and effective international cooperation” to help developing countries other than China to “unlock clean energy investment” so their economic growth will not require emissions growth.

You’re also struck by statistics showing that different countries are on very different paths. From 2019 to 2022, the IEA estimates, energy sectors in the European Union and the United States cut their greenhouse gas emissions by 4.5 per cent. But despite its world-leading roles in developing solar, wind and electric cars, China increased its emissions by 7.5 per cent, while emissions in other developing economies rose by 4.5 per cent.

You might think that’s because Westerners pump out far more emissions than China. Not so. The IEA report doesn’t analyse the issue, but its statistics tell us that the combined emissions from energy sectors in the European Union and the United States are 7.5 Gt a year. That’s just 20 per cent of the world total.

If the advanced economies meet their upgraded targets under the Paris agreement — a big if, as British politics shows — their emissions in 2030 would be 5.5 tonnes of greenhouse gases per head, whereas China emits 7.5 tonnes per head and growing. (Australia is an outlier, its total emissions being roughly 20 tonnes of greenhouse gases per head if you exclude the big discount it claims for stopping land clearing.) “The policies currently in place are inadequate to meet [countries’] stated national commitments, let alone longer-term net zero emissions pledges,” the IEA concludes.

Europe has led the way in reducing emissions, but the cynicism with which British prime minister Rishi Sunak has now reversed course to try to win re-election suggests that public support for that role is fragile. The Biden administration has made the United States another global leader, but if the Republicans win back the White House next year, then that too will go into reverse.

Xi Jinping doesn’t have to worry about re-election, and global net zero emissions would be unthinkable without China’s leadership in developing low-cost solar power technology and componentry for wind turbines, electric cars and heat pumps. But China under Xi has also built most of the world’s new coal-fired power stations; it now has 71 per cent of all coal-fired plants in the global pipeline.

However urgent the need for action, there is nothing inevitable about the world achieving net zero emissions within a generation. The European Union and rich countries on this side of the Pacific have written their net zero pledges into law, but few developing countries have followed. And, of course, the United States can no longer make bipartisan commitments.

But as I pointed out in reporting the IEA’s 2021 roadmap, the developing countries are the ones that matter most. They will be generating most of the world’s economic growth from here to 2050, and they will decide how to power it. Not only China and India, Indonesia and Brazil, but Africa too. In general, they’ve been cautious about what they commit to, and with good reason. They claim the West has kept promising financial help to develop clean energy, but has sometimes failed to deliver.

The IEA report frequently alludes to this, emphasising the developing world’s needs for financial and technological support. It suggests that the West bring forward its net zero target date from 2050 to 2045, China advance its deadline from 2060 to 2050, and other developing countries (most of whom are relatively minor emitters) take their time. The cause needs them on board.

The IEA’s milestones are challenging. In 2022, the world generated 61 per cent of its electricity by burning coal, gas and oil. (In Australia it was 68 per cent.) The IEA wants that dependence swept away, cutting fossil fuels’ share to 29 per cent by 2030 and just 9 per cent by 2035. Australia has set itself an even more ambitious target to cut fossil fuels to just 18 per cent of electricity generation by 2030, but there’s a growing consensus that we won’t make it.

The IEA wants 70 per cent of new vehicles sold globally by 2030 to be electric, up from 13 per cent in 2022, and then 98 per cent by 2035. By 2030 it proposes that space heating and cooling systems in all new buildings use energy-efficient heat pumps (or split systems), a huge change from less than 1 per cent in 2022.

It sounds dramatic, but the IEA argues that electric cars and heat pumps will save the customer money in the long term — just as solar and wind energy are cheaper than burning coal and gas. That’s why these four cheap, mature technologies are its priorities for action now.

The report skates over the problems that Australia and other countries are experiencing as solar and wind energy make coal-fired power uneconomic in daylight hours, yet it remains a necessity at night. Its recent report on Australia acknowledged the problem, but offered no solution except a sort of “try harder.”

But much in the report is relevant to Australia. It implicitly rejects Labor’s policy of phasing out fossil fuels at home while expanding exports for others to burn. If our goal is to stop global warming, you can’t do it by transferring emissions from power stations here to power stations in Asia. You can argue the detail of how the transition to renewables should be managed, but the IEA insists that fossil fuels must be phased out throughout the world. As Dr Birol explains, “What matters is emissions, regardless of which country produces them.”

Reducing the destructive methane emissions caused by mining fossil fuels is another of the IEA’s key priorities. Often, it says, it would be far cheaper for miners to capture the escaping gas and use it. Australia was a late signatory to the global pledge to try to reduce methane emissions by 30 per cent by 2030. They have become the fastest-growing source of Australia’s greenhouse gas emissions.

The climate debate here focuses on renewables vs fossil fuels, but the IEA’s focus is on “low-emissions sources of electricity.” That includes nuclear power and carbon capture, usage and storage. Both are outcasts in Australian debates — the Howard government even banned nuclear power stations — but remain in the IEA’s toolkit, albeit for use only in rare cases.

It’s safe to assume that the Coalition’s new campaign for nuclear power in Australia is primarily aimed at renewing the climate wars; nuclear would be an expensive way to provide backup power at nights and on gloomy days. Even the IEA, as strong an advocate as any, sees nuclear providing just 2.7 per cent of the new “low-emissions” capacity it advocates for the world.

Rather, its emphasis is on the potential savings the world could make by focusing on energy efficiency: in homes, offices, shops and factories, cars, planes, ships, everywhere. As an example, redesigning new fridges and air conditioners could cut their electricity consumption almost in half by 2035.

Nothing would score better in human welfare than a global campaign to give every household in the developing world access to clean cooking technology to replace their deadly old indoor wood fires. If this could be done by 2030, the IEA estimates, it would remove 1.5 Gt a year of greenhouse gas emissions and save 3.6 million premature deaths. And that would cost just 1 per cent of the world’s annual energy investment.

But these changes require political or business decisions. The IEA offers only nonpartisan expertise — something that governments here and elsewhere don’t value as much as they should. The agency has to keep its mouth zipped, especially on how to solve the problems it exposes. Take energy efficiency. The obvious way to increase efficiency is a carbon price: make it more expensive to waste energy, and people will find ways to cut its use. But to many on the right, a new tax is taboo. So the IEA has to tiptoe around by suggesting second-best solutions.

The Albanese government is in danger of overpromising on targets while underdelivering on policies to achieve them. Its carbon price is limited to 200-odd companies, it is walking both sides of the street on fossil fuels, and most of the reviews it has launched have yet to produce outcomes. This is what happens when you allow the political staff to take charge of policy. •

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Chalmers’s former boss, Wayne Swan, forecast a $21.7 billion surplus in the 2008–09 budget. The global financial crisis took care of that. Four years later, heedless, Swan forecast an implausible $1.5 billion surplus. He was only $20 billion out. And we remember the hubris of Josh Frydenberg and Scott Morrison at the time of the 2019–20 budget, with their coffee cups printed “Back in Black.” Their budget was already heading for red when Covid arrived and gave them a good excuse.

This time, it’s the current financial year that Chalmers says will end in surplus. We’re in May now, and the year ends on 30 June. It would be a bad shot if he missed from this close. Let’s assume the long wait is over: Australia’s federal budget is finally back in surplus, even if only by $4 billion or so.

But will it last? The Murdoch hunting pack has focused on the budget’s forecast that this will be a one-off, and next year the budget will be back in a deficit that will then grow bigger still. And yes, that is what the budget forecasts say. But when you read the assumptions underlying those numbers you realise they’re not really forecasts, but rather a worst-case scenario. They assume a collapse of global commodity prices.

Why does Treasury give us a worst-case scenario? Because we don’t like unpleasant surprises. If a tradie promises to do the job for $1000 but then lifts his bill to $2000, we get cross. But if he promises to do it for $2000, but then after doing it, says “No, that was easier than I expected, $1000 will do,” we think he’s a great bloke.

Treasury now works on the same principle. It begins by forecasting a worst-case scenario: in this case, adopting the lowest market forecasts for prices of iron ore, gas and coal. The bears always predict a price collapse; that would flatten the profits of Australian miners, and hence Australia’s company tax revenue.

On that basis, Treasury forecast in October that company tax receipts would crash from $127 billion this financial year to $100 billion in 2023–24. But now it’s May, and prices are still high. Treasury has had to upgrade this year’s forecast to $138 billion, and the worst it can come up with for next year is now $129 billion.

Don’t assume it will end in deficit: no one knows yet. The future will reveal itself, as it always does. We could be entering a new era of surpluses or slumping back to the old run of deficits. Treasury is no longer trying to guess those numbers. It just starts with a gloomy forecast, so the eventual reality will be better than we expected, and we’ll hail their boss, the treasurer, as a good economic manager.

That’s how governments want us to see them. An unexpected budget surplus, especially the first for fifteen years, is a gold star on the treasurer’s report card. Well done, Jimmy Chalmers!

And by and large, he has done well, on the macro front. This budget is far from perfect. But as Chalmers keeps pointing out, it had to balance the need for restraint to bring down inflation with the reality that a lot of Australians are experiencing big falls in real income, the economic outlook has darkened, and the worst is yet to come. And those who have won or lost will be voting on the government in two years.

Economists in the ivory towers of academia or Murdoch’s propaganda machine feel free to ignore the pain felt by less fortunate Australians, or the government’s reasons for doing something for them. In the real world, though, Chalmers is right: government, of whichever party, has to find a balance between these goals.

Here’s a concise comparison from the budget’s key table on macro matters: table 3.3 in budget paper 1. (“Parameter variations” are the changes in Treasury’s baseline estimates with no policy changes. And remember: by the 2021 budget, the economy was already roaring ahead, and by the 2022 budget, inflation was emerging as an issue):

Neither side would appreciate the comparison, but the balance Labor struck this time is remarkably similar to that of Josh Frydenberg’s budget a year ago. He banked 75 per cent of his windfall gains from Treasury’s upgraded bottom line; Chalmers has banked 81 per cent of his. Frydenberg was facing an election two months later; Chalmers is facing a more difficult economic situation.

An important note. The net effect of policy changes is not “new spending” as our ABC mates keep mislabelling it, but new spending minus new revenue. For the four years, the budget estimates a net $41.4 billion of new spending, only partially offset by $21.9 billion of net new revenue.

Chalmers points out that $7.5 billion of that new spending was required to correct unfunded or underfunded commitments left by the Coalition government, including underfunding our biosecurity program, digital health infrastructure, the Brisbane Olympics and Canberra’s national institutions. (While the War Memorial was given a $500 million expansion, all the other cultural institutions were starved by the Coalition, perhaps to pay for it.)

After perusing the departmental expenses table in budget statement 4, I doubt that Labor has dealt with all the underfunding. Excluding the National Disability Insurance Agency, the budget assumes that the cost of running departments and agencies will grow on average by just 2.8 per cent annually over the four years, down from an annual average of 5.3 per cent over the last four years. I’ll believe that when I see it.

There are lots of spending cuts in this budget, though relatively few are specified. The government says its two budgets so far have achieved almost $40 billion of “savings and spending reprioritisations.” We’ll come to them later, but the allusions to them in the budget papers are full of management speak: there are no “spending cuts,” just spending “efficiencies” or “streamlining and modernising.” Using that language must make cuts easier on the cutters.

Still, Treasury estimates that this budget restraint will have a significant impact. In the past three years, it estimates, public demand in real terms grew by 18.9 per cent. In the next three years, it is forecast to grow by just 5.3 per cent — about the same as expected population growth. Three years of zero growth per head in public spending will be a big brake on the economy.

While we’re on the macro issues, three important things to note. First, the mix of higher commodity prices, high job growth and strong GDP growth has caused a dramatic improvement in the budget outlook, even through Treasury’s gloomy binoculars. And that has dramatically changed Australia’s debt outlook.

Instead of gross federal government debt peaking in 2030–31 at 46.9 per cent of GDP, Treasury now forecasts it will peak in 2025–26 at 36.4 per cent. That’s a big turnaround, and if it happens a great relief that increases our ability to cope with future shocks.

Second, be aware that, like the International Monetary Fund, Treasury thinks worse times are on the way. Retail sales — which had been way above trend in 2022 — are now falling as higher interest rates bite. Employment growth is forecast to shrink to 1 per cent a year for the next two years: that implies only a third as many new jobs will be created as in the past two years. Unemployment would rise, and real GDP growth would fall to just 1.5 per cent in 2023–24 and 2.25 per cent the following year. Those forecasts sound plausible.

Finally, Treasury predicts a ray of sunshine on wages. By the first half of next year, it believes, wages will be rising faster than prices, giving Australian workers their first growth in real wages for four years. But even if that is right — and Treasury has often overestimated wage growth in the past — real wages will have fallen 7.5 per cent in that time. It’ll be years before Australian workers get back to where they were before Covid.

Treasury predicts that inflation as measured by the consumer price index will decline to 3.25 per cent by the middle of next year — helped by several budget measures designed specifically to lower the CPI. That could mean less reason for the Reserve Bank to increase interest rates. But while the Reserve might ignore these budget tricks as it focuses on underlying inflation, the case for further interest rate rises now looks weak indeed.

The gloomy macro outlook makes it even more important to get the microeconomic policies right. On that score, this budget has big problems.

Labor is selling its budget as a package of measures designed to provide “cost-of-living relief” targeted to “looking after the most vulnerable.” It does some of that, but only sporadically, where it has spotted an opportunity that appeals to it.

Until the last fortnight or so saw a clamour of protest against its decision to ignore the report of its Economic Inclusion Advisory Committee urging a big rise in JobSeeker benefits, it’s clear that Labor’s only plan for JobSeeker was to move fifty-fives to sixties into the slightly less poverty-stricken category with those over sixty.

Labor’s moral and political antennae were askew. Anthony Albanese was lucky that he grew up in an era when to be poor in Australia meant the government gave you an austere but liveable income and cheap housing. That is no longer true. Albo needs to get back in touch with the angry teenager he used to be. The smug, rich sixty-year-old he has become might have something to learn from that boy.

At least the budget included a last-minute decision to lift the JobSeeker benefit by $20 a week. That’s $2.86 a day: there’s not much you can buy with that, and the budget offered no prospect of any further increases — not because it can’t afford them, but because it just doesn’t see the unemployed as a priority.

By contrast, under the stage three tax cuts — totally unmentioned in the budget papers, prompting News Corp journalist Samantha Maiden to dub them Voldemort — people with incomes of more than $200,000 a year will get an extra $25 a day. That’s more like the rise Labor’s expert committee said the unemployed should be getting. How can Labor claim it is focused on those “most in need”?

The budget papers estimate that the two changes to JobSeeker combined will cost $1.3 billion a year, in a budget of $700 billion a year. Questioned by Maiden yesterday, Chalmers implied Voldemort will initially cost $23 billion a year when it takes effect on 1 July 2024. It’s just a matter of priorities.

The government gave a better hearing to the inclusion committee’s second priority, an increase in rental assistance payments for the hard-up. They will rise 15 per cent, costing roughly $700 million a year.

And it went much further for single parents whose youngest child is aged between eight and fourteen: their benefits will rise from JobSeeker-level to pension-level — an increase of nearly $90 a week as against the $20 a week rise for those left behind on JobSeeker.

The story the spin doctors left for the budget itself was perhaps the best of all. Labor has finally acted to stem the flow of doctors out of general practice, which has seen more than sixty GP clinics close their doors in recent years, some leaving towns without doctors. But their way of fixing it, while interesting, might just backfire.

The GP crisis stems from the long freeze in Medicare rebates, begun by Labor’s Wayne Swan and continued for years by the Coalition. This effectively cut GPs’ incomes by about 25 per cent. Frydenberg ended the freeze, but it has never been made up, and only 11 per cent of new doctors now nominate general practice as their future career.

Health minister Mark Butler deserves our thanks for having listened, and persuaded his colleagues to act. But Labor won’t increase the rebates, which would have seen benefits flow to all patients. Instead, it will roughly treble the separate incentive it gives to doctors to bulk-bill.

This should more or less restore GPs’ real earnings, and see more patients treated for free. That in turn could reduce medical cost pressures on the CPI. Labor estimates that 11.6 million Australians will be able to get free (bulk-billed) care from their GP. But that also implies about fifteen million Australians will not. Watch this space.

Still, the biggest issue in health funding appears finally resolved. But the biggest issue in housing is getting further and further from a solution.

The budget forecasts that residential investment will decline 7.5 per cent in the three years to 2024–25 — at the same time as national rental vacancies have hit a record low of 1 per cent and advertised rents have risen by 10 per cent in the year to April.

Yet the budget simultaneously reveals that in the year just ending, population growth will exceed 500,000 for the first time. In the year about to begin, it is forecast to be close to another 500,000. In three years, almost 1.5 million more people will join us, yet housing is in record short supply, new construction is slumping, and every week builders are going broke.

Population growth mostly comes from net overseas migration, which is mostly under the control of the federal government. This is as bad a failure of policy coordination as I’ve ever seen.

The solutions are obvious: put the brake on immigration — especially since job growth is forecast to collapse — and put the accelerator on housing. This is now a crisis. The government should stop persisting with a patently inadequate target and funding mechanism, sit down with its crossbench critics and the industry, and work out solutions that fit the scale and urgency of the problem.

The other big problem with this budget is Labor’s fear of increasing taxes, which are far below the levels of comparable countries overseas. Just read the list of its “major budget improvements”:

The government is still frightened to impose significant new taxes on business, or any tax on “ordinary Australians.” Instead, it targets groups with no voice in public debate, like smokers and tourists. Yet many of the “most vulnerable” Labor wants to look after are smokers: the household expenditure survey shows smokers tend to be older and lower-income. Labor has hit them more heavily than the gas companies that make huge profits but pay little tax.

Cutting government-funded beds in aged care facilities from seventy-eight to sixty places per thousand people received little budget coverage. It’s one way of responding to staff shortages and “the increasing preference of older Australians to remain in their homes,” but it looks like a cynical move. It is expected to save eight times more than Labor’s extra spending on home care.

This budget is like a house with an impressive framework, built in difficult conditions, but puzzling in its detail. The further you explore inside this apparently attractive home, the more worried you become. •

The post The devils in Chalmers’s details appeared first on Inside Story.

Howard’s promise was a dog whistle to Australians that he would end the continual economic change of the Hawke–Keating years and the turmoil caused by the 1990–91 recession and other policy errors. Under pressure from big business, he broke his promise and introduced the GST, but in the generation since then, the only substantial reform we’ve seen has been the short-lived carbon tax.

Almost a year into its term, the Albanese government has fine-tuned many small things but embarked on no really big changes, and none are foreshadowed. It’s unleashed no surprises other than committing future governments to spend up to $14,000 for every Australian on nuclear-powered submarines. Nothing the PM and his team have learned in office seems to have changed their priorities or their sense of what Australia needs.

At each policy announcement, Albanese reminds us that Labor put this policy to voters at the election. Fulfilling campaign promises has become his mantra, his commitment: it proves that his word can be trusted. He is governing as he campaigned: as a small target, promising changes only if they are popular. And politically, as the opinion polls show, it’s working.

After almost a year of Labor in power, perhaps the main surprise is that so little has changed. It feels a bit like Orwell’s Animal Farm. Refugees remain locked up in Nauru, but now it’s a Labor government that is paying a US security firm hundreds of millions of dollars to provide “garrison and welfare” services. Whistleblowers David McBride (Afghanistan) and Richard Boyle (tax office intimidation) are still being prosecuted for exposing unwelcome truths, but now by a Labor attorney-general, Mark Dreyfus.

The real wages of Australian workers are falling even faster than before, yet the Labor government plans to deliver tax cuts to the rich. Australians on lower incomes remain priced out of home ownership, endless economic debates bring no action, and sky-high energy prices haven’t lifted the budget out of a structural deficit the International Monetary Fund now estimates at 3.25 per cent of our GDP — more than $80 billion a year.

This is one of the few Western countries with no economy-wide carbon price and no vehicle-emission standards, and no plans for the former and endless reviews for the latter. Sure, the Voice to Parliament could prove an important step forward, maybe, if it works well and governments listen to it. But the pace of reform generally under Albo’s rule has been a gentle trot.

Welcome to Australia 2023, where life is relaxed and comfortable.

Have Anthony Albanese and his ministers found no urgent issues in their first year that can’t be solved by Labor’s 2022 campaign promises? Given the problems we face, is it enough for them to stick to their pre-election script and aim to keep out of trouble?

Or is the reality, rather, that Labor’s campaign policies, designed to be popular, do too little to fix some of the biggest problems confronting us? It will be challenging for just 215 selected companies to deliver Labor’s target of reducing emissions to 43 per cent below 2005 levels by 2030 — assuming integrity reforms ensure those reductions are genuine. Australia’s per capita emissions will probably remain the highest in the Western world.

Labor’s policies are clearly inadequate to fix the problems of the economy, or of the budget: more on that in a moment. Across the board, its problem is that as the traditional party of social justice it has raised expectations it has no plans to meet. By camping in the middle ground, it leaves its traditional radical base looking for an alternative. Increasingly, they are finding one.

As psephologist Ben Raue of The Tally Room has pointed out, Labor won the election with 52.1 per cent of the two-party-preferred vote — but only 32.6 per cent of voters gave the party their first preference. Three in every eight voters in the broader Labor camp preferred Labor to the Liberals but chose to vote first for other parties (mostly, the Greens) or independents.

It’s been a long-term trend, and it’s getting stronger here and around the world. Ten years ago, the Socialists ruled France: today they are a minor party. Germany’s Social Democrats are gradually being overtaken by the Greens.

When Labor came to power in 2007, the House of Reps had just two crossbenchers, Bob Katter and Tony Windsor. Today it has sixteen, with another eighteen in the Senate. Overwhelmingly, they are to the left of Labor. Sure, they won’t support the Coalition. But if Labor keeps losing voters and seats to the left, will this be its last majority government?

Contrast the responses treasurer Jim Chalmers gave to two key reports he released last week. The first, by the government’s expert Economic Inclusion Advisory Committee, reported that Jobseeker and related benefits for people of working age are “seriously inadequate,” leaving many recipients in such financial stress that some “[have] to choose between paying for their medicine or electricity bills.”

Chalmers released the report at 5.10pm on Tuesday evening, too late for it to get appropriate media coverage, and issued a statement making it clear that Labor would not implement its proposals. “We can’t fund every good idea,” he said, emphasising that support for those most in need had to be “responsible and affordable… and weighed up against other priorities and fiscal challenges.”

Two days later, Chalmers released another report, this time on the Reserve Bank, by three monetary policy experts, essentially into how interest rates should be set. He announced that all fifty-one recommendations would be accepted, including its core proposal that interest rates be set by a committee of experts, as in the United States, to embrace a wider spread of informed opinion.

The contrast was striking. Labor today feels at home with highbrow issues of economic policy, and is willing to act swiftly and decisively on them. But it doesn’t want to know about the problems of those most in need, and does not intend to do anything about them.

Yes, the budget is in a desperate situation, and this is no time for unfunded new spending (such as $380 billion to buy a dozen or so submarines). That’s why many of us have been arguing that Australia needs to get the budget back in the black by closing the tax loopholes that mean we raise far less revenue than most other Western countries.

A recent report by Grattan Institute economists Danielle Wood, Kate Griffiths and Iris Chan conceded that there are no easy options but proposed getting there mostly by closing loopholes — and making normal budget rules apply to politically driven spending on infrastructure and defence. We don’t need to raise taxes: we can get there by scrapping tax concessions.

For example:

• Reduce tax breaks for superannuation, especially for retirees and high-income earners.

• Redesign the stage 3 tax cuts to eliminate the overcompensation of high-income earners.

• Scrap the Coalition’s decision to tax small business profits at a lower rate than those of bigger firms.

True, Grattan also recommends some tax rises on mainstream Australia, notably lifting the GST to 15 per cent, widening its base, and compensating only the bottom 40 per cent of income earners for their losses. But closing loopholes is easier politically than raising the GST or tightening the assets test for pensions.

A Resolve Strategic poll last weekend in Nine’s Sunday papers found that only 17 per cent of Australians say they want to close the deficit by raising taxes, whereas 40 per cent say they want to close it by cutting spending (and another 26 per cent want to just keep running up debt). But the poll failed to ask what spending the cutters wanted to cut, whereas it asked everyone what they thought of specific tax increases. And, hey, most of them attracted more support than opposition.

For example:

• Increase taxes on the profits of resources companies: 58 per cent support, 12 per cent oppose, 30 per cent undecided.

• Reduce tax concessions for negative gearing: 44 per cent support, 21 per cent oppose, 35 per cent undecided.

• Cancel or reduce stage 3 income tax cuts: 34 per cent support, 23 per cent oppose, 43 per cent undecided.

• Reduce tax concessions for superannuation: 37 per cent support, 28 per cent oppose, 35 per cent undecided.

• And, on raising the $50 a day rate paid to unemployed people reliant on Jobseeker benefits: 43 per cent support, 31 per cent oppose, 26 per cent undecided.

That contrasts sharply with voters’ usual knee-jerk opposition to any tax rises. The more Australians have been talking about it, the more people have come to see them as necessary. On negative gearing, for example, the number opposed to reform is now about the same as the number of people who own rental properties. Unfortunately, one of those is Anthony Albanese.

Chalmers has been given a looser rein to let us know that the budget is in bad shape, and has led the way in encouraging debate on tax increases. But Albo himself has seemed to stand above all that. He is not warning Australians of hard times ahead. He is not asking us to make any sacrifices. And above all, he is not drumming home a message that things must change. His message is: business as usual.

But times are tough. The IMF recently downgraded its forecasts of Australia’s economic growth to 1.6 per cent this year and 1.7 per cent in 2024. With our population swelling at a record 400,000 a year, that implies two years of zero or negative growth in per capita GDP. It hasn’t led to rising unemployment yet, but if the IMF forecast is correct, it will.

What wasn’t reported here was that the IMF’s medium-term projections see Australia’s growth per capita sliding towards the bottom of the pack: over the next five years, only Canada will rank lower among the dozen largest advanced economies. On the IMF’s projections, Australia would also lose its proud position as one of the world’s twenty largest economies. (That’s on the IMF’s preferred measure, which adjusts for differing cost levels to measure the real volume of production.)

With real wages set to fall by 8 to 10 per cent over this period, it seems a very strange time to be delivering tax cuts costing more than $25 billion a year and directed overwhelmingly to high-income earners — those who by definition are doing well and least need help.

We can all understand Labor’s desire to be seen as keeping its word. But this was a bad reform that ordinary households’ loss of buying power has made worse. I suggest a compromise that keeps some key elements of the package but redistributes the gains more fairly. Rather than abolishing the 37 per cent marginal tax rate, reduce it to 35 per cent with the same thresholds as now — but add a new 40 per cent rate for income from $180,000 to $200,000, and a timetable to raise that threshold to $250,000. Over time, that would save the budget a lot of money, without taking everything from those who would gain from the plan Labor promised them.

As the Grattan Institute report points out, the budget is in even more trouble than it seems to be, because it assumes continued underspending in areas where that is clearly unsustainable. In areas like aged care and regional hospitals, jobs can’t be filled because governments have failed to ensure enough funding to pay the going rates. Country and even suburban GPs are closing down because the long Medicare freeze on rebates has made general practice unviable as a career.

These are just some of the many areas where Labor has raised expectations of change that it can’t deliver with existing revenues. Australia already has full employment; mineral prices are already close to record highs. This budget can’t be fixed, and the underspending lifted to adequate levels, without revenue increases on a wide range of fronts. Labor is flagging a few nibbles at tax reform in the 9 May budget. That won’t do it.

In the end, these are moral issues: we should raise the rate of Jobseeker because it is wrong to make people relying on it (40 per cent of whom have mental health issues) live in such abject poverty. One told last week of taking the lightbulb with her from room to room because she couldn’t afford a second one. But the moral issues don’t seem to resonate with the cynical hardheads running Labor.

They ignore them on political grounds. The Coalition won’t do anything about them, so there’s no need for Labor to do anything either. Most voters, they say, don’t care how low the dole goes — at $50 a day, it’s now about a third of the median wage — and those who do are soft-hearted lefties who end up having to vote Labor anyway.

But wait. Yes, back in 2007, when Rudd was elected, voters on the left had no other choice. Labor had 43.8 per cent of the votes, while the combined vote of the Greens and independents of all shades was 10 per cent. The Greens won 20 per cent of the three-party vote in just one seat, when a young lawyer named Adam Bandt pipped the Liberals for second place in Melbourne. They couldn’t win seats: their role was to help Labor win seats.

Fifteen years later, that reality has gone. At the 2022 election Labor won just 32.6 per cent of votes for the House of Reps, while the Greens and independents won 17.5 per cent. Their vote has been swollen by former Labor supporters who have moved left because of issues like these. They don’t want unemployed people to be condemned to live in dire poverty. They don’t want refugees to be locked up on Pacific islands. They don’t want whistleblowers to be prosecuted, or Australia to keep dragging its feet on action to slow global warming. Labor is no longer their party.

Peter Dutton is risking giving Liberal voters more reason to abandon his party and vote independent. Albanese risks giving Labor voters more reason to abandon his party to vote for the Greens. Last year they took Griffith from Labor, overtook it to claim the marginal Liberal seats of Brisbane and Ryan, and came just 300 votes short of taking Macnamara (formerly Melbourne Ports), a seat Labor has held since 1906.

Honeymoons rarely last until the next election. If Labor alienates more of its base by inaction or half-hearted measures on issues that matter to them, it risks losing more seats. Macnamara would fall to the Greens in a swing of 0.3 per cent, while its neighbour Higgins (2.4) and Richmond (1.3) in laid-back northern New South Wales are very marginal. Another seven Labor seats had a margin of less than 10 per cent over the Greens — and while that’s big, the Greens won most of their seats with higher swings than that.

Remember 2010. The media focus was on Tony Abbott and Julia Gillard, but the vast bulk of the voters who deserted Labor went to the Greens. Their vote jumped from 7.8 to 11.8 per cent, and they picked up Melbourne — and four extra seats, and the balance of power, in the Senate. Labor has never regained the seats it lost.

Another swing like that would take a lot more seats with it. It could mean this is Labor’s last majority government. •

The post Albo’s choice appeared first on Inside Story.

As the party’s former assistant state secretary, Tony Barry, put it ruefully on Saturday night: “The Victorian Liberal Party is where hope goes to die.” Decades of infighting and election failure have hollowed out its membership, leaving it open to branch stackers and reactionary nutters. The Coalition as a whole has less than a third of the seats in the Legislative Assembly and barely a quarter of Victorian seats in the House of Reps.

Unquestionably, Victoria has become a stronghold of the left. But these days, so is Western Australia, and so is South Australia. Federally, so is Tasmania. Labor is back in power in New South Wales — and don’t mention the ACT.

In fact, if you look at voting over recent federal elections, Victoria, along with New South Wales and South Australia, is among the three states closest to the centre of the Australian political spectrum. The odd state out isn’t Victoria. It is Peter Dutton’s home state of Queensland.

Australian Electoral Commission figures

At last year’s federal election, the Coalition won 70 per cent of Queensland’s lower house seats but just 30 per cent of seats across the rest of Australia. Peter Dutton doesn’t need to go to Melbourne to be in alien territory; he’s in it as soon as he leaves his home state.

The Coalition is now down to ten federal seats in Victoria, but it also has just five in Western Australia, three in South Australia, two in Tasmania and none in the ACT or the Northern Territory. Even in New South Wales it is down to sixteen seats, or one in three.

The Coalition’s problem is not Victoria, it is Australia — or at least Australia minus Queensland. To write off a loss like this as due to being in hostile territory would be a huge, self-indulgent blunder that could only damage the Coalition. As the election results showed clearly, it has lost support in every other mainland state.

Yes, it would help if it could fix up the problems of the Victorian Liberal Party. But that can happen only if the federal and state Liberals use their time in opposition to rethink their policies — constructively, to ensure they are “sound and progressive,” as Sir Robert Menzies urged long ago.

This is renovation time. Both the Coalition parties need to remodel themselves into the kind of party that sound and progressive Victorians would want to be part of: the Victorian Nationals have shown the way. And that would similarly reinvigorate both parties in the rest of Australia. The Queensland LNP can’t be allowed to have a veto on federal Liberal and National policies.

Maybe only a Queenslander can explain one puzzling aspect of that state’s electoral behaviour. In Victoria and most other states, people tend to vote the same way at federal and state elections. But a lot of Queenslanders clearly vote different ways.

The Coalition has won a majority of Queensland’s lower house seats at nine of the last ten federal elections. At state level, though, it has won only two of the last ten. In the past thirty years, Labor has  spent more time governing Queensland than it has governing Victoria.

Labor has won all three of Queensland’s most recent state elections, averaging 51.8 per cent of the two-party-preferred vote. Yet it has won only a handful of seats at federal elections, and just 44.5 per cent of the votes.

And that’s not new: it’s been a recurring theme in Queensland’s history, including during Labor’s long twenty-five-year reign from 1934 to 1957. Some Queenslander, please explain. •

The post Queensland and Victoria: which is really the odd state out? appeared first on Inside Story.

If so, he should have been playing on his home ground in Aston.  These were the outer suburbs of a generation or two ago, in Melbourne’s respectable southeast. Today it’s middle-income by Melbourne standards, but with fewer young university graduates than in the rest of town, and more older married couples.

Aston has more Anglo- and Chinese-Australians than in most of Melbourne — yet fewer migrants in total: 40 per cent of Astonians have two Australian-born parents. The 2021 census found 37.5 per cent of its residents are aged fifty or over, compared with 32 per cent in the rest of Melbourne.

Yet this normally safe Liberal seat, against expectations, rejected Dutton’s party and became the first seat in a hundred years to use a by-election to swing from opposition to government.

Dutton had flown down for the Libs’ election party on Saturday night, presumably because he expected the Liberals to win the seat. Albanese stayed away from Labor’s party, presumably because he expected Labor to lose it. So did I in my preview, and so did the bookies.

Other Liberals have privately raised their concerns over Dutton’s outer-suburban strategy. The Coalition now needs to win back nineteen seats to regain a majority in the House. There simply aren’t enough Labor outer-suburban seats within cooee of being winnable. The emphatic rejection of the party by Aston voters surely underlines the absurdity of its leaders continuing with business as usual rather than coming to terms with how the Australian mainstream has irrevocably shifted course.

Aston wasn’t a defeat, it was a rout. Every single polling booth swung to Labor. In 2019, the seat had the highest Liberal vote in Melbourne. This weekend, the Liberals won just three of the thirty-two suburban booths, one pre-poll centre and (very marginally) the postal vote. With just a residue of postal votes to come, the swing was 6.4 per cent. Combining it with last year’s election, the swing against the Liberals since 2019 will end up being around 13.5 per cent.

It was no show of support for Dutton’s strategy of defeating Labor by taking back the outer suburbs.

Dutton has taken responsibility, as he should, but also implicitly blamed the new moderate state Liberal leader John Pesutto, who during the campaign tried to expel far-right MP Moira Deeming from the state parliamentary party after she figured prominently in an anti-transgender protest attended by a masked group who gave the Nazi salute outside Parliament House. Internal party opposition forced Pesutto to water down Deeming’s penalty to a nine-month suspension, but was Dutton implying that his state counterpart should have just ignored the issue?

Yes, Victoria is difficult for the Liberals: the party has been moving right while Victorians, like most Australians, have moved left. When John Howard won power in 1996, the party held nineteen of Victoria’s seats in the House of Reps. Now it holds just seven.

The Howard and post-Howard generations have seen a steady loss of Liberal seats at federal level and what seems to be permanent opposition at state level. In Melbourne and provincial centres, it has ceased to be a party most Victorians recognise as theirs.

Even Howard’s 1996 victory saw the party lose Bruce and Isaacs, never to return. Bendigo went to Labor in 1998 and Ballarat in 2001. McEwen went when Fran Bailey retired in 2010, and Indi when Cathy McGowan pulled off one of the iconic victories in modern electioneering, running as a community independent against Liberal frontbencher Sophie Mirabella.

Yet the Liberals still had fourteen seats going into the 2019 election. Four years later, half of them have gone. Labor won Corangamite and Dunkley in 2019, and the 2022 wipe-out saw Goldstein and Kooyong fall to independents Zoe Daniel and Monique Ryan, while Labor took Chisholm and Higgins. And now Aston.

(In every one of those seven seats, it’s worth noting, the new MPs are women, as were most of their Liberal opponents. You think there is equal opportunity for men seeking selection as Labor, Greens or teal candidates for winnable seats in Victoria? I’d like to believe it, but the evidence suggests otherwise.)

The Liberals now hold virtually no territory within fifteen kilometres of the city. Their seven remaining seats are made up of five in outer Melbourne (Casey, Menzies, Deakin, La Trobe and Flinders) and two in the bush (the southwest Gippsland seat of Monash, formerly McMillan, and the Western District seat of Wannon). And all but La Trobe and Flinders are now very marginal.

A quick diversion: we need to call out some widely circulating fake news, spread by Labor supporters, which has been reported as fact by the ABC and the Age. The source is the Australian Electoral Commission, no less. You’ve probably heard or read it: the Liberals now hold only two seats in Melbourne — because only two Liberal seats are classified by the AEC as “metropolitan.”

We’re entitled to assume that the AEC knows what it’s talking about, and usually it does. That’s why it’s inexplicable that its electoral classifications are so wrong as to be ridiculous.

The Australian Bureau of Statistics, not the AEC, defines our urban boundaries. Five seats whose territory and people are wholly or overwhelmingly in greater Melbourne, as defined by the ABS, are defined by the AEC as “rural” or “provincial.” Three of them are held by Liberals.

Readers who know Melbourne can judge. These are the five seats, with their AEC definition, and their main voting centres:

Casey (AEC: rural): Lilydale, Chirnside Park, Healesville.

Flinders (AEC: rural): Rosebud, Mornington, Hastings.

Hawke (AEC: provincial): Melton, Sunbury, Bacchus Marsh.

La Trobe (AEC: provincial): Pakenham, Berwick.

McEwen (AEC: rural): Wandong, Doreen, Mernda, Wallan, Diamond Creek.

Yet other “rural” seats in Victoria are real rural seats: Gippsland, Indi, Mallee and so on. The other provincial seats are real provincial seats, covering Ballarat, Bendigo and Geelong.

Do the AEC, the ABC and the Age really believe that places like Lilydale, Mornington, Melton, Pakenham and Wandong are not part of Melbourne, but belong in country Victoria? Get real, folks.

“Our brand has suffered terribly in Victoria,” Peter Dutton told reporters on Saturday night, and he is not wrong. The last time the Coalition won a majority of federal seats in Victoria was in 1996. Labor and Greens have won a majority in Victoria at the last nine federal elections. In that time the Coalition has gone from holding 55 per cent of Victorian seats to barely 25 per cent. To state the obvious, it cannot win back power without making big gains in Victoria.

But how? Dutton’s approach seems to be that there’s no need for him or the Coalition to change its brand; they just have to wait for Victorians to come around to their point of view. Last year’s election loss was a golden opportunity for him, as leader of the Liberal right, to unite the Coalition in facing up to all the key policy failures that cost it office: climate change, integrity, alienation of women, and a wide range of social justice issues.

The election of David Littleproud as Nationals leader gave him a potential partner for such an exercise, which would have been beyond Barnaby Joyce. And yet, on every significant issue that has come before parliament, or is about to, Dutton has chosen to be the voice of reaction: he doesn’t want to tackle climate change seriously, doesn’t want an integrity commission, doesn’t want a step forward on Aboriginal issues, and so on. He doesn’t want the Liberals and Nationals to move back into the Australian mainstream.

The Liberals like to call themselves the party of Menzies. After their federal election loss last year, the great man’s daughter, Heather Henderson, suggested in the Canberra Times that the party’s current leaders should study what her father actually said and wrote. I suspect she had passages like this in mind, from the Canberra convention which re-formed the Liberal Party in October 1944:

We have, partly by our own fault, and partly by some extremely clever propaganda by the Labour Party, been put in the position of appearing to resist political and economic progress. In other words, on far too many questions we have found our role to be simply that of the man who says “no”…

There is no room in Australia for a party of reaction. There is no useful place for a policy of negation.

In similar vein, Menzies wrote in retirement that while some, including close colleagues such as Arthur Fadden, believed “the duty of an opposition is to oppose”:

I do not share that simple belief. The duty of an opposition… [is] to oppose selectively. No government is always wrong on everything… To attack indiscriminately is to risk public opinion, which has a reserve of fairness not always understood.

An opposition must always remember that it is the alternative government… a quick debating point scored in parliament against some government measure will be a barren victory unless you are confident that, in office, you would not be compelled to do, substantially, what the government is doing.

I found that opposition provided… an obligation to rethink policies, to look forward, to devise a body of ideas at once sound and progressive… All of this, essentially work for the study [at the desk, that is], had to be done while the normal duties of active and campaigning politics were performed. It was not easy, and never will be. But it has to be done…

The duty of an opposition which wants to move over to the Treasury benches is to be constructive, judicious and different.

In another memoir, he explained why he and his colleagues decided not to name the new party the Conservative party, as in Britain:

We took the name “Liberal” because we were determined to be a progressive party, willing to make experiments, in no sense reactionary but believing in the individual, his rights, his enterprise, and rejecting the Socialist panacea.

That is what Menzies meant the Liberal Party to be — and what it was, more or less, for a long time. But the Liberal Party of today has become the “party of reaction” Menzies warned against.

We keep reading that Peter Dutton in private is not the blunt hardliner he appears to be in public. If so, as Menzies said, opposition is a wonderful opportunity to sit down in your study, rethink policies, look forward to the challenges Australia will have to face, and devise “sound and progressive” ways to deal with them. Just as Richard Nixon (one of Menzies’s greatest fans, incidentally) was able to break with longstanding US policy and recognise China precisely because he was a right-wing Republican.

This defeat is Peter Dutton’s opportunity, his moment to define himself to Australians. As Menzies said, it’s not easy, particularly while he is juggling the issues of each day and each hour. But it must be done.

We could remind him that there is another record in Australian politics that has lasted a hundred years. The last person who became opposition leader after his party lost office and then led the party back into office was Andrew Fisher, in 1914. And Fisher himself was the outgoing prime minister, and had lost office by just one seat.

Too many opposition leaders have failed because they ignored Menzies’s advice and become simply “the man who says ‘no.’” Peter Dutton is the latest. In that position, he is unelectable, and either he or his colleagues are going to have to do something about it.

Finally, a postscript on the NSW election. Since counting stopped on polling night, the two-party-preferred vote in the sixteen closest Labor vs Liberal seats has shifted the Liberals’ way by an astonishing 1.5 per cent. Terrigal and Ryde, two seats the ABC called as Labor wins on polling night, are now certain or probable Liberal wins. Miranda has gone from a narrow Labor lead to a comfortable Liberal hold. And the biggest swing of all has been in Kiama, where ex-Liberal independent Gareth Ward has come from 48.1 per cent on polling night to 51.4 per cent now.

This reflects a growing tendency for Liberal voters to skip the booths on election day and vote pre-poll or postal. The democracy sausage is primarily an icon of the left. The overall swing to Labor will end up closer to 5 per cent than the 6.5 per cent swing estimated on polling night. And that’s why Labor won’t have a majority in the new Assembly.

The Coalition will probably have thirty-six seats in the Assembly, down ten seats from before the election. That was a defeat, not a rout. It will start this term with a base strong enough to plan realistically for a return to office in 2027, should Labor fall short of what the public expects of it. •

The post Aston: the implications appeared first on Inside Story.

Only once has a federal government won an opposition seat at a by-election, and that was in most unusual circumstances. In 1920, during the Irish war of independence, Irish emigrant and Labor MP Hugh Mahon delivered a speech denouncing the British Empire as “this bloody and accursed despotism.” The Nationalists (forerunner of the Liberals) used their majority to expel him from parliament — a unique event in federal politics. That forced a by-election in his marginal seat of Kalgoorlie, which the Nationalists then narrowly won.

That was more than a hundred years ago. Since then, opposition parties and independents have won seventeen seats from governments at by-elections, Bass (1975), Wills (1992), Canberra (1995), Ryan (2001) and Wentworth (2018) being among the more memorable of them. And, of fifty-eight by-elections in opposition-held seats in that time, none has been won by the government. Not one.

Some were close: in 1939 a young Menzies government failed by just eight votes to win the marginal Labor seat of Griffith. In 1960 an ageing Menzies government came just 0.2 per cent short of taking an ultra-marginal Labor seat, Bendigo. And in 2020, during the early months of Covid, the Morrison government fell just 0.4 per cent short of winning another lineball seat, Eden-Monaro.

Even new governments enjoying an electoral honeymoon, like Albanese’s, have failed. In 1983 the Hawke government was at the peak of its popularity when former leading Liberals Billy Snedden and James Killen retired from very marginal seats: yet the Liberals retained both seats with swings their way. In 2008 the Rudd government had a similar experience in Gippsland. In 2014, when Kevin Rudd quit, the new Abbott government lost out in his by-then-marginal seat of Griffith.

On top of that, Aston is not a natural Labor seat. At the 2019 election it was the safest Liberal seat in Melbourne: Alan Tudge’s winning margin was more than 10 per cent. Last year Labor came within 2.8 per cent of victory, but that was in reaction to Tudge’s personal and ministerial humbug. In the seven previous elections, the Coalition’s average winning margin was 7.6 per cent.

If Labor wins on Saturday, the Coalition is in even deeper trouble than we thought.

Independents or Greens have broken through to win one-in-ten by-elections in the past thirty or so years. Phil Cleary set the trend by taking Wills from Labor when Bob Hawke retired. The Greens won their first seat in the House when Michael Organ briefly took Cunningham from Labor in 2001. Rob Oakeshott, then an independent state MP, smashed the Nationals to win Lyne when Mark Vaile retired in 2008. And of course, Kerryn Phelps won a famous, if short-lived, victory in Wentworth after Malcolm Turnbull was dumped as prime minister in 2018.

But the third party in Aston will be the Greens. And while last May they scored a personal best by ending up with 15.3 per cent of the Aston vote before dropping out, this is far from being their territory. If the Greens win on Saturday, both Labor and Liberals are in even deeper trouble than we thought. •

The post By-election blues appeared first on Inside Story.

While the votes recorded a hefty swing away from the government to Labor and independents alike, the actual damage was relatively restrained, as if mimicking an election campaign and a polling night finale conducted with a friendly cordiality that you wish all politicians could adopt.

This was a change of government, but no wipeout. After ruling New South Wales for fifty-one of the seventy years between 1941 and 2011, Labor will resume control in 2023 with an agenda that has generated little excitement or alarm. Its leader Chris Minns, like Anthony Albanese, made himself a small target and let the anti-Coalition wave sweeping Australia do the rest.

At the end of the night, Antony Green estimated Labor had won 54.3 per cent of the two-party preferred vote — a swing of 6.3 per cent — declaring it has secured a majority in the new Assembly. While that is the most likely result, it was a bit premature, and yesterday the ABC withdrew it, and Green revised his numbers to list fourteen of the ninety-three Assembly seats as still in doubt.

My own list is a bit shorter. On my count, Labor has won forty-five seats — just two short of a majority — and leads in another four seats too close to call. The Coalition has won twenty-eight seats, and leads in another four that it will probably retain.

The Greens have held on to their three (Balmain, only just), the three ex-Shooters MPs easily held their seats as independents — despite a nasty campaign by Clubs NSW against Murray MP Helen Dalton, who has spearheaded the push for gambling reform — as did three others elected as independents in 2019. And teal independents hold narrow leads over Coalition MPs in two seats.

But we are only at half-time in the counting. In a reform we should probably welcome, the NSW Electoral Commission ordered that counting end at 10.30 pm on polling night, recognising that its staff had been working all day beforehand. And yesterday was free of counting. On the ABC’s estimate, the votes counted for so far amount to just 50.2 per cent of enrolled voters.

About 90 per cent usually vote, which means 40 per cent of the votes are still to be counted. And the votes to come include the vast bulk of some 888,000 pre-poll votes, and up to 540,000 postal votes. As a rule, they usually lift the votes of the Coalition and Greens at the expense of Labor and independents — and sometimes that changes results.

Antony Green’s pendulum showed the Coalition going into the election with forty-six seats, Labor thirty-eight, with six independents and three Greens. So far the Coalition has lost eight seats, and ten others remain in doubt. Labor has relieved it of seven seats — Camden, East Hills, Monaro, Parramatta, Penrith, Riverstone and South Coast — while the mayor of Northern Beaches, Michael Regan, won the blue-ribbon Liberal seat of Wakehurst as an independent with a phenomenal swing of 27 per cent.

My list of seats in doubt includes three in which Labor leads the Liberals — Terrigal (with 51.27 per cent of the two-party vote), Ryde (50.67) and Miranda (50.35) — and three where the Liberals lead Labor: Holsworthy (50.80), Oatley (50.40) and Goulburn (50.33).

There is also the strange case of Kiama, where MP Gareth Ward, who is legally blind and albino, has been suspended from parliament and thrown out of the Liberal party after being charged with separate counts of sexual assault and indecent assault, both against other men. He stood as an independent, and Kiama Liberals ignored their official candidate and rallied behind him. The official two-party figures show him trailing Labor (51.90), but later first-preference figures suggest he’s gone ahead.

Independents lead the Liberals in Wollondilly (51.73) and Pittwater (50.06), while the Liberals lead in Willoughby (50.69). My best guess is that postal votes will help the Liberals hang on to most of these ten seats, but Labor will win enough to end up with a majority of about three seats, similar to Anthony Albanese’s majority in the House of Representatives.

The actual votes in the first half of counting were: Labor 37.1 per cent, Coalition 34.8, Greens 10.1, independents 8.8 and others 9.2. The high vote for others is worth noting, because unlike the federal and Victorian elections, there weren’t that many “other” candidates. Yet instead of the 2 or 3 per cent they polled in those elections, this time the minor candidates kept polling 5 to 10 per cent, sometimes more.

Preferences are optional in New South Wales, so they matter less — and both the Coalition and One Nation made a point of urging their voters to “just vote 1.” Suit yourselves, guys, but preferences do help to win seats. If Labor wins a majority, it will certainly be due to preferences from Greens voters and others.

It’s far too early to call the final outcome in the Legislative Council, but on the votes counted on Saturday night, the swing was big enough to give Labor a chance of being able to cobble together a majority of left-wing parties, including the Greens, Legalise Cannabis and Animal Justice, on key issues. But it’s more likely that the new Council will be evenly split between left and right.

In my view, this is not a result that calls for a lot of analysis. Democratic governments the world over tend to have a limited life span. As former Victorian premier Dick Hamer put it, “Every decision you make, you make an enemy. And some will remain enemies until the day you die.” Eventually, more than 50 per cent of voters will be persuaded that it is worth giving the other side a turn, and the government is out.

New South Wales has been generally a Labor state in our lifetimes. The turning point came two days after Australia entered the second world war: Labor MPs ganged up to overthrow the dictatorial demagogue Jack Lang and install the cautious, efficient and likeable Bill (later Sir William) McKell as their leader. McKell led them to a landslide win in 1941, and they stayed in power until 1965. Labor governments in Sydney tended to follow his example: play safe, sometimes play favourites and, above all, keep the voters on side. They are rarely radical.

Since 1941 the Coalition has had just three spells in power, of which this was the longest. The outgoing government stood out for its massive public works program, especially in Sydney, encompassing both roads and public transport, but also for the borrowings that funded it and for the relatively high turnover of leaders and ministers as a result of minor but damaging problems with the Independent Commission Against Corruption.

But it was a government of reformers. While its Coalition partners in Canberra failed to tackle climate change seriously, it was out front in leading the transition to a renewables economy. In recent months, its advocacy of a cashless gaming card — enabling problem gamblers to set a limit on their losses — had the potential to be the most important gambling reform Australia has seen. Unfortunately, Labor is under the thumb of the clubs lobby and plans to run only a token trial applying the card to 500 of the 90,000 poker machines in the state.

This was a government open to ideas and reform — very different from the federal Coalition under John Howard and since, which, with its media partner Murdoch, has specialised in manufacturing issues it could use to try to wedge Labor (of which the phenomenally expensive nuclear submarines will be perhaps the most damaging long-term consequence).

All that said, the fall of the Perrottet government is a huge blow to the Coalition nationally. It’s clear that the Liberal brand name has suffered from the miserable record of its nine years in federal office. Tasmania is now the only government left on its side, with Labor controlling every other government bigger than a local council. I covered this in some detail in an earlier article and won’t repeat the argument here.

But its conclusion must be underlined. Since Daniel Andrews was elected as premier of Victoria in 2014, we have been in a pro-Labor cycle that has changed almost every government in the country, and shows no signs of slowing. The Victorian election, which should at least have given a start to the next pro-Coalition cycle, instead revealed a Liberal Party lost in the doldrums. Now a government that was arguably the best the Coalition has produced in this century has been thrown out of office.

This could just be cyclical, but I don’t think so. The Liberals’ federal leadership requires a bold reformer, a young Menzies or Whitlam, to bring it back into the mainstream of Australia’s changing values. Instead it has Peter Dutton, a business-as-usual leader who has done nothing to reposition the party, and sees no need to.

Apart from households becoming poorer as prices grow so much faster than wages, no one issue dominated this election. The swing was erratic from seat to seat, but more or less statewide, although stronger in Sydney than in the bush. Even in the classic two-party contests, massive swings from the Coalition were recorded in some seats: 15 per cent in Parramatta and South Coast (two of Labor’s gains) and in Miranda (one of those it hopes to win) and 18 per cent in Kogarah, the southern Sydney seat of incoming premier Chris Minns. In the seven seats Labor has clearly gained, the average swing was 10.8 per cent.

Yet some seats, mostly in the bush, swung the other way. And the Coalition looks like retaining six of its eight most marginal seats. Upper Hunter (where Labor needed a swing of only 0.5 per cent) swung to the Nationals. Goulburn (3.1), Willoughby (3.3), Tweed (5.0), Winston Hills (5.7) and Holsworthy (6.0) all look likely to end up staying with their present owners, if only just.

There were some interesting outcomes in the count:

• The teal independents just missed out. The federal election saw them win four seats in New South Wales and come close in several others. But while Judy Hannan (a former Liberal candidate who insists she’s not a teal) looks well-placed in Wollondilly, the other four Climate 200 candidates in Sydney look likely to fall just short.

This reflects the real differences between state and federal Liberals on climate action and integrity watchdogs, as well as state laws that restrict funding for electoral newcomers. But it follows a similar outcome in Victoria, suggesting that some voters feel the teals are needed less in state parliaments than federally.

• The Greens also missed out. They seem to have held their three existing seats — although Antony Green still classes Balmain as in doubt — but didn’t come remotely close to winning any others. Their upper house vote was just 9.1 per cent, enough for two seats of the twenty-one, but crushing their hopes of winning a third. In only two state seats in Sydney are the Greens genuine contenders, compared with nine in Melbourne.

• The southeast of the state, which voted en bloc for the Coalition in 2019, went almost entirely against it this time. The Liberals lost Bega last year at a by-election after Andrew Constance stepped down to run for the federal seat of Gilmore (and lose narrowly). Now they have lost South Coast and Kiama along the coast, while inland, the Nationals lost Monaro and the Liberals are trailing in Wollondilly.

Monaro could be a microcosm of the Coalition’s years in office. Most of its voters live in and around Queanbeyan, across the border from Canberra. At the 2011 election, energetic young National John Barilaro wrested it from popular Labor minister Steve Whan. In 2015 Whan tried to come back, but lost narrowly. In 2019, without Whan to compete with, deputy premier Barilaro had a massive victory. But then he tried to move to Canberra, met strong resistance, declared war on koalas, publicly admitted he was struggling with mental health issues, and ultimately quit politics. On Saturday Whan returned to win the seat in a 15 per cent swing.

• Speaking of the war on koalas, one of the most unusual contests was in Port Macquarie, a hot spot in the battle for lebensraum between developers and koalas. In 2020 the town’s MP Leslie Williams quit the Nationals over Barilaro’s “reckless and unreasonable behaviour” and defected to the Liberals.

On Saturday the two Coalition partners faced off, and the Port Macquarie voters unambiguously chose their pro-koala MP over her National Party challenger. Let’s hope that war is now over. •

The post The Liberals’ best government loses office appeared first on Inside Story.

That would be a stunning swing of 8 per cent against Dominic Perrottet’s government — a government one could argue is the most progressive and competent the Coalition has produced in the past decade, certainly relative to its counterparts federally, or in Victoria or Queensland.

Four days later, a Resolve poll for the Sydney Morning Herald came up with roughly similar findings, though on those figures the swing seems to be more like 6.5 per cent. It would still be curtains. The bookies give the Coalition’s last government on the mainland just a 20 per cent chance of holding onto office when the voters deliver judgement on 25 March.

If that proves right, it would be a dramatic illustration of how far the Liberal Party has fallen. At its peak in 2014, the Coalition ran every government in Australia except for South Australia (where it won the election on votes but lost it on the seats) and the ACT (where it hasn’t won an election since 1998).

The Abbott government’s 2014 budget of broken promises marked the turning point. Since then the Coalition has lost one government after another.

Three of those governments fell after a single term. Six months after Abbott’s budget, Victoria led the way, following four years dominated by the Coalition infighting that brought down premier Ted Baillieu. Queensland followed two months later, with premier Campbell Newman, the hero of its 2012 election win, losing his own seat in a 14 per cent statewide swing.

The polls suggested Abbott’s own government would also be booted out after a single term, but Liberal MPs forestalled that by dumping him and installing Malcolm Turnbull to win them the 2016 election.

Coalition governments continued to fall: Northern Territory voters dumped the Country Liberal Party government in 2016, leaving it with just two seats; the following year Mark McGowan began his remarkable reign by ousting the Coalition government in Western Australia.

In South Australia, by contrast, the Liberals finally broke through after sixteen years in opposition to win power in 2018. But that government too lasted just one term, and Labor emphatically returned to power last March — two months before voters finally sent the federal Coalition on its way.

But the NSW Coalition government should surely be less vulnerable. While the Morrison government showed no appetite for tackling climate change, NSW treasurer and energy minister Matt Kean has been a national leader in pushing the pace of decarbonisation. No government in Australia is more subject to integrity watchdogs than the NSW government is to its own ICAC. And, with some exceptions (water, for instance), it has been more a reformist government than a reactionary one. On gambling reform, it is far more progressive than Labor.

But this election cycle has become merciless for the Coalition parties. They began it with seven of Australia’s nine federal, state and territory governments. They now have just two, and if the NSW government falls on 25 March, they will be left with just one.

It’s worth recalling that latest cycle, and what it means for the Coalition parties. South Australia’s Liberal government fell in March last year, the federal Coalition government was voted out in May, and the Victorian Liberals received another thrashing from voters in November. In 2021, the Western Australian Liberals were left with just two seats in the Legislative Assembly and the Nationals replaced them as the official opposition.

2020 saw Queensland’s Labor government re-elected with an increased majority, leaving the Liberals with just five seats in Brisbane. The Labor–Greens government was given a sixth term in the ACT, while in the Northern Territory Labor was re-elected for a second term.

The one victory for the Coalition in that time was in Tasmania, where former premier Peter Gutwein called an early election in 2021 and narrowly retained his majority. If Dominic Perrottet loses in March, Gutwein’s successor, Jeremy Rockliff, will lead Australia’s only Liberal government. He doesn’t have to face the voters until early 2025.

Being out of government makes everything harder for political parties. They have far fewer staffers to call on, few public servants to provide policy assistance, less fundraising power and a bigger challenge finding things out. Talented people don’t waste their energies on a party destined for opposition, so the opposition parties are left with rusted-on supporters and branch stackers’ recruits.

But cycles change. In the last years of the Howard government, Labor controlled every state and territory government in Australia. Then, with the Rudd government still at the peak of its popularity, Western Australians voted out their Labor government. Two years later Victorians did the same, and by early 2014 Labor had only two governments left.

The next political cycle began with the Andrews government taking power in Victoria in November 2014. If the Perrottet government is voted out, that cycle will culminate on 25 March.

But would that also imply that Labor is now at the top of its cycle? That it will be all downhill for Labor from here, and the Coalition will soon start taking back the governments it has lost?

Not necessarily. A looming Coalition revival would be a reasonable expectation if you assumed that its losses of government reflected cyclical factors alone: bad luck, changing political fashions, one-off factors, and in the NSW case, the wear and tear of twelve years in government.

But if that were so, we should be seeing signs of it in the state that was first to switch its allegiance to Labor. And those signs should have been apparent in November’s election there. As we shall see, though, there was little if any sign of a Liberal comeback.

It’s early days yet for the Albanese government. We’ve seen many governments enjoy an extended honeymoon before crashing — the Rudd government, for example — but eight months after the election, all the polls suggest it’s the Coalition that has lost a lot of ground.

Labor won the 21 May election with a tad over 52 per cent of the two-party vote. The latest Resolve poll in Tuesday’s Age/Sydney Morning Herald implied that the figure has jumped to 60 per cent since the election. Peter Dutton’s poll ratings remain far behind Anthony Albanese’s.

In this Labor cycle, the Coalition lost its first state government just eight months after reaching its peak of running seven of the nine governments. But the Coalition’s next cycle might not begin anytime soon.

After New South Wales votes it will be almost a year and a half before the next election anywhere in Australia, and then there will be a bunch of them: the Northern Territory, the ACT and Queensland in the second half of 2024, and then Western Australia, Tasmania and federally in the first half of 2025. While you’d think the Coalition will surely win one of them, it could face a long wait before its own cycle gets going.

Why?

First, since 2000, the Coalition has mostly been in government in Canberra, but Labor has dominated government at state and territory level. So far this century, in the states and territories, Labor has been in power for roughly three-quarters of the time, and the Coalition for just one-quarter. Outside New South Wales and Tasmania, Labor has become the natural party of government, and the Liberals/Nationals/LNP/CLP the natural parties of opposition.

In Victoria, the Coalition has been in power for just four of the past twenty-three years. In Queensland, three. In South Australia, six. In the Northern Territory, five and a half, and in the ACT, the Liberals have had less than two years in office and twenty-one in opposition.

Maybe that’s logical. The federal government’s main jobs are economic management, social security and foreign relations — and on two of those, voters have a conservative bias. The states, by contrast, are mainly responsible for running the services we rely on: hospitals, schools, roads and public transport. On those issues, voters have a bias towards improving services. Keeping the budget in the black seems to have gone out of fashion.

But former NSW premier and federal Liberal president Nick Greiner put it well when he said the Liberals’ problem is that its activist base is well to the right of its voter base. (Just as the Greens’ activist base is well to the left of its voter base.) And the longer a party is out of power, the more deep-seated that becomes. Failure breeds more failure.

Take the ACT Liberals. In its first twelve years of self-government the ACT mostly had Liberal governments. Red Hill pharmacist Kate Carnell was parachuted in to become party leader. She won two elections, presenting a moderate, modern face that Canberra voters could relate to. But in 2001, the Libs lost office, went into opposition, and stayed there.

By 2023, it’s come to feel as though the Labor–Greens coalition is the permanent government of the ACT, and the Liberals are the permanent opposition.

Could the same be happening in Victoria? There, the Coalition parties have won a majority of Victoria’s seats in just one of the last sixteen elections, federal or state. For a Liberal Party that once governed the state alone for twenty-seven years straight, defeat has come to be seen as normal.

The Coalition’s one victory was at the 2010 state election under another moderate, modern Liberal, Ted Baillieu. But in truth they were not ready to govern, were profoundly disunited and had no coherent agenda. When voters turfed them out in 2014, there was little to show for their four years in power.

Love him or loathe him, Daniel Andrews has been full of ambition to do things, above all investing in transport infrastructure and tackling cutting-edge social issues. In 2018 Labor was returned with a massive majority — so large that we all assumed 2022 would see a swing back to the Coalition.

That assumption seemed certain after the government’s mishandling of Covid. It imposed harsh, unpopular lockdowns that effectively closed down Melbourne for eight months, then changed course 180 degrees and dropped all controls as the death toll from Covid soared. More than one in 1000 Victorians have now died of the disease — 76 per cent more than in the rest of Australia.

Surely the 2022 Victorian election should have been the start of a new cycle of Liberal renewal. But no. At face value, the Libs made no progress at all. Labor had fifty-five seats in the old Assembly, the Coalition twenty-seven, and the Greens and independents three each. In the new one, Labor has fifty-six, the Coalition twenty-eight (assuming it retains Narracan at Saturday’s delayed election), and the Greens four. Labor won easily — and while the Nationals gained three seats, the Liberals went backwards.

But there are nuances to that narrative — and in politics, nuances matter. One reason why the Albanese government is riding so high is that it has the freedom of having a clear majority in the House of Representatives. But that majority came so close to being a minority.

If fewer than 500 votes in the relevant booths had changed hands, the Liberals’ Andrew Constance would have won the federal seat of Gilmore from Labor, the Greens’ Steph Hodgins-May would now be the member for Macnamara — and Labor would be a minority government, negotiating every bill with the crossbenches or the Coalition. Small changes, big difference.

For Victoria, nuance one: The pre-election redistribution of boundaries, on the Victorian Electoral Commission’s estimates, gave Labor a net gain of three seats (because Melbourne had grown rapidly, and Labor held most of the seats with swollen enrolments). That was the real starting point: so Labor lost two seats, and the Coalition gained two. Not much difference, sure, but there was some movement the Coalition’s way, however inadequate.

Nuance two: As in the federal election, Labor was lucky. A shift of just 350 votes in the relevant booths would have seen the Greens take Northcote and the Liberals win Pakenham and Bass. Instead of the seats going from 58–26–4 to 56–28–4, they would have ended up as 53–30–5. Not much difference there either, but it would have shown clear movement from Labor to the Coalition.

Nuance three: On the votes, there certainly was movement. For the eighty-six seats contested by both sides at the last two elections, Labor’s share of the two-party-preferred vote fell from 57.5 per cent in 2018 to 54.8 per cent this time. That’s a swing of 2.7 per cent to the Coalition.

But in the twenty-five marginal seats — those where the election is decided — it was a very different story. The average swing from Labor to the Coalition there was just 0.3 per cent. The Coalition won four seats that were notionally Labor’s on the new boundaries (Caulfield, Hawthorn, Nepean and Morwell), while Labor won three seats that were notionally the Coalition’s (Bayswater, Bass and Glen Waverley).

(Labor also lost Richmond to the Greens and the Coalition won Shepparton from independent Suzanna Sheed. That’s why, in net terms, Labor lost two seats, and the Coalition gained two).

Mostly, the big swings to the Coalition were in safe Labor seats in Melbourne’s western and northern suburbs, where it had no chance of winning: seats like Greenvale (15.1 per cent swing to the Liberals), Mill Park (13.5), St Albans (12.4), Thomastown (11.4) and Kororoit (11.1).

Across the nineteen middle and outer suburbs northwest of the Yarra, the average swing to the Coalition was 7.1 per cent. But it won none of them, and even after those swings, only two of them were even mildly marginal.

To win a majority in the Assembly, the Coalition needed to make a net gain of nineteen seats. On the traditional pendulum, admittedly a rough measure, that required a swing of 10.4 per cent.

At the 2026 election, to win a majority, it will need to make a net gain of seventeen seats. On the pendulum, that would require a swing of 8.1 per cent. No opposition has gained a swing of that size since 1955, when Labor split in two.

The start of a cycle that will see Australia swing back to Coalition governments? I think not.

At this election, twelve Labor seats were marginal against the Coalition. At the 2026 election, only eight will be. Most of the seats it needs to gain to win office will need to be won by swings of 6 to 10 per cent.

These are normally classified as “fairly safe” seats. If Labor is still riding high with voters in 2026, they won’t be threatened. But if it loses support in the next four years, as governments often do in their third terms, some could come under threat. Labor would have far more territory to defend.

Nuance four: A significant development was lost in the focus on Labor’s triumph and the Liberals’ woes. This election saw the Greens almost double their territory. Richmond was the only seat they picked up, but they came close to winning five other seats: Northcote (lost by 0.2 per cent), Pascoe Vale (2.0), Preston (2.1), Footscray (4.2) and Albert Park (4.5).

One in ten seats in the Assembly, all in the inner suburbs, are now either held by the Greens or within their reach. That’s a position they’ve never been in before, anywhere in Australia.

In the Legislative Council, they now hold the balance of power, winning four seats, up from one in 2018. Labor will have to negotiate with them on any legislation the Coalition opposes.

Their first-preference vote rose just slightly, from 10.7 per cent to 11.5. But there’s a simple reason for that which media commentators ignored: at this election there were three times as many minor-party candidates as last time. Animal Justice and Family First ran in every seat, and the Freedom Party in most of them. Those candidates took votes from all other parties. As the table shows, the minor parties’ vote more than doubled, from 5.2 per cent last time to 11.7 per cent.

Note: while the independents’ vote fell by 0.6 per cent, the Liberals by 0.8 per cent and Labor’s by 5.8 per cent, the Greens’ vote rose by 0.8 per cent. They clearly did the best of the major players.

We can compare apples with apples by looking at the vote for the three main parties after minor-party preferences. The comparison is limited by the fact that only in twenty-seven seats were Labor, Liberals and Greens in the final three in both 2018 and 2022 and the commission distributed everyone else’s preferences between them. (The VEC has promised that this time it will eventually distribute all preferences in all seats. Thank you, at last.)

When just Labor, Liberals and Greens were left in those twenty-seven seats, the Liberal vote was unchanged from 2018. But Labor’s vote was down 3.2 per cent, while the Greens’ vote rose by 3.2 per cent. In the new marginal seats of Footscray, Pascoe Vale and Preston, the swing from Labor to Greens was three times that size.

But isn’t that just because the Liberals changed their preferences from Labor to Greens? No. These are three-party figures: the Liberal preferences hadn’t been distributed at this stage. And note: when they were, they didn’t change the outcome in a single seat, not even Richmond. As the VEC has repeatedly shown, most inner-suburban Liberals don’t follow their party’s how-to-vote card.

Where Liberal preferences were distributed, they lifted the Greens’ two-party vote by an average of 4.5 per cent. The Greens were slowly expanding their territory even when the Liberals preferenced Labor, but in 2026 that 4.5 per cent would make it far easier for them to keep doing so. And conversely, Labor would breathe a huge sigh of relief if the Liberals preferenced them instead.

In war and politics, they say, the enemy of my enemy is my friend. Helping the Greens win Labor seats brings the Coalition no closer to government, as the Greens would always support Labor. But making Labor fight on two fronts dilutes its campaign resources: and of Labor’s thirteen most marginal seats after this election, in five its opponent is the Greens. If the Liberals redirect preferences to Labor in 2026, the only one Labor need worry about would be Northcote.

The Greens often declare war on themselves, and do or say silly things that discourage you from taking them seriously. But they have stood up for principles that matter to many Australians — tackling climate change seriously, treating refugees humanely, ending persecution of whistleblowers — which is why they have become the first party since Federation to establish itself as a lasting independent alternative to the two major parties.

The Country Party, now the Nationals, began as an independent group but abandoned that to form what has been a permanent coalition with the Liberals. In the last term of the NSW Coalition government, their one public stand on principle seemed to be to defend the interests of land developers against koalas.

The DLP and the Australian Democrats each lasted a generation and won significant support as independent alternatives to the two majors. But neither established a territorial base that could win them lower house seats, and eventually they withered away.

The Greens have carved out their own territory by making themselves the party of young voters in the inner suburbs. In those nine seats in inner Melbourne, they won 38.7 per cent of the three-party vote this time, ahead of Labor with 38.4 per cent and the Liberals with 22.9 per cent. At the federal election, they also won all three seats in inner Brisbane.

And the young, and the inner suburbs, just keep growing. It’s a good constituency to have.

New South Wales has become the Greens’ weakest state. At the federal election they polled just 10 per cent there, compared with 13.3 per cent in the rest of Australia. While they are now competitive in nine state seats in Melbourne, in 2019 they were competitive in just two seats in Sydney (Balmain and Newtown, both safe Green seats) and two in the hippie north of the state (winning Ballina, just losing Lismore). This state election will test them too.

For Victoria, the bottom line is that the Liberals have lost not only the 2022 election but probably the 2026 one as well. What happens then will be determined by the events of the next four years, and how voters respond to them. But things would have to go very badly for Labor for the Coalition to emerge with a majority.

For Australia, the bottom line is that if the Coalition loses what many see as its best government of recent years then it could be a long road back to power. And if the Greens’ MPs, senators and activists manage to avoid alienating their potential voters, it’s possible that the ACT will not be the only parliament in which the successor to a Labor government is a Labor–Greens one. •

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The Liberal Party took another trouncing, losing most of the seat-by-seat contests for the fifteenth time in Victoria’s last sixteen federal and state elections. Despite leader Matthew Guy’s optimistic claims in his concession speech last night, it is very unlikely to end up with more seats; at best it could hold on to the same small number it started with. It seems even further from winning back power.

The Nationals had a night to relish, taking back all three seats they had lost to regional independents over the previous eight years and holding their own with the greatest of ease. But the Liberals’ malaise condemns them, too, to remain on the opposition benches seemingly forever, until a new crowd can win control of the Liberals, recruit members from mainstream Australia and take the party back to the middle ground.

Early last night the Greens’ tide came in. Their vote was surging and it seemed they might sweep through inner Melbourne to win as many as nine of the Assembly’s eighty-eight seats. But as the night wore on, the tide went out again, their vote slumped back to its 2018 level, and it looks like they won just one more seat, Richmond.

And the independents had a terrible night. The two remaining regional independents, seen as tied to Labor, paid the price for the government’s lack of interest in country Victoria. Of the four teal indies backed by Climate 200, two will be elected at best, but more likely none. In other seats, the average independent won only a few per cent of the vote; in the end, they were poorly funded amateurs up against well-funded professionals.

There might be one exception: Gaetano Greco, an independent from Preston in the northern suburbs, who seems to have slipped through unnoticed while Labor was focused on the Greens. More on him later.

The one blow for Daniel Andrews was in the Legislative Council: on current counting, Labor would lose three seats, forcing it to rely on support from the Greens or the fringe parties of the right — One Nation, the Shooters and the DLP — to pass any legislation the Liberals and Nationals oppose. That was predictable, and predicted, but it could require a more inclusive style of governing.

As I half-forecast, this election looks like introducing a significant newcomer to Victorian politics: Legalise Cannabis Victoria. It’s the party formerly known as HEMP, but its rebranding and its decision to be part of a preference swap among left-wing parties could win it two seats in the Council, maybe more. It’s very significant that it’s got there with Labor preferences. Soon the joint could be jumping.

The Council aside, this election confirmed more than it changed. Andrews’s one-man rule and uncompromising way of handling the pandemic have been endorsed by the majority of Victorians, at the cost of alienating both those seriously inconvenienced or maddened by the repeated lockdowns, and increasingly, the minority of Victorians who dislike his government’s lack of transparency, lack of openness, centralisation of power and slide into heavy debt.

The transparency warriors were never going to win yesterday: they had no horse in the race. Their best hope now is that the smaller parties of the left — the Greens, but also Fiona Patten (if she gets back), the dope smokers and Animal Justice — might use their numbers in the Council to pressure Labor to raise the quality of Victorian democracy, as the governments of John Cain, Steve Bracks and John Brumby did.

This election was a triumph for the defenders. Labor has lost only four or five seats from the fifty-six that were nominally its seats after the redistribution. The Liberals were defending virtually nothing but marginal seats; yet they’ve lost only two for sure, and possibly two more. The Greens and Nationals had bumper swings in all their seats. Only the independents lost out.

The Liberals and Nationals never had a hope of winning the extra eighteen seats they needed to form government. Whatever their leaders said publicly, the best they could hope for was to win enough votes and seats to be in a position to make a realistic bid for power in 2026. And they failed.

Guy put the best spin on it he could last night, claiming his team had won a 4 per cent swing and got “more than halfway” to closing the gap. Not so. As Ben Raue of the Tally Room points out, the average swing was more like 2.5 per cent. The Coalition will have only half as many seats as Labor in the new Assembly, much the same as in Labor’s last term. The party’s new leader will start from no better a position than four years ago.

What went wrong? First, Labor had few marginal seats to defend: most of its seats had majorities of more than 10 per cent. Only ten Labor seats were held by margins of less than 5 per cent — and when you have a government willing to play Scott Morrison’s game of spending taxpayers’ money to win marginal seats, there is no advantage like incumbency.

On ABC TV last night, Antony Green pointed out the sharp difference between the zero swing (or at one stage, a swing to Labor) in seats southeast of the Yarra, where most of the marginal seats are, and the big swings against Labor in some seats in the more deprived Labor heartland, north and west of the river; but the Liberals were starting from too far back to win any of them.

Late counting in some seats moderated that difference. Late at night the Liberals reclaimed Kew and Caulfield, both of which seemed lost two hours earlier, took the lead in Hawthorn and Mornington, secured Polwarth, Croydon and Rowville, and got back in the contest in Hastings. Meanwhile across the river, Labor pulled away from the Greens in Northcote, Footscray and Pascoe Vale.

Some of the swings against Labor in the outer-northern and western suburbs were extraordinary. There was a swing of 14 per cent against energy minister Lily D’Ambrosio in Mill Park, 12.5 per cent in Yan Yean, 15 per cent in Greenvale, and 8 to 10 per cent in Broadmeadows, Sunbury and Sydenham. But the Liberals’ past vote in these areas was so low that it didn’t even come within 5 per cent of winning any of these seats.

The Liberals were not a problem for Labor in its rusted-on heartland. With one exception, nor were the independents. There were dozens of them in Labor’s safe seats, many making the case that their area had been neglected because it was a safe seat. But Labor’s campaign team identified what it saw as the three real threats — Melton, Point Cook and Werribee — and ensured that they were not forgotten in the campaign promises. After their strong showing in Melton and Werribee in 2018, the independents flopped badly there in 2022.

Here’s my scoop. The exception — completely overlooked in last night’s coverage — was Preston, and Gaetano Greco. A long-time Darebin councillor and Labor activist, Greco had the advantage of running in an area where the Liberals are weak and the Greens and (increasingly) Victorian Socialists have eroded Labor’s support. A plan to demolish most of the heritage Preston Market became the centrepiece of his campaign, along with a range of local issues that the state government was not tackling because Preston posed no political problem. So Greco resolved to make it one.

Apart from Labor and Greco, seven other candidates ran in Preston — and six of them (all but the Freedom Party) directed preferences to Greco. Labor’s Nathan Lambert (denounced by Greco as a candidate “parachuted in from Geelong”) has 38.3 per cent of the vote, and the rest are evenly divided: Liberals 16.5 per cent, Greens 14.8, Greco 14.2, Victorian Socialists 6.7, others preferencing Greco 6.6 and others preferencing Labor 2.9.

While some preferences always leak, it seems certain that Greco will overtake the Greens and the Liberals to make the final two with Labor. Who wins the seat will then depend on how many preferences leak to Lambert: on these figures, he needs about 25 per cent for Labor to hold the seat, which gives Greco a 50–50 chance, though the postal votes will favour Labor. Victoria’s electoral commission will have to carry out a new two-candidate count for the two of them.

Early in the night, the Greens looked like being the big story. The commission’s two-candidate counts showed them clearly ahead in Northcote and Richmond, and neck and neck with Labor in Albert Park, Footscray, Pascoe Vale and Preston. But as the prepoll votes were counted the Liberals pushed the Greens into third place in Albert Park, and Labor regained the lead in Northcote, and pulled ahead in the rest. Richmond will be the Greens’ only gain in the Legislative Assembly.

The final Greens first-preference vote statewide will end up much the same as the 10.7 per cent they polled in 2018. But that is largely because there was far more competition, with roughly three times as many micro-party candidates as in 2018. The Greens have increasingly cast themselves as an inner-suburban party, and in Melbourne they are expanding that territory. In 2026 they will be the sitting party or serious competitors in nine seats.

Apart from Greco, three teal independents were the only indies to come close to winning a seat. At the close of counting, Kate Lardner had 49.8 per cent of the two-candidate vote in Mornington, Melissa Lowe had 49.4 per cent in Hawthorn, and Sophie Torney 47 per cent in Kew. With postal votes favouring the Liberals, all of them are likely to lose, but it will be close.

Liberals trying to find something to celebrate last night were grateful for the likely return of leading moderate John Pesutto in Hawthorn and the arrival of Jess Wilson in Kew. Pesutto could be a candidate for the party leadership if and when Guy steps down.

The Liberals didn’t have much to celebrate elsewhere. To put themselves in a position to win in 2026, they needed to win back the eastern suburbs seats they lost last time, but Labor successfully defended Ashwood (formerly Burwood), Box Hill and Ringwood, and captured Glen Waverley and Bayswater (nominally Liberal after the redistribution). The outer-suburban seats of Pakenham and Yan Yean, both seen as Liberal chances, stayed with Labor.

Labor maintained its grip on Geelong’s four seats, as well as the two seats each in Ballarat and Bendigo. The Coalition’s one success in Victoria’s bigger regional centres came when the Nationals reclaimed Morwell, the centre of Victoria’s electricity industry, which is facing a dismal decade ahead with the gradual closure of all three coal-fired power stations. Andrews’s promise to revive the former State Electricity Commission as a renewable energy provider, while popular in Melbourne, brought no comfort to the Latrobe Valley.

In the Legislative Council, however, Labor looks set to lose a lot of ground. With 20 to 30 per cent of the vote counted, Labor was on track to lose three seats. That leaves it with only fifteen of the Council’s forty seats, which would make it uncomfortably dependent on support from the Greens or a collection of right-wing parties to get contested legislation through.

The biggest swings against Labor were again in the northern and western suburbs: 10 per cent in the Northern Metropolitan seat, 11 per cent in the west. But Labor lost ground everywhere, costing it seats in South-Eastern Metro, Northern Victoria and Western Metro.

It’s important to remember that these are early figures, and Victoria’s group voting system means small changes to the figures can cause quite different outcomes. As the numbers stand, though, three of those seats would go to left-wing parties who formed an alliance with Labor and the Greens to get their preferences first.

Legalise Cannabis Victoria is on track to win seats in Melbourne’s southeastern and western suburban regions, and is close in several others. Animal Justice, thanks to a deal negotiated when it was falsely pretending to be part of preference whisperer Glenn Druery’s alliance, stands to win a seat in Northern Victoria but has lost its leader, Andy Meddick, from Western Victoria.

Reason Party leader Fiona Patten is on track to narrowly hold her seat in Melbourne’s northern suburbs in a three-way contest with the Victorian Socialists and former Labor powerbroker Adem Somyurek, now running for the DLP.

The Greens vote lifted everywhere: on these figures, enough to give them upper house seats in Western Victoria, North-Eastern (formerly Eastern) Metropolitan and Southern Metropolitan, while its leader Samantha Ratnam comfortably held her seat in the northern suburbs. If that holds, those four seats will be their most important victory at this election.

The Druery group had a bad night. In 2018, Druery’s team won nine of the forty seats. Last night, they won two (or three, if you count the seat won by Animal Justice on preferences Druery arranged before the party betrayed him). The DLP won a seat in North-Eastern Metropolitan from fellow Druery group party Transport Matters, and could still end up with seats in Northern Metro, where Somyurek is standing, and Western Metro, where their candidate is controversial former Liberal MLC Bernie Finn.

On current figures, however, the Liberals would reclaim their second seat in the western suburbs by just pipping Finn at the post, while the Coalition would also gain seats in Northern Victoria and Western Victoria. One Nation would take a seat in Northern Victoria from the Druery group, whose only other success was in Eastern Victoria, where Shooters party leader Jeff Bourman is on track to retain his seat.

I suspect these figures will change before the counting is over, but for now, the numbers in the forty-member Council would be: Labor fifteen, Liberals and Nationals fourteen, Greens four and Legalise Cannabis two, with one seat each for Reason, Animal Justice, One Nation, the DLP and the Shooters.

Whatever the final numbers, Labor will be in a minority but will have to find a way to make it work. Might we even see the two main parties of the left in Victoria lift their game to forge a constructive working relationship as their counterparts have in the ACT? Pigs might fly.

Like him or loathe him, this election result was a personal triumph for Daniel Andrews. It was in many ways about him, and his way of governing. No Victorian premier in my lifetime has acquired such an avid, uncritical fan base, or so many opponents who detest him (although Jeff Kennett came close). His photo appeared not only on Labor’s how-to-vote cards but also on those of other parties wanting to inspire Victorians to vote against him. The result, Labor’s overwhelming victory, speaks for itself.

The pandemic was rarely mentioned in the election campaign, but you suspect that, somewhere in voters’ minds, it was a defining issue. If you approved of Andrews’s handling of the pandemic, you voted for him. If you didn’t, you voted against him. There were many parties against him, but the election results showed us they’re still small parties.

The risk is that his success will further boost what Labor MPs described to his biographer Sumeyya Ilanbey as his sense that he’s always the smartest guy in the room. In his first term in office, Andrews consulted and listened more. In his second term, we’re told, he regarded listening to critics or people with different views as a waste of time. Many are urging him to adopt a more inclusive style in his third term. That could be challenging.

He starts his third term facing many problems. The Covid pandemic is as deadly as ever: last week sixty-two Victorians were reported dead from the disease, half the national death toll. The state budget is out of control, and Josh Gordon and Chip Le Grand of the Age have shown how the numbers are being fudged to make it appear that all is well.

Those are problems for tomorrow. Today, Daniel Andrews and Labor are winners with cause to celebrate. •

The post For today, a triumph for Victorian Labor appeared first on Inside Story.

That’s not enough for the Murdochs’ Herald Sun, which has been whipping up its rusted-on older conservative readership with stories quoting fearful Labor insiders’ predictions of gloom: “Toxic Dan: ALP Fears Voters Are Turning against Andrews,” “Sign Dan Could Lose Mulgrave Seat in Shock Upset” and, today, “Dan Faces Minority Govt as Voters Turn against Labor.”

But I would take that less seriously than the polls. I’ve never heard an insider in the final week say, “We’re home. We’re going to win by a mile.” They are paid to worry. They always pretend it’ll be close. They did it in 2018, when Labor won twice as many seats as the Coalition.

By contrast, the polls tell us the contest is narrowing, but Labor remains well ahead and Daniel Andrews is still far more popular than Matthew Guy; and no poll has yet shown the Coalition remotely within reach of winning. The polls can be wrong — in 2018 they all understated the scale of Labor’s landslide — but my instinct is that this time they’re probably close.

On the average of the last five polls reported in the media, Labor’s vote is down from 43 per cent in 2018 to 37 per cent, the Coalition is unchanged on 35 per cent, the Greens have edged up from 11 to 13 per cent, and “others” — independents and micro-parties — have jumped from 11 to 15 per cent. (That’s partly because there are far more of them, almost three times as many micro-party candidates as in 2018, and mostly running to the right of the Liberals.)

In two-party terms, the average implies a swing to the Coalition of three percentage points or so, taking Labor from 57.5 per cent to 54.5 per cent. That would normally be a very safe lead — but this election is not just between two parties.

In this morning’s Herald Sun, former Labor assistant state secretary Kos Samaras, now director of the pollster Redbridge, forecast that Labor would lose six seats and is in danger in a dozen others. But only half of those are battles between Labor and the Coalition. On his reading, Labor is in danger of losing up to five seats to the Greens, and up to four seats to independents.

The punters half-agree. They don’t see many seats changing hands, but of the twenty-five electorates Sportsbet rated on Wednesday as the closest contests, three are Labor v. Green, four are independents v. Labor, five are independents v. Liberal, and two are independents v. National (including one that is shaping as independent v. National v. independent). Fewer than half are classic Labor v. Coalition contests. (I covered this last week.)

If Samaras is right, then Victorian Labor might lose its majority and have to learn how to share power in some form with the Greens or independents. Labor and the Greens have been doing that in the ACT for most of the last two decades, and it’s been quite harmonious. But Victorian Labor will also face the big unknown of a new Legislative Council.

Ah, the Legislative Council. Until the 1950s, it was a conservative bastion, elected by property owners to be a brake on hasty populist reforms. (It sure was: it took almost twenty years and nineteen private members’ bills before the Council agreed that women should have the right to vote.) It was a part-time chamber where gentlemen gathered in the evenings to debate the issues of the day. Most Victorian adults were excluded from the Council’s voting roll, and most MLCs were elected unopposed.

These days it’s so different. Since 2006 the chamber has been elected by proportional representation, with preferences decided not by voters but by backroom deals via group voting tickets, like the Senate elections of old. Even a decade ago, the Council’s only crossbenchers were three Greens. But at the 2014 election, “preference whisperer” Glenn Druery orchestrated the election of five crossbenchers from small parties — and in 2018 the forty MLCs elected included nine of Druery’s team plus a rebel breakaway, Fiona Patten.

There are eight regions with five members each. The quota for election is 16.7 per cent, yet those nine Druery members on average won just 3.4 per cent. Druery’s system works by getting ideologically diverse parties to direct preferences to each other, in effect pooling their votes — and then doing trade-offs with the major parties to get them to do the same. The preferences are arranged so that every party gets a seat or more — or at least, the chance of one.

His system works because Victorians have no control over their preferences unless they vote below the line — which last time only 9 per cent did. Voters below the line only have to number five boxes or more, far easier to comply with than the rules in the Legislative Assembly, where votes in seats like Point Cook and Werribee will be declared informal unless voters have numbered all fifteen boxes in order. Our ignorance and indifference let Druery and party bosses decide our preferences for us.

In 2018 this system led to many results seen as unjust. In Eastern Metropolitan, Greens MLC Samantha Dunn won 9 per cent of votes, yet lost her seat to taxi owner Rod Barton of Transport Matters, who won 0.6 per cent. In South-Eastern Metro, Liberal MLC Inga Peulich, with 12 per cent of the votes, lost her seat to Liberal Democrat David Limbrick with 0.8 per cent. And in Southern Metropolitan, Greens MLC Sue Pennicuik, with 12 per cent, was unseated by Sustainable Australia’s Clifford Hayes with 1.2 per cent.

In Western Australia, the last state apart from Victoria to tolerate this system, the McGowan Labor government has moved to abolish group voting tickets after the last election saw Daylight Saving Party candidate Wilson Tucker, then living in the United States, win a seat in the outback region with just ninety-eight votes. But the Andrews government has shown zero interest in electoral reform.

Why not? Because it sees this system as working in its favour — and at the 2018 election, Labor was effectively an associate member of Druery’s team. Its preferences were directed to Druery parties in six of the eight regions, and in four they helped elect parties as diverse as the Liberal Democrats, Derryn Hinch’s Justice Party, Animal Justice and Transport Matters.

The losers in 2018 were the Greens, who went from five seats to one, and the Coalition, down from sixteen seats to eleven. Its election landslide gave Labor eighteen of the forty seats, close to a majority, and it could recruit enough allies issue by issue to pass its bills. The Age reported last year that its most reliable supporters were Animal Justice MLC Andy Meddick and Fiona Patten, followed by Rod Barton, and the one Greens MLC who survived Druery’s rampage, Samantha Ratnam.

The other six MLCs elected on Druery’s tickets have all voted mostly against Labor. One is from Sustainable Australia, two from the Liberal Democrats, and originally three from Hinch’s squad, one of whom, former Maribyrnong mayor and army reservist Catherine Cumming, soon quit the party and is now running for the Angry Victorians. (She was the one who told a rally last weekend she wanted to turn Daniel Andrews into “red mist” — a politicised play on the army term “pink mist” for the spray of blood on the face of the victim of a shooting.)

For this election, the Druery team consists of just eight core parties: the DLP, Derryn Hinch’s Justice Party, the Health Australia Party, the Liberal Democrats, the New Democrats (a party founded by rebel Labor MLC Kaushaliya Vaghela), the Shooters, Sustainable Australia and Transport Matters. All but Health Australia have sitting members — in the DLP’s case, sacked Liberal ultraconservative Bernie Finn in Western Metropolitan and sacked Labor powerbroker Adem Somyurek in Northern Metropolitan — and their priority is to retain those seats.

On the fringes are four other parties. Angry Victorians and the new party calling itself Sack Dan Andrews Restore Democracy in the end stayed out of the group, but their group voting tickets largely reflect its priorities. Animal Justice is now a former member. And Labor remains an unofficial associate member, but more distant than in 2018.

In 2022, Team Druery’s prospects are not looking good. It faces unprecedented opposition from the left and right alike. The Liberals, Greens, One Nation and United Australia Party all effectively refused to deal with it. Four smaller left-wing parties organised their own version of Druery’s system, and got Labor and the Greens to direct their initial preferences their way in every region. And some parties it thought were on board refused to sign up.

The worst betrayal was by Animal Justice. Elected with Druery’s help in 2018, it pretended to be part of the team again, and was awarded the group’s preferences in two regions, Northern Victoria and Western Victoria. But it hid the fact that it had joined the new left-wing alliance, and is directing its preferences there. This became known only when its real group voting tickets were released.

The second betrayal was by Angry Victorians. It is giving Druery’s parties high preferences in all regions, and has been rewarded by the group giving it high preferences in Western Victoria, where its leader Chris Burson is standing. But it gave the Herald Sun a secretly filmed video of a long chat with Druery in which he boasted of his power to select MPs and told them his aim was to create a Council that Labor could work with. (He was talking to the wrong people on that one.)

Labor is still a Druery ally, but its preferences at this election are going first to the left-wing alliance. Their combined preferences should ensure that in Northern Metropolitan, Fiona Patten will either hold her seat or lose it to the Victorian Socialists. Animal Justice’s double dealing has probably wrapped up seats for it in Northern Victoria and Western Victoria. The Greens look set to win back their lost seat in Southern Metropolitan, and possibly several others. But in some seats, the left’s alliance has fractured.

There was a plan that, to maximise the left’s haul, Labor and the Greens would also preference each other. But something got in the way of that. Instead, Labor will direct its sixth preference to the Shooters in Eastern Victoria, to Transport Matters in North-Eastern Metro, and to Derryn Hinch in South-Eastern Metro — and, of course, its second preferences are going to Animal Justice in Northern Victoria and Western Victoria (where Hinch and the Shooters will also get Labor preferences before the Greens).

All of them are (or were) the primary candidates of the Druery group in those regions. Clearly, Labor is still part of the team.

Spurned, the Greens have directed preferences to Transport Matters ahead of Labor in every region, but realistically, that has no effect:  in North-Eastern Metro the two parties will be rivals, and Transport Matters will be quickly eliminated everywhere else.

What does Labor get from Team Druery in return? Well, the Shooters have taken the unusual step of giving Labor their second preferences in the marginal seat of Morwell, as well as in Narre Warren North. Hinch nominated candidates in some of the Assembly seats Druery claimed Labor was worried about, but after the betrayals, he appears not to have registered how-to-vote cards.

Then there is a curious deal in Northern Metropolitan. Three of Druery’s parties are giving their second preferences directly to Labor’s number three candidate, Susie Byers. Why? Well, if the votes go as they did in 2018, she would be the one competing for Fiona Patten’s seat. Druery has never forgiven Patten for deserting his team and telling the world that he charges candidates a success fee of $50,000. And Labor has never forgotten that it is their old seat that Patten occupies.

You could be forgiven for thinking that Labor and Druery are combining to try to unseat Patten, even if Labor is also directing its preferences to her. But that assumes the voting at this election will be something like 2018. It won’t.

In 2018, Labor won 39 per cent of votes for the Council. In May 2022, it won just 31 per cent of Victorians’ votes for the Senate. If its vote is like that on Saturday, it could lose up to six seats in the Council, maybe even more.

By contrast, votes for the Greens and the minor parties of the left (including Legalise Cannabis, formerly HEMP) jumped from 12 per cent to 20 per cent. They stand to gain the seats Labor loses. There is no certainty that it will find all of them as easy to deal with as Animal Justice and Reason.

In 2018, Team Druery consisted of thirteen parties and won 20 per cent of votes. In May 2022, only four of its current members contested the Senate election, and they won 5.6 per cent of the vote. Of the other four, only the DLP has any proven following, and it’s pretty small these days.

Outside both groups are the other right-wing parties. One Nation and the United Australia Party are continuing their alliance, which helped the UAP win Victoria’s final Senate seat from the Liberals. But in contrast to the federal election, they have been inconspicuous in this campaign. Palmer’s party stands to get preferences from the Liberals in most regions, but with few others coming its way, it’s hard to see it being a strong contender. One Nation has a chance of winning a seat in Eastern Victoria, but generally its Victorian base is limited to the country.

The new Freedom Party has a preference deal with Family First, and a more limited one with One Nation, but by and large the minor parties of the right look uncoordinated compared with the tight preference deals of the left and the Druery group. It’s surprising that most of them appear to have no preference swaps at all with the Druery camp — whose largest members are the Shooters, the Liberal Democrats, the DLP and the Hinch party. I suspect they will win few if any seats.

But it’s really anyone’s guess who will win the final seats in each region. One dark horse: at the Senate election, the biggest small party on the left was Legalise Cannabis (formerly HEMP). It won 3 per cent of the Victorian vote, outpolling One Nation. It’s got its share of preferences coming. It’s got a pretty simple policy. A lot of people agree with it. For those who hate all politics and politicians, it could be an attractive alternative.

As you can probably tell, I have no idea who will control the new Council. We will find out very late on Saturday night. Those with a keen interest in the outcome can try out their tipping skills on Antony Green’s election calculator, but it’s more useful after the event.

There has been a buzz this week in the betting markets, picking up on the fears of Labor insiders. Even so, the Coalition’s odds of forming a government have shortened only from 10/1 to 5/1: giving it at best one chance in five of victory, and four chances in five of another term in opposition.

For what it’s worth, the punters see just five seats clearly changing hands. Labor is tipped to lose Richmond and Northcote to the Greens, Nepean to the Liberals, and Hawthorn to either the Liberals or teal independent Melissa Lowe. The Liberals in turn are tipped to lose Kew to teal independent Sophie Torney.

A lot of seats are seen as being on a knife edge: Bayswater, Glen Waverley, Morwell, Pakenham and Ripon between Labor and the Coalition, Melton between Labor and independent Dr Ian Birchall, Benambra between the Liberals and independent Jacqui Hawkins, and Caulfield between Liberal, Labor and another teal independent, Nomi Kaltmann. The Coalition would have to do a lot better than that to pose any threat.

But the punters can get things just as wrong as the pundits. In 2018, as now, they tipped just five seats to change hands. Yet only one of those five did, whereas twelve seats they hadn’t tipped to change hands did so.

To lose its majority this time, Labor would need to lose twelve of the fifty-six seats it has on Antony Green’s pendulum. To win a majority, the Liberals and Nationals would need to win eighteen seats on top of their current twenty-seven. Both sound improbable, but stranger things have happened. •

The post Will Labor need to share power in Victoria? appeared first on Inside Story.

In the last three weeks, though, the atmosphere has changed. Victoria’s election has begun to get interesting. The polls, the politics, and the momentum appear to be swinging — not enough to suggest that this election could end Labor’s rule, but enough to make the outcome a bit less certain.

Daniel Andrews specialises in being in control: it’s his thing. Doing press conferences for 120 days straight during the Covid lockdowns was fine with him: the journalists could only ask questions, whereas he could talk as long as he liked without even answering those questions. But he can’t control interviews with thinking radio hosts like Neil Mitchell (3AW) and Virginia Trioli (ABC) who ask critical questions and interrupt him if he goes off on a tangent. So he refuses to face up to them. And in an election campaign, a leader who refuses to appear on the state’s biggest talk shows is a liability to his party.

As the government, Labor normally dominates policy debates. But an election campaign is a more even contest. Both sides have been told by their focus groups that the two key issues for voters are the cost of living and the state of Victoria’s hospitals and healthcare. Both sides are equally able to throw money at any group they think might consider such bribes worth voting for. And both sides are doing so with similar recklessness.

Victoria’s budget is heavily in deficit: even on optimistic assumptions, net debt is heaving towards $165 billion, or 25 per cent of the state’s GDP within four years. The only saving either side has offered so far is Guy’s welcome pledge to cancel the $13 billion Andrews has committed to his “Suburban Rail Loop” (which is not a loop at all). That aside, all the new spending both sides have promised — mostly to shift household costs onto the impoverished state budget and build or rebuild dozens of hospitals — would be funded by further state borrowing, adding to the debt to be repaid by future taxpayers.

It is depressing to watch a once-strong budget being weakened daily by political leaders who lack the courage to make voters pay for what they spend. The long-term costs to Victorians of the Andrews government’s fiscal lassitude in its second term will be substantial. But the spending competition has made the election a more even contest, leaving Andrews for once unable to dismiss the opposition as irrelevant.

Similarly, Labor usually dominates the tactical game, but last weekend it was caught by surprise when opposition leader Matthew Guy announced that the Victorian Liberals would change their preference policy to “put Labor last.” On paper, that’s enough to swing at least two Labor seats to the Greens, even if some Liberals have made it known they don’t like the change.

And the polls are moving, and serving up plenty of variety. Two weeks ago a Resolve poll for the Age found Labor leading 59–41 in the two-party vote. Within days, Newspoll in the Australian declared that lead had shrunk to 54–46. The Financial Review’s new pollster, Freshwater Strategy, put it at 56–44, a Roy Morgan poll reported it as 57–43 (almost unchanged from the last election), while in Monday’s Herald Sun a Redbridge poll put it at 53.5–46.5 — implying a 4 per cent swing against Labor.

What should we make of all that? Take it with a grain of salt. I keep seeing the ghosts of Victorian polls past, such as “Matthew Guy Preferred Premier in Poll as Support for Daniel Andrews Collapses” (2016), or figures during Victoria’s six Covid lockdowns suggesting Labor’s hold had become genuinely precarious. No recent poll suggests that Guy’s Coalition team could win the election.

But there is now a remote possibility that Labor could lose enough seats to lose its majority in the Legislative Assembly — as well as having to deal with a less controllable Legislative Council.

In November 2018, only 22 per cent of Victorians voted for Greens, minor parties and independents. In May 2022, 34 per cent did. That cost Labor no seats at the time, but a repeat of that vote in state electorates on 26 November almost certainly would.

Some numbers might be helpful. Here are three sets of them: in summary form, the votes at the 2018 Victorian election; the Victorian voting at the federal election in May; and a simple average of the five latest polls.

Three things to highlight. First, on the average of the polls, Labor’s primary vote is down 5 per cent since the 2018 election. Yet its two-party-preferred vote is down only 1.5 per cent — and the Coalition’s primary vote is also down, albeit marginally.

What the polls are telling us is that a significant minority of voters are shifting from the major parties — mostly from Labor — to Greens, minor parties of left and right, and independents of all shades.

Even in May, the signs were there. In three-party-preferred votes (that is, Labor v Coalition v the best of the rest), Labor went backwards in two-thirds of its Victorian seats. Even in two-party-preferred contests, competing only with the Liberals and Nationals, Labor lost ground in fourteen of Victoria’s thirty-nine House seats.

Until 2018, the idea of Labor facing challenges in its old working-class seats was implausible. They were rusted on, so it could ignore them with impunity — and did. But then loose coalitions of independents banded together in three of its neglected western suburbs seats to demand similar services to the rest of Melbourne.

Melton, with 70,000 people and growing fast, had no hospital, no TAFE and only an occasional country train service. Werribee was the centre of the booming southwest, where single-lane roads are choked with traffic most of the day. And Pascoe Vale was one of many Labor suburbs repeatedly ignored when the politicians direct their spending promises to marginal seats across town.

None of the independents won in 2018, but they gave the government a scare. In Werribee, treasurer Tim Pallas was fought to final preferences by local GP Joe Garra. In Melton, neuroscientist Ian Birchall came within 5 per cent of winning the seat.

The government briefly acknowledged the western suburbs and made more promises. But four years later, Birchall tells voters, Melton is no closer to getting a hospital, or being part of the suburban rail network, or having its own level crossings removed. You can’t drive around outer northern or western Melbourne without being stunned by the inadequacy of the main road networks their people have to put up with.

Birchall is running again, along with another of the 2018 independents, Bacchus Marsh snake catcher Jarrod Bingham, who in May came third in the new seat of Hawke. Joe Garra has swapped seats to contest Point Cook, but Labor now faces three other independents in Werribee, and more in Broadmeadows, Bundoora, Greenvale, Kalkallo, Kororoit, Laverton, Macedon, Preston, St Albans, Sunbury and Tarneit — as well as in seats in Ballarat, Bendigo and Geelong.

They may all lose. For now, the bookies and punters assume that all of them will lose. But the punters got it very wrong in May, when they bet that Labor’s Kristina Keneally would win Fowler comfortably and only one new crossbencher would be elected: Zoe Daniel in Goldstein. In fact she was one of ten.

As of now, the bookies’ odds imply that only five seats will change hands on Saturday week: Labor losing Richmond and Northcote to the Greens, and Hawthorn and Nepean to the Liberals, while holding on to Bayswater (notionally now a Liberal seat after redistribution changed its boundaries). I suspect they might be once again underestimating the likely changes.

Thirteen seats changed hands in 2018, and the Coalition lost eleven of them. It was left with just twenty-seven of the eighty-eight seats in the Assembly. Most of the Liberals’ seats were won very narrowly, with majorities of less than 3 per cent. The overall two-party-preferred vote (including an estimate for inner-suburban Richmond, where an independent Liberal ran after the party failed to nominate) was 57.5 per cent for Labor, 42.5 per cent for the Coalition.

It’s not a good place for the Coalition to start from, and the redistribution has not made it any easier. In Antony Green’s judgement, nine of the twenty-one Liberal seats are held by 1 per cent or less, whereas the vast majority of Labor seats are held by more than 10 per cent. To imagine the Coalition winning this election requires a creativity beyond my powers.

In Green’s view, the redistribution has left Labor with fifty-six seats, the Coalition twenty-seven, the Greens three and independents two. The Labor-held seats of Bayswater and Bass have become notional Coalition seats on their new boundaries, while Liberal-held Ripon and the Latrobe Valley seat of Morwell, held by National-turned-independent Russell Northe, have become notional Labor seats (the more so because Northe is retiring).

Labor will be re-elected for a third term unless it loses twelve or more seats, and there’s no sign of that happening. But Labor won the federal election in May because of a landslide in Western Australia that I don’t recall anyone predicting. If Victorians are hiding their anger from the pollsters, where might it suddenly erupt on election night?

First, we never have a good handle on country seats. The Liberals won Ripon last time by just fifteen votes; it’s possible that they will squeeze home again, despite the unfavourable new boundaries. The Nationals seem surprisingly confident of regaining Morwell, even though it now includes Labor-voting Moe.

And Mildura is facing a challenging election. Not only are the Nationals out to regain the seat they lost so narrowly last time, but seven-time mayor Glenn Milne is running as a conservative independent against its proto-teal independent MP Ali Cupper.

The bookies see two of the seats Labor won in 2018 as low-hanging fruit for the Liberals. Nepean, at the ritzy end of the Mornington Peninsula, voted Labor for the first time in 2018 but came back strongly to the Liberals in the federal election. Former big-serving Davis Cup player Sam Groth is expected to win the seat back for the Liberals.

The biggest upset on election night 2018 was the Liberals’ loss of Hawthorn. Its MP and shadow attorney-general, John Pesutto, spent the night on ABC TV’s panel, gradually realising that he had lost his seat and his job. At least he lost no friends with the classy way he handled the situation, but as the Age columnist Shaun Carney reminded us last week, Pesutto thereby also lost his chance to take over the Liberal leadership and move the party back from the fringes into the middle ground. His loss was one reason why Labor has faced little competition since.

Labor’s candidate John Kennedy, once one of Tony Abbott’s teachers at Riverview, was living in a retirement home at the time, and won preselection only because it was seen as an unwinnable seat. Despite his win, Labor has reportedly excluded Hawthorn from its priority list, opening the way for Pesutto to fight it out with one of just four teal independents at this election, Melissa Lowe, an administrator at Swinburne University.

But to get close enough this time to make a serious bid for power in 2026, the Liberals will need to win back more seats than that. At the federal election in May, their biggest swings from Labor were in the outer suburbs, especially in the new state seat of Pakenham, and in northern Yan Yean, where they had to disendorse their candidate last time. If, as many argue, the Covid lockdowns did most damage to outer-suburban families, many of whom could not work from home, these two seats could be among the casualties.

Labor generally had easy wins in the outer southeast last time, but that was before Covid. Both sides are putting resources into new housing areas in seats like Bass (now notionally Liberal), Cranbourne, Narre Warren North and Narre Warren South.

The Liberals are also hoping to take back some of Labor’s other unexpected gains last time, including the middle-suburban electorates of Ashwood (formerly Burwood), Box Hill and Ringwood, and the outer-south Geelong seat of South Barwon. Ministerial retirements have opened up rare opportunities for them to win back the Dandenongs electorate of Monbulk, held until now by former deputy premier and education minister James Merlino, and the sea-change electorate of Bellarine, vacated by former police minister Lisa Neville.

But Labor’s success in May reminds us that it’s pretty good at looking after marginal seats. It’s the safe seats it often mucks up. And while most of the 129 independents are running in Labor seats, many of them aren’t well known, and virtually all of them will be poorly resourced relative to the major parties, for whom Labor’s electoral reforms carved out a far more generous set of rules than those applied to new parties.

That leaves the Greens as the third opponent Labor has to worry about. But not too much: even with the Liberals preferencing them ahead of Labor, the Greens’ dream result would be to double their seats in the Assembly from three to six.

They first entered Victorian politics at the 2002 election. Amid a Labor landslide, they overtook the Liberals to run second in four inner-suburban electorates — Melbourne, Brunswick, Northcote and Richmond. Liberal preferences helped an unknown young medico named Richard Di Natale to come within 2 per cent of winning Melbourne.

In 2006 they won three seats in the Legislative Council after the Bracks government made a principled decision to switch it to election by proportional representation. (You could not remotely imagine Andrews proposing such a reform.) And when Adam Bandt broke through to win the federal seat of Melbourne in August 2010 — with 80 per cent of Liberal voters directing preferences to him — the state election seemed set for a similar breakthrough.

But Bandt immediately became one of the crossbenchers supporting Julia Gillard. Federal opposition leader Tony Abbott decided to reverse Coalition policy on preferences: he wanted the Greens to be treated as untouchable, which meant giving Coalition preferences to Labor instead. The Victorian election in 2010 was the first under the new policy, and it saw the Greens lose all four contests.

In 2014 the Greens retaliated by targeting a Liberal seat, Prahran, as well as a Labor one, Melbourne. They won them both, despite Liberal preferences in Melbourne going to Labor.

Let’s note: Daniel Andrews and Labor won that election with a majority of just six seats. Had the Liberals not shifted preferences to Labor, the Greens in 2014 would also have won Brunswick, Northcote and Richmond from Labor, leaving it as a government without a majority. Labor would have had forty-four seats, the Coalition thirty-eight, with five Greens and an independent on the crossbenches. Labor would still have formed government, and could have made it work, but it would have required Andrews to develop skills he has yet to show us.

In 2017, future senator Lidia Thorpe won Northcote for the Greens at a by-election. But she lost it a year later at the full election, although her colleague, medico Tim Read, took Brunswick and the Greens just held on to their other two seats, all very narrowly, while Glenn Druery’s machinations saw them reduced to one seat in the Council. Their progress appeared to have stalled.

The federal election changed that, as they became part of the crossbench wave. Their big successes were in Queensland, but their vote surged to a record 13.75 per cent in Victoria, up from 10.7 per cent at the 2018 state election. The Greens came within 0.32 per cent of winning Macnamara (formerly Melbourne Ports) and within 2.40 per cent of winning the three-way contest for Higgins. Had the Liberals preferenced the Greens at that election, Wills and Cooper (formerly Batman) would also have been very close.

The recent polls suggest the Greens’ surge is holding. Their goal for the Assembly is to consolidate their three existing seats, and pick up three more: Richmond, Northcote and Albert Park.

In Richmond they had been held at bay repeatedly by Labor’s veteran MP Richard Wynne, a well-respected former social worker and Labor idealist, and until recently planning and housing minister. But Wynne is retiring, and the bookies already had the Greens as narrow favourites in both Northcote and Richmond before the Liberals’ preference shift made that outcome more probable.

Albert Park is a tougher ask. Alongside Prahran, it makes up roughly half of Macnamara. But while much of Prahran is natural Greens territory, Albert Park is pretty well-off. On my sums, the Greens would need to top their federal election high by another one to two percentage points to win the seat.

The state redistribution did the Greens favours in some other seats, turning Footscray and Pascoe Vale into possible Greens seats in future. But that’s not where this election will be fought.

The single most important fact in Victorian politics is that, for all the mistakes, the polarisation, the high death toll and the policy overkill of 2020 and 2021, the polls make it clear that a majority of Victorians think the Andrews government did a good job in handling Covid. Clearly, he has earned his plaudits as a communicator with voters.

A survey by the Age suggests the voters just want to forget about Covid: old and young voters alike ranked it near the bottom of the list of a dozen key issues. Andrews clearly just wants to forget about it too. Chief health officer Brett Sutton, for so long at Andrews’s side at all those press conferences, has now been dispatched to the “freezer”: the government didn’t even ask his advice before agreeing to abandon mandatory isolation of people with active Covid.

Of course that is a national policy somersault, not just a Victorian one. It is a fact almost universally unreported and undiscussed that most Australians who have died of Covid have lost their lives in the last six months.

Sources: Covid Live, Australian Bureau of Statistics

Victoria is still by far the nation’s worst Covid hotspot: in the past six months alone, it has seen 63 per cent more deaths per million people than the rest of Australia. But to the premier and the voters alike, it seems it no longer matters. They are sick of Covid restrictions, and if old people die of it, so be it.

Andrews’s second term as premier was a lot worse than his first. Fiscal discipline has collapsed, causing an escalation of debt that will make future generations of Victorians poorer. Its symbol is the so-called Suburban Rail Loop, in reality a very expensive twenty-six-kilometre arc underground through Labor seats in the southeastern suburbs. On conventional cost-benefit tests, the auditor-general estimates the cost to Victorians will be twice the benefits they receive.

If Andrews wins a thumping majority on Saturday week, as still appears the likely outcome, what will his third term be like? Sumeyya Ilanbey’s recent biography depicts a leader who thrives on adulation, resents criticism and doesn’t listen to alternative views. His old colleagues have mostly left the room: only four of the twenty-one ministerial colleagues he started with in 2014 still remain.

If there is any constraint on his power in the next term, it could come from the new Legislative Council: the election result we don’t know already. We will look at that later this week.  •

The post Victoria considers its verdict appeared first on Inside Story.

Bringing down a budget in this environment is tough work. Six months ago, during the campaign, Labor was blaming the Coalition for falling real wages: now it is in power and real wages are falling faster than ever, for reasons beyond any government’s control.

Six months ago Labor was ridiculing the Coalition’s economic management for deficits and debt: now it is in power, and has come clean and told us what the Coalition wouldn’t: that the budget, on realistic assumptions, is in even worse long-term shape than we thought.

Does this budget tackle those looming deficits? Yes, but only at the margins. It’s designed not to make them too much worse. In net terms, it adds another $10 billion to the expected deficits for the next four years, but most of that is in 2025–26, when inflation is forecast to be back in its box.

Does it do anything fresh to raise real wages or cushion the rising cost of living? No. Like the Reserve Bank, it accepts the consensus that governments’ most urgent task is to crush the unexpected resurgence of global inflation, and that takes priority over everything.

Well, almost everything. Net new spending in four years totals almost $23 billion, and item after item in the budget papers is introduced with the footnote: “This measure delivers on the government’s election commitment as published in the Plan for a Better Future.” Even the bad bits of the plan have been delivered, presumably to underline the message that Labor’s word can be trusted.

Treasurer Jim Chalmers had an unenviable task in framing this budget, and he got the big call right: fight inflation first. Part of the reason that our standards of living have kept rising over the past thirty years — the International Monetary Fund estimates that Australia’s real GDP per head has grown by 69 per cent in that time — is that the Reserve Bank has not needed to slow the economy to tackle inflation. It would not be in our long-term interests to allow this outbreak to become entrenched.

And Chalmers and Anthony Albanese are playing the long game. They don’t want a term in power to make changes, they want a decade in power to make changes. The first step is to gain credibility with voters so that they will support those changes. Rome wasn’t built in one budget.

But Labor came to power bearing diverse hopes and expectations from the 52 per cent of Australians who preferred it to the Coalition. This budget could disappoint many of them. Let’s look first at what Labor hasn’t done.

It hasn’t directly tackled the biggest problem facing Australian families: their falling spending power as a result of inflation far outpacing wage growth 

The strategy the Reserve Bank and the government are using to beat down inflation is to reduce the spending power of Australian households. Inflation is best defined as too much money chasing too few goods and services. That is what has happened here. And now the Reserve Bank and the government are aiming to reduce the amount of money Australians have at their disposal.

Today’s figures from the Bureau of Statistics show inflation jumped to 7.3 per cent in the year to September, its highest level since 1990, and was spread throughout the dozens of items in the consumer price index. By far the biggest contributor was the cost associated with buying a new house (stamp duty, conveyancing fees and so on). We can blame that on the Reserve itself and the Morrison government: the Reserve for keeping interest rates too low for too long, and Morrison and Josh Frydenberg for trying to win re-election by throwing more and more money at voters.

Chalmers forecast that gas and electricity prices will rise over 2022 and 2023 in the order of 50 per cent, mainly because of the fallout from Russia’s invasion of Ukraine. Yet so far they’re way short of that. While household gas prices were up 16.6 per cent in a year, the Bureau’s data contradicts many of the inflation narratives we hear: it found electricity prices were up only 3.2 per cent in a year, and household rents up 2.8 per cent, while childcare costs were down 5.4 per cent. After home-buying costs, food, fuel and travel are the other main costs driving inflation.

The Reserve Bank is severely shrinking the spending power of mortgagees and others in debt by rapidly hiking its cash rate. That will push down home-buying costs and the loose spending that breeds inflation. But it also makes people poorer, and voters angry.

Chalmers amiably pretends that Labor is tackling the problem by delivering five campaign promises — higher childcare subsidies, expanded paid parental leave, more social and affordable housing, lower pharmaceutical costs, and workplace relations reforms — as “responsible cost of living relief.” In fact, all those commitments predated the current fall in real wages; they are neither designed nor able to offset those losses.

If the budget forecasts are right, by the end of next year many households will be significantly worse off. Treasury predicts prices will rise 5.75 per cent in the year to June 2023, on top of the 6.1 per cent rise in the financial year just ended. It forecasts that wages will rise 3.75 per cent in both years, but on Treasury’s past form and the latest data on wage growth, that could be optimistic. Even if it is right, real wages will fall 5.1 per cent over the two years. If it is wrong, they will fall even more.

To make matters worse, as the Guardian’s Greg Jericho reminds us, the low- and middle-income tax offset, a significant tax break for working households, was abolished by the Coalition from this financial year. Labor has chosen not to revive it, nor has it offered households anything new (post-election) to cushion the fall in their living standards.

It is important to understand what’s happening here. Jessica Irvine covers it well in today’s Age/SMH. Faced with a crisis affecting millions of people who voted for it, Labor has taken the high road of responsible budgeting rather than come to the rescue. That is a different way of governing from the opportunism of the Morrison government, and economists will hope it is proved right: that wage growth will rebound while price growth shrinks and few people get badly hurt. But politically, Labor is taking a big risk.

After five months in which Labor has been untroubled by the opposition, this opens up a real issue for the Coalition to exploit by demanding relief for households (which of course would have to be funded by taking on more debt, to be repaid by future generations). Shadow treasurer Angus Taylor is correct in saying there are many ways to do that. But given the chronically irresponsible budgeting of the Coalition’s last twelve years in office — the final three years of the Howard government and the entire nine years of the Abbott/Turnbull/Morrison government — you’d expect them to take that road.

This budget forecasts that future budgets will remain heavily in deficit, averaging 2 per cent a year, for at least the next ten years — but it puts off the task of fixing that deficit by serious tax reform

As promised in the campaign, Chalmers has plugged some of the loopholes used by multinationals and others to avoid tax. Treasury estimates that various anti-avoidance measures will raise $4 billion from multinationals and $2 billion from others over the next four years. But that’s only a small first step towards tackling budget deficits forecast at $182 billion over that time.

Similarly, Labor says it has saved or deferred $22 billion of spending over four years by scrapping or “reprofiling” Coalition programs, such as infrastructure investments and community development programs. But compared with the size of the deficits ahead, that’s puny. It’s a start, and it pays for some of the cost of Labor’s own programs, but politically, that’s the easy stuff.

Australia should not be running budget deficits at all when jobs are abundant and its mineral export earnings are at record levels. The budget rises and falls with mineral prices. Thermal coal and gas prices are now sky-high, so company taxes are now forecast to raise $127 billion in 2022–23 rather than the $90 billion forecast in April — and so Treasury now forecasts a deficit of $37 billion rather than the $78 billion forecast then.

Conversely, a key reason why Treasury predicts that deficit will rebound within two years to $51 billion, and then stay at that level in real terms is that it forecasts commodity prices to “glide down over the December 2022 and March 2023 quarters to their assumed long-term fundamental price levels.” Given the abrupt slowing in China and the Western economies that’s certainly possible. It’s also sensibly conservative.

Another reason for Treasury’s alarm about the budget’s future is that, with the government’s approval, it has reduced its estimate of future productivity growth from 1.5 per cent a year to 1.2 per cent. Over time, such a shift has a big impact on cumulative economic growth.

Treasury justified its previous assumption on the grounds that productivity growth had averaged 1.5 per cent growth a year over the previous thirty years. But most of the rapid growth was in the 1990s, when we had that decade of “jobless growth.” Since 2005, the Bureau of Statistics estimates, productivity growth has averaged just 1 per cent. Even 1.2 per cent would be doing well.

The bottom line is that, on current settings, the budget would stay in deficit by roughly 2 per cent of GDP, $50 billion a year in today’s money. Without changes, within a decade the government would run up another $500 billion in debt — similar to what the Coalition ran up in its nine years in power.

Something’s gotta give. The International Monetary Fund estimates that Australia’s budget has been in structural deficit since before the global financial crisis. The Coalition promised to fix it, but once in office just made it worse. From 2019 to 2021, on average, the IMF estimated Australia’s structural deficit as 6 per cent of GDP, the third highest among the forty countries it groups as “advanced economies.”

What should Labor do? As I reported a fortnight ago, the consensus among many economists is that the answer, inescapably, is higher taxes. Australia is trying to provide First World services with a revenue base far lower than the First World average, and it’s not working. As both sides have shown us, it’s not politically feasible to make spending cuts on the scale needed, and in today’s world we can’t grow our way out of deficits like this.

Chalmers has been subtly making similar points; as Michelle Grattan points out, he clearly sees this as the start of a long campaign. In his budget papers and media shows, he cites Treasury’s estimates of the expected annual growth in spending over the next decade in key areas: interest bills (forecast to rise by 14.4 per cent a year) and the cost of the NDIS (up 13.8 per cent a year) lead the way, but other heavy items such as hospital costs (annual growth 6.5 per cent) and medical bills (5.4 per cent), aged care, defence and the age pension are all set to grow faster than the economy.

The escalating cost of the NDIS is a deep concern — Treasury says it is now the second most expensive government program behind the age pension, and it’s on track to overtake that by the end of the decade. I doubt that any of us thought that was what we were signing up for. It shows why the government has commissioned NDIS founder Bruce Bonyhady and former departmental head Lisa Paul to chair a year-long review of the scheme. This budget sets up an NDIS taskforce to investigate fraud.

But most of the rising costs stem from the reality that we’re an ageing society, and it’s expensive to  look after old people: pensions, medical and hospital costs, aged care services. It was simply phoney for former treasurer Josh Frydenberg to pretend these costs could be paid for while taxes were capped at 23.9 per cent of GDP. They can’t; Treasury estimates that on current settings, spending would climb to 27.9 per cent within a decade. In scrapping the tax cap, Chalmers has taken a sensible first step towards the tax debate we have to have.

Much will depend on whether Albanese and his colleagues — and others with a selfless interest in the issue — support him by joining that debate. It is important that we get the answers right, then implement them, rather than assuming, as the Coalition did, that if we don’t talk about it, reality will just disappear. It won’t; one day the markets will see to that, as they have in Britain.

So did Chalmers and his Labor colleagues get the budget wrong? No. Australia will need to take action to close the deficit, but it didn’t have to do it in this budget. By and large, Labor is moving in the right direction, generating a debate we have to have, and pointing out the hazards we face. Australia has time on its side, and the markets are unlikely to lose faith in a government that shows the right intentions.

But Labor could have done better. How on earth could it seriously claim to be cutting out “waste” while in the same breath committing $2.25 billion to Daniel Andrews’s pet lemon, Melbourne’s southeastern “suburban rail loop”? Victoria’s auditor-general has pointed out that on conventional cost–benefit rules it would deliver only 51 cents of benefit for every dollar spent on it.

The project has now finally been submitted to Infrastructure Australia, which might well come up with a similar finding. Why did Albanese and Chalmers commit now without even waiting for their advisers to report? They have made a rod for their own backs, and the Liberals and Nationals will whack them with it all over Australia — especially in regional Australia, where Labor cancelled every Coalition commitment without even trying to sort out the good from the bad.

Time will tell whether Labor has made the right call in ignoring the pressures on Australia’s kitchen tables. There are lots of ways to cushion lower and middle-income households’ loss of buying power, and Labor should get these solutions ready. Restoring the tax offset is obviously one. Bringing forward the proposed cut in the 32.5 per cent tax rate to 30 per cent would be another (while redrafting the stage three tax cuts to retain a 37 per cent marginal tax rate on income in upper middle levels).

The one surprise packet in the budget, the commitment to build a million new homes in five years from 2024 to 2029, could be upgraded. It’s not as significant as it sounds. A smaller Australia built more than a million homes in the five years to 2019 — and the Reserve Bank and others keep telling us that was not enough.

If the industry, the states and the federal government agree, they should aim higher (a million homes in four years?), target more precisely (at least 50,000 new social/affordable homes a year, and preferably more), and focus on areas of clear housing shortage, particularly in regional Australia. To me, pledging to repeat what we did before Covid is not a big advance.

Chalmers’s roll-up-your-sleeves rhetoric in his budget speech would lend itself well to taking on a new reform agenda: tax reform, and any unfinished business that would make the economy more productive and use our human and natural resources better. One example — his budget contained a little token pressie for pensioners: if you work a little part-time, for this year only, you can earn an extra $4000 without it affecting your pension. Wow.

If that’s worth doing, imagine what the gains might be if Labor picked up Joe Hockey’s lost crusade to gradually dial up the retirement age to seventy? When longevity is improving at a rate of knots, it is not unfair to ask its beneficiaries to spend some of their expanded lifetime in the workforce, rather than taking the lot as retirement.

And why not pick up the sound proposal from the aged care royal commission to lift the Medicare levy by half a cent in the dollar to pay for the cost of improving aged care? I’m pretty sure Australians would accept a tax rise like that if they can see where the money is going.

There are many fertile, exciting ideas Labor can explore. This budget has been a good start. As Chalmers immodestly put it yesterday, the adults are back in charge. Australia is better off for it. •

The post Chalmers’s long game appeared first on Inside Story.

Yet Andrews’s years in power — and especially his record-breaking pandemic lockdown — has divided the state more bitterly than those of any premier since Kennett. He’s a typical political strongman: quick to decide what he wants to do, determined to carry it out, and contemptuous of anyone who gets in his way. In the homeland of Aussie Rules, he’s the standout resourceful tough guy who bursts through the pack to deliver what his fans want from him.

In his first term, the fans liked seeing him deliver the transport infrastructure Melbourne had been deprived of for so long — particularly when he got rid of all those level crossings that stopped traffic whenever a train came through. In his second, they admired him as the strong leader whose readiness to take tough decisions kept them safe during the pandemic.

But many other Victorians hate him, with a passion not seen since Kennett ruled the roost. Daniel Andrews oozes arrogance. He can’t take criticism, and contemptuously dismisses or ignores adverse reports or anyone disagreeing with him. Many of those tough decisions he made during the pandemic were foolish, even harmful ones — such as banning children from playgrounds, closing schools, or locking up thousands of residents in public housing towers without warning.

Whatever you think of his policies, he is darn good at politics. The polls put him way ahead of Liberal leader Matthew Guy as preferred premier, and a third four-year term — which he says he intends to serve out in full — seems a formality. The most recent published polls were taken in September, but even the closest found Labor ahead by a whopping 56–44 majority in two-party terms. A month-old Morgan poll released last week put the gap at 60.5–39.5.

Yet, for a leader so dominant, he is not well understood. After eight years as premier, we at last have a biography of him: albeit one he did not cooperate with and, since he hates being criticised, by an author he definitely would not have chosen.

Sumeyya Ilanbey is a trailblazer, the first Victorian political reporter in a hijab, and one of an outstanding group of journalists now covering state politics for the Age. Her account of the premier, Daniel Andrews: The Revealing Biography of Australia’s Most Powerful Premier, doesn’t let you down: it really is an inside story. Andrews refused to be interviewed but Ilanbey talked to many of his colleagues, past and present, and collected a lot of revealing stories and perspectives, even if most of them are passed on unsourced.

She pulls no punches. Daniel Andrews emerges from the book as a highly successful, hard-working, utterly determined, socially progressive despot — with little respect for people who get in his way or for the democratic infrastructure in which he has to operate.

Andrews, we learn, is a boy from the bush who developed a relentless work ethic and a talent for political infighting, which took him from stacking Labor Party branches in his youth to becoming premier at forty-two, and dominating state politics in a ruthless autocratic style unlike any Labor predecessor.

So far it hasn’t hurt him. Yet Victoria is used to premiers being nice blokes — Dick Hamer, Lindsay Thompson, John Cain, Steve Bracks, John Brumby, Ted Baillieu, Denis Napthine — or once, a nice woman, Joan Kirner. Andrews clearly doesn’t fit in either group. From Ilanbey’s portrait, he belongs squarely in Victoria’s minority of authoritarian leaders: Henry Bolte, Kennett, and himself.

All three have been lucky to rule against weak opposition. The Bolte government ran Victoria for seventeen years, but Bolte was realistic enough to tell his last biographer, Tom Prior, “I don’t think I ever won an election. Labor lost them.” Kennett and the Murdoch media left Labor winded for years by getting Victorians to blame the 1990s recession on the Cain–Kirner government when it was clearly the result of an awful policy overkill by treasurer Paul Keating and the Reserve Bank.

Ilanbey’s focus is naturally on explaining Daniel Andrews, and she does it very well, highlighting the diverse and contrasting aspects of his personality: he presents himself as the daggy dad who likes nothing better than relaxing at home with his wife and kids, yet is nonetheless a workaholic control freak. But it’s also important to note how much the poor quality of his opposition (including Murdoch’s Herald Sun) has contributed to his success.

Since 1996, Victorians have voted in fifteen federal or state elections, and have preferred the Liberals in just one of them. Why? The party has been controlled by ultraconservatives who have used that control to narrow the broad church Menzies created to a small congregation of what seem like cranks and fogeys who react against anything more modern than the world they grew up in. Victorians have moved into the 2020s, but the Victorian Liberals stay put, digging deeper trenches and waiting for the voters to come back to them. It could be a long wait.

Their one win was at the 2010 state election, after a succession of mistakes by the Brumby government allowed the lofty small-l liberal Ted Baillieu to break through on a platform of integrity in government. But his government floundered among sabotage from within; Baillieu quit and Denis Napthine took over; and that instability helped Andrews to lead Labor back into power in 2014. Since then the Liberals have obliged him by stepping up factional warfare and, with their Murdoch partner, running crude, simplistic campaigns that appeal to their narrowing base more than the mainstream. Andrews has had a dream run.

Daniel Andrews grew up as a bright boy in a working-class family that experienced a ghastly bit of bad luck and responded by moving to the country and working long hours to get back on top. It’s fair to assume that some of his hyperdetermination and mania for control comes from that upbringing.

Like so many male politicians, Daniel was a firstborn son (that probably explains a bit too). He was born on 6 July 1972 in Melbourne, where his parents, Bob and Jan Andrews, owned and ran a milk bar on Pascoe Vale Road. One night when Daniel was ten, an arsonist blew up the supermarket next door, taking out the Andrews’s shop with it. It was underinsured, and they were suddenly left with next to nothing.

The family made a fresh start by moving to Wangaratta, where his parents bought a house on a two-hectare block on the outskirts of town. Bob began rising at 4am every day to deliver Don smallgoods throughout the region, while Jan got the kids off to school before going to work as a teller at the Commonwealth Bank. They were churchgoing Catholics, and Daniel was schooled in the faith: mass every Sunday, school under the Marist Brothers at Galen College.

His parents’ influence perhaps deserves more attention than it gets in Ilanbey’s story. Bob Andrews was clearly a man of ability and determination. As his business grew, he took on employees, became president of the footy club, and bought “Old Kentucky,” a nearby beef cattle stud around a century-old four-bedroom country home with wide verandas. One night at a meeting of the local Victorian Farmers Federation branch, the Labor leader’s dad stunned his mates by confiding, “I’ve always voted for the National Party.”

His son Daniel inherited Bob’s determination to achieve things. “Dan’s life started just out of Wangaratta on the family farm,” his website tells us. “His mum and dad — Jan and Bob — taught him life lessons that stay with him today: hard work, the importance of making a contribution, and that when you make a promise, you keep it.”

But Daniel didn’t inherit his father’s politics. School done, he headed to Monash to study arts — living at Mannix College like a good Catholic son, but joining the Labor Party, where he became deeply involved in the Young Socialist Left. His organising talents caught the attention of local left MP Alan Griffin, who took him on as a casual electorate officer.

Ilanbey tells us that Andrews developed quickly as a factional warrior: “He became known as Alan Griffin’s ‘numbers man,’ the main go-to guy for the Socialist Left’s branch-stacking operation in the south-eastern suburbs, a meticulous and detailed young operative whom Griffin trusted wholeheartedly.” Apart from student jobs selling hotdogs and driving trucks, it was his first real job.

His career since has been entirely inside Labor. At twenty-three, branch stacker in an electorate office. At twenty-six, assistant state secretary. At thirty, the new MP for Mulgrave and assistant minister for health. At thirty-four, gaming, consumer affairs and multicultural affairs minister. At thirty-five, health minister. At thirty-eight, Labor leader and opposition leader. At forty-two, premier. He is now fifty.

From a young age, he clearly stood out from the pack in the eyes of those who mattered. We can debate whether he’s a good premier, but he’s certainly a highly successful one. Other than having weak opposition, what makes him such a hit with Victorian voters?

Ilanbey keeps coming back to his punishing work ethic, his political instincts that anticipate so well how developments will play out, his readiness to back his judgement and take a risk — although he can be extraordinarily stubborn about backing down when he gets it wrong — and the systematic way he analyses the game. He is capable of being warm and supportive to colleagues in trouble, but it doesn’t happen very often. They are more likely to find themselves in trouble with him, and being cast into “the freezer” — a state of being coldly and completely ignored — from which some never escape.

Political biographies sometimes market themselves through their scoops. But Sumeyya Ilanbey’s real scoop in this biography is her compilation of a devastating dossier on how Daniel Andrews treats those who “disappoint” him — particularly, as several colleagues told her, if they are close to him. He cannot take criticism. Once he has made a decision, he cannot tolerate disagreement with it. That inability to listen probably explains why his second term has seen so many bad decisions.

One telling example. Gavin Jennings was an older leftie, and already a minister, when Andrews entered parliament. Ilanbey describes him as “Andrews’s closest confidant in government… to whom he would turn to fix his problems and sort out his political headaches”:

Labor MPs often described Jennings as Andrews’s conscience, and as one who would do the premier’s dirty political work… It was Jennings who would talk to colleagues on behalf of the premier; it was Jennings who was asked to fix any political mess the premier found himself in.

But as Andrews grew into his leadership, he began to grow tired of Jennings, who saw his role as playing devil’s advocate, questioning policies and the government’s intentions. Andrews did not like this, and came to view Jennings as an agitator and a hindrance to his agenda. Where Jennings saw his role as improving a policy by focusing on its deficiencies, Andrews saw it as a nuisance. The relationship was slowly becoming toxic.

According to multiple sources, [Jennings] started questioning Andrews on the billions being poured into the government’s mammoth transport infrastructure agenda. Andrews’s once-close relationship with his mentor had disintegrated.

Many in the Labor Party point to the deterioration of Jennings and Andrews’s friendship as evidence of the premier’s crash and burn style; and of his contempt [for] those around him. If that friendship broke down, they said, what hope is there for the rest of us?

In March 2020, as Covid-19 broke out across Melbourne, Jennings quietly quit politics. Andrews seized the opportunity to announce that to handle the crisis better, he would create a crisis council of cabinet, comprising himself and eight senior ministers, as a top-level executive body.

A few months later he sacked one of them, health minister Jenny Mikakos, making her the scapegoat for Covid getting into the community from quarantine hotels. That December the widely respected attorney-general Jill Hennessy quit cabinet to “spend more time with her family.” In June this year, deputy premier James Merlino, health minister Martin Foley, police minister Lisa Neville, industry minister Martin Pakula and planning minister Richard Wynne all announced that they too would quit politics at this election.

That’s some turnover. The only members left from the nine-member Covid crisis council are Andrews himself, his new deputy and heir apparent (but not anytime soon) Jacinta Allan, and veteran treasurer Tim Pallas.

The upheaval could be seen as recognition of the need to bring fresh blood into the senior portfolios — after all, most of those retiring had been ministers for twelve years. Or it could be seen as a sign that the Andrews cabinet is not the happiest place to work. In eight years, sixteen of the twenty-two members of his original ministry have either quit or been sacked.

Throughout the Victorian bureaucracy, it has been a similar story. Political loyalty — to Andrews — seems to be a prerequisite for running a department or agency. After the revelation that thirty-three Victorians in the last year died after their calls to triple-zero went unanswered, the Age reported that the former chairman of the service, Roger Leeming, warned ministers and officials back in 2016 that it was critically underfunded, and was rewarded by being told to quit. Two former Labor staffers were then appointed to the board.

These things have serious consequences. Before the pandemic, the government received repeated warnings from below that Victoria’s public health services were severely underresourced. The advice was unwelcome, so it was ignored — until Covid arrived, when it was too late. The ineptness of Victoria’s pandemic response reflected the reality that it didn’t have experts trained to handle it.

Andrews’s response was to double down on a futile crusade to eliminate Covid. His government imposed the most severe lockdowns in Australia, and the longest ones. Mildura and Mallacoota, more than 500 kilometres from the capital, were locked down because there were Covid cases in Melbourne. Schools were closed and the premier closed his ears to expert advice on what having no school would mean for the mental health and educational development of children.

One could go on, but Chip Le Grand’s book Lockdown and a fine report published last week by the Paul Ramsay Foundation say it better than I could. The bottom line is clear. So far, 877 of every million Victorians have died of Covid, as against a toll of 506 deaths per million in the rest of Australia. Victoria’s death rate has been 73 per cent higher than in the other states. It is ludicrous to argue that Andrews’s hard line kept Victorians safe.

The Andrews who emerges from Ilanbey’s book is a complex man, with real achievements to offset those failures. His first term was more impressive than the second. The government doubled investment in Melbourne’s transport infrastructure, wisely focusing on removing the level crossings that caused daily traffic jams in most suburbs of Melbourne, but also pushing ahead with a short but expensive underground line (Metro 1) from North Melbourne through the city to South Yarra.

Andrews stayed in the background but lent his support as Jill Hennessy and Gavin Jennings shepherded Australia’s first assisted dying legislation through parliament. A pioneering royal commission was held into domestic violence — albeit one that focused on looking after its victims rather than stopping it from happening. He and his government were rewarded with an electoral landslide in 2018, one of Labor’s three best in Victoria.

The second term has been less impressive. Covid saw two years of grossly excessive restrictions followed by a year of “let it rip”: in both stages, Victoria’s death toll was the worst in Australia. An official inquiry by former justice Jennifer Coate into how Covid escaped from quarantine hotels was derailed by dissembling — or worse — by the premier and senior officials, who all seemed unable to remember who had decided to put private security firms in charge.

Now we have the so-called Suburban Rail Loop: in reality a twenty-seven-kilometre underground line in an arc between Cheltenham in the south and Box Hill in the east. Tunnels are very expensive, and the government estimates that this one will cost more than $30 billion — an amount that, even with an ill-advised $2.2 billion donation from us taxpayers via the Albanese government, will use up funds that would otherwise have built better projects like the Metro 2 line to Fishermans Bend.

The project stinks of the worst kind of political cynicism. There is no demand for it. The idea did not come from rail experts but from Andrews’s political staff. The line would run almost entirely through marginal Labor seats. The government committed without submitting the plan to Infrastructure Victoria, supposedly its adviser on infrastructure priorities, and without waiting for a business plan. When the latter finally appeared, it claimed the project would have a positive benefit–cost ratio — but it got that figure only by breaking the Victorian Treasury’s rules for such analysis. The auditor-general has since found that applying those rules, it is likely to cost Victorians twice as much as the benefit they get from it.

With scores of examples, Ilanbey shows us a leader whose decision-making has become warped by a self-indulgent culture of cronyism, surrounding himself with yes-men and yes-women, making snap decisions and ignoring warnings about their consequences. She depicts Andrews as a narcissist who thinks he’s the smartest man in the room and ignores any questioning of his decisions. He decides issues on political grounds and treats their merits as secondary. His decision made, to question its logic is to challenge his authority. It’s then a matter of who’s running the state.

The long-term consequences for Victoria could be serious. The Labor governments of Steve Bracks and John Brumby (1999–2010) were fiscally cautious to a fault. So was Andrews at first, but he quickly warmed up. In the past five years, Victoria has gone from repaying debt to running up $29 billion a year of net new borrowing. The state has lost its AAA credit rating and the Liberals are right when they warn that within four years, on current projections, Victoria’s net debt will exceed that of New South Wales, Queensland and Tasmania combined.

Crossing the entrance hall of Victoria’s lovely old Parliament House, you pass a mosaic with a line from the Book of Proverbs: “Where no counsel is, the people fall: but in the multitude of counsellors there is safety.”

That beautiful, poetically worded Jewish folk wisdom still resonates. But that’s not how Victoria’s government now operates. Rather, its people have one counsellor with a multitude of staffers.

It can’t have been easy to write a book like this about someone so powerful and hostile to criticism. Sumeyya Ilanbey has been courageous, persistent and thorough in interviewing so many of Andrews’s colleagues, asking the tough questions and collating their answers into this coherent, convincing, fair-minded but always hard-headed account of what drives him and how he runs Victoria. This book justifies her sources’ trust in her. She deserves our thanks. •

Daniel Andrews: The Revealing Biography of Australia’s Most Powerful Premier
By Sumeyya Ilanbey | Allen & Unwin | $32.99 | 312 pages

The post What drives Daniel Andrews? appeared first on Inside Story.

To Sims, and many others around Australia, that’s how crucial the new tax debate is. It’s no longer just about whether Labor waves through Scott Morrison’s stage three tax cuts, amends them or abandons them. There is a much wider question, with much greater consequences for our country.

Governments can never satisfy us all. But from hospitals to defence, from childcare to aged care, from schools to fixing potholes, government services are falling way short of what Australians need and expect from their country. That shortfall helped Labor get into government. Now Labor’s there, what is it going to do about it?

Labor came to office as the flagbearer of many Australians’ hopes for a government that would end the chronic underfunding of education, health and welfare, not to mention the miserly $47.74 a day we give the unemployed to live on.

Some of those areas have now reached the point where things fall apart. GPs, tired of being cast as the poor cousins to specialists, are deserting country towns and suburban practices, and young doctors are not replacing them. Aged care homes and childcare centres are perpetually short-staffed because low pay and high workloads create constant turnover. Across the board, Australia is short of skilled workers because apprentice wages are so low that only half of them stay on to complete their training.

We could all add more examples. To me the most important is that Australia now finds itself in the most dangerous environment since the second world war, yet the Coalition kept defence spending to just 2 per cent of GDP (lower than in the 1960s when we faced no real threat) and settled on submarines that will be delivered between 2038 and 2050.

Faced with all these needs, Labor nonetheless went to the election with a platform of relatively modest, tightly targeted new spending, promising no new taxes and a big tax cut primarily for those in least need.

You can understand why. It wanted to be elected, so it played safe. And in 2025 it wants to be re-elected, so it doesn’t want to risk breaking any promises now. At least, not yet.

You see what Rod Sims meant? All those spending goals require more money, much more money. In the short term, the only way governments can get more money is by raising taxes, to reallocate spending from private purposes to public ones. What do we want Australia to be?

The looming budget is the government’s first test — and the timing is not good.

The fallout from Russia’s invasion of Ukraine (amid other factors) has lifted global food prices almost 50 per cent above pre-Covid levels, blown global energy prices to several times pre-Covid levels, provided cover for businesses everywhere to sneak their prices up — and could throw some big economies into recession.

The International Monetary Fund this week estimated that after decades of low price growth, global inflation has jumped to 8.75 per cent. Even with central banks slamming the brakes on hard (which the IMF applauds), it predicts global prices will rise 6.5 per cent next year before returning to something like normal in 2024.

Contrary to some commentary, the IMF is not forecasting a global recession; its half-yearly World Economic Outlook is towards the optimistic end of the spectrum. It predicts the global economy to grow by a relatively low 2.7 per cent next year, dragged down by global supply disruptions, a permanent slowing of China’s growth rate (to 4.4 per cent) and the fallout from the war in Ukraine.

It expects the United States to keep growing, albeit slowly (1 per cent); other forecasters expect much worse. The IMF envisages some big developing economies like India (6.1 per cent) and Indonesia (5.0) more or less hurdling the upheaval, while Brazil, Russia and Turkey now seem to be doing better (or in Russia’s case, less badly) than was forecast six months ago.

If there is a recession, it would be in the advanced economies — whose growth collectively is expected to slump to 1.1 per cent — and centred in Europe. Germany, Italy and Sweden are forecast to experience mild recessions: no upsurge in unemployment, just a year without growth.

On the IMF’s forecast, Australia will also be hit. It expects our growth to fall to 1.9 per cent next year and 1.8 per cent in 2024, and to stay low thereafter. Unemployment would gradually edge back towards 5 per cent, per capita growth would total just 4 per cent over five years. Governing Australia would not be fun.

These are only forecasts. But clearly the budget outlook is far worse than the one Josh Frydenberg unveiled in his budget in March. And even that projected a string of hefty deficits as far as the eye can see. At a time of record mineral prices and low unemployment, there is no good reason why Australia should have run up new debt of $32 billion in 2021–22.

A cardinal rule of budgeting is that, by and large, you pay for what you spend. If you don’t, you are leaving the bill for the new generation to pay. There are exceptions: you run deficits in bad times and cover them by running surpluses in good times. Infrastructure spending largely benefits the next generation, so it is fair to borrow to build. But at federal and state level — especially in Victoria and the ACT — governments have simply lacked the courage to make us pay for what they spend.

This combination of a grim global outlook, a grim state of the budget and a government still new to the job does make it likely Labor’s first budget will be, as treasurer Jim Chalmers keeps saying, responsible.

I assume he means that Labor will give priority to reducing the budget deficit. And that in working out the numbers, Treasury will err on the side of caution in guessing future energy prices, and hence company tax revenue. And that any new taxes and spending will implement the commitments Labor made in the campaign, and little else. And, of course, that Labor will go after the Coalition programs it has identified as rorts.

All that buys time. But circumstances are conspiring to force Labor to confront Rod Sims’s question: what does it want Australia to be? To deliver First World services, you need a First World revenue base. And for Australia, that means higher taxes.

Let’s take the long-term issue first. Australia is a low-tax country. At the government’s recent jobs summit, economist Ross Garnaut cited OECD figures showing that total federal, state and local government tax revenue as a share of GDP was 5.7 percentage points lower than the developed country average. That’s a shortfall of almost $140 billion a year.

The IMF’s data for total revenue reports a similar gap: governments in Australia raise 5 percentage points of GDP less revenue than the median advanced economy. In 2019 federal, state and local governments raised 34.6 per cent of GDP, well below 40.7 per cent in Canada (the country we most resemble), 46.5 per cent in Germany, and an average of 50.6 per cent in Scandinavia.

In part, that’s because retirement income in Australia is semi-privatised through superannuation, whereas retirees in almost all other Western countries, even the United States, rely on government-run retirement benefits funded by a separate social security tax on income. (The reason Australia appears to rely so much on income tax is that we have only one income tax. Most other Western countries have two, under separate names.)

But the OECD’s data show Australia also has the highest private spending on education of any OECD country, and the third-highest “voluntary” private spending on healthcare. Unemployment benefits are among the very lowest in the Western world.

Once, Labor ministers might have rebelled against this two-stream system in which the best services are reserved for those who can pay the fees demanded in the private sector. Now, as we saw when the Gillard government squibbed on the Gonski report’s school funding reforms, preference to private schools is one British tradition Labor still loyally supports.

In theory, Labor could use more desirable ways to meet the cost of bringing Australia’s services to the standards we expect. It could reduce spending on lesser priorities and reallocate the savings. Or it could take on the politically difficult economic reforms needed to speed up Australia’s sluggish rate of productivity growth.

In reality, speakers at the revenue summit agreed, the gap between today’s service levels and those we expect in aged care, the health system and so on is too vast to be filled by cutting services in other areas. Sims called it “self-evident” that savings from those cuts, while they could and should be made, are not on the scale needed to get us where we want to be.

For ten years until recently, Sims chaired the Australian Competition and Consumer Commission. The experience has made him sceptical of the potential for dramatically improving our productivity and hence growing a bigger economy. Rapid productivity growth, he said, requires increased competition — and the reality is that business is reducing competition, not increasing it.

“Our political debate always favours low taxation,” he said. “We have to point out that what comes with that is low expenditure. And we have to keep asking the question: is that what we want? If you want to spend extra money, you have to raise extra revenue. There’s just no avoiding that.”

He went on: “If you are against higher taxation, then you are against higher government expenditure… Many do not realise that in opposing taxation they are opposing extra spending on health, education and much else. I think we need higher taxation. I think it’s unavoidable.”

Why? Sims and other speakers at the summit gave several reasons:

1. Australians need better services

Annie Butler of the Nurses Federation cited the findings of the aged care royal commission: neglect and substandard care are widespread and systemic in aged care because the industry is underfunded by $10 billion a year. “Ridiculously low” wages lead to high staff turnover and hence shortages.

ACTU secretary Sally McManus argued that a lot of the crises Australia is experiencing in health and other services result from years of “chronic underfunding.” Economists predict that 30 per cent of all jobs created in the next decade will be in caring for others, but unless those jobs are better paid, workers will not stay in them. Our priorities have to change.

2. The transition to a low-carbon economy

The big economic reform facing Labor is going to be an expensive one: valuable in the long term but costly upfront. Business and government will need to invest tens of billions of dollars in building the solar and wind farms that will generate the power, the batteries that will store that power, and the transmission lines that will bring it from the inland to the cities. And if our coal stations are to close down by 2035, this money needs to be spent in the next decade or so to guarantee that we will still be able to turn on the lights.

The task is made even bigger and more crucial by the need to transition cars from oil to electricity and households and businesses from gas to electricity. Tim Washington, chair of the Electric Vehicle Council, told the summit that electric vehicles comprise, at best, 3 per cent of Australian car sales, compared with 15 per cent in other Western countries. With a global shortage of EVs likely to persist, he urged business and government to manufacture them here, using Australian designs, software, metals and lithium to create an entire value chain. He’s not likely to get that.

Fortunately, there is an ideal solution. Unfortunately, only the Greens, teal independents and economists support it. It is a carbon tax.

Sims confessed he found it baffling that so many Australians want action on climate change but instantly condemn the idea of a tax on carbon. Governments are going deeper into deficit to subsidise solar panels and electric vehicles, whereas the carbon tax would give the whole economy an incentive to decarbonise while raising taxes to fund the investments required.

“No such transition can be painless,” he said. “We need to decide whether we are serious about climate change. If we are, then it can be funded by a tax that will have the benefit of directly changing behaviour while insulating low income earners [through compensation].”

3. Get out of deficit and start paying down debt

Australia has less government debt than most Western countries, but only because the Hawke, Keating and Howard governments made fiscal responsibility a priority from 1985 until 2005. In both 2009 and 2021, as a resilient Australia emerged from the global financial crisis and Covid lockdowns respectively, our governments kept piling on stimulus as if money were no object. And the pollies’ fear of tax rises — much of it due to the vicious hostility of the Murdoch press towards anyone, especially anyone from Labor, brave enough to impose them — has kept us in deficit ever since.

Federal government revenue in this century peaked at 25.6 per cent in 2005–06, when it was 24.1 per cent of GDP. Since then spending has swollen to 26.8 per cent of GDP. Yet, far from keeping pace, revenue has fallen — because governments are frightened of raising taxes.

As ANU economist Ben Phillips put it, “We have plans for increased expenditure, but not for increased revenue. All we’ve got to increase revenue is bracket creep: it’s sneaky, but it works.”

(Bracket creep is the additional tax you pay when inflation pushes more of your nominal income into a higher tax bracket. The stage 3 tax cuts are often defended as simply handing back that extra tax. But only the high income earners will get their bracket creep back, and they get back more than they lost.)

Phillips estimates that Australia faces a revenue gap of $25 billion to $50 billion a year for the next decade. The summit heard lots of suggestions on how to close that gap: one that Labor has flagged for this budget, and others that we should be debating and putting to a new tax review.

Sims alone proposed five:

• Crack down on multinationals avoiding tax by non-commercial transfer pricing, including paying ridiculously high interest rates or “marketing fees” to a head office in a tax haven.

• Ensure Australians benefit when our mineral and energy resources are extracted. Norway takes almost 80 per cent of the revenue from its oil and gas fields, yet Australia allows companies to take those resources for virtually nothing. The petroleum resource rent tax, which is meant to do the job, desperately needs big repairs — and an extension to cover coal and iron ore.

• Introduce an excess profits tax, as the European Union has done recently. Australian Bureau of Statistics figures show that in the Coalition’s nine years in office, mining output rose by $195 billion but wages in the industry by just $5 billion. Net profits by the mining industry grew by $190 billion, yet taxes on mining shrank by $0.1 billion. If there is ever a time for a tax on excess profits, it is in Australia now.

• A carbon tax. (See above.)

• At state level: a comprehensive land tax covering all private property except farmland, to replace stamp duty on conveyancing. Economists generally see land tax as a most efficient tax. Sims called it a progressive tax, “based on assets that cannot be moved,” that produces a steady revenue flow.

• Road-user charges will be inevitable as electric vehicles replace petrol-driven cars. Their advantage is that they can be fine-tuned for vehicle type (trucks pay for the damage they do to roads) and time of day (peak-hour pricing).

Other speakers added at least another five:

• Prune tax breaks for superannuation.

• Prune or phase out negative gearing of property investments.

• Scrap fossil fuel subsidies, including the mining industry’s exemption from fuel excise.

• End concessional tax rates for family trusts.

• Increase the Medicare levy to pay for extra spending on aged care.

Sims emphasised that the reforms would need to be sold as a package, with compensation where appropriate, as the Hawke government did when it reformed tax in 1985. That package was preceded by a tax review by Treasury and a tax summit where a wide range of groups put their case.

Albanese has pledged no new taxes in this term apart from the ones Labor took to the election (primarily a crackdown on tax avoidance by multinationals — no votes lost by tackling that). But independent MPs Allegra Spender (Wentworth, NSW) and Zoe Daniel (Goldstein, Victoria) both urged a new tax review “with everything on the table” — with Spender adding “including the GST” and a hopeful plea: “We need to have grown-up conversations about tax.”

Well, good luck with that. I suspect most tax economists would agree that the GST rate should be raised, or its field widened, or both. New Zealand lifted its GST rate to 15 per cent back in 2010 without suffering any visible social collapse, and its GST is far more comprehensive than ours. That’s the main reason its government can spend more than ours.

The left needs to stop demonising the GST and think of tax reform as a package. You can introduce or increase or widen a GST fairly so long as you design the right package — as we saw in 1999 after the Australian Democrats stopped the Liberals using the GST to shift more of the tax burden onto lower and middle income earners.

But so long as we are unable to see any bipartisanship on tax, the GST will remain a no-go area. And bipartisanship is probably off the agenda as long as Peter Dutton is Liberal leader.

Where does that leave the stage 3 tax cuts? It looks like this movie has ended now, with treasurer Jim Chalmers apparently losing the fight despite his skilful attempts to persuade colleagues to revise, reduce or even scrap the cuts — which would be in line with his theme of protecting the budget in increasingly dangerous times and giving support only to those who really need it.

But good movies these days have a sequel, and these tax cuts won’t take effect until mid 2024. Given his impressive debut in the role, Chalmers has time to perfect it when he plans his next budget. He knows the case for either abolishing the cuts or reducing and retargeting them is very strong.

Stage 3 contains three elements:

• abolish the 37 per cent marginal tax rate on income earned between $120,000 and $180,000

• raise the threshold for the 45 per cent top rate from $180,000 to $200,000

• reduce the standard 32.5 per cent rate to 30 per cent — which would then be a flat tax rate for all income from $45,000 to $200,000.

Modelling by the Parliamentary Budget Office and by Ben Phillips found the first and the third are the expensive items. And the consensus at the summit seemed to be that if there is compromise, we should keep the third while scrapping the first.

A few points are important to note.

First, these tax cuts were proposed by treasurer Scott Morrison way back in 2018, six years before they would take effect. Since then, we have had a global Covid pandemic and the global inflation breakout. Committing to tax cuts six years before they took effect had no economic rationale. What drove it was politics. Morrison assumed the budget in 2024 could afford it. He was wrong.

Second, the cuts follow stage 1 (in 2018), directed to lower-middle income earners, and stage 2 (in 2020), focused on upper-middle incomes. Stage 1 was small, and has since been abolished by the Coalition itself. Stage 2 was bigger: it cut taxes for people earning less than $90,000 by $10 a year, and taxes for people earning over $120,000 by $1890 a year. The idea that high earners have been kept waiting while others have had tax cuts is quite untrue.

Stage 3 is seriously big money. The Parliamentary Budget Office last year estimated their cost at $18 billion in year one (2024–25), then more than doubling to $37 billion by year nine (2032–33). Treasury is now revisiting those numbers — and the cost will almost certainly be even higher now.

But even on the PBO’s 2021 estimate, that would reduce total government revenue by 3.5 per cent initially, and by more than 4 per cent by the start of the 2030s. That is a huge cut in revenue at a time when the budget is unable to cope with Australia’s existing spending needs, let alone the new ones coming over the horizon from the ageing of our population, China’s attempt to assert hegemony over the region, the excesses of the NDIS, and so on. We need tax rises, not tax cuts.

Third, the PBO estimates that 78 per cent of those billions of dollars would go to the richest 20 per cent of Australians. That’s largely because they pay 68 per cent of all income tax — but that in turn is because they get such a high share of the nation’s income. They would rank low on a list of those in need.

That said, it seems fair to say that the threshold of $180,000 for Australia’s top tax is too low. If Chalmers and his colleagues want to compromise, one option they might consider is to reduce the 37 per cent rate to 35 per cent with the same thresholds as now — but add a new 40 per cent rate for income from $180,000 to $200,000, and a timetable to raise that threshold to $250,000. Over time, that would save the budget a lot of money, without taking everything from those who would gain from the plan Labor promised them. •

The post Time to talk about tax appeared first on Inside Story.

It was a success according to its intentions. But that won’t take us very far. Its directors managed to evade almost completely an issue that is crucial to how Australia is to tackle the many, deep social problems spelt out by speakers on the floor of the Great Hall of Parliament House. I’ll come to that shortly.

The summit was intended to show Australians that our political climate has changed with the new government — and it did. The participants, speakers and moderators were mostly female. There was an abundant sprinkling of young faces, of non-white faces, of foreign accents. It looked and sounded like Australia.

The vibe was overwhelmingly positive. Political differences were set aside (except by the absent Peter Dutton). Everyone was given a chance to speak at some point, and most were worth listening to. Their contributions were mainly constructive.

The PM was his avuncular self, the friendly, trustworthy Uncle Albo, heir to the good Labor leaders of long ago. He urged the summit: “We have not gathered here to dig deeper trenches on the same old battlefield… Australians have conflict fatigue. They want politics to operate differently.” The contrast between his positivity and Dutton’s sniping showed why Australians, according to Newspoll, prefer him by a 61–22 margin.

This summit was a stage production. The cast spoke when they were meant to, and not otherwise. I didn’t see any debate on day one, though ANU vice-chancellor Brian Schmidt started some when he took the chair on day two. Mostly, if anyone wanted to disagree with what was being said, tough luck: they had no opportunity to do so. The “consensus” Anthony Albanese praised was more staged than real.

The summit was intended to produce a set of policy outcomes — and in a sense, it did. Soon after it ended, the government published a fourteen-page document listing what Treasurer Jim Chalmers described as thirty-six “concrete steps [it] intends to take… as an outcome of this… summit” plus a similar number of priorities for future discussion. Everyone got something to take back to their constituencies.

Seeing the speed with which the document appeared at the end of the summit, a cynic might wonder if, rather than responding to what it heard on the floor, the government took these decisions well before the summit, but held back the announcements to make it look like they came from the floor.

The summit was intended to highlight the importance — economic, social and political — of getting more women into work, into decision-making and into higher-level roles in the economy. And it did. Its three main policy themes were: how to fix the skills shortages in Australia’s workforce; how to change wage-fixing rules so that workers get a bigger share of the cake; and how to lift participation in the workforce. In the presentations, women’s work was central to all three.

Grattan Institute chief executive Danielle Wood sounded the bell in her opening keynote speech. Australia has one of the most gender-segregated workforces in the OECD, she noted, and market realities are now in sync with fairness in dictating that we tackle the underpayment of female-dominated caring occupations.

She cited an example: childcare workers are paid as little as $22 an hour, less than they could earn washing dishes at McDonald’s. No wonder we are perpetually short of them. Every year, Australia needs more than 33,000 more aged care workers, but they are grossly underpaid and overworked, so a huge turnover means a constant search for workers.

We can’t put off this issue anymore, and Labor’s leaders clearly recognise that. Treasury’s paper for the summit estimated that a quarter of Australia’s gender pay gap comes from low pay in the female-dominated caring and education professions. The Fair Work Commission is now hearing a case in which unions are seeking a 25 per cent pay rise for aged care workers. The government has promised to pick up the tab. That is where the action is.

But the obvious stage management of the summit should not obscure its genuine achievement. For two days, leaders of business, unions, community groups and federal, state and territory governments focused on contributing their knowledge, identifying the problems, finding common ground and scoping out solutions. They didn’t solve Australia’s problems, but they made progress on some fronts, and established good working relationships for future dialogue.

Yet the progress they made was marginal to the key issues facing Australia. Getting consensus meant the organisers could not allow the conference to tackle issues where consensus was impossible. Danielle Wood and fellow economist Ross Garnaut, the dinner speaker, certainly touched on some of them, but they were not targeted in any session.

One of them is crucial to almost every issue the summit addressed. It is tax.

The federal government is running deficits of $75 billion or more a year. While claimants were putting urgent cases to the summit for more spending in this area and that, Labor still insists on delivering an already-legislated tax cut, mainly for the rich, that will reduce tax revenues by 3 to 4 per cent. Where is it going to find the money to solve the problems the summit presented to it?

Garnaut pointed to the elephant in the room. “We have to stop kidding ourselves about the budget,” he said. “We have large deficits when our high terms of trade should be driving surpluses. Interest rates are rising on the eye-watering Commonwealth debt.

“We talk about the most difficult geo-strategic environment since the 1940s requiring much higher defence expenditure, but not about higher taxes to pay for it. We say we are underproviding for care and underpaying nurses, and underproviding for education and failing to adequately reward our teachers…

“[Yet] in the face of these immense budget challenges, total federal and state taxation revenue as a share of GDP is 5.7 percentage points lower than the developed country average.”

To put it another way, our governments every year raise roughly $120 billion less than they would if our tax rates were at the Western average. With that money, we could tackle every issue raised at the summit. The government, if it chose, could finance 25 per cent pay rises for aged care and childcare workers, raise the dole to $70 a day, restore the funding the Liberals took from universities, invest in research and new technology, pay the states 50 per cent of hospital costs, give state schools their fair share of funding, etc., etc. — and close the deficit.

There are many good ways to raise revenue. Australia has an abundance of tax loopholes allowing companies and individuals to avoid tax: negative gearing is a classic example, but as the International Monetary Fund once suggested, Australia could apply the same principle to business, and stop firms deducting interest bills from their tax.

In the June quarter, the Australian Bureau of Statistics tells us, the total wage bill for Australia’s millions of corporate employees was $164 billion, while its mining companies made a gross operating profit of $81 billion. In just three months! If any country ever had cause to levy a tax on super profits it is Australia, now. Jim Chalmers needs to make this a centrepiece of his October budget.

But no one in the sessions I heard mentioned tax in their speeches. Like all those who argue for more spending on worthy causes, they urged more spending without a word on how the government should find the money to pay for it. Tax is the issue we don’t talk about. The summit would have had more cutting edge if some delegates had dared do so.

There’s been little argument over the summit “outcomes” because they are mostly agreements on principles, aspirations, processes or short-term supports to be applied while longer-term outcomes are negotiated.

They are modest: first steps, not solutions. Maybe they needed to be to get tripartite agreement between government, business and unions. And having tripartite agreement on sensible first steps in the right direction gives the government more freedom to plan bolder steps to solve the problems.

One of the summit’s big moves to tackle the skills shortage, for example, was to increase the permanent migration target for 2022–23 from 160,000 a year to 195,000. Almost all that increase will comprise skilled workers and their families, mostly sponsored by state governments (who are primarily chasing health workers) and employers in the regions.

No one objected to that. Nor should they, because if the target follows current patterns, it will make little difference. In recent years, two-thirds of permanent residence places were awarded to migrants already in Australia, working or studying on temporary visas.

And while the government would like to bring in new migrants to help reduce our skills shortage, particularly in hospitals and aged care, it has an even more urgent priority: tackling the scandalous backlog of unprocessed visa applications piled up by the Department of Home Affairs under the Morrison government.

Immigration minister Andrew Giles told the summit Labor inherited a backlog from the Coalition of almost a million unprocessed visa applications. It was an unbelievable number, including applications from all types of people: separated partners, skilled workers, overseas students, business. Brian Schmidt recalled the department taking twenty-one months to process the ANU’s applications to bring in some Indian academics — for three-year appointments.

Giles said the government has now swung an extra 180 staff onto clearing the visa backlog, and has so far reduced it by 100,000. One of the thirty-six “outcomes” was that it will now spend an extra $36 million to lift visa staff by 500 people for the rest of this financial year.

But the waiting list includes a staggering 330,000 people who are already in Australia on bridging visas until their applications are processed. It’s fair to assume that many, maybe most, of them are applying for permanent visas. Given the scale of this backlog, an increase of only 35,000 in the migration target seems extraordinarily timid. Labor will have to revisit that, and soon.

The big “outcome” for the young unemployed and school leavers was the agreement by the prime minister and premiers to pump $1 billion into TAFE in 2023 to provide 180,000 extra fee-free places while they negotiate a longer-term agreement to reform the sector. Again, you applaud the direction — and in this case, the boldness and the federal–state cooperation — but it’s only a short-term solution.

Another “outcome” was Albanese’s announcement that, as an inducement for older workers to keep working, or retirees to return to work, pensioners will be allowed to earn an extra $4000 — just for this financial year — without losing any of their pension.

Good, but I think the PM is safe from being knocked down by a stampede. For a few months, it might induce some pensioners to put in a few hours a week at some nearby workplace. But why make it so small? Why end it on 30 June? It’s almost as if it was designed to avoid having any substantial impact. It’s tokenism, when big gains are possible from a comprehensive policy to extend working lives for those who want to keep going.

Chalmers and finance minister Katy Gallagher routinely fob off questions about spending proposals such as raising the Jobseeker allowance by declaring sympathetically, “There are lots of good ideas out there, and I wish we could fund them all. But we have inherited a trillion dollars of Liberal debt…”

Someone must call that out. First, Table 9.2 of the 2022–23 budget papers implies that Labor inherited $979 billion of gross debt from the Liberals — but $303 billion of that was inherited in 2013 by the Liberals from Labor (who in turn inherited $64 billion in 2007 from the Liberals, and so on). It’s Liberal and Labor debt. It’s Australia’s debt.

Second, gross debt looks at just one side of the balance sheet — which is why we focus on net debt. Table 9.2 estimates Labor inherited $631.5 billion of net debt from the Liberals, who in turn inherited $161.6 billion of net debt from Labor back in 2013. It’s a cheap, false political point.

But on the first part of its routine line, Labor is right: there are a lot of good ideas out there, and the government can’t fund them all. Its job is to sift through them and set the priorities. And if it picks a bad priority, such as backing the Liberals’ stage three tax cuts, it sticks out like a sore thumb.

These cuts were Morrison at his worst. They do not take effect until mid 2024, yet became law in 2019 — with Labor’s support, because it was frightened of being depicted as a high-tax party. This is the legislation that will give tax cuts of almost $175 a week to someone earning $200,000 a year, and $2 a week to someone earning $50,000.

The Parliamentary Budget Office estimates the cuts will deprive the government of $243.5 billion of revenue — 3 to 4 per cent of budget revenue — over their first nine years alone. The PBO says 78 per cent of that will go to the richest 20 per cent of households: by definition, those who need it least. And that, at a time when the budget is perpetually in deficit, and the government assailed on all fronts for spending too little.

The summit’s speeches ranged far and wide. Many speakers gave interesting accounts of what they were doing, or their experiences dealing with the systems now in place. Highlights are on YouTube, and the entire summit can be seen on Parliament’s video stream.

Transcripts regrettably are not available, except on ministerial websites and those of some speakers. I recommend Danielle Wood’s challenging and probing overview of Australia’s economic potential, which castigated business leaders for their risk-averse “economic funk,” and called for Australia to adopt “full employment as our lodestar” and remember that, if we want to raise living standards, in the long run, “productivity is almost everything.”

Peter Davidson, principal advisor to the Australian Council of Social Service, also made a lot of challenging points in urging Labor to reform the employment services system. “The system [has] not been working for a long time,” he said. “Jobactive was more of an unemployment payment compliance system than an employment service. It sent people out into the labour market and when they didn’t find jobs, told them to search harder. People were literally told: ‘It’s not our role to find you a job.’”

Ross Garnaut’s dinner speech recounted the reasons for Australia’s success in the postwar era, and the challenges reformers faced then — and in the Hawke-Keating era — and now. “I grew up in a Menzies world of full employment,” he recalled. “Workers could leave jobs that didn’t suit them and quickly find others. Employers put large amounts of effort into training and retaining workers. Labour income was secure and could support a loan to buy a house. Steadily rising real wages encouraged economisation on labour, which lifted productivity.”

In the postwar era, and in the 1980s, Garnaut said, “success was based on using economic analysis and information to develop policies in the public interest; on seeing equitable distribution of the benefits of growth as a central objective; and on sharing knowledge through the community about economic policy choices. This built support for policies that challenged old prejudices and vested interests.

“Personal and corporate taxation rates were much higher than before the war. Full employment and a wider social safety net supported structural change and much larger and more diverse immigration… Menzies’s political success was built on full employment — helped by Menzies insulating policy from the influence of political donations to an extent that is shocking today.”

Garnaut ended by exhorting Albanese and Chalmers to follow the path of Hawke and Keating, strong politicians who took big risks to bring in reforms when they were clearly needed. “We have to raise much more revenue while increasing labour force participation and investment,” he said, urging two radical reforms he advocated last year in his book Reset: a guaranteed income scheme, and a shift to cash flow taxation of business.

But Albo is not Hawke and Chalmers is not Keating. Like the business leaders who have dragged down Australia’s business investment to the lowest share of GDP ever recorded, they are risk-averse. Their priority is to retain power, and they see the way to do that is by giving people what they want, not trying to persuade them that tackling tough reforms is in the national interest.

It is possible, though, even likely, that they will end up having no choice. The crisis in aged care, in hospitals, in GP practices, in childcare and in teaching will force an end to governments’ model of saving money by underpaying those who work for you (or whose wages you pay indirectly). Australia’s system of doing government on the cheap has been tried, and failed. We are going to have to learn from how the rest of the West does it, and that means raising taxes.

Many have noted that the Hawke government, like this one, began its term by staging an economic summit, which brought business and union leaders to Old Parliament House with the similar aim of “bringing Australia together” to tackle its economic problems. But we should also recall that its follow-up two years later was to invite a similar cast for a tax summit.

That is what Albanese and his team should start planning for. We cannot solve our problems without an honest national dialogue on the need for higher taxes, and where we should be looking for increased revenue. It could be combined with the announcement of a super profits tax on mining companies and the big banks. Reform needs to start now. •

The post Kidding ourselves about the budget appeared first on Inside Story.

I rode up an escalator from Somerset station into a small park shaded with trees — another thing Singapore does well. In the distance I saw an old man standing on a path, holding up a pile of books for sale. As I got closer, I recognised him: Singapore’s long-time opposition leader, J.B. Jeyaretnam. Bankrupted and driven out of parliament by repeated defamation suits from the Lee family rubber-stamped by compliant courts, the former London-trained barrister was now reduced to selling his own books in a park. Thank God Australia’s not like this, I thought.

Twenty years on, I found myself in Singapore again, a tourist seeking to escape Australia’s long lockdown and rejoin the world. We’re free to fly anywhere, but in fact there are fewer than fifty flights a day out of Australia, and almost a third of them are Singapore Airlines and its budget carrier Scoot flying to and from Singapore. Well, I thought, why not? The Covid paperwork was demanding but not oppressive, and everything we’ve come to like about Singapore is still there: the sheer efficiency of the place, the buzz of modernity in its architecture and technology, the trees everywhere deflecting the heat, the range of experiences on offer, great food and even great coffee just around the corner.

I had a ball. But my mind kept coming back to the place itself: it must have changed, but how? It’s thirty-one years since its formative leader, the bullying genius Lee Kuan Yew, stepped aside to become “senior minister” to his successor, Goh Chok Tong. In 2004 Goh in turn stepped down for Lee’s eldest son, Lee Hsien Loong, who remains Singapore’s leader today.

The Lee dynasty will end with him. The mere suggestion of a third generation evoked so much opposition that his children (all of whom spell their names Li) ruled out careers in politics. But rule by the People’s Action Party appears set to continue indefinitely. It has not lost an election since 1955, and it has no intention of allowing that to happen anytime again.

Singapore, writes commentator Cherian George, is still a country where you have to weigh up the potential consequences for your career before expressing opposition to any government action. (And George speaks from experience: his own criticisms of the government led to his being repeatedly rejected for permanency at the prestigious Nanyang Technological University.)

It is not feasible for a tourist to organise interviews while on a trip, so books became my way of discovering how Singapore has changed. Interesting to note that Singapore’s government allows itself to be criticised in books, but not on film. You can find books on the political opponents monstered by Lee Kuan Yew in Singapore’s bookstores, but a much-praised film interviewing some of them, To Singapore, with Love, remains banned. The rationale? Ordinary people don’t read books on politics, but they do watch films.

Four books came home with me: three by people who want Singapore to be more open and  democratic, and one examining how Singapore got many things right by doing them its own way.

Jeevan Vasagar, a British journalist of Sri Lankan Tamil ancestry, was the Financial Times correspondent in Singapore, and his Lion City: Singapore and the Invention of Modern Asia is an excellent introduction to today’s Singapore. Chua Mui Hoong, a columnist for Singapore’s main paper, the Straits Times, is a wary social critic whose Singapore, Disrupted brings together some of her favourite columns. And Cherian George, once her colleague, has recently published a collection of more substantial essays as Air-conditioned Nation Revisited. (Lee Kuan Yew once famously said that the air conditioner was the greatest twentieth-century invention because it allowed people in the tropics to keep working rather than fall asleep in the heat.)

Within Singapore’s establishment, legal academic and diplomat Tommy Koh is a prominent figure at the liberal reformist end of the spectrum. In editing Fifty Secrets of Singapore’s Success, he celebrates things Singapore has done well: from monetary policy to its national airline, fighting corruption, the Singaporean maths system, parks, public toilets, Changi airport… There’s a long list, all worthy, even if some chapters are superficial.

Singapore has a lot to celebrate. It also has a lot that needs changing. Its rulers have a great appetite for celebrations, but very little appetite for political reform.

Singapore in 2021 is a richer version of Singapore in 1981. Economic success cohabits with political repression. Its economic choices have become more complex as it has become a rich nation, but it remains a stand-out performer. Yet there has been little growth in social and political freedom, where it is a stand-out non-performer, lagging far behind its potential.

Take the economy first. On the usual measure for comparing countries, real GDP per head, Singapore sure is a stand-out: the International Monetary Fund ranks its GDP per head, adjusted for price differences, as the second-highest in the world, behind only Luxembourg, and twice Australia’s.

But that is meaningless. The scale of corporate profit-shifting means tax havens now dominate the top of that IMF ranking — and Singapore is one of them. Comparisons of household consumption per head, though imperfect, are a better measure of real living standards.

On the World Bank’s measure, Singapore in 2020 enjoyed the seventh-highest consumption of goods and services per head of any country, in real terms, behind the United States (first) and just ahead of Australia (ninth). I’d take that with a grain of salt too, but there is no question that what was once an impoverished colony has become a rich country, and is on track to become one of the richest.

The title of an old book on how Singapore did it, Strategic Pragmatism, sums it up well. Rather than follow the precepts of eighteenth-century economic liberalism, Singapore has carved out its own way, testing what works and designing its own solutions. Taxes are low, but as Vasagar puts it, whereas in Hong Kong the tycoons used to dictate to the government, “it is the government that is supreme in Singapore.” Through its investment arm, Temasek Holdings, it is the major shareholder in a third of the companies on Singapore’s Straits Times index. And its reach is everywhere.

You want to buy a home? Well, the vast majority of Singapore’s housing is owned by the government and simply leased out to buyers. You can buy a home, but only for the remaining length of its ninety-nine-year lease, and then you have to surrender it to the government. (At least that’s the official line: it will be interesting to see whether they stick to it when the crunch comes.)

Singapore has 5.5 million people on an island of just 729 square kilometres, so 95 per cent of homes are apartments. If you want to buy one, you need to check first that doing so would not disturb the racial balance of the apartment complex. Apart from its worker dormitories for those it calls “non-residents” (we’ll come to them), Singapore enforces a racial mix in every block, to break down racial stereotypes and prevent ghettos forming.

You want to buy a car? Well, you’ll have to bid for a licence to own one. That alone will set you back around $50,000 (the Singapore dollar currently is virtually on par with the Aussie) because the government enforces a quota on car ownership. That effectively means only the well-off can own a car. Again, it’s for good reasons: roads already occupy too much of Singapore’s limited space, so the government has invested to create world-class train and bus services instead.

You want to go on strike for a wage rise? Think again: Vasagar tells us the last legal strike was in 1986. Singapore’s core economic strategy has been to make itself a haven for foreign investment. It has tailored its economic policies to make itself irresistibly attractive as an operational centre for global players. Allowing strikes, or rapid wage rises, doesn’t fit with that goal.

It is true that Singapore practises small government in one sense: there are few welfare payments — no pensions, no unemployment benefits — and healthcare is basically user-pays unless you run into really big hospital bills.

But the government can avoid those costs because it requires workers to put 20 per cent of their modest salaries into the government-run Central Provident Fund. You can dip into those savings, on certain conditions, to buy a home or pay hospital bills. The system also originally served a second goal by providing the government with cheap funds for its large infrastructure agenda, but gradually the focus has shifted more towards meeting the saver’s needs.

The common thread in all of this is that government plays the central role. Since it was divorced by Malaysia in 1965, Singapore’s government has established or expanded centralised systems to deal with issue after issue. It runs one of the world’s most activist industry policies: it decides which industries it wants and what it will offer to get them, and then pursues the big global players to get them to locate some of their operations in Singapore.

Initially, the focus was on establishing Singapore as a base for manufactured exports, and that remains a core part of its policy. Singapore’s manufacturing output has swollen threefold since the turn of the century, whereas Australia’s has grown barely at all. Singapore remains a big producer of semiconductors and other IT and electronics goods, a huge centre of oil refining and petrochemicals, and a growing global pharmaceuticals hub. Manufacturing still comprises 20 per cent of Singapore’s economy, whereas it has shrunk to just 6 per cent of Australia’s.

But over time, Singapore’s focus has expanded to logistics and services. Having inherited a great seaport from the British, Singapore has kept investing heavily to expand and modernise the port to make it the best in the world. It applied the same attitude in reclaiming coastal land at Changi, building a new airport and constantly upgrading it to keep it the world’s best.

The books by Vasagar and Koh explain well how its leaders realised in the mid 1980s that manufacturing alone was not enough; Singapore must equally become a leader in service industries. Its traditional role as the commercial hub of Southeast Asia was expanded to make it one of the logistics centres of the world. It wooed global service companies as keenly as it had sought manufacturers, offering tax holidays and permanently low taxes if they set up regional operations centres in Singapore. (That’s the policy that led to its becoming a tax haven.) And it set out to make Singapore the financial centre of Asia.

Another crucial decision Singapore made around that time was to change the goal and methods of its monetary policy. At a time when countries like Australia were allowing financial markets to set the value of their currency, and telling their central banks to target low inflation, Singapore went in the opposite direction. It decided its monetary policy should aim to provide stable exchange rates, reducing the risks for industries competing in global markets. The Monetary Authority of Singapore built up a large war chest it could use to prevent the markets taking the dollar outside its comfort zone.

It is the polar opposite of the policy successive Australian governments and the Reserve Bank adopted when they allowed the mining booms to send the Aussie dollar skyrocketing, at the cost of firms competing in global markets. From the start of the first mining boom in 2004, Australia’s manufacturing output per head slumped by an astonishing 25 per cent over the next fourteen years, as the inflated dollar made otherwise viable firms uncompetitive.

Even now, on the IMF’s estimates, Australia’s price level is the seventh-highest in the world, comparable to prices in Scandinavia and remote Pacific islands. By contrast, Singapore’s dollar has been held at levels that keep down production costs. The US dollar buys 83 per cent more goods and services in Singapore than it does in Australia.

This did not happen by accident. The best chapters in Koh’s book — including Peter Wilson’s chapter on monetary policy, and Gopinath Menon’s on transport policy — provide a quick sketch of the choices policymakers faced, and why they chose the policies they did. I wish the book had fewer, longer chapters that might have explained the same process in other areas; some former policymakers who contributed chapters used their pages simply to pat themselves on the back.

Vasagar sums up lessons from Singapore’s success that we should never forget. “Singapore works because it appoints diligent and talented people to positions of leadership,” he concluded. “The system roots out corruption. Its leaders are unabashed about stealing effective ideas from elsewhere… There is a strong emphasis on managerial ability rather than effectiveness at campaigning or winning battles of ideas.”

And that is the link between Singapore’s advanced economy and its retarded democracy. Its ministers don’t need to worry about campaigning or trying to win the popular argument, because the system makes them electorally invulnerable. And so, as Lee Kuan Yew put it memorably in his 1986 National Day speech, “We decide what is right — never mind what the people think.”

The common theme of the books by Vasagar, George and Chua is that Singapore’s leaders need to cast off that mindset. The rule of Goh Chok Tong and Lee Hsien Loong has softened the way Singapore’s authoritarianism is applied, but without changing its fundamental role. The state is just as powerful as it was twenty years ago. The people are just as powerless.

Every institution with power in Singapore is effectively an arm of the government. There is no free press: the media is either government-owned or controlled by the government’s right to appoint its boards, and the opposition has little access to it. There is no independent judiciary; no minister has ever lost a defamation case in Singapore’s courts. There are no trade unions independent of government. The relatively few NGOs must operate warily to avoid incurring the wrath of the ministers and officials whose decisions they comment on.

There is no right of assembly: to hold a meeting of five or more people requires a permit from the police. There is no ombudsman, no charter of human rights, no freedom of information legislation. Singapore has world-class engineering infrastructure, but little of the infrastructure of democracy as we know it.

It does have free elections. But even they are held on boundaries drawn up by the government to maximise its chances, including a strange system of dividing most of the city into seventeen winner-take-all wards electing four or five candidates on a single ticket. (That partly backfired at last year’s election when the Workers’ Party won two of the wards, and opposition slates came close in two others.) And those elections are held in an environment in which the government has all the power, and has shown ruthlessness in using it to maintain its control.

Cherian George cites a telling example. In Europe, Australia and elsewhere, governments have been grappling with ways to deal with fake news and baseless slanders on the internet. Singapore has acted — but solely to give the government the right to require Facebook and the rest either to post its response to any online posts it considers inaccurate alongside the original comment, or to remove the posts. Only the government is protected against fake news, and only it can decide what is fake news.

Initially, the government allowed debate on the fake-news legislation. But when it appeared it was losing the argument — with even the publishers of the Straits Times urging that an independent regulator rule on disputes — it cracked down. The debate suddenly ended, critics were shut out of the media, and their patriotism was questioned by government MPs. George adds: “Such nationalist dog whistles unleashed troll attacks, in a style reminiscent of… populist movements overseas.”

Why doesn’t the government trust Singaporeans with the freedoms people have in countries like Taiwan, South Korea, Indonesia and the democracies of Europe, America and the South Pacific? George argues that most Singaporeans would re-elect it anyway, because they think it’s mostly doing a good job. Perhaps it is the lack of crisis that explains its refusal to open up: since it likes having all the power, and faces no threat of defeat, why bother with popular reforms?

George cites another example: the succession. Lee Hsien Loong will turn seventy in February, and has had serious health issues. In the previous parliament, one of his two deputy prime ministers was a widely admired Tamil economist-turned-politician, Tharman Shanmugaratnam. Chosen by his global peers to chair the ministerial committee overseeing the International Monetary Fund from 2011 to 2015, Tharman was seen by Singaporeans as a progressive reformer. A poll in 2016 found 69 per cent of Singaporeans would support him to be prime minister, twice as much as any other candidate. Why not do so?

“Tharman is uniquely equipped to guide Singapore,” George writes. “He is a world-class policy wonk who also happens to be extremely popular. He has won over the public, not with empty rhetoric or simplistic solutions, but through his palpable sincerity in wanting to build a country where people are treated with dignity and (their needs met), whether those needs are economic or more intangible.”

But to appoint a Tamil as prime minister of a predominantly Chinese country? It was too much for the People’s Action Party. In late 2018, Lee announced that Tharman, then just sixty-one, would step down to become senior minister, and the new deputy prime minister — effectively the heir apparent — would be fellow minister Heng Swee Keat. Too honest for his own good, Heng later told a university forum that the older generation was not ready for a non-Chinese prime minister.

It was a near-fatal misreading of a proudly multiracial people. At the 2020 election, Heng almost lost his seat, while Tharman’s slate won the highest vote in the country. A year later, Heng stepped down, and the succession is now unclear. Another opportunity to move forward was lost.

Let’s close by noting three interrelated issues confronting Singapore’s society and government.

The first is common to all the new rich countries of Asia: South Korea, Taiwan, Hong Kong and even China. The workaholic culture and rising expectations that have fostered their economic success have also seriously eroded their fertility rate — so much that Chinese Singaporean women now give birth at the rate of just 0.94 babies over their lifetimes, and Indian Singaporeans 0.96. (Malay Singaporeans, who tend to be less well-off, have a far higher fertility rate of 1.82.)

The overall fertility rate of 1.10 is barely half the rate needed for zero population growth. It comes despite a hefty baby bonus: $8000 for the first two children of a marriage, $10,000 for subsequent ones. Falling fertility is a problem in Australia too, but at least our rate is 1.58 — a record low, but far higher than in any of our rich neighbours.

Doubtless other factors contribute. Singapore is far from having gender equality, low wages surely deter some would-be parents, and politicians and society frown on anyone having children outside marriage. But when women feel forced to choose between having a career and having children, increasingly they are giving priority to their career.

For Singapore, the risk of a falling population is exacerbated by a dirty little secret: the city hosts a vast underclass of “non-resident” workers on temporary visas. Some are in well-paid jobs (and resented by locals for that), but many others do dangerous or low-status jobs as construction labourers, factory hands and domestic servants.

There are about 1.5 million of them among Singapore’s 5.5 million people, more than a quarter of the population. But that was all I could find about them in the statistics. These workers reside in Singapore — the labouring men and factory workers often in crowded dormitories that have become an ideal environment for spreading Covid-19 — but they have no path to permanent residency and are expected to return to their home country when the job ends.

Vasagar tells us these temporary workers, mostly men from China, India and Bangladesh, and women from Indonesia and the Philippines, make up three-quarters of the construction workforce that builds Singapore’s world-class transport infrastructure and apartment towers, and most of the workers on its factory lines: relatively low-paid jobs that Singaporeans don’t want. The migrants the locals resent are the skilled ones who take the well-paid jobs they do want.

But as Chua Mui Hoong points out in Singapore, Disrupted, even the low-income workers put downward pressure on wages for locals in the lower half of the income range. She too wants a more democratic Singapore, and keeps trying to persuade ministers that giving the people more power would not see the country collapse. But she also crusades against what she sees as rising inequality in a once-egalitarian land where almost everyone lived in government-built flats, relied on public transport, sent their kids to the local school and had similar incomes.

That is not the Singapore of today. The government’s latest statistics show median wages for full-time workers range from $14,167 a month (including superannuation) for in-house legal counsel down to $2000 for factory hands and shop assistants, $1535 for baristas, $1400 for waiters and $1300 for office cleaners and the assistants at food and drink stalls. And that’s monthly pay, for full-time work, with 20 per cent of it going straight to your super account. It’s not much to live on.

Australia has its versions of these problems: the workaholic culture, the plunging birth rate, a policy of importing temporary workers rather than raising wages, and low incomes in many jobs. Singapore has excelled in devising solutions to economic problems. But political stagnation may be impeding its ability to solve social problems requiring subtle and flexible minds. •

Postscript: The prime ministerial succession became clearer in June 2022 when Lawrence Wong — profiled for Inside Story by Michael Barr — was named as Lee Hsien Loong’s successor.

The post The Singapore grip appeared first on Inside Story.

Ignore all the frustrations bursting out on the streets of Melbourne, on talkback radio and on the letters pages of Murdoch’s Herald Sun — and right now, of the Age as well. The polls tell us that if an election were held today, Victorians would re-endorse the man the Murdoch empire calls “Dictator Dan” with a thumping majority.

Newspoll reports that polling last week found Victorians would have re-elected Labor with a two-party vote of 58 per cent to the Coalition’s 42 per cent. That’s effectively unchanged from the 57.6 per cent Labor won in its landslide victory in 2018.

Another poll a week earlier by the Roy Morgan group reported an identical two-party split — although 15 per cent said they would vote for micro-parties or independents, compared with just 9 per cent in the Newspoll. Morgan’s figure sounds more plausible.

The Coalition scored 36 per cent of first preferences in Newspoll, but only 31 per cent in the Morgan poll. Labor got 44 per cent in Newspoll, 43 per cent in Morgan, and the Greens an unchanged 11 per cent in both.

Really? So two of the most tumultuous years in Victoria’s recent history have left the electorate unmoved? So unmoved it proposes an exact replica of the status quo?

To outsiders, that sounds implausible. On almost every count, Victoria has had the worst outcomes of any Australian state during the pandemic. It has 26 per cent of Australia’s population, but 66 per cent of all Australian deaths from the disease. It was home to 58 per cent of all the people infected in Australia: more than 110,000 of them, one in every sixty people in the state.

And to try to contain the virus, Daniel Andrews made Melbourne the most locked-down city in the world: for eight of the past twenty months, shops and schools were closed, and people required to stay at home except for a handful of reasons. You’d think that surely wasn’t a policy the voters warmed to — and when Melbourne alone, even now, is still developing 1000 new cases a day, it clearly failed to meet its objectives.

Not surprisingly, Victoria also suffered the worst economic costs. Last week the Australian Bureau of Statistics reported that Victoria’s economic activity has shrunk more than that of any other state.

In the year to June 2021, Victoria’s real output per head was 2.25 per cent lower than it was two years earlier. Adjusted for inflation, spending by households and business fell 7 per cent over the two years. Only the stimulus of a 13 per cent jump in government spending kept the slump from being deeper.

The Victorian economy has suffered real damage. Only time will tell how well it can recover, but it’s optimistic to think Melbourne will go back to being the same as it was before the lockdowns.

Yet if the polls are right, none of this has turned Victorians against Labor.

Perhaps that’s to be expected. In our part of the world, every government facing the voters since Covid arrived has been comfortably returned: in New Zealand, Queensland, Western Australia, Tasmania, the ACT and the Northern Territory.

But in 2022 the election outcomes could be less friendly to governments. The Morrison government has been trailing in most recent polls; the bookies have now installed Labor as favourite. The Marshall government in South Australia is no certainty to be returned in that state election on 19 March. And there are other signs that the Andrews government’s grip on power could at least be loosened when Victorians go to vote again.

For Matthew Guy, the ebullient forty-seven-year-old conservative who returned as opposition leader two months ago by successfully challenging Michael O’Brien, there’s no good news in these numbers. But Guy is an optimist by nature, and he will find other reasons for hope.

First, he has been here before. He was opposition leader in June 2017, when the Herald Sun headlined: “Victorian voters would dump Andrews government today, Galaxy poll shows.” Galaxy, a stablemate of Newspoll, reported that the Coalition was trouncing Labor by a 53–47 margin. A year and a half later, however, in the real election, Labor trounced the Coalition by 57.6 to 42.4 (adjusted to include Richmond, which the Coalition didn’t contest). In other words, polling this far out is not a reliable guide to the election outcome.

Second, while no poll in Victoria since 2018 has shown the Coalition ahead, other polls in recent months have suggested some movement its way. Two polls published when Melbourne was locked down again in June reported swings of around 6 per cent: not enough, but close to what it needs to get. A Resolve poll published in the Age in October failed to provide any figures for the two-party vote, but it implied a small swing the Coalition’s way.

Polling on state voting intentions is irregular, but Victorians have a decent proxy in the Essential Report’s frequent polling for the Guardian on what voters think of their state government’s handling of Covid-19. While the numbers bounce up and down depending on lockdowns, the Victorian government has consistently ranked last since July 2020, except for a few weeks in August and September when Sydney’s outbreak hit its peak.

In the second half of 2021, on average, only 49 per cent of Victorians thought their government had done a good job of handling the crisis. That compares with 51 per cent of voters in New South Wales, 63 per cent in Queensland, 65 per cent (but sliding) in South Australia and a stellar 81 per cent in Western Australia.

Source: Essential Report

On those figures, you wouldn’t expect Labor to get back with its majority intact. As the fourth wave now sweeping western Europe reminds us, a lot can happen in a year, and it can be unpredictable and uncontrollable.

Scott Morrison and his government are lead in the saddlebags of the state Liberals: Newspoll’s federal voting averages for the September quarter reported a 5 per cent swing to Labor in Victoria. Matthew Guy might be secretly hoping they lose office in May, so that by November any animosity towards the federal government will hurt Labor, not his team. Daniel Andrews might retire. Anything could happen.

Third, the timing of these polls didn’t help the Coalition. While they were being taken, the anti-vax street protests, with their extremist language and props — those notorious nooses and death threats directed at Andrews — virtually shoved mainstream voters in Labor’s direction, especially when some Liberal MPs featured as speakers.

To some extent, that was offset by Andrews’s authoritarian pandemic bill, which allows the premier to bypass parliament and normal legal processes during a pandemic. That certainly risks alienating voters who care about civil rights and the importance of having checks and balances to prevent governments misusing their power. But Essential’s recent finding that even 62 per cent of Coalition voters “strongly oppose” the anti-lockdown protests could cancel out fears about the government having too much power.

But the most important reason to take the polls with a grain of salt is that Andrews’s recent decisions to end the lockdown, open the borders and remove most restrictions — even before new cases had begun to turn down, and long before Victoria was out of trouble — suggest strongly that he was feeling under pressure, probably above all from his pollsters.

Melbourne exited lockdown when the state was recording 2000 new cases a day. A year ago, the Andrews government wanted lockdowns to continue until there were fewer than five new cases a day. Even now the state is still averaging more than 1000 new cases a day.

Andrews argues that the state’s high vaccination rate — 89 per cent of those twelve and over are now double-dosed — means opening up no longer carries the same risks. True, and it’s important to remember that vaccinations protect us from death and serious illness better than they protect us from infection. But Europe’s experience is salutary: countries with highly vaccinated populations such as Germany, the Netherlands and even Denmark are now experiencing bigger outbreaks than ever before. Whatever Andrews says, I’ll bet his decisions to open up were not based on medical advice.

Given Labor’s complete dominance of the Victorian scene, there has been little interest in the redistribution of state electorates, finalised late last month. Victoria’s state redistributions are usually done much better than the federal ones, and the latest is no exception.

It boldly takes the axe to no fewer than three electorates in the middle southeastern suburbs — Ferntree Gully (Liberal), Keysborough and Mount Waverley (both Labor) — to create new seats in the outer southwest, northwest and southeast (all Labor). It also bites the bullet to fix one of the anomalies of the past, by bringing all the Latrobe Valley towns into one seat (Morwell), which increases the odds that Labor will win it back from independent Russell Northe.

All up, Antony Green estimates that Labor would notionally gain two seats, one from the Liberals and one from Northe, giving it fifty-seven seats in the eighty-eight-member parliament. The Coalition would drop to twenty-six (twenty Liberals, six Nationals), the independents would drop to two, and the Greens would remain on three.

Our friend Antony further estimates that of the twenty-six Coalition seats, nine are held by 1 per cent or less, and fifteen by 5 per cent or less. That puts the Coalition very much on the defensive, and in a weak position to launch an attack.

On the other hand, a uniform swing of just 6 per cent against Labor would cost it its majority, leaving it with just forty-four of the eighty-eight seats. While the Liberals and Nationals would require an implausibly large swing to win office, it is just plausible that if things go their way in 2022, they could push Labor into minority government. But they’re a long way from that now.

One key issue that will come to a head in the last months of this parliament is the future of the voting system for the Legislative Council. Will Victorian Labor continue with the system that allows voters’ preferences to be decided by backroom deals between the parties?

In Western Australia, Labor is now moving to abolish “group ticketing” after this year’s state election saw the Daylight Saving Party win a Legislative Council seat with just ninety-eight votes. That will make Victoria the last jurisdiction in Australia that has yet to reform a system that denies voters the right to decide their own preferences.

One assumes the original aim of the major-party bosses was to give themselves the power to decide voters’ preferences. But as micro-parties have mushroomed, the system has been taken over instead by the “preference whisperer” Glenn Druery. He has made an art form of working out deals that allow micro-parties to win seats with tiny votes by directing preferences to each other — no matter how remote they are ideologically.

At the 2018 Victorian election, Druery excelled himself by delivering his clients nine of the forty seats in the Council. At the time, he was working for Derryn Hinch, so Hinch’s Justice Party won three seats with just 3.75 per cent of the vote, whereas the Greens — excluded from Druery’s system — won 9.25 per cent of the vote but ended up with only one seat.

In the Eastern Metro seat, the Greens with 9 per cent of the vote lost out to Transport Matters with 0.6 per cent. In Southern Metro, the Greens’ 13.5 per cent was defeated by Sustainable Australia’s 1.3 per cent.

The system cost Labor itself a seat in Northern Metro when Fiona Patten, co-founder of the Reason Party, organised her own preference swaps to upstage both Druery’s team and Labor. The Coalition lost three seats it would have won had voters been allowed to direct their own preferences, and the Greens between two and five.

Even with its landslide 57.6 per cent of the two-party vote in the lower house, Labor could win only eighteen seats in the forty-member Council. Still, with eight separate minor parties with whom it can deal issue by issue, it has found the Council malleable to its wishes until now. But its failure to consult most of them over the pandemic bill left it vulnerable when disgraced Labor powerbroker Adem Somyurek, after a long absence, decided to return to the Council to cast his vote against giving Andrews any more power.

Negotiations on the bill are now proceeding with the previously ignored micro-parties, through gritted teeth on both sides. It must focus Labor’s mind on reform of the voting system. The Liberals and Greens, who combined to push through the federal reform in 2016, would be willing partners. But you would not expect Labor to show its hand until as late as possible, since it still depends on the minor parties to pass its legislation.

The Greens and the Coalition were the main losers from Glenn Druery’s artwork last time. But if Labor does lose ground next year, it could become the main victim. A 5 per cent swing in Council voting could cost it as many as five seats, making the upper house almost unmanageable.

Difficult as Labor and the Greens find it to cooperate in Victoria, where they fight an endless war for control of inner Melbourne, it would be in their mutual interest to change to a voting system that allows the voters to decide their own preferences, and stop Glenn Druery doing it for them. •

The post Dominant Dan appeared first on Inside Story.

Promising net zero emissions by 2050 is a marketing tool; no cost, some gain. It matters only because it sets up expectations that will be used to pressure future governments to introduce the emission-reducing policies this government refuses to provide. Without matching action, business won’t believe the promise, and won’t make new investments. In itself, pledging net zero emissions by 2050 is just words.

A more significant question has been played down in the media coverage. Will the government meet Boris Johnson’s challenge to lift its target for 2030 — a 26 to 28 per cent reduction on 2005 levels, the smallest cut being offered by a G20 developed country? This short-term target is something the Morrison government might conceivably have to deliver; and it claims its existing policies would get us there. But figures within the Coalition are resisting Johnson’s pressure, and the government lacks the leadership to counter them.

Suppose, though, that “net zero emissions by 2050” was not just words. Suppose our government and other governments actually meant to change their policies to put us on course to meet the target. What would they have to do?

That is the core question put by the International Energy Agency, or IEA, in its latest World Energy Outlook. A Paris-based bureaucracy whose job is to track the data on energy use and give information and advice to governments, the IEA released this year’s report early to get in ahead of next month’s COP26 summit in Glasgow.

The IEA’s summary of the world’s current position is that we are now moving in the right direction at last, but there is a long way to go — a long way. “The world has started to bend its emissions curve,” its chief modeller, Laura Cozzi, said at the report’s launch last week. But if net zero emissions by 2050 is our target, she added, we are nowhere near meeting it.

The world’s use of coal peaked in 2018. Oil use is likely to peak by around 2025. Economic growth no longer means growth in emissions. Most of the electricity generation being added worldwide is solar, wind, hydro or bioenergy. Wind and solar are now the cheapest fuels for future electricity generation, and set to remain so.

But the IEA’s executive director, Turkish energy economist Fatih Birol, warns: “The world’s hugely encouraging clean energy momentum is running up against the stubborn incumbency of fossil fuels in our energy systems. Governments need to resolve this at COP26 by giving a clear and unmistakeable signal that they are committed to rapidly scaling up the clean and resilient technologies of the future. The social and economic benefits of accelerating clean energy transformations are huge, and the costs of inaction are immense.”

On present government policies worldwide, says the IEA, emissions will still be growing in 2100 and global temperatures will have risen by 2.6 per cent.

Even if recent government pledges to reach net zero emissions, mostly by 2050, are delivered in full, the modelling says that the world will be 2.1°C degrees hotter in 2100 than in pre-industrial times — clearly overshooting the goal of holding the temperature rise to 1.5°C degrees.

Why? Because global warming requires concerted global action. Of the more than 200 countries in the world, just eighty have committed to lowering their emissions to net zero. Australia, Israel and Singapore are the only holdouts in the developed world, but others yet to commit include India, Indonesia and Russia — three of the six countries now generating most of the world’s economic growth — plus most of Southeast Asia, most of Africa, and virtually all the Middle East.

“Emissions don’t have a passport,” Dr Birol notes. This is why Australia’s failure to lift the low bar it has set itself for 2030 is sand in the wheels of other world leaders trying to make global action work. With Australia one of the world’s largest per capita emitters of greenhouse gases, its modest target tells the world we aren’t serious about ending net emissions by 2050; we are a coal exporter looking after our interests. And that strengthens resistance to action in other countries.

But suppose Australia and the other recalcitrants do end up on board, and soon enough to matter. Suppose the leaders in each country actually legislate policies that would end the world’s net emissions of carbon dioxide and other greenhouse gases by 2050. What would they have to do to end global warming?

The IEA modelled energy and emission outcomes on several scenarios: business as usual (continuing existing policies in each country); adding the pledges made by China, the United States and seventy-eight other countries to reach net zero emissions; and its own estimates of the cheapest and fastest path for the world to reach net zero by 2050.

Of course the IEA’s path is not the only way to get there, but any alternative way is likely to be more expensive and just as disruptive. This is modelling, so it’s not gospel, but it does suggest the orders of magnitude we are facing, and which pieces of the puzzle are the most important. These are a few key takes.

The critical battles in this war will be fought not in Australia and the West, but in today’s developing countries: above all China, but also India and its neighbours, Southeast Asia and, not least, Africa.

Developing countries are already the driving force of the global economy. The International Monetary Fund projects that they will provide 70 per cent of the world’s real economic growth in the next five years. On that reckoning, China and India alone will generate 40 per cent of global growth, while all the advanced economies combined — the United States, Europe, Japan and the others — will supply just 30 per cent.

But the choices the developing countries make will be greatly influenced by how rapidly the developed world — and advanced developing countries like China — phase out the old technology to bring in the new.

The faster the West dumps fossil fuels and invests to bring on new technology and lower its price — by developing green hydrogen and ammonia as energy sources, for instance, and making it viable to capture, utilise and store carbon emissions — the cheaper it will become for developing and developed countries to invest in them rather than coal and gas. We have an important part to play.

Coal-fired power must go, and as soon as possible.

The IEA’s findings are not strictly policy recommendations. But in effect it is saying, “If net zero emissions by 2050 is your goal, this is the best way to get there.” And in the power sector, the message is very clear: coal has to go, ASAP.

The IEA’s pathway to net zero specifies no new coal-fired power stations, anywhere in the world. Those already under way (mostly in China) should be abandoned where possible. And — in sharp contrast to the Australian government’s policy — the world should open no new coalmines or extensions thereof.

On the IEA’s path to net zero, half the world’s coal-fired generators would shut down by 2030 and the electricity generated from coal would shrink by two-thirds. The plants that remain would be newer ones that could operate flexibly as a back-up to solar and wind power — or one able to be converted to capture their CO2 emissions and utilise or bury them.

By 2050, in its scenario, coal-fired stations would supply only 1 per cent of the world’s electricity demand, and they would all be capturing their carbon dioxide emissions for industrial use or storage. Coal would survive only by becoming emissions-free.

Coal (and gas) would retain a bigger role in large industrial plants designed to capture their emissions. But the IEA projects that even in 2050, a world producing net zero emissions will use only a tenth of the coal we now produce each year. That would have quite an impact on Australia.

“Accelerating the decarbonisation of the electricity sector is the single most important way to close the 2030 gap,” it says, “and could cut emissions by around 5 gigatonnes,” or about 15 per cent of global emissions. “We estimate that up to 60 per cent of the gap [between existing policies and the path to net zero] in the electricity sector can be closed through cost‐effective expansion of wind, solar photovoltaics, hydro and nuclear power.”

The IEA’s modelling implies that coal is already in inevitable decline; the net zero target would simply accelerate that. Even on existing policies, it sees coal’s share of global electricity demand shrinking from 40 per cent in 2010 to 26 per cent by 2030, and 13 per cent by 2050.

In advanced economies, even Australia’s, coal has been shrinking in importance for years, and now faster than ever. Renewables have replaced it as the cheapest source of power, so when solar or wind are going full pelt, coal stations have to reduce their output, and be ready to increase it again when needed. They work much better when they can burn coal steadily, flat out. But that world has now gone.

New South Wales and Victoria have not built a new coal-fired power station since last century. Their remaining coal generators are like a collection of old Holden Kingswoods, being driven past their use-by date. They frequently break down and are becoming uneconomic to run in a system in which renewables are the cheapest source of power. Last year coal supplied just 54 per cent of Australia’s electricity — not the 60+ per cent claimed by many analysts — and could already have sunk below 50 per cent.

Yet as coal fades away, total power generation worldwide is set to almost treble by 2050. Most of it would come from new solar and wind plants, but with significant portions also from hydro, bioenergy and the new kids on the block, hydrogen and ammonia.

In the world of net zero emissions, the IEA projects that 88 per cent of a vastly expanded global energy demand will be met by renewables. Solar and wind would each generate roughly a third of that — each generating almost as much electricity in 2050 as the world now generates from all sources including coal, gas, hydro and nuclear.

But the IEA believes we will also need nuclear power and carbon capture to make net zero work.

Its proposal to ban coal might warm green hearts, but the IEA is convinced that the world in 2050 will also rely for its electricity on expanded nuclear power — and some gas and coal, mostly from power stations that capture their carbon and use or bury it.

The critical issue is the one Australia has been grappling with for years without success: how to generate electricity when the sun is not shining and the wind is not blowing. The IEA points out that there are many ways of doing so, but they are expensive, and some are cumbersome, so all possible options will be needed.

It would be expensive to have your power system relying solely on batteries and pumped-storage hydro to provide energy when solar and wind are having bad days. Witness the latest revelations that Snowy Hydro 2.0 and its transmission links could cost more than $10 billion, rather than the $2 billion first promised. The scale of new battery storages is growing rapidly, but they are still niche products, there to help in emergencies rather than power us night after night at low cost.

That’s why the IEA’s modelling envisages nuclear power generation roughly doubling worldwide by 2050, mostly in China and the developing world. It accepts that nuclear is now politically unacceptable in the West, but expects it to regain its place, even in Japan and Europe. In its view, nuclear is a mature, safe and relatively cheap technology that produces no emissions — and can supply the crucial backup flexibility required by a renewables-based system.

By 2050 it sees nuclear supplying 8 per cent of the world’s power needs, with emissions-free gas and coal producing just 2 per cent between them but playing a backup role to the dominant renewables. Gas would hold its ground longer than coal, because it emits only half as much carbon dioxide and gas plants can operate more flexibly than coal stations. But by 2040 most of the world’s gas-fired power stations would also have shut down.

The IEA has not abandoned hope that carbon capture and storage will become a significant contributor to meeting the net zero emissions goal. But it argues that the lack of investment by business and governments to pave the way for carbon storage — and hydrogen and ammonia as sources of fuel — is limiting the potential role they can play.

“Without innovation and learning‐by‐doing to drive down their costs over the next decade,” says the IEA, “it would be much more difficult for these technologies to ramp up after 2030 to contribute to achieving net zero energy emissions by 2050.”

There is another problem with the carbon capture option that the IEA carefully does not mention. We’ll come to that shortly.

Emissions could be significantly reduced if we focused more on raising energy efficiency.

In the old world, growth in the economy and growth in energy use went hand in hand. But in the last decade they have diverged sharply: global GDP has surged, mostly in developing countries, while growth in energy use has slowed.

Energy intensity — the dollar of GDP created per unit of energy consumed — is now growing by nearly 2 per cent a year. Double this annual growth to 4 per cent, the IEA says, and in a decade we could prevent energy use that otherwise would have raised global emissions by a third.

There are thousands of opportunities: from behavioural changes like turning down the heating and airconditioning in homes and offices (the IEA recommends 19 to 20 degrees for heaters, 24 to 25 for air conditioners) to replacing inefficient old technologies with energy-efficient new ones. Industry in particular could make big savings, the IEA argues, especially in reducing its use of materials, but the opportunities are across the board, and include videoconferencing, working from home, retrofitting buildings and increased recycling.

The big one now is electric vehicles. Two years ago the IEA’s Outlook highlighted the energy inefficiency of SUVs. On average, it said, they need 25 per cent more fuel to drive a kilometre than a car does — and with 200 million of them on global roads, they had become the second-biggest source of growth in rising global emissions. Alas, no one took any notice.

But this time the IEA has a positive story to sell: switching to electric vehicles powered by renewable energy could save billions of tonnes of future emissions. As part of the path to net zero, the IEA says, with government support EVs could overtake petrol- and diesel-fuelled cars to win 60 per cent of the global vehicle market by 2030 — up from less than 5 per cent in 2020.

The mining industry must immediately implement a crash program to sharply reduce methane emissions from mining gas and other fossil fuels.

Methane gases in the atmosphere are shorter-lived than carbon dioxide but far more potent as a cause of global warming. We’ve all seen photos of flames soaring from the smokestacks of Middle East oil and gas wells as excess gas is burnt off. In Australia, soaring methane emissions from gas fields drove much of the rise in greenhouse gas emissions from 2014 to 2019.

The IEA says these emissions could be cut by more than 80 per cent by 2030 if mining companies carried out “the elimination of all technically avoidable methane emissions.” It’s all doable, and…

Many of these reforms could in fact save money.

A prime example: stopping the leaks from oil, gas and coal mining would cost the industry US$13 billion (A$17.5 billion), the IEA says, but the market value of the gas they would save is more than that. It’s an example of the inertia caused by that “stubborn incumbency” of established practices.

People in many countries are paying more for power from dirty coal-fired stations than they would if the old plants were replaced by new solar and wind generation. Even now, the IEA estimates, solar and wind plants are easily the cheapest to operate, and the cheapest even including construction costs, arguably except for gas in the United States. By 2030 they will be the cheapest everywhere, by a mile.

To get there, though, we need to double energy investment.

The world now spends about 1 per cent of its GDP investing in new energy plants, transmission lines, pipelines and so on. The IEA says that share needs to rise to 2.2 per cent to finance the rollout of solar and wind power, EV charging stations, transmission lines and other works needed to make net zero emissions feasible. And moreover:

Most of that investment must be in developing countries.

That’s the real problem. Borrowing money is cheap in countries like Australia, but in developing countries it can cost seven times as much. Their governments and companies are financially weak —  half the electricity companies in Africa are in financial difficulty — and rich countries like Australia have not delivered the aid they promised in Paris in 2015 to help developing countries to carry out their part of the green revolution.

The IEA urges the International Monetary Fund, the World Bank and governments to get together to come up with new financial avenues to make this aspiration a reality. It points out that developing countries are going to need a lot of iron, steel, cement, chemicals and other energy-intensive products. And the chances of the world halting global warming anytime soon will depend on what choices they make, and how much energy-efficient technology they can afford to buy.

The World Energy Outlook 2021 is also full of the positive messages about the economic and social benefits of this green revolution that we now hear from its former opponents like the Business Council and the Murdoch press. (Welcome aboard, what took you so long?) But two of its most important messages are left unstated. They are crucial, so let’s end with them.

No country is more important in achieving net zero emissions than China.

The IEA is too diplomatic to say it, but China is the key to success. It now burns 56 per cent of the coal we consume. Xi Jinping has promised to stop financing new coal-fired stations in the rest of the world, but his government is still building and planning them in China. On its current policies, the IEA numbers show, China would still account for half the world’s use of coal in 2050. We will only get to net zero if the Chinese government stops building coal-fired stations in China.

My regular reminder: China is already the biggest economy in the world, and by a growing margin. The IMF projects that by 2025, its real output will be 30 per cent greater than that of the United States. Of course, China could be exaggerating its numbers, and right now — with its building giant Evergrande on the verge of collapse — the unsustainability of its economic path is more obvious than ever.

But it will still be by far the most important country we need to have onside.

The IEA’s path to net zero emissions assumes a carbon price.

You could get some of the way without a carbon price, but nowhere near zero. Regrettably, “technology, not taxes” is just another of the Coalition’s empty three-word slogans. The reason for a carbon price or tax is to drive the adoption of new technology when business as usual doesn’t provide sufficient reason for it.

I mentioned earlier the IEA’s continued faith in carbon capture, utilisation and storage. Its own numbers make it clear that CCUS has no future on current policy settings. Without a carbon price, it is simply unviable. Hydrogen and ammonia, too, need a carbon price to be viable. It is just Economics 101: if production involves “externalities” that damage third parties, governments should put an appropriate price on them. Make the polluter pay, and good solutions will be found.

It’s not hard for people to recognise that fact: Europe’s emissions trading scheme is now widely accepted. But to build the case for that, a country needs to have real leaders. Australia unfortunately has none, at least at federal level, and there is no sign of any emerging. •

The post Getting from here to net zero appeared first on Inside Story.

Nine days after federal treasurer Josh Frydenberg unveiled a pre-election borrow-and-spend budget, Victorian treasurer Tim Pallas brought down another big-spending budget, but one that adds taxes to the mix — taxes targeted almost exclusively at big business and large landowners.

It was not the only thing worth noting in his budget. Pallas proposes another huge (and clearly inflationary) increase in what is already a record level of infrastructure spending. In government services, mental health is the top priority for new spending. The budget funds Australia’s first truth-and-justice process, a mostly Aboriginal commission to examine the state’s history and shine the spotlight on the dispossession and injustices that followed white settlement.

The budget plans to give 4000 women a year access to low-cost public IVF treatment. It funds innovative early-intervention programs, such as the Rough Sleeping Initiative by the Sacred Heart Mission, which proposes to work with newly homeless people to try to find them housing, social networks, job training and employment, so as to prevent them becoming chronically homeless.

And on the same day that the Bureau of Statistics reported that Victoria’s unemployment rate is now a smidgeon lower than Australia’s, the budget poured even more stimulus into a state economy it projects will grow by 6.5 per cent in the coming financial year. It’s fun to be pouring out the cash as Frydenberg and Pallas are doing, but ultimately someone has to pay for it — and that someone will be the kids.

Most of this new spending is unfunded, resulting in another big deficit by state standards: $11.6 billion on the budget estimates, down from $17.4 billion for the financial year just ending. And that excludes infrastructure spending, which is forecast to soar 67 per cent next year, from $14.5 billion to $24.2 billion.

“There is much to praise in this budget, but also much to regret,” I wrote of last year’s Victorian budget. That seems to apply to every budget the Andrews government produces.

Debate on this one will be dominated by the fact that, unlike its federal counterpart, it had the courage to raise taxes to finance some of its new spending — and is making business pay them.

The new taxes were so audacious, they were startling. Once in place, Treasury estimates, they would raise more than $1.5 billion a year, a not insignificant amount. But just $115 million of that would fall on the general public, mostly from higher fines and taxes on gambling. The rest would come from a range of tax hikes on developers, large landholders and people buying expensive properties (almost $600 million a year), and from payroll tax surcharges on big business, to raise $800 million a year earmarked to finance mental health programs.

That “mental health levy” could be tricky. Pallas said eligibility for the surcharges would be determined by the size of companies’ national payrolls. Those with national payrolls of more than $10 million a year would pay an extra 0.5 per cent on their Victorian payroll, while those with national payrolls of more than $100 million would pay an extra 1 per cent.

It seems cunningly designed to reduce the incentive for business to shift jobs out of Victoria. But it does not remove that risk — and it may provide fertile ground for a legal challenge. Might the High Court rule that Victoria is effectively trying to tax jobs in other states? The lawyers will be giving deep thought to this tax bill.

You couldn’t imagine a Labor government anywhere else in Australia, except perhaps the Labor/Greens coalition in the ACT, targeting higher taxes so directly on those they see as the rich rolling in money. But in 2018, Labor won a stunning 57.6 per cent of the two-party vote; as long as Covid stays under control, it is hard to imagine it losing next year’s election. The Age reports that enough crossbenchers support the tax rises to get them through the Legislative Council.

The biggest tax hike on property would introduce similar surcharges on land tax for property holdings worth more than $1.8 million — primarily hitting land developers, big rental investors and commercial property owners, since homes and farms are exempt. And with Australia now experiencing a massive inflationary boom in house prices, property sales of more than $2 million will attract an extra 0.5 per cent on their stamp duty bills.

“You don’t get that much in inner Melbourne for $2 million,” an old friend laments. Core Logic reports that housing prices in Melbourne have already risen 10 per cent since the state’s lockdown ended, with even bigger rises in regional towns (partly from city investors outbidding local residents). This surcharge could put some brake on price rises at the top end.

Developers will also have to pay a windfall levy equivalent to half of their gains when land is rezoned in their favour. Pallas was unable to give a convincing answer when asked why the government didn’t impose similar windfall levies on owners of the shopping centres who will benefit if Labor ever builds its scandalously wasteful so-called Suburban Rail Loop.

You could not imagine any previous Labor government in Victoria contemplating hits on business like this. John Cain, Steve Bracks and John Brumby all ran essentially centre-left governments that put a high priority on keeping business happy so it kept generating jobs. But Daniel Andrews is no centrist. He is a self-confident, skilful leftie who dominates Victoria’s political stage and gives the impression that keeping business happy is not high on his priority list.

If his government gets away with this one, it would be thanks to Brumby, the last government leader in Australia to pursue a Hawke–Keating agenda of economic reform. As treasurer and then premier, Brumby pursued jobs rather than votes, cutting Victoria’s payroll tax rate across the board to 4.9 per cent, the lowest rate in the nation for most of the businesses Andrews and Pallas are now targeting.

An economics graduate, Brumby’s goal was to simplify and streamline the tax structure and minimise the impact of taxes on economic activity. This government has the opposite goal: it is run by social engineers, who want to make every tax or spending measure discriminate between those they see as underprivileged (who will benefit) and those they see as privileged (who won’t).

The silliest of yesterday’s tax increases would exclude “gender-exclusive” clubs from the land tax concessions available to all other clubs. It is aimed at the Melbourne Club, of course, but why bother? Treasury estimates the measure will raise the grand total of $600,000 in four years. Wow.

Andrews has been out of sight for the past two months after falling downstairs at a holiday home and suffering spinal damage. But close observers say he still keeps in touch from home, and would have been calling the shots on key decisions in this budget — such as making the mental health reforms its centrepiece, and soaking the rich to pay for it.

The row over financing should not obscure the importance of the government giving priority to mental health reforms. Like the federal government’s aged care reforms, they follow a royal commission that highlighted how widespread mental illnesses are, and how few resources and programs we have to tackle them.

“Around half of Victorians experience a mental illness at some point in their lives,” Pallas told parliament. “Around one in five are struggling with it right now. They are our children, parents, partners and friends. They are us. But in our worst moments, we turn to a system which is clearly broken.”

The budget rolls out a wide range of programs designed to meet the needs of particular groups, from primary students up. From the stories you hear, you do wonder how much difference it can make without overcoming the shortage of psychiatrists — which presumably would require their professional college to lower the bar which blocks other doctors from entering their specialty.

In all, the budget proposes $19 billion of additional spending on services over the next four years, with sizeable dollops to fix Victoria’s under-resourced ambulance service, attract more filmmakers to Victoria, rebuild and better protect bushfire-hit communities, build and repair more schools, and build a new sporting centre at La Trobe University to be the new home of the Matildas. Most of this will be ongoing new spending, added to a budget already in structural deficit.

On the definition used by Victoria and other states, the budget will still be in deficit in 2025 — that is, revenue won’t pay for government services, or make any contribution to new infrastructure — and that would be after four years of recovery. Precisely because its tax rises are so narrowly targeted, they cannot raise the revenue needed to close the gap and create a surplus to pay for some of the infrastructure. Net borrowing is projected to continue at $18 billion a year into the blue horizon.

I am no deficit fetishist, but running a deficit in a booming economy is weak government. Victoria’s economy is booming. Treasury projects it to grow by 6.5 per cent in the coming financial year before settling back in its long-term groove: high population growth, relatively high economic growth, and wages rising faster with each year.

Yesterday’s jobs figures from the Bureau of Statistics show that even the end of JobKeeper hasn’t derailed the state’s remarkable comeback from last year’s massive job losses. In April Victoria squeezed past New South Wales to claim the second-lowest unemployment rate of any state, bettered only by Western Australia. Pallas proudly points out that since the long lockdown ended, most of Australia’s job growth has been in Victoria.

No one expected that to happen when last year’s budget planned a 25 per cent growth in Victorian government spending. It seemed appropriate then, and Pallas and Andrews can fairly claim their share of credit for the exceptional rebound since. The government hired unemployed women as tutors for struggling schoolkids, hired tradies to build social housing, and hired jobless blokes to repair roads all over the state. It handed out subsidies so groups and businesses could hire people themselves. It helped restore confidence, which has proved as infectious as Covid.

In the end, it looks like spending growth in 2020–21 will be 19 per cent: the government spent a bit less than it planned on services and a lot less than it planned on infrastructure — despite substantial hikes in the estimated cost of works such as the Melbourne Metro tunnel (now $12.25 billion), the Monash Freeway upgrade, regional rail upgrades and so on. Yet the government has responded by rolling the undone works into an even bigger package, and projecting a 67 per cent rise in infrastructure spending in the coming year.

Get real. Infrastructure spending is already at record levels as a share of the Victorian economy: roughly 3 per cent of gross state product. Andrews and Pallas now propose to raise that to almost 5 per cent — despite evidence throughout the state that the resources just aren’t there to carry out the work. A home-building recovery is getting under way, partly through the state’s own laudable program to build social housing. Andrews and Pallas don’t need to aim for the sky — and they can’t reach it anyway.

Their government has been applauded and re-elected for having lifted Victoria’s infrastructure spending off the floor. It has used these years of low interest rates to build projects that previous governments found too hard: the replacement of fifty level crossings in suburban Melbourne, building the first metro line under the city, planning the North East freeway link, and many lesser but locally important projects throughout the state.

Rather than trying to increase spending by another 67 per cent, it should consolidate and focus on the quality of projects rather than the quantity. Labor is still locked into building the Suburban Rail Loop, a very expensive underground tunnel to take a small number of passengers between six stations in marginal seats in southeast and eastern Melbourne. It was dreamed up in Andrews’s office, and it’s the lemon that makes other lemons taste like oranges.

One remarkable thing to note about Labor’s infrastructure program is that, both next year and in the long term, it plans to spend more on rail than on roads — and the roads budget includes spending on new trams and replacing level crossings. (This government spends very little on buses, even though they serve its outer-suburban voters, and its own surveys find they have the highest customer satisfaction of any public transport mode.)

Victoria’s net debt, once negligible, will reach 20 per cent of gross state product next year and 27 per cent by 2025. As the budget papers remind us, it has been much higher in the past, so that’s no cause for alarm. But nor is it a good thing. With the economy entering a boom, Labor should be moving quickly into surplus, allowing current revenues to make a substantial contribution to current infrastructure investments.

This should have been the budget that flicked the switch from stimulus to consolidation. Pallas and his team did make some efforts to do that — $2.9 billion of spending in the next four years was “reprioritised,” the annual indexation of departmental budgets was reduced, saving $1.9 billion, and $1.7 billion of savings were found from “departmental efficiencies.”

Yet even so, the bottom line is that now that the need for stimulus has gone, the Andrews government plans to spend $20 billion more in the next three years than it had last year when stimulus was needed. It is as economically dumb and politically driven as the same strategy is in the Morrison government’s budget.

Victorian Labor, like the federal Coalition, is giving us more of what was appropriate last year, not what is appropriate now. Yes, you can always increase jobs now by borrowing from the future. But that just means future generations will lose jobs whenever the bills have to be paid.

There’s a country that has tried out this strategy extensively in the past. Its name is Italy. It is the only country in the Western world that is now poorer than it was twenty years ago. Italy may be a role model in many areas of life, but fiscal policy is not one of them. •

The post This year’s budget, last year’s spending appeared first on Inside Story.

We were already in recession when Paul Keating brought down the August 1990 budget, but neither the government nor the bank admitted it. Keating blithely forecast no recession, and did nothing to stimulate activity. Earlier in 1990, the Reserve Bank had lowered the cash rate from its ridiculous peak of 18 per cent to 15 per cent, but then sat on its hands for months without cutting it further, as companies collapsed and workers were laid off around it.

Even a year later, when the recession was at its peak, the August 1991 budget did nothing to tackle it, with Treasury persuading the new treasurer, John Kerin, that there was no need. The Reserve Bank’s cash rate was still 10.5 per cent — it had gone up in the lift, but had to come down by the stairs.

The classic summary of Australia’s policy in that recession was a cartoon by the great Bruce Petty in the Age. Kerin, at the wheel of a cobweb-smothered car labelled “Treasury Driving School,” asks his instructor, “Don’t you think I should try to restart the motor?” To which the Treasury guy replies, “What! And risk having it stop again!”

The contrast between economic policy then and now is stunning. The recession of 2020 was over almost before it began. It stood no chance against the deluge of money flowing from the federal government to households and business, and from the banking system (directed by the Reserve Bank) to anyone who wanted to borrow.

In this recession, incomes soared: the Bureau of Statistics estimates that household disposable income in 2020 shot up by $85 billion, or 6.6 per cent. House prices soared: Core Logic reports that at the end of April, prices nationally were already up 10 per cent since September, and rising by roughly 2 per cent a month. In most areas of the economy, the jobs came back quickly. By March, the employment/population ratio was back where it was when Covid struck. The recession was over, the economy booming – and the need for stimulus was gone.

Yet, in the mirror image of what we saw in 1990–91, today’s federal government and the Reserve Bank aren’t changing course. This time they both have their feet jammed on the accelerator pedal.

And just as in 1990–91 — when the commentariat (except for a few of us in Melbourne) either applauded the government for holding firm or suggested it should be even tougher — this time the commentariat is either applauding the government for keeping its foot down, or arguing that it should accelerate harder.

The last criticism is bizarre. We may think the government spends too much in some areas — for example, the $10,000 per person per day it reportedly pays Brisbane company Canstruct to run the offshore prison for asylum seekers on Nauru (per Ben Doherty in the Guardian) or the $50 million it has reportedly spent to drag a Tamil refugee family from Biloela through the courts and imprison them on Christmas Island (per Michael Pascoe in the New Daily) — but the economy is already back in gear, by any sensible definition, and yet this big-spending budget is still pumping on the accelerator.

In the coming financial year the government plans to spend 27.6 per cent of the nation’s GDP, compared with our long-term average of 24.6 per cent. Just on that measure, it will be the third-highest rate of spending in any year since the second world war, beaten only by the current year and last year. In round figures, the government will spend an extra $60 billion on pumping up an economy that is already back to normal.

This year’s deficit, at 7.8 per cent of GDP, is easily the highest on record. On the budget estimates, next year’s will be the second-highest, and 2022–23 will be the third-highest. There is no need to run deficits on that scale.

As for the Reserve Bank, nothing in its previous history remotely compares with the measures it is now taking to flood the economy with money, as spelt out last week in a speech by deputy governor Guy Debelle.

Debelle was very direct in declaring that the bank’s goal was to lower unemployment, and the collateral damage to other goals — notably, housing affordability — wouldn’t stop it. I accept that there are good arguments for this. We will come to them.

But let’s take stock. Unemployment in March was 5.6 per cent, a smidgeon below the average of the pre-Covid unemployment rate since the Coalition took power. If unemployment at that level wasn’t a good reason to stimulate the economy anytime between 2013 and 2020, why now?

Forecasting is a risky game, but most of Treasury’s forecasts this year feel more realistic and less wishful than in the past. It forecasts the economy to grow by 4.25 per cent in the new financial year, driven by strong consumer spending and the public sector’s foot on the pedal. It predicts unemployment this time next year to be 5 per cent, the lowest for a decade. The Reserve Bank tips it to be even lower, 4.75 per cent, the lowest rate since mid 2008.

Sure, we want it to be lower than that. A sad bit of humbug that Treasury persists with in this budget is its estimate that unemployment can only fall to between 4.5 and 5 per cent without causing inflation to accelerate. As it knows, that estimate has no factual evidence to back it; the last wage-driven inflation we experienced was in the 1980s, under a quite different industrial relations system. Comparable countries like Germany and the United States have driven their unemployment rates down to 3.5 per cent and lower without experiencing rising inflation.

As Ross Garnaut argues in his recent book Reset: Restoring Australia after the Pandemic Recession, it makes more sense to aim to drive unemployment to 3.5 per cent or lower, then put the brakes on only when you see signs of inflation heading higher than you want it to be.

To the extent that the government is being driven by a desire to lower unemployment and increase wage growth, more power to its arm. But is this the best way of getting there? Or should the Morrison government drop its aversion to economic reform, especially tax reform, and find a better way?

The problem with this budget is not that it is spending too much money. It is that it is spending too much money without paying for it — and sending the bill to the kids.

Unless you think the government should make the Reserve Bank fund whatever deficit it wants to run, that is the inescapable impact of budget deficits: you kick the can down the road, but the debt must be paid at some later time. That’s fine if you are using the deficit to build the economy’s capacity to pay it later, but most government spending doesn’t really do that.

The single biggest item in the budget is a substantial unfunded increase in aged care spending, from $19.75 billion in 2019–20 to $31.1 billion five years later. The spending is needed, as the royal commission demonstrated, but that is not something we should be asking future generations to pay for. We should be paying for it ourselves.

The royal commission proposed a Medicare-style levy. I have no doubt that this would have been accepted by the majority of Australians. But it was not acceptable to Scott Morrison and Josh Frydenberg. They are happy to spend the money but lack the political courage to ask us to pay.

Some genuine conservatives would argue for an alternative system that would set higher standards for nursing homes, and improve their ability to access the value of their patients’ real estate to fund the improvement. That alternative would leave the government picking up the tab just for those without the means to pay for care themselves. But that too was unacceptable to the Morrison government. So instead it is spending without paying.

The table that holds the key to the whole budget is on page 79 of Budget Paper No. 1. It reveals that in the five months since the midyear outlook last December, the unexpectedly strong recovery improved the underlying cash balance for the five years to 2025 by $104 billion. But the budget banked just $8 billion of that. Instead, the government has opted to spend an extra $68 billion and cut $28 billion off tax revenue — boosting the cumulative budget deficits by $96 billion.

Most of the tax cuts will defer revenue rather than wipe it, so the net long-term cost is more like $80 billion for those five years, plus the $15 billion a year cost of continuing the unfunded spending. It’s like spending an extra $155 billion over the next ten years, waving to the kids and saying, “Thanks, guys. You can pay for this.”

While spending as a share of GDP is at record highs, taxes as a share of GDP are at near-record lows. In the past forty years, the only years when taxes have been lower as a share of GDP were 1991–94 (the long recession) and 2009–12 (the unaffordable tax cuts Peter Costello unveiled to try to win the 2007 election, which Labor then implemented).

The political reasons for this are obvious. In 1990 Labor had just been re-elected (just!), and so was not concerned by the prospect of rising unemployment. In 2021 the Coalition is preparing to face an election. For it, winning that election takes priority over any economic argument. People want jobs more than they want a balanced budget, so that’s what this budget aims to provide.

Most commentators have missed the obvious corollary. After the election, assuming the government is re-elected, pleasing people will not matter so much. Expect to hear Josh Frydenberg wax as righteous next year about the need to reduce the deficit as he is now about the need to reduce unemployment.

I don’t believe this is a long-term change of strategy by the Coalition; it won’t dump its political tactic of branding itself as the “fiscally responsible” party and Labor as the party standing for deficits. This is a short-term tack that will be reversed after the election. Of course no government promising $503 billion of deficits in five years can be called fiscally responsible, so it will make cuts then to reclaim the brand.

Some will say: “Dude, you’re out of date. Our modern thinking is that governments don’t need to run surpluses. They can just send the bill for the deficits to the Reserve Bank, and it can finance them — and tear up the debt.”

The government and the Reserve have already taken a first step in that direction. At the end of March 2019, the bank held just $3 billion of the roughly $620 billion of government securities then on issue. At the end of March 2021, it held $150 billion of them. While it has bought them in the market rather than from government directly, in net terms it has financed about half of the Covid deficits so far.

But there is no suggestion that it is buying worthless assets that will be torn up down the track. To treat Australian government securities like that would run big risks for all the nation’s financing on global markets. The government will eventually have to repay the Reserve Bank the value of that debt. It will have to get the money either by running significant budget surpluses or (more likely) by issuing new debt at whatever the going rates are at the time. They are unlikely to be as benevolent as those we have now.

As for the Reserve’s own monetary policy, it knows that while cutting interest rates helps stimulate business investment — its ostensible aim — it has even more impact on asset prices. It is throwing fuel on the fire of housing prices, putting home ownership even more of out of reach for aspiring homebuyers.

It is time we went back to economic reform, which the Coalition largely abandoned twenty years ago after its near-death experience introducing the GST. We need to get the adults back in the room, to look at how governments can do their business more efficiently. Bad politics has made good economics take a back seat for too long.

We don’t have to spend $10,000 a day locking up refugees who pose no threat to Australia. We don’t have to allow housing investors to run up losses they can use to reduce their tax bills. We don’t have to allow business to deduct interest bills from their taxable income. We don’t have to allow family trusts and offshore tax havens to enjoy special tax status. We don’t have to allow mining companies to be exempted from the fuel taxes others pay.

Similarly, if our goal is to lower unemployment, we need to look harder at why so many Australians have remained unemployed even though we pride ourselves on having been one of the fastest-growing economies in the Western world over the past thirty years. We would look at the importance of skills training, how we could provide support rather than punishment to vulnerable people out of work, and how we could stop skilled employment visas being used to bring in cheap foreign labour to do the entry-level jobs that formerly gave young Australians their start in the labour market.

We could do more to achieve our goals without leaving huge bills for the kids while pricing them out of home ownership. But it takes political courage. And after 2019, that is in short supply.

Two last points. The $68 billion of net new spending didn’t apply to universities, where the budget proposes to cut support — even though, as the ANU’s Andrew Norton has pointed out, the need for government help is intensifying as the number of foreign students falls sharply. It is breathtaking, and it is tragic, to see this government deliberately starving one of Australia’s main growth industries because it sees universities as the home of political opponents. Menzies would be appalled.

Second, it is not true that the government has decided that Australia’s borders will not reopen until mid 2022, as other media have implied. Rather, to estimate the budget numbers Treasury and Finance had to make some assumptions about what will happen with Covid and the borders — and this was one of the assumptions they chose to make. Frankly, anybody who was shocked by it can’t be following the rising rate of global Covid infections very carefully.

For many reasons, it would be in Australia’s interests for the federal and state governments to be moving faster to expand the areas in which we are opening up. But that involves taking an increased risk, and it seems clear that most Australians don’t want their governments to do that.

Having chosen to “eradicate” Covid-19 rather than learn to live with it, as others have done, it follows that Australia will be one of the last countries to open its borders to the world. I for one would be surprised if this happened by mid 2022. •

The post Kicking the can down the road appeared first on Inside Story.

Beckett took up painting seriously only in her mid twenties, and died at forty-eight. She painted mostly the streets and beaches of her suburb, Melbourne’s Beaumaris, and never travelled outside Victoria. She had her supporters, certainly, even among the art critics; but after she died, she was largely forgotten. If not for the persistence of one young woman a generation later, she could have disappeared from memory altogether.

A blockbuster exhibition of 150 works by this unique artist, Clarice Beckett: The Present Moment, now in its final month at the Art Gallery of South Australia, shows what a loss that would have been. (For those who can’t get to Adelaide before the exhibition closes, Marcus Bunyan provides a very good guide on his website, Art Blart.)

Fifty years after Rosalind Hollinrake resurrected her work, critical opinion sees her, in the words of exhibition curator Tracey Lock, as “one of Australia’s most important painters of the interwar period, critically acknowledged for her own individual form of modernism.”

October Morning, painted in Melbourne circa 1927. Gift of Alastair Hunter OAM and the late Tom Hunter/Art Gallery of South Australia

Some go further. John McDonald of the Sydney Morning Herald says that he was so overwhelmed by the scale and diversity of the exhibition that he returned to see it three days in a row. “I’m wary of hyperbole and reluctant to play the game of declaring any artist to be ‘the best,’” he concludes, “but for me this retrospective of what remains of Clarice Beckett’s work has propelled her way ahead of more celebrated painters such as Margaret Preston and Grace Cossington Smith.” Beckett has been dismissed as another “Meldrumite,” he adds, “but neither Max Meldrum nor any of his tonalist disciples ever painted anything as poignant as the work in this exhibition… If this show were being staged at Tate Modern or the Museum of Modern Art, Beckett would be hailed as a figure of world renown.”

For what it’s worth — not much, since I’m no art critic — I had a similar experience. I’ve loved Beckett’s work for twenty years, but like McDonald I was inwardly fearful that seeing a lot of it together might lead to a disappointing sense of repetition. Far from it: each new viewing led to new discoveries, as works overlooked the previous day turned on their own magnetism.

Yet the paintings haven’t changed since they were excoriated almost a century ago by the ageing Arthur Streeton and other critics. They remain the same misty, often melancholy mix of colours, fuzzy outlines of people, trees and buildings, usually painted lightly, seemingly in great haste, and rarely reworked. Trundling her painting trolley around Beaumaris and up the coast of Port Phillip Bay, Beckett produced thousands of them: according to her sister Hilda, as many as five in a morning’s work. All of them different.

How did one young gallery owner rescue her from the oblivion to which she had been consigned? And what did Streeton and the art world of her time miss that today’s art world acclaims?

Rosalind Hollinrake was in her late twenties, and married to Barry Humphries, when she was startled by one moody, haunting painting, and then another, signed only “C. Beckett.” She asked around, but no one in Melbourne in the late 1960s knew of any artist of that name. She thought Beckett might be an American.

She called the journalist Keith Dunstan, whose daily “A Place in the Sun” was Melbourne’s most widely read newspaper column, and he asked his readers if they could shed light on this mystery. Two days later, a well-dressed older woman walked into Hollinrake’s gallery and unwrapped some small paintings, clearly by the same artist. The visitor was Hilda Beckett Mangan: the painter, she said, was her late sister, Clarice. And there were thousands more of her works stored in a farm shed near Benalla.

Evening, After Whistler, painted in Melbourne circa 1931. Gift of Alastair Hunter OAM and the late Tom Hunter in memory of Elizabeth through the Art Gallery of South Australia Foundation 2019, Art Gallery of South Australia, Adelaide.

When Rosalind and Hilda went to the farm, though, they were almost too late. The paintings had been stashed there for decades, and the shed was open to the weather on three sides: in that time, rain and possums had destroyed most of them. Only 369 works could be salvaged from the more than 2000 stored there. McDonald calls the loss “one of the great disasters of Australian art history.”

Hollinrake picked out a few dozen works and put them on exhibition at her Melbourne gallery. It was a success: the young Patrick McCaughey, as art critic of the Age, hailed Beckett as a “remarkable modernist… The advanced is never the prerogative of the announced candidates. It sneaks up behind you and raps the knuckles of your taste.” James Mollison, director of the new National Gallery of Australia, bought eight of the paintings on the recommendation of Fred Williams.

Eight Beckett exhibitions followed in a decade, spreading to Adelaide, Sydney and Canberra. Hollinrake published a biography, which soon sold out. Eventually the National Gallery of Victoria bought its first Beckett — although in recent years, in my experience, it is rare to find any of her works on its walls. The main galleries interstate, as well as in Ballarat, Bendigo, Castlemaine and Benalla, all had classics of her oeuvre. Group exhibitions — notably the nationally touring exhibition Clarice Beckett: Politically Incorrect (1999) and the South Australian gallery’s Modern Australian Women (2001) and Misty Moderns (2008) — widened and deepened her following.

Australia owes a great debt to Rosalind Hollinrake. It is largely thanks to her that, in all, about 600 paintings have been preserved. As McCaughey wrote in 2014 in his book Strange Country: Why Australian Painting Matters, “Without the exhibitions that Hollinrake mounted in her gallery and later curated for tour in public galleries, Beckett would have perished as an artist and the loss to Australian culture would have been immense.”

Clarice Beckett was born in 1887 into a relatively well-off family in western Victoria. Her father was a bank manager with the Colonial Bank of Australasia, which later merged into what is now NAB. He was later promoted to run the Bendigo branch, and then to head office in Melbourne. Clarice spent her childhood mostly in country towns: Casterton, Bendigo, at boarding school at Queen’s College, Ballarat (now merged into Ballarat Grammar), and finally a year at Melbourne Girls’ Grammar. In 1905, the Argus reported that the eighteen-year-old had won a first prize of three guineas in a competition for the best essay on the moral lessons of A Girl’s Cross Roads, then playing at the Theatre Royal.

But where her own road took her next is not clear. As curator Tracey Lock laments, “We know little about her. There are few extant letters and no diaries or journals.” But she clearly decided to become an artist, despite parental misgivings and all the obstacles in the way of a woman taking that path. In 1914 she and Hilda moved to Melbourne to begin drawing classes under Frederick McCubbin at the National Gallery art school: in view of her later nonchalance in drawing the human body, it is interesting that Clarice was runner-up for the prize for best drawings of hands and feet.

A life-changing decision saw her move on in 1917 to study with Max Meldrum, the charismatic theorist of tonalism, whose break with the traditionalists was to divide Melbourne’s art world in two. Meldrum disdained literal painting of human and natural forms and sought to capture instead “the great story of Nature’s colour, tone, proportion, sound and rhythm.” A “Meldrum group” formed around him, with Clarice Beckett as one of its leading members. Their works, overwhelmingly landscapes, rejected sharp lines for fuzzy edges, their blurred images reminding more literal minds of photos out of focus. Many in the art world just didn’t get it.

Beckett pushed the boundaries furthest of all. In her seascapes and suburban street scenes, forms became indistinct, humans became blobs on the beach or footpath, headlights became splotches in the fog or rain, poles were only roughly straight, and one colour merged into the next. She was indomit-able: the more the critics attacked her lack of “form,” the further she moved from what they wanted her to do.

One of the finest works of this exhibition, Tranquility (1933), shows that capturing the mood of nature, not its literal detail, was what mattered to her. Birds are rarely seen in her seascapes. Trees are suggested rather than precisely rendered. In the catalogue of a 1924 exhibition, she wrote that she sought “to give a sincere and truthful representation of a portion of the beauty of Nature, and to show the charm of light and shade, which I try to give forth in correct tones so as to give as nearly as possible an exact illusion of reality.”

Tranquility, painted in Melbourne circa 1933. Gift of Alastair Hunter OAM and the late Tom Hunter/Art Gallery of South Australia

The test is whether the viewer of the work senses it to be “an exact illusion of reality.” In her own generation, many did not. While her paintings of cut flowers in vases were universally popular, some critics, all of them painters themselves, disparaged her landscapes, either by ignoring them or by merciless criticism — often for choosing humdrum subjects such as street scenes and cars driving in fog and rain.

“This artist,” Streeton wrote sarcastically in the Argus, “appears to limit her vision to one particular expression of Nature — the misty lightness one sometimes encounters before the sun has risen high enough for its light to separate one object firmly from another. This may be an experimental stage in the study of this artist and when she chooses for a change a subject with hard edges, such as crockery, cutlery or cut glass, she should lend a welcome variety to her exhibitions.”

Yet Beckett was pushing the boundaries — just as Streeton himself had done almost half a century earlier — to create a new genre that would express different emotions. Did the old man remember how his 9 by 5 exhibition with Tom Roberts and Charles Conder in 1889 was savaged by the Argus critic of that time? “The modern impressionist asks you to see pictures in splashes of colour, in slap-dash brushwork, and in sleight-of-hand methods of execution leading to the proposition of pictorial conundrums, which would baffle solution if there were no label or catalogue,” wrote James Smith. “In an exhibition of paintings you naturally look for pictures, instead of which the impressionist presents you with a varied assortment of palettes.”

What distinguishes Beckett’s work so strongly from that of the other members of the Meldrum group, or of her contemporaries Margaret Preston and Grace Cossington Smith, is its appeal to the emotions. As one viewer aptly put it, “her works ache with feeling.” This is as true of her sunlit paintings — the Castlemaine gallery’s Boatshed, Beaumaris (1928), for example, or the privately owned Sunny Morning (1933) — as of those grey melancholy skies and mists she is best known for.

In short, Clarice Beckett was ahead of her time; decades later, the rest of us have gradually caught up. And not only about painting: these days there is nothing unusual about a concerned woman writing to her newspaper about an act of environmental desecration by officialdom. But I suspect that Beckett’s letter to the Argus, published on 7 June 1934, a rare glimpse into her thinking, was likewise ahead of its time:

“Allow me to plead for the protection of the foreshore. The beautiful cliffs of Beaumaris are undergoing what I believe the Sandringham council would call a ‘tidying-up’ process. This process consists of tearing up every native plant and creeper and leaving a trail of turned-over sods and black smouldering ashes where the plants and creepers have been cremated. In the summer we are certain of a plentiful crop of weeds, thistles and Cape weed to replace the native growths. The shallow roots of the tea-tree are left unprotected, and at the first gale of wind are uprooted and blown over. Why cannot the council realise that the chief charm of Beaumaris to residents and visitors lies in the native untouched beauty of the foreshore? Surely the council can find more useful work for the unemployed than in perpetrating such an act of vandalism.”

Fortunately, Beckett has had not just her critics but also her champions. After Rosalind Hollinrake, the Art Gallery of South Australia has been the most active in recent decades. In 2019 it negotiated to buy twenty-one of Beckett’s paintings from Hollinrake using a generous donation from businessman Alastair Hunter. This exhibition is their public debut; some, such as The Red Sunshade, are among Beckett’s finest.

The Red Sunshade, painted in Melbourne in 1932. Gift of Alastair Hunter OAM and the late Tom Hunter/Art Gallery of South Australia

Even in her own time, Beckett had supporters. The Age’s Alexander Colquhoun understood her work well, and explained it to readers repeatedly in his columns. Percy Leason, a close friend and colleague in the Meldrum group, was unstinting in his praise as art critic of the Herald’s upmarket weekly, Table Talk. In 1933, a letter to the Age berated the National Gallery of Victoria for refusing to buy any work by this Victorian artist “whose work, as a woman painter, is not surpassed, and possibly not even equalled, by any other woman living in this world.”

And in October 1932, two days after Herald art critic Blamire Young had disparaged her new exhibition — if not as rudely as in his previous review, where he described her paintings as “mist, telegraph poles and service coaches… served up in the Meldrum manner remorselessly to our continued grief” — the paper published a contrary view from its folksy columnist, “The Rouseabout.”

“Though I had biked, hiked and motored along Beach Road around Beaumaris Bay a hundred or more times,” he wrote, “I did not fully recognise the beauty of the place till I looked in at Miss Clarice Beckett’s exhibition of oil paintings at the Athenaeum today. This Bendigo girl, pupil of Max Meldrum, has caught cliff and water in all moods of light and weather and season, revealing that there is not one Beaumaris Bay, but a score.

“I am indebted to Miss Beckett for a sharp lesson. There are bathing boxes in Beaumaris beach the sight of which I shunned unless nymphs happened to be guarding the doorways; petrol pumps on the road which inspired only a thought of the price of the juice they contained; telegraph poles put there, apparently, just to annoy artists.

“But she has courageously brought the boxes, pumps, and poles, as well as motor cars into the picture, and lo! we see that the sun loves to play about them. So I really saw Beaumaris for the first time.”

No name was attached, but around that time the Rouseabout was C.J. Dennis, beloved author of The Songs of a Sentimental Bloke. He understood what his fellow artist was showing him. This woman doing her own thing — this painter of moody, misty landscapes — produced paintings that delight, resonate and, in their silence, speak to our emotions in a way few other Australian artworks have done. •

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Prime minister Bob Hawke and Keating, his treasurer and successor, won support for tough reforms — holding down wages and instead giving workers universal healthcare and superannuation, subjecting once-universal welfare benefits to income and asset tests — because Australians felt themselves to be economically vulnerable. Being a big agricultural exporter was no longer a ticket to wealth. The elites of left and right agreed: we had to reform, work harder, change our game.

Ross Garnaut was at the forefront of that reform surge. He was Hawke’s economic adviser, then Australian ambassador to China and, from a prestigious base at the Australian National University, an influential advocate for free trade and enmeshing Australia in the Asia-Pacific. His 1989 report advocating scrapping tariff protection for manufacturing to make other industries more globally competitive was crucial to the government’s decision to do just that, which saw 130,000 manufacturing jobs wiped out.

At the 1996 election, John Howard swept Keating away, pledging to make Australians “relaxed and comfortable.” He led one last big reform, the introduction of the GST, and that was it. Reform gave way to media management, giveaways to voters, culture wars designed to wedge opponents, and help for vested interests. In this century the only big economic reform worth the name came when the crossbenches forced the Gillard government to adopt a carbon price, which the Coalition then scrapped on coming to office.

Garnaut played a key role in that reform too, after Kevin Rudd (one of his junior diplomats in Beijing days) asked him to write a report weighing up Australia’s climate change options and Julia Gillard brought him into the final negotiations on how to make a carbon price work. But the return of the Coalition in 2013 saw him back on the outer, as any prospect of serious economic reform disappeared.

While Bill Shorten’s period as leader raised hopes that Labor in government could renew its zeal for reform, a government led by Anthony Albanese looks no more likely to take tough decisions than a Coalition one. Those who see urgent need for reforms seem to be talking to ourselves; those able to do anything about them are simply not interested.

Ross Garnaut is undeterred. His new book, Reset: Restoring Australia after the Pandemic Recession, is a wide-ranging almanac of reform proposals to give Australia a better future: on economic, social and environmental fronts. At times, he seems to be talking directly to the Morrison government, as if hoping that it has Australia’s long-term interests at heart, despite evidence to the contrary, and could be persuaded to embark on politically difficult reforms to secure them.

Appeals to revive the spirit of the Hawke–Keating government under this government frankly seem like a waste of breath. But it is the fate of reformers to debate reform options in their own minds and with those they respect, and Garnaut’s book is full of them, all focused on creating an Australia with full employment — as soon as possible — rising standards of living, sustainable finances, and world-leading new industries based on renewable energy.

Most of the media coverage of the book has focused on Garnaut’s proposals for macroeconomic reform: lifting the growth rate by reshaping and reducing taxes, and financing those changes by issuing new government bonds bought directly by the Reserve Bank. This would further increase the federal deficit, at least initially, and loosen monetary policy to levels comparable to other Western countries, leading indirectly to a lower Australian dollar, and a more competitive economy.

Restoring full employment by transforming our international competitiveness is one of the two key themes of the book. But the other is equally central: to achieve this will require business and government to rapidly develop Australia’s new international competitive advantage in renewable energy and the products dependent on it: the hydrogen economy, ammonia and fertilisers, metal refining, and downstream processing in products such as steel and aluminium.

The macroeconomic agenda is the logical place to start. And for an economist known as a voice of orthodoxy, Garnaut’s proposals show how far that orthodoxy has moved since 2008.

He cuts through the spin we hear about Australia’s economic performance in the past decade, in what Garnaut likes to call the “Dog Days.” As I too have argued, it was unimpressive, whether compared with our past experience or with our international peers. Unemployment stalled above 5 per cent, underemployment swelled, real wages stagnated as never before, and GDP growth rates looked okay only because they were inflated by high immigration.

Without a policy reset, Garnaut argues, that past is what Australia risks going back to as we emerge from this recession. He gives the government high marks for dropping its deficit fetish after Covid-19 struck, when it successfully pumped money into households and business to stimulate spending. But like other economists, he argues it switched its focus too quickly to reining in future deficits when the bigger job is to get people back to work.

He boldly, and rightly, assails the misuse by the Reserve Bank, Treasury and others of the concept of the NAIRU (the “non-accelerating inflation rate of unemployment”), an estimate of how low unemployment can fall without causing rising inflation. The NAIRU makes good theoretical sense but in reality is impossible to calculate accurately when no such events happen. In 2012 the US Federal Reserve estimated the limit for the United States was 5.5 per cent. Yet by 2019 unemployment was 3.5 per cent and inflation almost non-existent.

Except for Western Australia during the labour shortage of the first resources boom, wage growth has not driven up inflation in Australia since the 1980s. Treasury’s estimate of the NAIRU as 5 per cent, and the Reserve Bank’s estimate of “4-point-something” are equally phoney. As Garnaut says, “We simply don’t know, and we won’t know until unemployment falls to a level at which wages rise at an accelerating rate.” He suggests aiming for a 3.5 per cent unemployment rate, and then lower unless inflation is “accelerating dangerously out of the top of the Reserve Bank’s target range.”

To get to 3.5 per cent unemployment by 2025, he estimates that Australia needs to create 1.2 million new jobs in just four years. That is a huge task, considering the headwinds we face: “the huge legacy of public debt, a smaller capital stock per person (because of low business investment)… major losses in export industries… reduced productivity… the effects of climate change, an ageing population… [and] lower population and workforce growth.”

Garnaut makes a second bold but correct call: don’t return to high immigration levels. In the past decade or two, net overseas migration has averaged 1 per cent of the nation’s population every year, mostly from people coming (or staying on) here to work, and taking jobs that in the past went to school leavers or graduates, whether in service stations or in IT and the like.

I have written about this several times. Between 2008 and 2016, roughly three-quarters of all net growth in full-time jobs went to new migrants. Of the 474,000 full-time jobs added in that time, only 74,000 went to workers born in Australia, while 168,000 went to workers born on the Indian subcontinent. Treasury looked at a different set of years and found similar numbers.

“Immigration now lowers the incomes and employment prospects of low-income Australians,” Garnaut concludes. “Integration into a global labour market [has]… contributed to persistent unemployment, rising underemployment… stagnant real wages [and]… a historic shift in the distribution of income from wages to profits.” Temporary worker migration in reality is not focused on solving skill shortages, as promised, and migrant workers are frequently exploited, as Age journalist Adele Ferguson has shown.

Garnaut argues for halving the annual net immigration rate to 0.5 per cent: in round figures, 125,000 a year rather than 250,000. Of all his reform proposals, it is one of the most viable politically.

To create those 1.2 million jobs by 2025, both fiscal and monetary policy must be set unambiguously to expansion. The Reserve Bank, Garnaut says, needs to accelerate as hard as most other central banks in the West are doing to bring the dollar down and make Australian producers more competitive. (He notes that Australia might still be making cars had the Reserve understood the damage it was doing to our competitiveness by failing to halt the dollar’s rise during the resources boom. In the new age of electric vehicles, there is no one left here to make them.)

I would add one caution, however. We can’t ask the Reserve to correct the damage from bad government policies: only governments can do that, and none of our recent governments has wanted to. So low interest rates once again are igniting an explosion of tax-driven investment in rental property that will deprive growing numbers of Australians of the chance to own their own home, perhaps forever.

On budget policy, Garnaut empathises with the Coalition’s desire to start reducing the deficit to minimise the debt it will bequeath to future governments — but concludes that this is not the time for it. The government, like the Reserve, should still have its foot on the accelerator, not the brake, and he has two big ideas on how to go about it:

• The complex tax and welfare system should be simplified to (mostly) one flat tax rate and one big welfare payment. The payment would be what is variously called a universal basic income or negative income tax — Garnaut prefers to call it the Australian Income Security, or AIS — which would guarantee all Australian citizens (except those too rich to qualify) a tax-free payment of about $15,000 a year, topped up with further payments for those who are aged, disabled, unemployed or parents with dependent children.

Conversely, all income from the first dollar would be taxed at the rate of 37 per cent up to $180,000, and 45 per cent above that. The combination of the AIS and the tax would make this more egalitarian than it might appear. Garnaut argues that it would provide a stronger welfare net, provide greater incentive to work, simplify tax and welfare administration, and provide an immediate (but temporary) boost to demand.

• Business taxation would no longer be levied on profits, but on cashflow. This would make all investment spending immediately deductible against tax, providing a permanent incentive to higher investment. But interest payments and financing costs would no longer be deductible, except for banks and financial firms, and payments overseas for royalties, marketing and management fees would be deductible only if they were incurred directly in producing the firm’s output.

Conversely, however, companies with a negative cashflow would receive a cash credit, effectively paid for by other taxpayers. For those other taxpayers, that is a risky part of the design. A similar promise of a blank cheque for losses was one factor in the downfall of the Rudd government’s mining tax in 2010.

Garnaut argues that a cashflow tax would provide an incentive to investment, especially on risky projects. (BHP’s plan to build a fast rail line between Melbourne and Sydney in the early 1990s fell over when the Keating government declined to give it such tax treatment.) He also claims that removing deductions for interest payments and payments for imported intellectual property (often to a related company) would remove “the main opportunities for corporate tax avoidance and evasion.”

It’s an idea that’s been around a long time without any country adopting it. The Republicans in Washington flirted with a version of it a few years ago, but Donald Trump killed that idea.

• Garnaut also raises a third suggestion that is much easier to implement and could provide the right sort of stimulus: dump the convention that requires cost–benefit studies of infrastructure projects to use a discount rate of 7 per cent per annum above inflation to estimate the future value of projects in today’s dollars. At one time, that vaguely matched reality, but it was long ago. In an age of minimal interest rates, the convention is inaccurate, unscientific and harmful to good decision-making.

Frankly, it seems unlikely that any Australian government will implement either of Garnaut’s two big tax and welfare reforms in the near term. The Morrison government’s derisory cup-of-coffee-a-day increase to Newstart despite widespread bipartisan support for real reform shows its aversion to tackling the hard work of economic restructuring. Anthony Albanese seems to want people to like him, above all, and thus to avoid conflict — which unfortunately is an inevitable by-product of reform.

In Garnaut’s view, the Australian economy is facing so many headwinds that business as usual will not generate the jobs required to restore full employment. We need to try a new tack: to rephrase Ken Henry’s famous advice to the Rudd government: “Go hard, go early, go renewables.”

As he spelt out in his 2019 book Superpower: Australia’s Low-Carbon Opportunity, Garnaut sees Australia’s vast land mass and solar radiation as a resource that no other country can match in the dawning age of renewable energy. Just as our coal and gas resources gave us a huge competitive advantage until we began pricing them at global parity, we can produce solar and wind energy more cheaply and plentifully than any comparable country. This could become our leading export industry of the future, as coal exports diminish and gas exports flatline. In his words:

There is no comparable opportunity for profitable expansion of business investment in other trade-exposed industries. Getting carbon right becomes an integral part of getting economic policy right.

The transformation should begin on a large scale now… It is feasible now to replace most of Australia’s large imports of ammonia-based products (such as fertilisers). Building supply from new plants in rural and provincial Australia that rely on renewable energy and hydrogen — at prices competitive with high-emission alternatives — can happen in time to contribute to full employment in 2025.

Zero-emissions electricity at prices within the range required to keep established mainland aluminium smelters alive is possible now. By contrast, aluminium smelting at Gladstone, Newcastle and Portland would not survive through the 2020s with continuous coal-based power supply.

[With budget subsidies]… the first commercial-scale hydrogen-based iron-making plant can be built as part of the movement to full employment. Make a start on commercial-scale plants, and more business investment will follow.

In Garnaut’s view, the hydrogen economy is not for the distant future, it is something we should start creating now. British billionaire Sanjeev Gupta, with whom he has worked, last month launched a feasibility study for an industrial-scale hydrogen-fuelled steel plant at Dunkirk. Three separate consortia are progressing plans to build renewables-powered hydrogen plants in the Pilbara to supply domestic and Asian markets. He sees traditional coal and gas centres like Gladstone becoming centres of hydrogen production and metal refining using renewable energy.

Not all agree. The day Garnaut’s book was released, BlueScope’s chief executive, Mark Vassella, said it plans to use old technology to update its Port Kembla steelworks, warning that “green steel” might not become mainstream for another twenty years.

But many of Australia’s heavy industrial plants will not last that long. And as the laggard of the Western world in reducing greenhouse emissions from industry, Australia now faces the prospect of tariffs in Europe and North America to force it to speed up its transition.

Garnaut argues that green steel, green aluminium and green fertilisers will command premium prices in the renewable era. Australia should be a first mover in using its wind and solar resources to produce them.

He is practical, not religious, in his outlook. Unlike the green lobby, he sees gas playing a prominent role in Australia’s future, backed by carbon capture and storage in areas where that is geologically feasible. But renewables, not gas, are the main game — and our economic flagship of the future.

One subject that appears rarely in this book is China. When Garnaut has been one of Australia’s foremost experts on China for almost four decades, that is surprising, but also a sign that we live in dangerous times.

When he does touch on China, he is careful but clear-eyed. He advises Australian firms to look to develop other markets, especially in Southeast Asia, and warns that ultimately China will look for other sources of iron ore, and of so much else that it once bought from us.

The one passage in which he does address Sino-Australian relations directly is, in my opinion, worth thinking carefully about:

There does not seem to be any early prospect of the restrictions in Sino-Australian trade lifting to leave clear air. There are real issues of Australian security to be managed. There are real Chinese responses to Australian initiatives. Australia and China will respond from time to time in ways that are influenced by the shifting dynamics of US politics and international engagement.

What might be possible is a narrowing of restriction to the minimum necessary for meeting clearly defined and essential security interests, as analysis and the passing of time causes us to see them. This will make heavy demands on Australian knowledge and analysis. It will take subtle and intense diplomacy.

It will require Australians to adjust to the realities of living in a perilous world, in which peace and prosperity, and our effective sovereignty, depend on understanding the world as it is and not as we wish it to be.

This is a world that has been inhabited by other countries of modest size alongside great powers since the beginning of the nation state. It is a world that is understood from history by our Western Pacific neighbours South Korea, Vietnam and Thailand — and by the neighbours of great powers in Europe and Central and North America.

There is pain and wisdom in these words. •

The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

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In September quarter 2019, the government paid out $32 billion to households as welfare payments. A year later, it paid out $48 billion. Call it enhanced JobSeeker.

It wasn’t just JobKeeper and JobSeeker, but they were the real heroes of this week’s GDP figures. Australia’s economy has now moved into recovery, while still remaining fundamentally in recession. In all, the federal government took a breathtaking $73 billion hit to its finances in a single quarter, more than half its gross income, to help the economy back on its feet.

It’s worked, and treasurer Josh Frydenberg was justified in claiming it as a success story. It wasn’t perfect, but it was good enough — along with the success in getting coronavirus under control in all states and territories except Victoria — to power the economy back up.

Business still wasn’t investing — business investment was already at historic lows in 2019, but plunged another 10 per cent in the year to September. But in the September quarter itself, household consumption shot back up by more than 10 per cent in every state except Victoria. And that, despite households saving an incredible 19 per cent of their swollen incomes.

In hindsight, sure, the government overdid the generosity, but it had been misled by panicky epidemiological modelling, and in any case, it was better to do too much than too little. (Of course, it could have done even better by spreading less money among more people, as many pointed out at the time, but that’s another story.)

Sources: Eurostat and national statistical agencies (GDP), Worldometers (Covid-19).

Frydenberg went over the top, however, in proclaiming Australia’s performance as a world-beater. Even among the twelve largest advanced economies, we were just average — fifth of the twelve in comparing GDP year on year, but probably seventh or eighth if we had figures for the real bottom line, which is not GDP but GDP per head.

We do have those figures for Australia. Surprisingly, perhaps, the Bureau of Statistics estimates that Australia’s population grew by roughly 250,000 over the year to September, or almost 1 per cent. The fall in GDP year on year was 3.8 per cent, but GDP per head fell by 4.75 per cent, putting us at the back of a small peloton with Germany, France and Italy.

The real world-beater in the advanced world, of course, is Taiwan, where the economy grew by 3.9 per cent while just seven people died of coronavirus in a country with a population almost as big as Australia’s. It is sobering to reflect that this extraordinary democratic success story is now under serious military threat from Xi Jinping’s ambition to retake what China sees as a rebel province. For Xi, from what we read, bullying Australia is a sideshow. Retaking Taiwan is his main game.

One last point on the international comparisons. As the table shows, Taiwan and South Korea have done best both in suppressing the virus — without lockdowns, but with state-of-the-art contact tracing, quarantine and public health measures — and in maintaining economic momentum. Spain and Britain have done worst in both, partly because they are both major tourist destinations, and tourism destinations everywhere have suffered worst.

Otherwise, though, I defy anyone to show how the two sets of figures back up the claim that lockdowns are good for economies. For reasons I for one don’t understand, Australia and New Zealand are hardliners in focusing solely on fighting the virus by whatever means, whereas in Europe and the United States, governments and the public have been far more hostile to locking down their economies.

With luck, the British decision overnight to approve a vaccine for public use is the beginning of the end for this strange episode in world history. But as they say, this is a marathon, not a sprint. Many things have taken us by surprise, and there could be many more before it’s over.

Australia’s claims to be an economic standout were frustrated by the second wave of the virus in Victoria, and the severity of the lockdown the Andrews government imposed to crush it. Victoria was home to 90 per cent of Australia’s coronavirus deaths, 94 per cent of its net job losses (year to October) and, yesterday’s figures tell us, 72 per cent of the loss in economic activity in the year to September.

In the rest of Australia, total spending in the economy fell only 1.35 per cent over the year. Take out New South Wales as well, and demand in the rest of Australia actually rose 0.1 per cent year on year, with the Australian Capital Territory streaking away, and Queensland recording growth. But spending over the year shrank by 3.3 per cent in New South Wales (which was not in lockdown) and by 9.8 per cent in Victoria (which certainly was).

Household spending in Victoria contracted by 16 per cent over the year. Compared with a year earlier, Victorians spent 92 per cent less on trains, trams, taxis and planes, 71 per cent less in hotels, restaurants and cafes, 45 per cent less on buying new clothes, 39 per cent less on using their cars — and a seriously worrying 18 per cent less on going to the doctor, pathology clinic or operating theatre. Doctors have voiced alarm that this means trouble ahead.

Right now, however, that severely suppressed spending means Victoria is likely to come tearing out of the blocks in the December quarter, carrying the nation with it. Consumer spending will need to keep growing fast, because unless the Covid-19 crisis appears to be ending, business investment will recover only gradually — and the federal government’s strategy relies heavily on it.

Whether Australia can meet the government’s ambitions depends on the successful rollout of vaccines, and whether they provide an enduring barrier against this clever little virus. Whatever the outcome, it is now time for the government to spell out its plans for the JobSeeker payment. The Australian Council of Social Service has urged a rise of at least $100 a week to the meagre $40 a day paid to single jobseekers, and a realistic rental allowance to help them stay in their homes.

Frydenberg has to have something to replace the $50 billion in wage subsidies and $18 billion in charged-up welfare payments he handed out in the September quarter. A serious, humane increase in JobSeeker is the missing piece of the government’s policy for the recovery. Without that, there is a serious risk that its plans pull back too much support, too fast.

One last point. The national accounts show no sign yet of any real damage to Australia from any of China’s various acts of economic warfare. In the September quarter, China’s share of our exports grew to a new record of more than 40 per cent, as our exports to the rest of the world shrank. Our barley exports have found new homes at higher prices, raising hopes that other industries targeted by China’s rulers will do the same.

The stakes are rising, however, and firms who had put off developing new markets for their products could be in trouble in 2021. This too could be a marathon. The government cannot back down, and there is no public demand for it to do so. The best we can hope for is that it rules a line under the past, acts with forbearance, discipline and dignity under pressure, helps firms find new markets, and leaves the door open for China to one day resume an economic relationship that had worked well for both countries. •

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Let that soak in. This year, Victorian government spending will grow by more than 25 per cent. The additional spending will amount to close to $3500 for every man, woman and child in the state. That’s roughly $70 per person, per week, in new spending.

There are tax cuts too, but they are dwarfed by the new spending. If the Morrison government’s budget relies too much on tax cuts to stimulate consumer spending and business investment, the Andrews government’s budget does the reverse: just as its coronavirus strategy was an extreme in top-down control, so is its economic strategy.

Most of that is genuine stimulus: one-off measures in response to the economic devastation of the state by months of lockdown, such as a single line item in the budget papers, with no further breakdown, assigning $2163 million to “business support.”

Some of it is transport and other investment proposed for other reasons, but brought forward as a stimulus to economic activity in a year in which Victoria’s gross state product, even on optimistic assumptions, is projected to be 4 per cent lower than a year earlier. That includes $2.7 billion in this fiscal year that will rapidly, if only briefly, scale up the previously pitiful level of state investment in social housing.

And some of it is not stimulus at all, but uses the cover of stimulus action to step up Victoria’s routine budget spending in areas that interest Labor activists, and to commit to long-term infrastructure investments that would almost certainly fail a genuine cost–benefit analysis.

In short, there is much to praise in this budget, but also much to regret. That includes the government’s commitment to build the worst transport project Melbourne has ever seen: the so-called Suburban Rail Loop, in reality a twenty-six kilometre tunnel under the middle southeastern suburbs from Cheltenham to Box Hill. Tunnels eat money, and the demand for this one is likely to be small. No business case has been produced, and no cost–benefit analysis, but it will cost taxpayers tens of billions of dollars.

It is not the first lemon a Victorian government has tried to sell to voters. The Andrews government won power in 2014 partly because the Liberals thought it would be a great idea to spend $7 billion of taxpayers’ money to build a 4.4 kilometre tunnel under the inner suburbs to link two freeways; the taxpayers disagreed. But the Suburban Rail Loop is the lemon that makes other lemons taste like oranges.

Not surprisingly, the ratings agencies yesterday implied that this budget could lose Victoria its AAA credit rating. Standard & Poor’s said there was a 50–50 chance that the state could be downgraded, and this would happen if it came to the view that “the state’s financial management has weakened.”

Well, with respect, it clearly has: as far out as 2023–24, well past the time for stimulus, the budget projects $3.6 billion a year of new routine spending — $1.6 billion of it net of spending cuts and contingencies allowed for in the budget — plus roughly $6 billion a year of additional investment in assets.

Stimulus is certainly what Victoria needs right now, and this budget delivers it. But it has to be paid for, just as investments in roads, rail, schools and hospitals all have to be paid for one day. Governments should be brave and bold about delivering stimulus at this time. On that front, this budget succeeds admirably.

But equally, governments should be wary about the long-term costs of doing so, knowing that the bills will come in at some point, to be covered either directly or through permanently higher interest bills. They should not use the cover of stimulus to smuggle in a step-up in spending levels, and they need to prioritise asset investments that will deliver most bang for buck. This budget fails on both counts.

A bit of background is necessary here, because Twitter gives me the impression that many Victorians have little idea how different their state’s economic position is from that of the rest of Australia. Not only was Victoria home to 90 per cent of the Australians who died of coronavirus, but even after the unexpectedly large rebound in jobs last month, the state accounted for 94 per cent of Australia’s net loss of jobs in the year to October: 124,000 jobs lost in Victoria but just 8000 in the rest of Australia.

Female employment year on year grew by 24,000 in the rest of Australia, but shrank by 105,000 in Victoria, where hospitality and entertainment were largely shut down. For the same reasons, employment of workers aged fifteen to twenty-four shrank by 4000 in the rest of Australia, but by 92,000 in Victoria.

We won’t know the full devastation of lost businesses until JobKeeper ends, but the intensity and duration of Victoria’s lockdowns make it likely that it will also lose more workplaces than the rest of Australia combined. Even with that massive increase in state government spending, projections by the Victorian Treasury and its federal counterpart together imply that while Victoria’s output this fiscal year will be 4 per cent lower than a year ago, output will be only marginally lower in the rest of Australia.

And even that forecast relies on the government’s huge spending increase igniting an extraordinarily rapid recovery. The budget projects that real gross state product will grow by 9 per cent over the course of 2021, the sort of growth rate normally claimed only by China. And most of that would happen in the first half of the year — assuming no more coronavirus and no more lockdowns. As financial market insiders would put it, the risks in that forecast are on the downside.

The level of stimulus is extraordinary, however, and it’s welcome. Unlike the Morrison government, the Andrews government is doing as economists have suggested. In response to the slump in housing construction, it has introduced several new policies, but the big one is a crash program of building social housing, for which waiting lists now extend many years. The promise of another 9000 homes for some of those unable to afford secure and suitable housing in the private market is a marriage of good economic and social policies.

One hopes the government will not then just revert to the inadequate investment levels of the past, as the Gillard government did when Kevin Rudd’s 2009–10 public housing stimulus expired. In fairness, this depends even more on what the federal government is willing to do — which, at present, is not much.

The budget also commits $250 million to the Grattan Institute’s proposal for a two-year program to hire tutors to help struggling schoolchildren catch up, particularly those most affected by the lockdowns. While most stimulus programs, including new infrastructure, provide jobs for blokes, this one will provide much-needed jobs for women.

The budget also envisages lifting the current level of infrastructure spending by almost half, which would be welcome if it also included a transparent, independent way of selecting priority projects. No such luck. In Victoria, as elsewhere, the choice of projects is driven by what the government thinks will give it the most political bang for buck. What will give Victorians the most social/economic bang for their buck is irrelevant.

The Victorian Liberals are still clinging to the East West Link as their branded project, even though it has twice been rejected by the voters and three times by cost–benefit analyses. Labor has done much better with its branded project of removing level crossings, but with that scheme now growing familiar, Andrews has been keen to find a new project.

The federal Liberals have focused on getting a train line built to Melbourne Airport. It might not be needed — it will offer no more than Skybus already provides, except easier access from other suburban lines — but the polls show it is the top project among voters. Saturday’s agreement between the Andrews and Morrison governments means it will now become reality, with the two governments adopting the cheaper of two alternative proposals. The cost is pencilled in as $10 billion, and the completion date as 2029.

Andrews’s own new branded project, however, is the Suburban Rail Loop. It appears that this emerged from his political circle rather than from the railways, let alone transport economists. As originally presented, it was intended to run for ninety kilometres around Melbourne’s middle and outer suburbs, largely in tunnels, with a number of stations in the southeast but very few in the west. The cost was claimed to be $50 billion, which no one believed.

But the government is now proposing to build only the southeastern quarter of the loop, running underground from Southland shopping plaza through Monash and Deakin universities and selected suburban shopping centres (which developers own the redevelopment rights, I wonder?) to Box Hill station in Melbourne’s Chinese heartland.

The budget commits $2.2 billion to the initial stages, primarily for planning, land purchase and so on. Treasurer Tim Pallas promised that a business case will be presented next year, and no contracts for construction would be let until the voters have their say at the 2022 election.

Even the cost of this twenty-six kilometre tunnel might well be $50 billion: no one knows, including the government, which has committed to build it regardless. It is economic lunacy to choose infrastructure projects in this way. Infrastructure Victoria, which was set up to provide objective advice to the government on priorities, has been ignored and sidelined.

No government can build every project we want: it has to prioritise, and select which projects will give the community most value for money. Building the Suburban Rail Loop means the government will not have the resources to take up other, more urgent projects such as the second line of the Metro, intended to run from Clifton Hill to the massive redevelopment site of Fishermans Bend.

Choices have implications. In the ACT, the Labor–Greens government had to shelve its hospital redevelopment plan for a whole four-year term to pay for its own branded infrastructure project, Canberra’s first tramline. The huge cost of building a long underground railway to meet scant demand will push many other projects to the sidelines, possibly for decades.

It would be welcome if, in 2022, the Liberals ditched the East West Link and promised instead to ask Infrastructure Victoria to carry out cost–benefit studies of the key infrastructure choices under discussion. Get the facts, then decide. By contrast, the Andrews government has taken its lead from the Queen of Hearts in the trial scene of Alice in Wonderland: “Sentence first — verdict afterwards.”

The Suburban Rail Loop is the prime example of a problem that afflicts not only the Victorian budget but also Australian politics generally. Just as the hard right sees every issue through the prism of its fixation on waging culture war, so governments focus on what they brand as their projects, and which projects are politically rewarding to announce, rather than on delivering services to us that provide the best bang for buck.

Then, once the political gains of the announcement have been banked, they lose interest in delivering outcomes. The $5 billion the federal government promised for projects in northern Australia, and failed to deliver, is a classic example. But all governments now make wide use of another form of it: financing new projects by “reprioritising” old ones.

This budget has a beauty: a one-line item “reprioritising” $1836 million (2 per cent) of government spending this year alone, and a similar amount over the next three years. It was obscured so well in the budget papers (as one line in table 4.5 of Budget Paper 2) that as far as I can see, no one in the mainstream media reported it. It’s a way of saying: “Oh, by the way, $3.7 billion of the spending we promised you in past budgets won’t be delivered. But just look at what we’re offering you this time!”

There is no information on what past promises have been discarded in this way. It’s politically much easier to make spending cuts that are not announced than to make ones that are. This budget appears to have no announced spending cuts, but if you can cut 2 per cent from spending without announcing what you have cut, why go to the trouble of being transparent about it? This is an issue that oppositions and transparency reformers need to focus on.

One of the budget papers was also discarded: the old Budget Paper 4, the detailed statement of the government’s investment program. Treasurer Pallas blamed the rush of getting the budget ready, and promised it would be back for the budget next May. We have to take him at his word, but the issue matters.

Among other things, BP4 told us exactly how much the government has spent, is spending, and plans to spend on each project, and when it is expected to finish. It is the annual fessing-up to any blowouts in cost or completion dates. It is also a full account of the government’s investment priorities. It should be required by other governments as well, not least the federal government.

It’s also notable that policy commitments are now being made under increasingly long timespans, to make them look bigger. The budget papers tell us Victoria has now committed to $134 billion of new investments, which is roughly ten times the level of its annual investment up to now, and seven times the level projected from here on.

There is only one tax rise in this budget: the little tax on electric vehicles ($250 a year for fully-electric vehicles, $200 for hybrids) to ensure that they pay something towards the cost of providing the roads they drive on. This has provoked predictable outrage, but I seriously question whether it will change anyone’s decision on whether to buy an electric car. Pallas said yesterday that Treasury assumes it will have no impact on vehicle demand.

Politically, despite all the problems it has/had created with Covid-19, the Andrews government remains dominant. This budget comes at the midway point of its four-year term, and the polls tell us Labor would comfortably win any election held now. The apparent eradication of the virus, at least while Victoria was isolated from the world, has turned a looming disaster into a political triumph.

Coronavirus is an ongoing story, with more twists and turns to come. Economic concerns have been ignored by Victorians and their government, but they will become more prominent as fears of the virus recede. This budget seems to leave out nothing in its willingness to lift the economy out of recession through government spending. But I did find one place where the government had exercised spending restraint.

On the same page as the commitment to spend $2200 million on the preliminaries of the Suburban Rail Loop, the government has committed to spend just $4 million over the next four years to improve bus services — the form of public transport that residents of the outer suburbs most rely on. •

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They went in aspiring to treble their representation from two members to six in the Legislative Assembly. By the time final preferences were distributed last night they had done exactly that, winning two of the five seats in the central electorate of Kurrajong and one seat in each of the other four electorates.

The twenty-five-member ACT Assembly will have ten Labor members (compared with twelve in the old Assembly), nine Liberals (down from eleven) and six Greens (up from two).

At first sight, that’s a remarkable result, even unjust. On first preferences, Labor won 37.9 per cent, the Liberals 33.9 per cent, the Greens just 13.4 per cent, and others 14.8 per cent. But no minor party or independent candidate won a seat, so it is the three-party vote that explains the result.

It’s a vital electoral statistic, but in a Senate-style election it’s only possible to make rough estimates. This time, minor-party and independent preferences split almost equally among the three parties. On my estimate, Labor won roughly 43 per cent of the three-party vote (down 1 per cent from 2016), the Liberals won 39 per cent (down 3.5 per cent) and the Greens won 18 per cent (up 4.5 per cent).

That’s the critical number, because in a five-member electorate, the quota for election is 16.67 per cent. In the past, the Greens were often unlucky, falling just short of the quota. This time they were seriously lucky, winning just above a quota almost everywhere — or else less than a quota but still more than any other candidate left in the race.

Three of the five electorates ended in close contests. The nail-biter in southern Brindabella (Tuggeranong) ended with the Greens’ Johnathan Davis, a young, fresh-faced, openly gay real estate agent, riding across the line just eighty-two votes (0.15 per cent) ahead of his Labor rival Taimus Werner-Gibbings — whose preferences then catapulted him 520 votes (0.97 per cent) in front of Liberal MLA Andrew Wall to claim his seat.

In northern Ginninderra (Belconnen), Liberal ranks received a much-needed boost of brainpower when Peter Cain, a school principal turned senior government lawyer, edged out Labor’s attorney-general Gordon Ramsay by 167 votes (0.30 per cent). The Greens’ Jo Clay had already claimed a seat from one or other of them, leaving Cain and Ramsay to fight for the last lifebelt.

In inner-suburban Kurrajong, the Greens’ stronghold, minor-party and Labor preferences ended up helping the Greens’ second candidate, Rebecca Vassarotti, wrench the final seat from Liberal MLA Candice Burch to win by 407 votes (0.80 per cent). Kurrajong now has two Labor members, two Greens and just one Liberal.

Twenty years ago, in broadly the same electorate, the Liberals held three of what were then seven seats, and a pro-Liberal independent, health minister Michael Moore, held a fourth. Its losses in Kurrajong are another sign of the alienation of educated Australians from the Liberal Party — typified in this campaign by the juvenile stunts of Liberal leader Alistair Coe, and his refusal to explain how he would finance his campaign promises.

In all, the Greens took two seats from Labor in the north (Ginninderra and Yerrabi) and two from the Liberals in the centre and south (Kurrajong and Brindabella). Two members retired (Cain replaced respected Liberal veteran Vicki Dunne), and one Liberal and one Labor MLA were unseated by their running mates. A third of the Assembly will be new members, quite a rejuvenation.

(There was no change in the fifth seat, Murrumbidgee, covering Woden/Weston Creek. A close result last time, a favourable redistribution for the Liberals, and the retirement of the sitting Greens MLA Caroline Le Couteur had created an expectation in the media that the Liberals would take a seat from the Greens. Far from it: the Greens’ Emma Davidson won the seat comfortably from an independent, community activist Fiona Carrick. The Liberals weren’t even close.)

It is arguably the best-ever Greens result in an Australian election. Translated to federal parliament, their almost one in four seats in the new Assembly would give them thirty-six seats in the House of Representatives, or (more realistically, since it uses a similar voting system) eighteen seats in the Senate.

It should be a result that reverberates among Labor’s leaders throughout the nation. Note carefully: rather than going ballistic about the Greens taking seats off Labor — as his counterparts in Melbourne or Sydney would have — Labor’s chief minister Andrew Barr has been quite relaxed about it, arguing that it shows the strength of their coalition government.

And he’s right. The real story of this election — in my view, as the only media commentator who tipped anything like this result — is that the Greens offered an alternative for those voters who are browned off with Labor, which has ruled Canberra since 2001, but couldn’t bring themselves to vote for this version of the Liberal Party. You don’t have to share all the views of Greens leader Shane Rattenbury to find him impressively genuine and caring, a relief from the spin offered by other leaders.

By contrast, on issue after issue, the Liberals refuse to put themselves on the right side of history — or the Canberra electorate. Scott Morrison will one day rue the opportunity he wasted when he shrank from doing the obvious in the wake of the bushfires — using it to drag the Coalition into a genuine policy to tackle climate change urgently, as most of the conservative parties in Europe have done. Alistair Coe might one day ask himself why, in his mid-thirties, he was the only Australian major-party leader who voted against marriage equality in the referendum.

One footnote: the result of the election appears to have swung the balance in the Liberal party room significantly towards the moderates, previously a minority within the opposition. It will be interesting to see what follows.

The broader message for Labor should be clear, from both the ACT and New Zealand. Like it or not, Labor and the Greens are on one side of politics, and the Liberals and Nationals on the other side. The Liberals and Nationals have their differences, but they have combined to form coalition governments for almost a hundred years. Labor and the Greens can do the same if they choose to.

In the ACT, their coalition has lasted for twelve years in one form or other, and the partnership has grown stronger with each election. It has survived electoral ups and downs on both sides — the Greens won four seats in 2008, lost all but one in 2012, came back with two when the Assembly was enlarged in 2016, and have six this time. Some of those elected this time will probably lose their seats next time.

But as in New Zealand, the partnership has worked well. It’s not a bad way of governing. In the ACT, it has delivered a form of zero carbon emissions in the electricity sector and the legalised civil unions that paved the way for marriage equality, and it is the only government that is phasing out stamp duty on home purchases rather than just talking about it.

With the Queensland election looming on Saturday week, a similar coalition could be needed if a government is to be possible after the election — despite the ritualistic statements by party leaders that they will not be part of a minority government.

Queensland has a single-member electorate system designed to favour big parties. But the Greens broke through in 2017 to win the inner Brisbane seat of Maiwar, and came close in two others. From afar, it looks possible that in Queensland too, some might want to send a message to Labor but can’t bring themselves to vote for the LNP. Might the next Labor–Greens coalition be in Queensland? •

The post Triumph of the Greens appeared first on Inside Story.

Neither victory was a surprise, but their extent was. In the ACT’s case, that’s partly because media commentary (apart from Inside Story’s) ignored the only reputable opinion poll and last year’s federal election voting in assuming the Liberals had a strong chance of victory.

Covid-19 certainly played a role in both Labo(u)r victories: it has demonstrated the importance of good government as nothing else has since the second world war, and that gave the parties in government an unequalled platform to demonstrate their competence — or otherwise.

These two election outcomes add to the probability that Annastacia Palaszczuk will receive a similar endorsement from her voters on 31 October — and that Donald Trump will be turfed out for his incompetence in handling the virus when Americans vote four days later.

ACT chief minister Andrew Barr’s handling of the Covid-19 crisis was smooth and successful. The city has had only 113 cases, mostly acquired overseas. No cases have been diagnosed for three months. Some restrictions remain, but the crisis has been handled with less panic and more pragmatism than in most of Australia.

It has allowed a leader whose popularity was wearing thin to re-establish himself in the eyes of his electorate. In the televised leaders’ debate two weeks ago, Barr came over well: warm, reassuring, an apparently safe pair of hands. By contrast, Liberal leader Alistair Coe campaigned by staging a series of juvenile stunts — in the final one, pulling a rates notice out of an esky to publicise his pledge to freeze rates. He seemed to underrate the intelligence of Canberra’s voters.

The biggest winners were ACT Greens leader Shane Rattenbury and his team. After two disappointing territory elections, the Greens have surged back, winning close to the vote they get there at federal elections. They have earned the right to take on a much bigger role in the next Labor–Greens coalition government.

That government, which began back in 2001, will continue until at least 2024, matching the twenty-three-year federal government of Sir Robert Menzies and his successors from 1949 to 1972.

When counting ended on Saturday night, Labor had won ten of the twenty-five seats in the ACT Legislative Assembly, and the Greens five. The Liberals had won only eight seats, and two were still in doubt: one between Labor and Liberals, one between Labor and Greens.

In net terms, the Greens have gained either three or four seats. The Liberals have lost either two or three, and Labor could end up with no net change, or a loss of one or two seats.

(Yes, these are different from the figures Antony Green gave last night in wrapping up the ACT’s election coverage. Antony is usually excellent, and I can only assume that last night he was on screen so much that he didn’t have time to take a close look at the complex preference distributions circulated by the ACT Electoral Commission, showing provisional results based on votes cast electronically in pre-poll booths.)

Because of Covid-19 fears, even the Covid-free ACT had its election shaped by the virus. Everyone was urged to vote at one of thirteen pre-poll centres, and two-thirds of the voters did so. Almost all of them voted using an electronic screen, which meant their votes could be counted and preferences distributed and posted by 9pm.

On first preferences, the Greens’ vote climbed 3.6 per cent from the 2016 election, and the Liberals’ vote slumped by 3.6 per cent. Labor was down 0.1 per cent. After preferences, the swing was even bigger: on my estimates from the provisional preference distribution, the three-party vote for the Greens has soared by 4.5 per cent, with the Liberals down 4 per cent and Labor down 0.5 per cent.

The Liberals’ position will improve slightly today and in coming days as postal votes and pre-poll votes on the traditional paper ballots are counted. But this is where the votes ended up last night in the ACT’s five Senate-style electorates:

Brindabella (outer south, district of Tuggeranong): was Liberals three, Labor two; now two-all with one in doubt. The three-party swing against the Liberals was 7 per cent, mostly to the Greens. Liberal MLA Andrew Wall’s seat has been lost to either Labor or the Greens. Last night Labor led by thirty-five votes or just 0.08 per cent.

Murrumbidgee (middle south, Woden and Weston Creek): was Liberals two, Labor two, Greens one. Despite Liberal expectations of gaining a third seat, thanks to a favourable redistribution and the retirement of the Greens MLA, those numbers remain the same. Emma Davidson will be the new Greens MLA, replacing Caroline Le Couteur, while Labor MLA Bec Cody lost her seat to running mate Marisa Paterson.

Kurrajong (inner suburbs, north and south of the lake): was Liberals two, Labor two, Greens one; now Liberals one, Labor two, Greens two. As in last year’s federal election on the same turf, the Greens outpolled the Liberals after preferences. At the cut-off point on the provisional preference distribution, the Greens’ second candidate, Rebecca Vassarotti, had 15.2 per cent of the vote to 13.3 per cent for Liberal MLA Candice Burch. That’s too big a gap to make up on the count remaining.

Ginninderra (middle northern suburbs, Belconnen): was Liberals two, Labor three; now Liberals one, Labor two, Greens one, and one in doubt. This is where the Coalition hoped its veteran one-time leader, Bill Stefaniak, could take a seat from Labor for his Belco party, based on resentment that Belconnen has been left out of the Barr government’s largesse. Not so: instead, the Greens’ Jo Clay has claimed one seat, probably from the Liberals, but possibly at the cost of Labor attorney-general Gordon Ramsay.

Yerrabi (outer north, district of Gungahlin): was Liberals two, Labor three. Now Liberals two, Labor two, Greens one. Alistair Coe’s own electorate was the only one to record a swing to the Liberals, and a strong one at that — but still not big enough to claim the last seat. Instead the Greens’ Andrew Braddock has unseated the capital’s first Indian-Australian MLA, Deepak-Raj Gupta.

On first preferences, the night finished with Labor on 38.4 per cent, the Liberals 33.1, the Greens 13.9 per cent and others 14.7. But whereas the preferences of the “others” in 2016 largely favoured the Liberals, this time they have spread more evenly among the three biggest parties. Crucially, that has lifted the Greens’ share of the three-party vote to 18 per cent — in a voting system where 16.67 per cent is the threshold to win a seat.

Hence the dramatic rise in their representation from two seats to five or six, almost a quarter of the Assembly. It still fell short of the 20 per cent the Greens won at last year’s federal election, but it makes the partnership with Labor less unequal, and lifts them to a new level of importance in the government.

After patiently biding his time as the Greens’ sole minister since 2012, Rattenbury hinted last night that he will demand a bigger share of portfolios: particularly planning, where Labor’s pro-development policies have put it offside with resident groups. Barr might well be happy to pass on that hot potato to his coalition partner.

As in New Zealand, a new term will intensify demands on the government to implement Labor’s stated goals of looking after those worst-off: something the Barr and Ardern governments have both failed to do. Coe had promised, if he won, to appoint former Labor chief minister Jon Stanhope — one of Barr’s sharpest critics — to chair an inquiry into poverty in the ACT. Barr would be well advised to try to make peace with his old boss, and invite him back inside the tent to help shape policy.

A dark fiscal cloud overshadowing the coming term will be the government’s pledge to build a second tramline from the city to southern Canberra, in the wake of its popular but expensive tramline to Gungahlin in the outer north. Canberra has been designed for cars, not trams, and the new line will be costly both to build and to operate. Initial estimates are around $2 billion, in a city of 430,000 people.

The impact of building something you can’t afford is that everything else has to make room for it, and therefore becomes a lesser priority. Canberra’s rates and taxes have risen, and its service levels in many areas have fallen. Labor’s 2016 plan to redevelop Canberra Hospital was recycled as its plan for the 2020 election.

So why weren’t the Liberals able to take advantage of this? On Saturday night, retiring MLA Vicki Dunne blamed the failure on the way Covid-19 has put governments centre-stage in controlling the agenda. With respect, that hardly applies in Covid-free Canberra. Part of the Liberals’ problem, surely, was that their young, stunt-addicted, ultraconservative leader did not come across as a credible chief minister for a place like the ACT.

In Massachusetts, the Republicans keep winning government because they put up liberal leaders who fit the state’s political culture. In Victoria, the Liberals have won just one election this century, and that was under the liberal Ted Baillieu. In New South Wales, they have won three elections in a row under three moderate leaders. It’s not a hard lesson to learn; it’s just too hard for the conservative wing of the party to accept. And in the ACT, the conservative wing rules.

By 2024, Labor will have been in government for twenty-three years. It was after twenty-three years of federal Coalition government that Gough Whitlam was swept to power on the slogan “It’s Time.” Whitlam had positioned himself, his frontbench and his party well to offer themselves as the alternative government. Can the ACT Liberals learn the lesson and position themselves to be a credible alternative government in 2024? •

Friday 23 October update

Counting on Thursday effectively confirmed that the Greens have relegated the Liberals to third place in the central electorate of Kurrajong. Rebecca Vassarotti, a community activist with wide experience, is set to replace Liberal MLA Candice Burch in the Assembly. The Greens recovered lost ground in the first preference count, while Vassarotti expanded her lead in the count after preferences to 786 votes.

In Ginninderra (Belconnen), after preferences, Liberal lawyer Peter Cain maintains a ninety-eight vote lead over Labor’s attorney-general Gordon Ramsay. Labor still hopes it can hold the seat, as it is doing better on the postal vote count in Ginninderra than elsewhere. But it has to spread those votes between three candidates, whereas the Liberals only have two in the race.

The southern seat of Brindabella (Tuggeranong) remains on a knife-edge. At the end of Thursday’s counting, Green candidate Johnathan Davis was twenty-three votes ahead of Labor’s Taimus Werner-Gibbings. But between them is Andrew Wall, the Liberal MLA whose seat one of them will take. Wall can’t win the seat, but if Labor can overtake him when postal votes are distributed, it believes his preferences could then lift its man over the Green, and secure him the final seat. Possibly — but first he has to overtake Wall, and in Brindabella the Liberals have outpolled Labor in postal votes.

The first preference count is now almost over and the deadline for postal votes to be received ends at 5 pm tonight. The roughly 20,000 postal votes are being scanned into electronic form, and the computer will distribute their preferences on Saturday to give us the final result.

On the current count, Labor would win ten seats (down two), the Greens six (up four) and the Liberals nine (down two).

Greens members voted on Wednesday night in favour of remaining with Labor in a coalition government. This is expected to see them have two ministers in the next government instead of one, with leader Shane Rattenbury in a key portfolio.

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For one thing, it’s solid Labor (or now Labor–Greens) territory; the Liberals have not won an election here since 1998. For another, who outside Canberra cares? It’s the second-smallest Australian jurisdiction, with just 430,000 people, most of them reasonably well-off, some of them even working for the Australian Taxation Office.

And yet this relatively rich bit of Australia plays a part in our political fabric. The current Labor–Greens government has been there in one form or another since 2001, and has pioneered a number of reforms. Under Jon Stanhope as chief minister, it passed Australia’s first Human Rights Act and made repeated attempts (frustrated by the Howard government) to legalise same-sex marriage.

More recently, the ACT has become the only Australian jurisdiction to phase out stamp duty on conveyancing and replace it with taxes on land (mostly as higher rates). And it is the only one that claims emissions-free electricity generation (not strictly true, but its electricity consumption is now outweighed by the electricity generated by its solar and wind farms).

It is also a unique example of a harmonious Labor–Greens coalition government in Australia. It is very likely that one day, whatever the relevant Labor leader says before the election, there will be similar coalitions of the left in other Australian jurisdictions — even in federal parliament. It could even happen in Queensland on Saturday. The ACT election deserves a little more attention than it’s getting.

The government is expected to get back. No polls have been published since the election began, but the last one, by uComms in August, implied that result. A quick survey of the bookies’ odds on Wednesday found that, on average, they gave Labor a 78 per cent chance of leading the next government. That’s better than Joe Biden’s chances of ousting Donald Trump (an understated 66 per cent among bookies) or Annastacia Palaszczuk’s chances of re-election (62 per cent), though it’s no match for Jacinda Ardern’s (92 per cent).

Yet you would not guess that from local media coverage. It’s been talking up the Liberals’ chances as if they’re more like a 50–50 bet. This probably reflects boredom with and grumbling about a government that’s been there for so long: a boredom that local media are particularly prone to feel.

But sometimes that boredom and grumbling spreads throughout the electorate. We saw that in 1995 when Kate Carnell, now the federal small business ombudsman, led the Liberals to an upset win by telling voters to “make Labor listen.” Well, the voters did that all right: Labor MLAs had to listen to Liberal ministers announcing all government decisions for the next six years.

There’s a chance of that, if only an outside one, as I explained in an earlier piece.

The ACT Legislative Assembly has twenty-five members elected in a Senate-style election, with five members elected from each of five districts: Yerrabi (the Gungahlin district in the outer north), Ginninderra (Belconnen, middle north), Kurrajong (the inner suburbs, mostly north of the lake but some south), Murrumbidgee (Woden/Weston Creek, middle south) and Brindabella (Tuggeranong, outer south).

The major parties each need only 33 per cent of the vote to secure two seats in each district, so the real battle is for the final seat. In 2016, Labor won it in Yerrabi and Ginninderra, the Greens in Kurrajong and Murrumbidgee, and the Liberals in Brindabella. A coalition of twelve Labor and two Greens MLAs formed the government, and eleven Liberals the opposition.

The Liberals need only two extra seats to win government. That sounds feasible enough, particularly as a favourable redistribution and the retirement of a Greens member have given them a good chance of taking the final seat in Murrumbidgee. They hope to win a third seat in Yerrabi as well to give them a majority, but on my estimates that requires a landslide swing of 5.5 per cent or more.

Plan B is the possibility of forming a government with their one-time party leader Bill Stefaniak, who has emerged from twelve years in political retirement to form the Belco party, based on stirring up resentment that “Belco” (Belconnen) is not getting its fair share of the ACT government’s spending. He has been joined on the party’s ticket for Ginninderra by other former candidates, including Chic Henry, founder of Canberra’s Summernats festival, notorious for endless car burnouts, boozy behaviour, loud music and thousands of car-loving hoons coming from near and far. (Nothing about Canberra defies its typecasting better than Summernats — a working-class festival in what must be Australia’s least working-class town.)

Parts of Belconnen are as working-class as Canberra gets, and the district has good reason to feel ignored. It’s possible that the Belco party can funnel those resentments to win a seat. But it feels like an old men’s show, and previous attempts by ex-Liberal MLAs to establish their own party flopped badly.

In the two other seats, the Liberals are on the defensive. The party’s victory in Brindabella last time was the closest race of the election. And the same redistribution that has strengthened its position in Murrumbidgee has weakened it in Kurrajong. At last year’s federal election, the Greens outpolled the Liberals on the new boundaries; if they could repeat that vote — a big if — they could win two seats in Kurrajong to the Liberals’ one.

This is an unusual election. By the end of today, more than half of the electorate will have voted already, out of a fear of the coronavirus, even though it is three months since Canberra last had an active case. Their votes have been cast electronically, so the result of the election, including preference distributions, is expected within an hour or so of the close of counting at 6pm on Saturday night.

But beware: the early figures could be a bit misleading. Last time, a third of all votes were cast in pre-poll centres, and 39.2 per cent of them were for the Liberals, who got only 34.8 per cent of votes cast on the Saturday. The Greens, by contrast, won only 8.8 per cent in the pre-poll centres but 11.2 per cent on the day. Labor also did slightly better on the Saturday. The left, despite its vegan fringe, clearly likes democracy sausages more than the right, and its vote will improve during the count.

Liberal leader Alistair Coe has not repeated Kate Carnell’s deceptive call for a protest vote against Labor, but he has copied another of her winning strategies: promise to make hefty cuts to taxes and charges while increasing spending across the board. It worked for Carnell, but while chief minister Andrew Barr effectively pinned Coe down on the implausibility of this in the leaders’ debate, it is not an issue that has gained traction with the media or, as far as one can tell, the voters.

Yet, in reality the ACT has no fiscal room to expand — indeed, former Labor chief minister Jon Stanhope has been lashing Barr for lax fiscal management. Coe’s explanation that he would pay for his promises by attracting more people to build homes in the ACT rather than across the border is laughable. A Liberal government could well lead to a banquet of broken promises, Joe Hockey–style.

That aside, nothing too dramatic is at stake. After the PR success of Canberra’s first internal rail track, a tramline from the city to Gungahlin — which has proved popular, although expensive for taxpayers — Labor and the Greens are planning an even more expensive tramline to the south, first to the parliamentary triangle and then to Woden. The Liberals are not openly opposing the plan, but clearly don’t share the enthusiasm. If they win office, and the fiscal screws are applied, that could be vulnerable.

At the same time, the contrast between the two leaders is striking. Barr is the first openly gay man to lead an Australian government; last year he married his long-time partner, Anthony Toms. Coe, by contrast, although in his mid-thirties, was the only Liberal leader anywhere in Australia to vote against same-sex marriage at the referendum.

A survey of candidates’ views by Ian McAllister of the ANU found that Coe, on social issues, is the most conservative candidate standing at this election: strongly against abortion, strongly against euthanasia, and strongly in favour of governments paying for school chaplains and churches being able to refuse to perform same-sex marriages. This conservatism sparked a brief rebellion last year, with some MPs urging colleagues to replace him with the more liberal Elizabeth Lee, but she lacked the numbers.

Of all the places for Tony Abbott’s version of Liberal values to be reborn, the progressive ACT would seem one of the most unlikely. If Coe wins, it will be an interesting term.

One last curious thing about ACT elections. The ballot papers rotate the names of party candidates so the parties cannot put out a ticket showing them in order of priority. It’s a great system for those who know which party they want but want to choose which candidate. But it means that the most dangerous candidates for sitting Labor and Liberal MPs are not their opponents, but their colleagues.

Ask planning minister Mick Gentleman. He lost his seat of Brindabella in 2008 to one of his running mates, Joy Burch (now the speaker of the Assembly). And both of them are now seen as vulnerable to a new generation of Labor candidates running alongside them.

No Liberal member in the ACT has ever been defeated by his or her party losing a seat. No Labor candidate has lost that way since 1995. But in the elections since then, five Liberal and five Labor MPs have been deposed by colleagues running alongside them on the ticket. On past practice, that will probably happen again on Saturday, though we don’t know who or where.

The uComms poll in August, which implied that the government will be re-elected, had the Greens possibly gaining seats from Labor. For what it’s worth, my guess is that the bookies’ odds are about right. Labor and the Greens are likely to win, but the Liberals are an outside chance. •

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It has echoes of Donald Trump. Scott Morrison and his lieutenants Josh Frydenberg and Mathias Cormann have rejected the advice of economists on the best way to recharge the economy, and focused instead on trying to recharge it with support to key Liberal Party constituencies: business and middle to upper-middle income earners.

Say what you like about Scott Morrison, he is never short of confidence. And confidence is what this budget sets out to create — above all, where it is most lacking at the moment, in business hiring and investment.

The first economic support package in March targeted households, maintaining jobs and incomes through JobKeeper and the enhanced JobSeeker payment. Our disposable incomes shot up at their fastest pace for a decade, but that didn’t stop us slashing our spending. Net household savings leapt $42 billion in a quarter, to its highest level in almost half a century.

This time the budget boys are focusing on stimulating business and re-establishing the Liberals’ brand as the party of lower taxation. Sure, there is also a lot of new spending, including some in surprising and very welcome areas, such as scientific research, home care packages for the aged, mental health services and small-scale road upgrades throughout the land. But the big bickies, more than $50 billion over the next four years, are in tax cuts.

The six biggest budget initiatives, in order of estimated cost, are:

• A huge investment incentive for business, allowing it to write off the cost of investment immediately against tax rather than having to claim it gradually through depreciation. This is estimated to cost $31 billion over the next three years, and to lead to a strong rebound in business investment in 2021–22.

• Bringing forward the stage two cuts to income tax rates by two years, so they take effect retrospectively from 1 July this year. That is estimated to cost $23.8 billion in the next two years.

• As announced in August, the rules for businesses to be eligible to access JobKeeper have been loosened to take account of Victoria’s return into lockdown (where, as I warned, the extreme thresholds set by the Andrews government mean it could be trapped for quite a while). That is estimated to cost an extra $15.6 billion, taking the full cost of JobSeeker from the outset to $101.3 billion before it expires at the end of March.

• Bringing forward an estimated $6.7 billion of investment in transport infrastructure into the next four years. Despite the spin that these would be “shovel-ready” projects, almost two-thirds of the spending is slotted into the latter two years.

• Allowing business to write off tax losses from earlier years over the next two years, at an estimated cost to the budget of $5.4 billion.

• Offering a year-long wage subsidy (or hiring credit) of up to $200 a week to encourage businesses to take on unemployed workers aged between sixteen and thirty-five — the group that now has by far the highest rate of unemployment and underemployment. Treasury estimates the take-up will be high enough to cost $4 billion.

There are a lot of other new measures in the budget, mostly good, but these are the big ones. And you can see that the focus is on getting business to hire and invest over the next two years, on using tax cuts (or cost cuts) to get firms and consumers to go out and spend, and on stimulus in the traditional blokey format of building new road and rail projects.

The focus on short-term incentives is a cunning feature of the design. What these six measures have in common, apart from being big, is that they are also temporary. In some cases, more than that: allowing businesses to write off their new investments and old tax losses sooner means they will be unable to claim them in future years, boosting budget repair in the longer term.

Even on these estimates, recovery would still be slow. While forecasting anything right now is sheer guesswork, Treasury’s best estimate is that business investment this financial year, excluding the mining sector, will still decline by 14.5 per cent, before lifting 7.5 per cent in 2021–22 as the tax-driven projects kick in. Even with the economy rebounding by 4.75 per cent in 2021–22 (which sounds optimistic), it forecasts unemployment will still be 6.5 per cent in mid 2022. A rapid slump followed by a slow climb out.

It was the budget business groups wanted, but not the one economists wanted. I don’t know what Treasury was proposing, but it says something about Morrison and his government that very little proposed by economists outside the official family made its way into the budget.

A good sample of the outsiders’ views was a survey of forty-nine leading economists published last week in the Conversation. The Economic Society drew up a list of thirteen policy options and asked each economist to choose the four that would be most effective in bang for buck to support the recovery. The top six items they selected were:

• Investing in social housing (60 per cent)
• Permanently lifting JobSeeker (51 per cent)
• Increasing funding for education and training (45 per cent)
• Investing in infrastructure (41 per cent)
• Wage subsidies or hiring bonuses (35 per cent)
• Funding high-quality aged care (31 per cent).

Of those, only infrastructure investment and wage subsidies were in the government’s top six list, although one could add a third item: education and training. The budget measures collectively included $1.2 billion in wage subsidies for apprenticeship training and a most welcome $3.4 billion in new support for research — in universities, the CSIRO and industry — with the government finally abandoning its long campaign to cut tax breaks for R&D.

Josh Frydenberg says two other measures in the economists’ top six will be dealt with in coming months. His focus in this budget was on measures that are “targeted, temporary and proportionate.” Presumably he felt it would confuse the public if today’s big news also included the decision to permanently lift JobSeeker payments. There is no other reason that makes sense for excluding it from the budget.

The budget papers note that the government has chosen to hold back the announcement of an unusually large $6.4 billion of additional spending over the next four years, offset by $205 million of additional tax revenue. One might speculate that the decision to raise JobSeeker has already been made.

On aged care, the government says it will await the final report of the royal commission before undertaking a major funding overhaul. For now, it has promised to lift the quota of home care packages by 23,000 — which would cater for barely 20 per cent of those on the waiting list — and meet the commission’s proposals for immediate action, as aged care minister Richard Colbeck announced last week.

But why not social housing?? The budget papers report that housing investment plunged 8.8 per cent in 2019–20 and is expected to sink by a further 11 per cent this financial year before rebounding in 2021–22. When private housing demand plunges, no stimulus measure makes more sense than a one-off boost to social housing, as the Rudd government showed so successfully in 2009–10. It maintains skills and employment in an industry with dense links to the rest of the economy.

Yet all the Morrison government has come up with is its HomeBuilder package, so far a fizzer, and an offer to lend another $1 billion for social housing on concessional terms. It has carefully avoided the public housing solution, even though it works, and instead sought private sector alternatives it could badge as its own solution.

There are too many places in the budget where ideological correctness has been top priority rather than maximising bang for buck. Tax cuts in the past have proved a slow road to boosting spending, and the more so when they are targeted at people in the top third of the income range, as these ones are. Greg Jericho in the Guardian has cut through the government’s spin effectively. All I can add here is that if your prime minister insists on telling you that you’re better off getting $20 a week than $50 a week, don’t hire him as your financial adviser.

The wage subsidies for young unemployed workers were better targeted: shadow treasurer Jim Chalmers’s complaint that they exclude 928,000 other unemployed workers ignores the ugly fact that the young are bearing the brunt of the lockdowns. Economist Callam Pickering, of the Indeed Hiring Lab, notes that one in three young workers are either unemployed or underemployed.

It’s disappointing that the budget has failed to seize on other good ideas from the experts. One of the policy discoveries of this recession has been the value of handing consumers vouchers — where you can specify how and by when they must be spent — rather than cash, which people can save indefinitely. Tasmania, South Australia and the Northern Territory have all done this in some form, yet this budget offers nothing of the kind.

It’s even more surprising when the worst impact of this recession has been concentrated in a handful of industries: eating out, accommodation, tourism, entertainment and contracted services. If you want to target your stimulus, vouchers are an unbeatable way to do it.

The budget also failed to deliver a creative stimulus package aimed at women, who are bearing more than their share of job losses. The show bag of small things it markets as its “Second Women’s Economic Security Package” is an embarrassment.

This budget offers the right sort of program for blokes: it plans to spend $2 billion throughout Australia in the next two years on the construction of small road safety improvements. What it needed was to offer similar programs — temporary, targeted and proportionate — to upgrade our social capital.

The Grattan Institute has suggested hiring unemployed teachers (of whom there are surprisingly many) to work one on one with kids who are struggling with school. I’m sure the royal commission wouldn’t mind if the government jumped the gun by deciding that aged care homes need more staffing resources, now. Programs like these would create a lot of jobs for women — and the long-term rewards could be huge.

But the perfect should not be the enemy of the good: let’s not forget the big picture.

When Covid-19 first struck, there was a brief period of hesitation, but the Morrison government was quick to realise that the old rules had gone. It dumped its obsession with getting the budget back in the black, until then its main selling point. It dumped its long-time brand as being the party of reducing debt, and started building it at an unprecedented rate. It consulted with the unions, with premiers Labor and Liberal, and for a few months — frankly — gave Australia the best leadership it has seen for a long time.

That couldn’t last, and it hasn’t. Scotty from Marketing is back. But even this budget, while not as well targeted as it could be, is about the right scale, and aimed in the right direction. For example, Frydenberg did not try to bring forward the stage three tax cuts, which are class warrior stuff, looking after the rich and ignoring the rest. It’s not a bad budget. It just could be a lot better.

One last point, on population growth. I still love my old paper, the Age, but it ran seriously misleading headlines this morning giving the impression that Australia, and particularly Victoria, is “losing” population. Not so.

In fact the budget papers forecast that over the relevant three years, to 2022, Australia’s population will grow by 384,000, or 1.5 per cent. Victoria’s will grow by 130,000, or 2 per cent. Sure, that is about the same growth as we had each year until now, but you don’t get much immigration with closed borders. It’s a temporary slowdown, and for what it’s worth, Treasury forecasts that by 2023 rapid population growth will be back. Be careful what you wish for. •

The post The government versus the economists appeared first on Inside Story.

Two weeks later, it will be Queensland’s turn — then, on Melbourne Cup day, some country on the other side of the world is having some sort of election that could be interesting.

So far Labor has won two out of two — and there is a chance that the left will win all six. Jacinda Ardern’s Labour government is well ahead in the polls across the Tasman. Former vice-president Joe Biden seems to have almost wrapped up the race for the White House. Queensland is looking more problematic for the Palaszczuk government, although arguably no more so than three months from the 2017 election, which it won.

The ACT is a category of its own. First, chief minister Andrew Barr runs the only Labor–Greens coalition government in Australia. Unlike Tasmania’s Labor–Greens coalitions, it has been harmonious, so far lasting twelve years without any serious public blow-up. If Labor and the Greens are ever to form a coalition at the federal level — and the voters may give them no choice — this is the model they would have to follow.

Second, the ACT has the only government on the mainland elected by proportional representation. Since self-government was imposed on the territory by the Hawke government in 1989, only once in nine elections has one party won a majority. Minority government is normal here, and after a chaotic start, it’s settled into a very stable system.

Third, ACT politics is so stable that this government — first as Labor, then as Labor–Greens — has ruled uninterrupted since 2001. If it wins on 17 October, it will be the first government in Australia since Sir Joh Bjelke-Petersen’s to rule for more than twenty years. The Liberals dominated territory politics in the first twelve years, but since 2001 they have lost every election.

Fourth, there is little interest in this one. Until this week, there was only one published poll, taken six weeks ago by uComms for the Australian Institute; its numbers suggested the government is heading for re-election, with the Greens gaining ground. A lobby group at odds with the government, Clubs ACT, has just come up with its own online survey, which depicts a closer race, although not the landslide the Liberals would need to win.

For comparison: the bookies’ odds put the outcome in Queensland as roughly 50–50 between Labor and the Liberal National Party; they give Joe Biden a 58 per cent chance of winning the US election, Jacinda Ardern a 92 per cent chance of being re-elected in New Zealand — and Labor and the Greens a 75 per cent chance of winning a sixth term in the ACT.

Yet all the pre-election commentary in the local media assumes that the Liberals have a real chance of winning this one. After all, they won eleven of the twenty-five seats last time; so they need to gain just two seats to form government. In one electorate they’ve had a very helpful redistribution. They must have a chance.

Yes, they do — but not on their own. There is only one seat they could realistically hope to gain. They would need a right-leaning independent to take another seat off Labor or the Greens to make a change of government possible. But the bookies are right: it is only an outside chance. Let’s find out why.

John Howard used to complain that Canberra “looks like Killara and votes like Cessnock.” With the arguable exception of Darwin, it is the richest city in Australia, and by some way. The 2016 census reported the median weekly household income as $2043, well ahead of Sydney ($1750) and Melbourne ($1542). It’s also Australia’s best-educated city, and two-income families have long been the norm. Yet it’s safe Labor — or, these days, Labor–Greens.

Stephen Barber of the Federal Parliamentary Library estimates that in two-party terms, Labor has outpolled the Liberals in the ACT at twenty of the last twenty-one federal elections; the exception was 1975, and then only just. The public service now accounts for only a third of the ACT’s employment, but Canberra has an ethos oriented to increasing public welfare whereas the Liberals’ ethos is oriented to increasing private opportunity.

But that hasn’t always blocked them in local politics. Canberra was Liberal territory for most of the 1990s, under Kate Carnell, now the federal government’s small business ombudsman. She was the kind of modern, stylish, centrist Liberal that Canberra voters liked, and she won two elections to prove it. But her leadership crumbled after a terrible tragedy — the death of a girl from the implosion of the old Royal Canberra Hospital, staged as a public event — and massive cost overruns in redeveloping Bruce Stadium for the 2000 Olympics.

The 2001 election brought Labor to power with Greens support, and they have been there ever since. As in Victoria, the ACT Liberal Party has moved to the right in opposition; its dominant figure is Senator Zed Seselja, federal assistant finance minister and conservative flagbearer, and leading moderates have been driven out of the party. Its message to the voters focuses on tax cuts and, at this election, showbags of unfunded spending.

As Liberal leader at the 2012 election, Seselja came closest to getting the party back into government, winning eight of what were then seventeen seats in the Assembly. But it came nowhere near winning the ninth. Seselja fought that election on a shabbily dishonest campaign against Labor’s reforms — now supported by many federal and interstate Liberals — to phase out stamp duty on house purchases and replace it with higher rates and land tax.

For the 2016 election, the ACT Assembly was expanded to twenty-five members, with five electorates choosing five members each. The main issue was Labor’s expensive new tramline from the city centre to outer-northern Gungahlin. In a city designed for cars, the tram was visionary rather than viable; it will end up costing ACT residents an average of $5000 per household to build and operate, though relatively few will use it. But the public sided with the visionaries: Labor won twelve seats and the Greens two, against the Liberals’ eleven.

This time there is no big issue. Labor and the Greens are planning a second tramline to the south; that’s Liberal turf, so this time the opposition is doing its best to ignore it. While former Labor chief minister Jon Stanhope is hammering Barr’s government, alleging lax fiscal management and poor spending priorities (at the cost of health and welfare needs), those issues haven’t reverberated. Indeed, the Liberals’ policies revealed so far would only make the fiscal problems worse.

Coronavirus is not an issue here, except as a plus for the government. There has been no new case of the virus for almost three months. There has been just one unsolved case of community transmission, back in April. The restrictions and social distancing have been managed relatively pragmatically. In itself, the ACT’s handling of the virus suggests a sensible, competent government rather than one that needs changing.

Nor is the economy an electoral liability. The ACT was the only place in Australia where demand grew in the first half of 2020 — thanks to the dominant role government plays in its economy, true, but private spending also held up better than anywhere else. The August jobs figures showed hours worked jumped 5.3 per cent year-on-year in the ACT, while falling by the same percentage in the rest of Australia.

But not all issues have been handled so well: planning, transport priorities, health spending, and the slow deterioration of community infrastructure are all liabilities for Labor. It’s been in office a long time, and it shows.

Forty-seven-year-old Andrew Barr has led Labor since Katy Gallagher abandoned ship in 2014 to enter federal politics. The first openly gay leader of any Australian government, he is otherwise a fairly conventional member of the Labor right who has spent almost his entire adult life in ACT politics. At his best, he exudes a gentle competence that makes him seem a safe pair of hands. But he has been criticised on fronts ranging from favouring certain developers to failing to do enough to tackle poverty or fund hospitals — or to protect the ACT’s budget.

His opponent, thirty-six-year-old Alistair Coe, didn’t even wait for adult life to get into politics. He joined the Liberal Party while still a schoolboy at Radford College. At twenty-one he was on the Liberal Party’s federal executive, and at twenty-four he had already jumped from staffer to being an MLA. He is a Seselja conservative: if Barr is best-known nationally for being an openly gay leader, Coe is known for being the one Liberal leader in the nation to vote “no” in the referendum on gay marriage.

Canberrans also know him for the grin seemingly fixed permanently on his face, no matter how serious the subject; at times it does create an impression of insincerity. His repeated refusal to explain how the Liberals would simultaneously cut taxes and finance dozens of spending promises, some quite hefty, has echoes of Tony Abbott in 2013. The Liberals in office would not be able to meet all the promises they are making.

The ACT’s five-member electorates appeal to the major parties because they are sure to win at least two seats each; the real contest is for the fifth seat. At least it’s always been that way in Canberra. It only takes 33.3 per cent of the vote to win two of the five, not a high bar for a big party to hurdle.

Canberra is divided into six distinct districts, and every district has its own electorate (with the inner north and inner south sharing one). Last time, Labor won the fifth seat in outer-northern Yerrabi (the new district of Gungahlin) and middle-northern Ginninderra (Belconnen). The Greens won it in inner-suburban Kurrajong and the middle-southern Murrumbidgee (Woden/Weston Creek). And the Liberals won the final seat in outer-southern Brindabella (Tuggeranong).

In Yerrabi and Kurrajong, those results were clear-cut. The other three were close: the Liberals won the final seat in Brindabella by 1.2 per cent over Labor, which in turn won the final seat in Ginninderra by 1.5 per cent over the Greens, who in turn won the final seat in Murrumbidgee by 1.6 per cent over the Liberals. Each of the three parties won one close contest and lost another.

Since then a redistribution has moved the affluent inner-southern suburbs of Deakin and Yarralumla from Kurrajong into Murrumbidgee — from which Greens MLA Caroline Le Couteur is also retiring. Two Labor booths have been shifted from Murrumbidgee into Brindabella. All of that makes the last seat in Murrumbidgee very borderline; it’s the one the Liberals have a good chance of picking up. But they’re not the only contender with a chance — some old hands say community leader Fiona Carrick, running as an independent, could win the seat instead.

While some previews suggested the Liberals could win a third seat in Yerrabi, in the real world that requires a landslide swing of 5.5 per cent: no way, José. They are even less likely to win a third seat in Ginninderra — their best chance there is that their veteran one-time leader Bill Stefaniak might win it from Labor for his Belco (Belconnen) party, then give them his support.

The Liberals could also struggle to hold their ground in Kurrajong and Brindabella. Let’s go back to that uComms poll — and remember, a similar poll the same pollster took six weeks before the Northern Territory election proved to be uncannily accurate.

For the ACT, uComms reported that Labor’s vote was down 0.8 per cent, the Liberals up 1.5 per cent, the Greens up 4.3 per cent, and “others” down 5 per cent. Net out the impact of losing others’ preferences and, in three-party terms, Labor was down about 2 per cent, the Liberals flat, fewer “others” votes ran out of preferences — and the Greens’ vote rose 3.4 per cent.

Now take a look at what the ACT voters did last time they voted — at last year’s federal election. Sure, federal and state/territory elections are different, and the ACT Liberals usually poll better in the local elections than federal ones. But after the smaller parties were counted out, the difference in the three-party votes is stunning:

Sources: Federal election results from the Australian Electoral Commission; 2016 ACT election figures are the author’s estimates

The shift between the two federal elections mirrors the shift reported by uComms. And on these figures, there is scope for a big rise in the Greens vote on 17 October — and little scope for a big rise in the Liberal vote.

The Greens can always be their own worst enemy. One reason their vote was so low in 2016 was that every one of their five lead candidates lived in the inner north: that cost them badly in Tuggeranong and Gungahlin. Their big policy for this election is to propose banning gas connections to new Canberra homes: another policy designed to inspire their eco-warriors and turn off voters. Barr promptly ruled it out.

If the Greens could repeat their 2019 vote, however, that would transform the Assembly. On my estimates, a repeat would see them take the final seats in Yerrabi and Ginninderra from Labor, take the final seat in Brindabella from the Liberals, hold their seat in Murrumbidgee, and outpoll the Liberals in Kurrajong, leaving the Liberals with only one seat there. If all that happened — and it was the way ACT residents voted last year — the new Assembly would have ten Labor, nine Liberals and six Greens.

That’s not likely to happen. But last year’s vote and the uComms poll suggest that’s the direction in which the ACT electorate is moving. There’s a certain weariness with this government, but none of the groundswell you usually sense when governments are about to change. The last time the Liberals won here was in 1998, and they were a different party then. •

The post Looks like Killara, votes like Cessnock appeared first on Inside Story.

Victoria’s caseload — and hence its risk to other states — has fallen sharply; so how long will New South Wales and South Australia take to reopen to Victorians? And when will Queensland, Western Australia, Tasmania and the Northern Territory reopen to the rest of Australia?

Finally, when will we enter the long-awaited “travel bubble,” opening our borders to flights from other countries deemed Covid-safe, and their borders to quarantine-free travel from here? Will the New Zealand election on 17 October clear the way for negotiations to start reopening the skies?

Three government-imposed barriers — the lockdown of Melbourne, the closure of most interstate borders, and the ban on travel to and from Australia (with exceptions) — must be lifted before the economy is likely to come out of its deep recession, which has so far cut Australia’s output by 7.25 per cent and left almost two million Australians unemployed or underemployed.

Lifting the barriers will not be enough to bring about a full recovery. Consumers and investors are likely to remain cautious until a successful global vaccine rollout removes the virus as a key factor in the way we live, or until we learn a way to live with the virus. Whichever it is, that could still be a long way off.

And, on current plans, it could still be quite some time before life in Victoria returns to anything like normal. Despite its plunging caseload, Melbourne faces another four weeks of curfew and lockdown. And there is not a single country, other than remote islands, that meets the threshold set by the Andrews government for the next easing of restrictions — such as allowing Victorians to have more than one family visit them at home.

Start with the good news. Melbourne’s rolling fourteen-day average of new cases — which the Andrews government uses to set the benchmark for easing its lockdown and curfew — has already rolled well past official predictions. Indeed, it’s rolled out of the range it was meant to be in for the next tweak of restrictions.

Premier Daniel Andrews’s threshold for the next easing was a city-wide rolling fourteen-day average of between thirty and fifty new cases (as the modellers forecast) by 28 September. Melbourne reached that range twelve days early, on 16 September, and is now rolling out the other side, with an average of 25.1.

The premier has flagged that he will announce a further easing of restrictions “in certain areas” on Sunday — but immediately cautioned that “they have to be cautious steps, steady steps and all the steps we take have to be safe.” In other words, don’t get your hopes up.

(One area he is likely to free from the curfew and lockdown is the Mornington Peninsula. It is the only local government area in Melbourne with no active cases — and it has three marginal seats, and a bunch of hostile voters who say they’re not part of Melbourne and don’t need to be locked down.)

The caseload has fallen so sharply — using the weekly tally of new cases, by 97 per cent from its peak in early August — that the government has ample room to move. But Andrews has flagged that any moves will be only modest; he wants this success to be seen as confirming that the hardline strategy is the right one, and one that Victorians will go on supporting.

While those opposed to the lockdown are growing increasingly angry and frustrated, they are a minority — and for them, the plan Andrews set out on 6 September offers little hope. Melbourne’s lockdown and curfew are to continue until at least 26 October, with only minor modifications to start next Monday: principally allowing another 100,000 workers (about 3 per cent of the total) to go back to work, allowing some students back into school, and reopening childcare.

And before the city can take the next step — returning it to something like the restrictions that applied in June — the rolling average of new cases statewide will have to fall to less than five a day, with no more than five new cases that officials cannot link to a known outbreak.

That’s just over ten new cases per million people in a fortnight. Among developed countries, only Taiwan and New Zealand (just) meet that test; New South Wales would have failed it until this week. It is extreme.

Independent epidemiologists, including the government’s modeller, Professor Tony Blakely of Melbourne University, have challenged the need to set the threshold so low. The infection of just one five-person household would provide a day’s quota; one of them each day for a fortnight would mean the entire city has to stay locked down and in curfew.

If Melbourne were to meet that threshold by 26 October, the curfew would be lifted. People would be free to come and go from their homes, and the five kilometre limit on travel would be removed. But you would still be allowed to invite only members of one nominated family to your home; public gatherings outdoors would be limited to ten people. Weddings and religious ceremonies would also be limited to ten people, with twenty allowed at funerals.

Schools would slowly reopen. Shops would reopen. Restaurants could reopen, but only with predominantly outdoor seating. People must still work from home if they can. Outdoor sport could resume for kids, but only non-contact sport for adults. Accommodation in hotels and motels could reopen, with caps. Entertainment would be allowed at outdoor venues only. It would not be life as we know it in the rest of Australia.

Those rules already apply in regional Victoria, whose 1.5 million people now include just ten active coronavirus cases. All but seven council areas in regional Victoria now have no coronavirus at all, but their residents are still subject to these restrictions, and the fines that come with them.

The threshold for the next step, in Melbourne and regional Victoria alike, is really steep. Victorians won’t be allowed to have visitors from more than one household, or have weddings or services with more than ten people, until the entire state has had no new cases of coronavirus for a fortnight. Until that happens, the third-step restrictions will stay on indefinitely.

Apart from some Pacific islands that have dodged the virus entirely, no country in the world would clear that threshold. None. Even Taiwan, the gold medallist in suppressing the virus, reports several new cases a week. Cambodia claims to have had only two cases in the past month, and Laos one, but some have been unkind enough to question the accuracy of their data.

No mainland states would pass that test. In the past fortnight, even South Australia has reported three new cases, Western Australia nine, Queensland ten, and New South Wales seventy-one. New Zealand has reported thirty-five. Tasmania and the territories haven’t reported any, but they are far smaller than Victoria.

Daniel Andrews and his advisers claim they are not attempting to eliminate the virus from Victoria. In fact the thresholds they set for the final two steps both require that the virus has been eliminated, so that is clearly untrue.

Their real aim seems to be to repeat what New Zealand did in the first wave of the virus: with the country closed down, it had three weeks in May and June with no new cases. But since it reopened, New Zealand has had more than 300 new cases, leading its government to send Auckland back into lockdown for several weeks — a lockdown lifted only after prime minister Jacinda Ardern overruled her health officials to order the city back to work ahead of the 17 October election.

For it is a question of getting the right balance. If a country or state is losing its fight to control the virus, as Western Europe is right now, clearly lockdowns are the best way to bring it under control. But there are many costs to that, as New Zealand can testify, and as Victoria too is seeing.

New Zealand’s statistics agency Stats NZ reports that in the June quarter, while the official unemployment rate was just 4 per cent, Covid-19 restrictions meant that 8 per cent of employees were in fact working no hours at all, while a further 13 per cent were working reduced hours.

The country’s GDP shrank 13.4 per cent in the first half of 2020, almost double the 7.2 per cent fall in Australia. New Zealand’s version of JobKeeper is far more inclusive than Australia’s, so the pain was felt more in business and government than in households. But when demand shrinks so much, businesses fail, people lose their jobs, and the young are the biggest victims.

Victoria is now well down that path. It has a quarter of Australia’s population, but the Australian Bureau of Statistics reports that in the year to August, Victorians lost more paid hours of work than the rest of Australia combined. Victorians suffered almost half the nation’s job losses. And with JobKeeper and JobSeeker shrinking, each week in lockdown puts more pressure on firms and small businesses that are not earning enough money to survive.

The young are suffering the most. In a year, one in four full-time jobs for school leavers have disappeared. Some 105,000 Victorians aged fifteen to twenty-four are no longer in full-time education and have no job at all. We saw in the 1990s that prolonged recessions do permanent damage to the working lives of those who become long-term unemployed. That will happen again this time.

I puzzle over why this is such a low priority for the Andrews government, and for Victorians — particularly those who normally fight for progressive causes. It seems clear that to most of them, there is only one goal: to defeat the virus. And so they support the hard line of lockdowns, curfews and mass unemployment to ensure that it is defeated.

After conflicting polls two weeks ago, a deluge of recent polls has made that clear: from Essential, Newspoll, Roy Morgan, and (if less unexpected) Redbridge, run by Labor’s former deputy campaign director, Kos Samaras.

Together they show that, while the Andrews government’s support has been dented by its mistakes in handling the crisis, its lockdown policy enjoys solid support.

The one negative poll, by MediaReach for the state Liberals and leaked to the Herald-Sun, showed a double-digit landslide swing in four marginal seats to the Liberals. But I suspect we should file that in the same bin as the same pollster’s Northern Territory poll in late June for the Territory Alliance, which claimed the Alliance was evenly poised to win the territory’s August election. In fact it won just 13 per cent of the vote and one seat.

A Morgan poll two weeks ago reported that 70 per cent of Victorians supported the way Daniel Andrews has handled his job. The Australian on Tuesday reported that Newspoll found 61 per cent of Victorians think the premier has handled the epidemic well, and only 36 per cent think he has done it badly. The lockdown garnered slightly less support: 54 per cent of Victorians thought the restrictions “about right,” 6 per cent rated them “too lenient,” while 37 per cent judged them “too strict.”)

The Essential poll in the Guardian reported greater opposition: only 47 per cent of Victorians said their state government had responded well to Covid-19 — whereas in other states voters gave overwhelming support to their government’s response, ranging from 67 per cent in New South Wales to 84 per cent in Western Australia.

Only Morgan asked about voting intentions, and it found quite a swing. It reported that Labor’s support has slumped 6 per cent since the 2018 election — but that was an extraordinary high-water mark, so Labor still had 51.5 per cent of the two-party vote. Polling the regions is very difficult, but for what it’s worth, the poll implied a swing of 8 per cent against Labor in greater Melbourne but just 3 per cent in regional Victoria.

To me, the most telling responses in any poll came when Essential asked Victorians to agree or disagree with a series of statements about the crisis. Asked if “the restrictions affecting my area seem appropriate,” 60 per cent agreed and only 19 per cent disagreed. Just 32 per cent said the restrictions have had much impact on their own lifestyle. And 64 per cent thought the lockdown and curfew would be effective in stopping the spread of the virus.

It’s hard to disagree with that: the restrictions have clearly done the job asked of them. But the gains from reducing the daily average of new cases from 533 to fifteen are far greater than those from trying to reduce it from fifteen to zero, whereas the costs keep mounting at the same rate. At some point soon, the policy balance has to shift.

On border closures, the policy shift has begun, with almost daily announcements. South Australia has opened up to New South Wales and the ACT: only Victorians remain banned. Since the case rate in regional Victoria is now lower than in her own state, Gladys Berejiklian is considering whether to open borders to them. Even Annastacia Palaszczuk has joined in, allowing people from the ACT, Byron Bay and the NSW border region to come and enjoy Queensland.

All premiers except for Western Australia’s Mark McGowan have promised to open their borders by Christmas. WA voters seem to love keeping easterners out, and McGowan faces re-election next March. Queensland’s election is on 31 October; whoever wins, it’s assumed that its borders will open soon after that. The NT election is already out of the way. And well before Christmas on current trends, Victoria’s caseload will be low enough for there to be no reason to exclude it.

Interstate borders, at least in eastern and central Australia, should be open by the start of summer. International borders will take much longer to reopen — much longer.

Globally, the daily numbers of new cases are setting records, running at close to a million new cases every three days. Today’s numbers report 85,919 new cases in India, 43,995 in the United States, and an astonishing 16,096 in France — just before the French Open starts on Monday! Qantas chief Alan Joyce’s once-gloomy forecast that international travel won’t start returning to normal until mid 2021 now looks optimistic.

The idea of setting up a travel bubble among relatively Covid-free countries within our region ought to be a winner. While new case numbers are exploding in Indonesia (4634 yesterday), the Philippines (2180) and Nepal (1497), much of Asia is reporting little new activity. Last week, for example, the growth in the total caseload per million people was zero in China, Taiwan, Vietnam and Papua New Guinea, one in Japan, two in Australia, four in New Zealand and the Maldives, and five in Sri Lanka. Most of the South Pacific remains Covid-free. Why not open the doors to safe neighbours?

Unfortunately, there are lots of reasons why. It might happen with New Zealand, maybe the South Pacific, possibly even Japan. But there are obvious political problems for Australia in negotiating an opening with China in this environment. And if we don’t open up to China — or it refuses to open to us — we risk another Beijing tantrum if we open up to Taiwan.

In other countries, the data can’t be trusted — either because they are doing little testing or because they are hiding the true numbers, or both. Last week Myanmar abruptly bumped up its caseload per million people from forty-four to eighty-two.

And situations change rapidly. Five months ago I wrote about Singapore and South Korea as examples of how to keep the virus under control. Both are still among the best in the developed world, but measured by growth in new cases per capita, South Korea now exceeds Australia, and Singapore exceeds Victoria. Outbreaks can erupt quickly, or spill out of secret cupboards, turning what seemed like a good idea into a threat to our hard-won victory over the virus.

If we are lucky, the debate in 2021 will shift from how to reopen interstate borders to how to reopen international ones: at the very least, for returning Australians, wider family members, skilled workers, students — and Covid-free neighbours. Too much depends on it for the doors to remain shut as now. Test, trace and quarantine has to be our path to the future. •

The post Covid-19: where next? appeared first on Inside Story.

Even then, the curfew and lockdown would be lifted only if new cases averaged fewer than five a day over the fortnight to 26 October and the number of cases with an unknown source of transmission — now totalling 4369 — fell to fewer than five new cases in that fortnight.

Neither condition is likely to be met on current trends — and the second one may require the state government to put more resources into investigating the sources of transmission. This means Melbourne residents could be facing an indefinite curfew and lockdown.

But even on the first standard, only one of the world’s thirty-nine advanced economies (as defined by the International Monetary Fund) could meet the threshold the Andrews government is demanding in order to lift Victoria’s curfew and return the state to something like the lesser restrictions that applied in June.

Victoria’s first rule appears to mean that, at some relevant but unspecified date before 26 October, new cases reported over the previous fortnight must be sixty-nine or less. On a per capita basis, that’s just over ten new cases per million people in a fortnight.

Most of the world would fail that test right now. Of the advanced economies, whose data is generally the most trustworthy, the only country that would qualify is Taiwan, definitely the gold medal winner as the country that has handled the coronavirus best, on both the health and economic fronts.

With a population of twenty-three million people, Taiwan has had just six new cases in the past fortnight; its last Covid-19 death was in May. The Andrews rule would allow it to operate, but under significant restrictions. And even Taiwan would fail to meet the higher standard the Victorian leader now requires before his people will be allowed to have visitors from more than one household, or have normal parties, weddings, funerals, religious gatherings, and so on.

And under Andrews’s rules, every other Western country would be locked down and under curfew. New Zealand has the next-lowest average daily case rate after Taiwan, but its fortnightly tally of twenty new cases per million people is double the level demanded by Andrews and his chief health officer, Brett Sutton. Hong Kong, in third place, has roughly three times more cases than Victoria’s boss will accept.

Japan, seen globally as a success story in handling the virus, is eight times the Andrews threshold. Germany, the best performer in Western Europe, is more than twenty times his limit. Trump’s United States is almost 180 times the threshold level, and Israel, the worst performer in the Western world, 280 times the Andrews limit.

Evaluating developing countries is more difficult, because many of them are suspected of doctoring their data or understating the spread of the virus simply by inadequate testing. Of the twenty-one largest economies outside the West, just four — China, Thailand, Malaysia and Vietnam — would be allowed, on their reported figures, to operate without curfew or large-scale lockdown under the Victorian rules.

Even across the border, as prime minister Scott Morrison has pointed out, New South Wales would have to go under curfew and lockdown if the Andrews rules applied there. Andrews denied this at his press conference yesterday, but he was wrong: on the per capita comparison, New South Wales, with sixteen new cases per million people over the past fortnight, would fail to meet the threshold he has set for Victoria.

The comparison suggests that the new thresholds adopted by Victoria are extreme by global standards. While there are debates in every country about the appropriate regime to control the virus, most governments are not seeking to eliminate it because they fear the economic damage that would flow from locking up the economy for months — as Victoria is now doing.

The Andrews government’s approach has other problems. A large proportion of the new cases being recorded now in Victoria are among aged care and health personnel; critics say the reason is usually that they have too little PPE protection, or too little training in how to use it correctly. It is not clear how many of them are in aged care (a federal responsibility) or hospitals (a state responsibility).

Critics would also say that the reason why 4369 Victorians have had coronavirus without health officials knowing how they got it is that the state has not resourced its health investigative network sufficiently to find the answers. Both of these problems are not ones that ordinary Victorians can do anything about.

Unless their state government backs down, they could well find themselves heading into Christmas under lockdown and curfew. •

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An unprecedented coronavirus had swept through the country. The federal government had closed the borders. The states had shut down a vast range of economic activity. Yet the economy in that half-year shrank by just 7.3 per cent.

And at 30 June, only 104 people had died — four deaths per million people, one of the lowest rates of any developed country. Compared with where we are now, compared with where others were then, Australia could be very relieved.

Sure, we were in the worst recession for almost a century, as the Australian Bureau of Statistics has confirmed. But we’d known for months that was going to happen. And, misled by very inaccurate modelling by epidemiologists of the likely Covid-19 toll, we expected the economic slump to be much worse.

It could still be worse: the slump might last longer than we expected. The policies adopted so far are appropriate but unsustainable. Governments and households could be facing sustained hard times, forcing difficult choices on us. It would help if we could recover the spirit of national unity that saw instant agreement on the JobKeeper and enhanced JobSeeker payments, which are the real heroes of yesterday’s data.

In the midst of the worst recession since the 1930s, with 20 per cent of workers unemployed or severely underemployed, the ABS records that:

• Household income shot up 5.5 per cent, per capita, in real terms, in the year to June 2020. That’s amazingly high — it hasn’t risen like that since Kevin Rudd and Wayne Swan were driving around throwing money on everyone’s front lawns in 2008–09. Scott Morrison and Josh Frydenberg did the same this time: government payments to households shot up by half, giving us an extra $16.5 billion in the June quarter.

• Corporate profits also soared by $16.5 billion, as the Morrison government naively directed worker subsidies through employers. As Labor’s Andrew Leigh has succinctly testified, many firms have used the handouts to boost profits and executive bonuses.

• Small and medium business didn’t miss out: its collective income shot up by $8 billion or 21 per cent. Amid the genuine tough-luck stories, many small business owners accustomed to hard times must have looked at their handouts and wondered what to do with them.

I’ll bet that’s not what you expected to hear. Australians in the June quarter might have been without work, but apart from those the government deliberately excluded from its handouts — casual employees, foreign students, temporary workers and universities — they were not short of money.

The federal government was sloshing money around. In the June quarter alone, year on year, its bill for subsidies jumped from $3 billion a year earlier to $51 billion. Its welfare handouts shot up from $32 billion to $48.5 billion. And that all happened while its tax revenue for the quarter plunged by $12.5 billion.

So with all this money, how did we end up in recession? Well, mostly, we didn’t spend it. We saved it instead. This is what the ABS reports we saved in the June quarter, compared with a year earlier:

Households: $59.5 billion ($7.1 billion)
Business: $50.0 billion ($11.1 billion)
Government: –$82.6 billion ($10.8 billion)

Why didn’t we spend the money? In some areas we did: the ABS says Australia was unique in reporting rising spending on durables such as furniture and household goods. But we couldn’t spend it on some things, because governments had shut down hotels, restaurants, arts venues and night spots. They also stopped us travelling; even with credit cards and internet shopping options, we spend far less sitting at home than we do when we’re away.

Consumer spending, after seasonal adjustment, has fallen 13.2 per cent this year. We don’t know how much was due to the lockdowns and border closures, how much to Australians’ fear of catching the virus, how much to our fear of what the future holds, and how much to simple inertia. But the answers to that question will have a lot to do with how we cope in future.

The ABS cites one telling example: household spending on health services in the June quarter was down 25.6 per cent from the same quarter last year. In part, that was because governments, misled by the modelling and the rapid spread of coronavirus in some places, shut down elective surgery because they feared the resources would be needed to treat coronavirus patients. (They weren’t.) And the publicity created a climate of fear that made some Australians stay home rather than go to doctors’ rooms or pathology clinics for tests or consultations.

That could cost us in the long run. Tests for diseases such as cervical cancer are reported to have fallen sharply. And most cancers are far more deadly than coronavirus.

We’ll come back to the future. It’s an indication of how long ago the June quarter seems now that some were surprised yesterday to learn that New South Wales, not Victoria, was the state leading Australia down. We’ve already forgotten that the epicentre of our first wave was Sydney, where the Ruby Princess outbreak and a couple of outbreaks in nursing homes dominated Australia’s caseload and its economic impact.

State final demand (total spending) crashed 9.8 per cent in New South Wales between the December and June quarters, compared with an 8.7 per cent fall in Victoria, 7.5 in South Australia, 6.2 in Queensland, 5.6 in Tasmania, 5.1 in WA, and 4.1 in the Northern Territory.

You will note the Australian Capital Territory is missing from that list. Its state final demand suffered a small blip in the June quarter, but that was outweighed by the surging demand in March. Its spending in the first half of 2020 rose 0.3 per cent while it was falling everywhere else. Canberra already had serious economic momentum coming into 2020, and coronavirus has failed to stop it.

The ACT government read the modelling and erected a temporary hospital on Garran Oval opposite Canberra’s main hospital. That was complete in May, and it has yet to see a single patient; it is now just a Covid testing facility. Indeed, according to that wonderful trove of coronavirus facts, covidlive.com.au, no one has been admitted to any hospital in Canberra for coronavirus since April. Only one in every 700 tests in the capital has discovered anyone with coronavirus, and just seven minor cases have been diagnosed since April.

It sums up one problem facing Australia that, despite this, Canberra residents are banned from travelling to Queensland and Western Australia — Queensland even designates the national capital as “a coronavirus hotspot” — and have to undergo fourteen days’ quarantine on arrival in South Australia and Tasmania. Even Scott Morrison’s worst enemies must concede he has a strong case for trying to open the borders.

How does Australia’s economy compare with those of other countries? Not as well as the government claims, but pretty well. Of the thirty advanced economies that have so far reported their GDP for the first half of 2020, the 7.3 per cent fall in Australia’s output was the sixth-best outcome, behind Taiwan, South Korea, Finland, Hong Kong, Lithuania and Norway. Of the twelve largest advanced economies, Australia’s had the third smallest fall in output.

Sources: GDP figures from OECD and national statistical agencies; coronavirus figures from Worldometers. 
# Britain recently redefined “deaths from coronavirus” to exclude anyone who took more than twenty-eight days to die.

What stands out sharply from the data is the link between the severity of the coronavirus in each country and the severity of its economic slump. The island countries of East Asia and the Pacific are the standouts — partly because an island is easier to lock up than a country in the middle of Europe, but also because, in the first wave, they handled their response well. And Australia is the only one whose second wave has been worse than the first.

In most of Europe, where coronavirus cases and deaths appeared to have settled down, they are now firing up again, especially in Spain and France: yesterday they reported 8581 and 7017 new cases respectively. The resurgence of the virus in western Europe, the United States, Victoria, New Zealand, Indonesia, the Philippines and even South Korea underlines how talk of “eradicating” the disease without a vaccine is farcical. It will be around for a long time, and — lockdowns or not — it will weigh down our economy.

Frydenberg says Treasury forecasts a flattish GDP outcome in the September quarter, which he hopes will be followed by a rebound in December as Victoria’s restrictions ease. He points to job figures that show how, outside Victoria, all states and territories are seeing strong job growth and just over half the jobs lost earlier have come back. Against that, the cost of Melbourne’s stage four restrictions, and the national lockout of Victorians, has severely reduced the economy’s output. A flat result for this quarter would be a lucky escape.

Most areas of consumer spending fell in the June quarter, but the big fall was in two of them. Hotels, cafes and restaurants absorbed a third of the total reduction in household spending, and transport operations (including using our own vehicles) another third. (Spending on entertainment and healthcare were the next biggest casualties.)

Those losses can be made up only by governments removing restrictions: lockdowns and border closures. Even now, governments are still keener to impose new restrictions than to lift old ones. The opinion polls leave no doubt that that is what voters want them to do. It would be a surprise to all if Queensland premier Annastacia Palaszczuk lifted her border restrictions before the state election on 31 October, no matter how ridiculous they are. And WA’s state election is not until March.

International borders remain as closed as ever, making it hard to disagree with Qantas chief Alan Joyce’s forecast that normality will only return in the second half of next year. The new outbreaks of coronavirus — even in New Zealand and South Korea, let alone Victoria — make it unlikely that we’ll see a bubble of Covid-safe countries in the region reopening travel to each other anytime soon.

Australia did well in the first stage of the crisis because the nation united behind a sensible, pragmatic policy agenda combining international border closures with tough lockdowns at state level to bring the virus under control, and a very expansionary fiscal policy at federal level to cushion Australians who lost their jobs. That policy was appropriate and successful — but completely unsustainable.

In the June quarter alone, Australia’s governments borrowed a net $82.6 billion; the federal government borrowed almost three-quarters of that. Ultimately, government debt is our debt: repaying it comes out of our future taxes and entitlements.

Sure, we could go on borrowing to maintain JobKeeper and JobSeeker payments at current levels and expand them to cover all the people left out, to increase subsidies to nursing homes, to bring forward and expand tax cuts, and to do all the other things we would like government to do. But if we want these things, and we don’t want to pay for them, then they will become a charge on our children and grandchildren.

We need to prioritise. We need a national debate on what our priorities should be, knowing that any spending increase or tax cut comes at the cost of others. Back in July, the government set out a timetable for reducing JobKeeper and JobSeeker payments, but it is coming under heavy pressure from Labor and like-minded economists to leave them as they are. There are good arguments for that, as the Guardian’s Greg Jericho and others have spelt out. But the government’s original program was not unreasonable, and I can’t see why maintaining payments at current levels should be a top priority.

Surely the top priority for the federal government now is to fix the mess it has allowed to develop in our dangerous, under-resourced nursing homes. Morrison has tried to pin the blame for the appalling death toll in Victorian nursing homes (which are a federal responsibility) on the state government. That won’t work, as the Victorian figures of deaths and recoveries from the virus (as at 2 September) demonstrate:

In aged care: 433 deaths | 577 recoveries | 43 per cent died
Everywhere else: 158 deaths | 15,575 recoveries | 1 per cent died

It is not simply a matter of providing more funding, although that has to be part of it. Morrison and his government must also ensure that the money is being used directly for patient care, not for the homes’ owners to splash on expensive lifestyles.

This means requirements to ensure that privately owned homes, like state-owned ones, have adequate numbers of staff, especially registered nurses, and provide adequate training — and pay — for non-nursing staff. It would also be a good move to refer the potential misuse of federal nursing home subsidies immediately to the royal commission.

Another priority would be to seize this opportunity to lift unemployment benefits permanently and significantly, and reduce job-search tests to realistic levels. A third would be a joint program to invest with the states in a one-off building boom for social housing, which formed a successful part of the Rudd government’s stimulus when housing construction crashed in 2009.

Others will have other priorities. We need to debate them all, recognising that governments are going to have to make hard choices between them. There are no soft options ahead. •

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That’s how bad these numbers are. The 723 new cases the state reported on Thursday equate to 110 new cases per million people (or 104 in net terms, after correcting for earlier mistaken diagnoses). The thirteen new deaths amount to two for every million people.

Among countries with more than a million people, the global figures published by Worldometers show Brazil is the country where coronavirus is most rampant. On Wednesday it reported 333 new cases per million people, implying that on Tuesday alone, one in every 3000 people in Brazil was diagnosed with the virus. Victoria is not as bad as that, but it has entered that ballpark.

Colombia just pipped Brazil as the country where the virus did most harm on Tuesday, with 7.5 deaths per million people. All these numbers jump around — over the past twelve days, on average, Bahrain has been the top global hotspot for new infections, and Panama for new deaths from the virus. But if Victoria were a country, Thursday’s figures would put it among the twenty worst in the world.

The worst infection and death rates reported around the world yesterday were:

The United States and Israel were the only developed countries with higher infection rates than Victoria reported today. The United States, with four deaths per million people, was the only developed country with a higher death rate.

Had all the local commentariat who berated Sweden for trying a different path focused on where Sweden’s deaths were occurring, they would have seen something more useful for us than point scoring. Sweden recorded very high death rates between April and June largely because it failed to protect its aged care homes. Since then, it has gradually done so, and got on top of the virus in other ways; its current infection and death rates have been well below Victoria’s.

Had we been more alert to the lessons from outbreaks in the rest of the world, we would have realised that our Covid-19 policies must give priority to:

• Protecting those most vulnerable to dying of coronavirus — the elderly — by all means possible. We should have taken immediate action to remove factors that put them at risk, such as casual work contracts that fail to provide sick leave to the workers who care for them.

• Protecting migrant workers, especially those living in cramped shared housing and those who aren’t fluent in the language in which information and warnings about the virus are being communicated. Failure in this area was why Singapore went from being a global model to a global hotspot in March and April. Victoria failed to heed the lesson.

• Test, trace and quarantine. Victoria did lots of the first, but initially failed to focus on those most at risk of getting the virus or dying from it. The state’s capacity to trace contacts and inform them quickly that they were at risk was inadequate even in the good days, as the Cedar Meats outbreak demonstrated in April. That under-resourced team then became completely overwhelmed when the virus escaped from the quarantine hotels.

The core lesson from the rest of the world is that we need to identify our weaknesses and fix them as the first order of priority. It is not only Victoria that failed that test. The federal government, which has handled the crisis so well in other ways, failed it in relation to aged care homes, which are its responsibility.

In some ways Victoria was unlucky, but in the end it has become a global coronavirus hotspot by following the wrong priorities. It put too much emphasis on locking down the economy, too little on identifying and rectifying its vulnerabilities. The inquiry into quarantine hotels under Justice Jennifer Coate has too narrow a scope to pursue all the mistakes that contributed to the situation the state is in now. One suspects a royal commission will be needed down the track.

Australia is now in a lopsided situation. Most of the country has virtually no coronavirus activity, Sydney has a little and Melbourne has a lot. But that seems to be the global experience. An excellent analysis by Sweden’s Clara Guibourg points out that across Europe, a small fraction of regions have accounted for the vast majority of Covid-19 deaths.

Even in Italy, most of the Mezzogiorno (south) and central Italy recorded no increase in the total death rate when the virus was running rampant in the north. In Spain, the death toll climbed sharply in Madrid, central Spain and the northeast, but was only mildly higher in southern Spain and the far west. Most of southwest France showed no trace of the virus raging in Paris. Even large areas of Sweden were unaffected; the epicentre of that country’s death toll was Stockholm.

The same is true in the United States. Over the past three weeks, the statewide death toll has been below the national average in forty-one of the fifty states and above it in only nine. More than half the coronavirus toll is coming in just four states: Texas (where the death rate was twice the national average), Florida (ditto), Arizona (four times the average) and California. An outsize share of the rest was in smaller states across the Deep South (all but one, as it happens, with Republican state governments).

It’s a similar story here. Australia’s first wave of coronavirus was concentrated in Sydney, mostly from overseas travellers, although the state government shares the blame for allowing the single biggest breakout from the Ruby Princess. Its second, very much bigger wave is concentrated in Melbourne but also originated with overseas travellers under inadequate quarantine control, for which the state government bears responsibility.

In Europe, coronavirus has largely been brought under control. New outbreaks continue to happen — elimination is not a realistic goal until we have a vaccine — but so far (touch wood) on a much smaller scale than the conflagration in March. The Middle East, for some reason, is reporting lots of new cases but very few deaths. Latin America, especially South America, is now the epicentre of virus activity — and especially of those dying from the disease.

Australia gained global attention only as one of the island states that had managed to lock the virus out. It’s to be hoped that Victoria will win the struggle with the virus and bring it under control, as Europe has, as New York and its neighbours have in the US northeast, and as Singapore has in recent weeks.

But to keep it that way, we must closely follow other countries’ experiences, learn their lessons as they arise, and quickly put them into practice. •

The post Victoria, global hotspot appeared first on Inside Story.

Had the preference split on Saturday night been as it was in 2019, the Liberals’ Fiona Kotvojs would have won the seat easily. On first preferences, her vote rose 1.35 per cent and Labor’s fell 3.2 per cent. If that were all that happened, Kotvojs would have won by more than 3000 votes.

But it wasn’t. Most of the votes Labor lost on primaries came back to it as preferences. Most of the votes the Liberals gained on primaries were lost to it in preferences. That’s why Labor’s Kristy McBain will end up winning the seat by somewhere between 500 and 800 votes. That’s close, but winning is what matters.

In Australia, first-preference votes don’t decide elections; despite ignorant comments from some journalists who should know better, what matters is the result after preferences. We abandoned the first-past-the-post system a century ago. Since then we’ve voted preferentially — and it was the shift in preferences that decided Eden-Monaro 2020.

The 2019 election had a field of eight: Labor, Liberals, Nationals, Greens, two small parties of the right (Clive Palmer’s United Australia Party and Fred Nile’s Christian Democrats) and two independents. The first two columns of figures show how it went.

The preferences from left and right largely cancelled out: 87 per cent of Greens voters gave their preferences to Labor, 87 per cent of Nationals voters gave theirs to the Liberals. The Liberals did slightly better overall on preferences, but not enough to challenge Kelly’s lead on first preferences.

Compare that with the 2020 vote as of Monday night, as shown in the third and fourth columns.

The question is, why did the preferences shift?

On Sunday, the losing Liberals blamed a scarcely veiled hint last week by the Nationals’ NSW leader John Barilaro that his party’s supporters should direct their second preferences to the Labor candidate. They claimed that 20 per cent of Nationals preferences flowed to Labor, compared with 12.8 per cent last time.

If true, that alone would have swung almost 0.5 per cent of the vote Labor’s way — more than the 0.42 per cent it now leads by — and cost the Liberals the seat. But Nationals sources on Monday say their scrutineers reported Labor getting only a little over 10 per cent of their preferences. It will be weeks before the Australian Electoral Commission releases official figures that will show us which Coalition partner to believe.

More on Barilaro in a moment. But there are two other reasons why Labor ended up with such a big haul of preferences this time, and the mainstream media has ignored both of them.

First, ten minor-party candidates and independents were on the ballot paper, a big change from four last time. Five of them (none of whom stood last year) directed their preferences to Labor. Four were formally neutral, but they included HEMP (Help End Marijuana Prohibition), which won 2.3 per cent of votes, and Sustainable Australia, on 1 per cent. Apart from the Nationals, only the Christian Democratic Party directed preferences to the Liberals.

Of course that is going to change first-preference votes. It’s a fair bet that most people who voted for HEMP would otherwise have voted for the Greens or Labor. Probably the same is true of Sustainable Australia and the Science Party. Their presence on the ballot paper meant that the first-preference votes for Labor and the Greens would fall.

But that has no impact on the result. People who voted for those parties will still ultimately choose between Liberal and Labor on their ballot paper, and there’s no reason to think that voting for HEMP or the Science Party first changes that ultimate preference. When the number of candidates expands, the bigger parties (including the Greens) lose first-preference votes, but they come back to them when preferences are distributed. (For those interested, I discussed this further here in 2016.)

Conversely, while the Liberals’ primary vote jumped 2.35 per cent, almost all of that was offset by the loss of preferences from the Palmer party (which no longer exists), as well as the Nationals and the Christian Democrats (whose votes fell as the Liberals rose). That’s why Kotlojs ended up with just a 0.4 per cent gain in her two party preferred vote. And that is the vote that decides the outcome.

Second, among the eight new entrants, the big one was the Shooters, Fishers and Farmers Party, which already holds three seats in the NSW Legislative Assembly. It drew first spot on the big ballot paper, won 5.4 per cent of the vote — and told its supporters to give their preferences to Labor.

How many did so remains to be seen. Its candidate, Matthew Stadtmiller, stood in Cootamundra in last year’s state election, and 51 per cent of his distributed preferences went to the Nationals. At the federal election, 59 per cent of all Shooters’ party preferences went to the Coalition. Stadtmiller has estimated that this time about 60 per cent of his preferences went to Labor.

Maybe, maybe not. I happened to be driving home through Eden-Monaro on Saturday, admittedly in the coastal and southern part of the electorate, and I saw no one handing out how-to-vote cards for the Shooters, or any micro-party or independent for that matter, at any of the four polling booths I passed. We know that most voters don’t follow any how-to-vote card exactly. Again, we will have to wait for the official figures from the AEC.

But the central theme of the stories reverberating from this status quo result will be the ambitions of John Barilaro. When Mike Kelly announced his retirement, Barilaro was quick to declare his interest in the seat. It includes all of his state seat of Monaro, as well as most of Bega, held by the Liberal transport minister Andrew Constance, and some new territory to the north and west, such as Yass, Tumut and Tumbarumba. The Nationals whipped up an instant poll that suggested he would win it if he stood.

I suspect the poll was right. Barilaro has been an electoral phenomenon in his area. In 2011, he rode the Coalition wave to unseat a popular Labor MP, Steve Whan, and over three elections he has increased the Nationals’ two-party vote from 43.7 to 61.6 per cent, despite a falling Coalition vote elsewhere. The voters out there like him. At last year’s state election he won every booth in the electorate, even in Queanbeyan, which traditionally votes Labor.

And in quick time, Barilaro had also become the Nationals’ NSW leader. If he was moving into federal politics, he would assuredly not be expecting to be kicking his heels on the backbench. With Michael McCormack clearly vulnerable as Nationals leader, one could assume that Barilaro had his eyes on becoming the party’s national leader. He’s the tough old-style leader they’re used to.

At federal level, though, Eden-Monaro has never been the Nationals’ turf. And even though Constance had announced plans to retire from politics, someone in the Liberal Party elbowed him to declare that he too was interested in the federal seat. The spectacle of two senior Berejiklian government ministers clashing head-to-head was too much. Barilaro pulled out of the contest, and surprise, surprise, the next day Constance did too.

Barilaro was angry, as was revealed when someone leaked his unflattering emails to McCormack. His interventions in the final days — blasting the Morrison government’s cuts to the ABC, revealing that he had given his preference to Kelly in 2019, and effectively urging Nationals voters to give their preferences to McBain in 2020 — suggest he was hoping that Labor would hold the seat. We can presume that he wants to have another shot at it in 2022.

This story will run on, particularly if the AEC’s figures eventually reveal that the shift in Nationals preferences this time was large enough to have given Labor the seat. Watch this space. •

The post Labor’s preferential treatment appeared first on Inside Story.

We rarely even talk about it. The TV news, newspapers and ABC radio don’t ignore every other story because 3000 of us died last week. Our governments don’t order us to stay home until we stop dying — unless some of us are dying of coronavirus.

In the past week, thirteen Australians died of coronavirus. The week before that, it was twelve. Yet in that time roughly 240 times that number of Australians died of other causes, from cancers to heart failure to dementia. Why has one small group of deaths seized control of the national policy agenda when the rest are ignored?

A month ago, the reason was obvious. Look at Wuhan, our leaders said. Look at northern Italy, look at Europe in general. Coronavirus was a sinister threat we were still discovering: more infectious than the common flu, more deadly, and spread by human contact. Minimise human contact, and you minimise the spread of the virus. So Australia chose border closures and lockdown as its coronavirus strategy.

And it’s worked. On 28 March, Australia’s health authorities reported 460 new cases of the disease. Yesterday they reported eight. As of Thursday, only 1537 people were still regarded as active cases, and only forty-six were in intensive care. The death toll so far is seventy-six — a small fraction of the 1255 Australians who died in the largely unnoticed 2017 flu epidemic.

But lockdowns are a very expensive strategy. They force masses of people out of their jobs. Expensive equipment and human skills sit idle. Businesses large and small find themselves with fixed costs but no revenue, risking their future. And while the federal government has underwritten part of these losses, it is only part, and it will come at its own cost in future years.

In the United States, twenty-six million workers have lost their jobs. Australia’s economic data mostly comes with a long time lag, but a new series created by the Australian Bureau of Statistics implies that as many as 700,000 Australian workers became unemployed in the first week of April alone. If we have lost jobs at the same rate as the Americans, that would imply that so far the lockdown has made two million of our workers jobless.

Australia is now at a crossroads. Handing control of policy to the doctors has delivered fabulous results on the medical front, at what could become a massive economic cost. For Australians who are still employed but working at home, I get the sense that it’s been a kind of semi-holiday: yep, you do some work over the phone or the internet, but with a lot of free time in warm weather to spend riding bikes with the kids, jogging, working in the garden, organising tradies to come and fix things around the house, and the rest.

That won’t last. Winter is coming, and people’s savings are depleting. It is pretty clear that in Scott Morrison’s mind there are real questions about how long the lockdown can remain — especially when the number of new cases daily is now in single figures, or low double figures.

The PM has hinted strongly that at some point not too far away, he wants to switch to a policy to “test, trace and quarantine” the new carriers and all those who might have been exposed to them — and, while keeping border controls, phase out the lockdown policies that do most economic and social damage.

We do have policy choices. For when we look at the countries that have been most successful in tackling the virus, one thing stands out: their core policies were border controls, public education, and above all, test, trace and quarantine. With one recent exception, none of them has implemented lockdowns as we have experienced here.

Source: Worldometer. Data downloaded 23 April 2020.

Coronavirus has divided the affluent world in two. In Europe and North America, it has proved deadly on a stunning scale. Canada has handled it better than the United States, and Germany far better than its neighbours, but even they have roughly twenty times the death rate seen here. The United States has had fifty times our death rate, and Spain 150 times. And note: by and large, these countries went into lockdown roughly when we did, if not sooner.

Yet in the affluent countries of Asia and the southwest Pacific, coronavirus has had far less impact. Australia has been a global stand-out, as has New Zealand, but the world leaders in managing this crisis have been the countries we used to call Asia’s economic tigers.

None more so than Taiwan. The one country excluded from the World Health Organization, at China’s insistence, has been the world’s most successful country in fighting the virus. In a land with almost as many people as Australia, only six people have died, and 426 have been infected. Yet the rest of us have shown little interest in finding out how they have done it.

It wasn’t by lockdowns. Large gatherings are banned, but Taiwan has remained open for business: you can go to work, school or university, go shopping, go to a restaurant with your friends. But you will have to wear a face mask in public, obey social distancing rules, and constantly have your temperature checked and your hands sprayed. If you’re ordered to self-quarantine, the government will phone you frequently to check that you don’t leave home.

Taiwan had been a victim of the SARS epidemic in 2002–03, when seventy-three Taiwanese died partly because China denied it crucial information. This time it was first off the mark.

On 31 December, the same day that China finally notified the WHO of an outbreak of respiratory disease in Wuhan, Taiwan imposed health checks on everyone arriving from Wuhan. These were gradually widened, and after China allowed a team of Taiwanese doctors to visit Wuhan in mid January, their grim report led Taiwan to embark on its strategy of test, trace and quarantine.

Back in January, when Chinese scouts started buying up Australia’s supplies of medical equipment, Taiwan banned the export of face masks — and got its industries to produce them, as they are now doing at the rate of some millions a day, along with other essential medical supplies and protective equipment. It moves fast when it needs to.

Those ordered to self-quarantine receive a daily allowance of roughly A$45, and are brought food and other necessities by their village leader. It helps that medical care is cheap and widespread, and that Taiwan is a Confucian society where people tend to obey government orders (unlike Italy, say).

The other East Asian tigers followed similar policies. Hong Kong has been another remarkable success, the more so given the intensity of its ties to China — which prevented it closing the border — the political turmoil and division of the past year, its extreme housing density, and its role as a global aviation hub.

In a city of seven and a half million residents, only four have died, with 1036 people infected. Like Taiwan, Hong Kong got in early, examining visitors from Wuhan, then anyone who had visited the town, and eventually requiring everyone crossing the border from China to go into fourteen days’ quarantine (since reduced to ten days because of overcrowding).

Even in January, public servants were being urged to work from home, although by March most were back at their desks. Hong Kong’s government did close schools, but otherwise it has led by exhortation; the city has had no lockdown. But like Australia it has progressively tightened border controls: the airport is still open to the few planes still flying, but the city is closed to non-residents.

Test, trace and quarantine has been its core policy. People are free to come and go. But a survey in February found 99 per cent of Hong Kong’s people were wearing masks on the street — by their own choice — and 85 per cent said they were avoiding crowds. Given the deep political division between government and people, their unity of purpose has been remarkable.

Singapore until recently was praised as having the world’s best policy on coronavirus. Until 21 March, despite being a major aviation hub, it had recorded no deaths from the virus and only several hundred cases. It too relied on a policy of test, trace and quarantine, backed by firm social protection rules. It kept business going, schools open and, for as long as possible, its borders open to all flights except from known hotspots.

That has now changed, for two reasons. In the second half of March, its case numbers began soaring as Singaporeans returning from Europe and the United States brought coronavirus back with them, and its quarantine rules proved too lenient to isolate them effectively.

Then the government opened Singapore’s own dark cupboard — and discovered that vast clusters of coronavirus cases had developed in the overcrowded dormitories where it houses the low-wage Bangladeshi and Indian labourers who build its world-class infrastructure. As prominent lawyer-diplomat Tommy Koh posted on Facebook, “the dormitories were like a time bomb waiting to explode.”

So three weeks ago, prime minister Lee Hsien Loong announced a dramatic policy shift. To isolate the labourers, dozens of dormitories have been locked down. Schools have closed, and people have been ordered to stay home except for essential activities. Changi Airport is still open, but operating at only 2 per cent of capacity. Singapore now has more or less the same policy as Australia.

That hasn’t stopped its case load rising rapidly — yesterday alone it reported 1037 new cases — although the vast majority of them were South Asian workers quarantined in their dormitories. Singapore still has recorded only twelve deaths from the virus.

The one Asian tiger with a higher death rate than Australia’s is South Korea. That was mainly thanks to the Daegu-based Shincheonji religious sect, which regards illness as a sin and covered up a massive coronavirus outbreak in February among its followers, some 9000 of whom showed symptoms. They infected their neighbours, and their neighbours infected the nation. By the time the authorities found out, it was too late.

But despite that discouraging start, South Korea too has used the test, trace and quarantine policy to great effect. It set up drive-through centres to encourage people to be tested, chases down everyone testing positive and those in contact with them, and uses phone apps and intrusive monitoring to ensure that those quarantined stay in quarantine. The new cases have slowed dramatically, to just eight yesterday; the deaths so far number only 238.

South Korea, too, avoided the economically destructive path of lockdown. Of all the East Asian tigers, only Singapore has adopted it, and then only recently because the time bomb of overcrowded dormitories exploded and it had to shelter its citizens. The Asian success stories tell us that you can control coronavirus without lockdowns.

Australian authorities have followed all this closely and borrowed any policies they felt would work here: that’s one reason we have done so well. Another, of course, is that we are a distant island continent, able to seal ourselves off from the world.

And let’s give credit where credit is due: our governments have done a bloody good job of leading us out of the crisis. You can criticise one decision or another, especially in Victoria and New South Wales, which were under most pressure. But by and large, I can’t remember any crisis in my lifetime that a government has handled better than this. And much of the credit for that has to go to Scott Morrison, who for the first time has looked and acted like a real leader.

Until now, the doctors have been directing policy. But now it’s a more subtle issue: getting the right balance between lives and livelihoods, keeping the infection rate low while allowing people to get back their jobs, incomes and opportunities.

The issue now is how we return life to something like normality, where people are back at work, schools, accommodation and restaurants are open, and people are free to move around. And instead of state governments telling us the four things we’re allowed to do, they tell us the few things we’re not allowed to do. Plus, we need to do all this without losing control of the virus.

The first loosening will begin next week, when some forms of elective surgery will be allowed. It’s a very cautious start, and still in a medical area. Australia’s chief medical officer, Brendan Murphy, indicated to a parliamentary committee yesterday that his team has been asked to consider allowing more than two people to meet at once, lifting the ban on community sport, and reopening some retail sectors now forbidden to operate.

Morrison has floated the idea of reopening the trans-Tasman border while maintaining border controls on the rest of the world. New Zealand’s experience has been similar to ours, leading its government (which faces an election in September) to begin relaxing some restrictions and to foreshadow more relaxation ahead. Federal education minister Dan Tehan has urged the states (Victoria, that is) to have all schools open again by 1 June.

But all this would still leave Australia’s lockdown mostly intact. Much of that was imposed by the two largest states, and this week their premiers, Gladys Berejiklian and Daniel Andrews, dug in hard, claiming that any loosening of restrictions would lead immediately to a rapid spread of the virus. On Wednesday Andrews effectively presented the choice as being between the current restrictions or tens of thousands of deaths. Perhaps he’d had a bad day.

Yet many Australians think like him: Twitter is full of otherwise intelligent people who see the issue in black and white. No doubt both leaders will bring more nuanced minds to the national cabinet table when it makes its decisions in mid May.

But the two premiers’ positions underline the fact that the path to reopening the Australian economy — and restoring jobs and incomes to those workers now bearing the real cost of delivering us from the nightmare we expected — could be long and difficult. •

The post There is an alternative to lockdowns appeared first on Inside Story.

Cain’s death on Monday, two weeks after suffering a stroke at the age of eighty-eight, is an opportunity to reassess his legacy, correct the distortions, and refocus on the achievements of this thoroughly decent man, a gutsy, principled reformer who led Labor in Victoria out of the wilderness to become the state’s longest-serving Labor premier.

By nature a loner, he nevertheless reached the top by working closely with and ultimately leading teams of talented individuals bent on following their own paths. Those paths often clashed with the views of powerful people and interest groups — not least, then-treasurer Paul Keating — but his government’s achievements speak for themselves.

As opposition leader during the 1990–91 recession, Jeff Kennett blamed Cain’s government for every business collapse in Victoria and branded Labor as “the guilty party.” Labor certainly made economic mistakes, but it also became the fall guy for mistakes made by others — the Reserve Bank, Keating himself, and the people running the businesses that collapsed. It was guilty of contributory negligence and poor budget management under pressure, but that was it.

Conventional history praises the Hawke–Keating government’s economic achievements, but forgets that the state that led the nation out of recession in the 1980s was Victoria — mainly because the state government stimulated economic activity, reformed its own role, created incentives for economic development and gave the state a coherent blueprint for growth.

When Australia headed into recession in 1982, the new Cain government moved into action, producing a big-spending budget financed by a combination of higher taxes and raids on money squirrelled away in “hollow logs” by state authorities. That budget and its economic reforms saw Victoria displace New South Wales as the state with the lowest unemployment. From 1983 to 1989, when unemployment averaged 8.5 per cent in NSW, it was just 6.75 per cent in Victoria.

Several years ago, renowned journalist and academic Philip Chubb began work on a new biography of Cain, focusing his sharp eye on the contrast between its idealistic, reformist, Keynesian approach and the Hawke government’s market orientation and often conservative political pragmatism. Keating resented alternative ideas from any direction, particularly from Victoria, and many of the Cain government’s problems were exacerbated when Hawke and Keating starved the states of borrowing rights and made them bear the brunt of federal budget cuts.

Chubb’s premature death from cancer cut his project short. Pity: it would have been a very interesting book.

The Cain government’s reforms ranged across virtually every area of government, though thirty years later most are barely visible through the overlay of changes by subsequent governments. No area of social policy was left untouched in its hunger to reform the state after twenty-seven years in opposition. It was the first government to build hospitals in outer suburbs, to get serious about occupational health and safety, and to reduce smoking rates. It liberalised trading hours and liquor licensing, legalised prostitution, ended the electoral gerrymander, developed low-cost outer-suburban housing and brought all public transport under one ticketing system. It forced the AFL to stage its football finals at the MCG, and built the Great Southern Stand to help house them.

Two physical legacies stand out:

• The Australian Open of today could not be remotely the tournament it is without the vision and speed with which Cain grasped the need for the Melbourne Park venue, and his political courage in pushing it through against a self-seeking coalition of noisy opponents, led by then opposition leader Jeff Kennett but also including rail unions, greenies and many others on Cain’s own side of politics. Kennett made his attack personal, dubbing Melbourne Park “Cain’s cathedral.” And so it is. Without him, it would not exist — and the Australian Open would be a minor tournament.

• The Southbank precinct was created under the direction of Cain’s planning minister and close political ally Evan Walker. It quickly became the symbol of a new Melbourne in which people could stroll over the Yarra to a complex of restaurants, shops and bars ranged along the river in an area formerly home to factories, warehouses and used-car yards.

If you want to see the legacy the Cain government left Victoria, that is where you find it.

Some politicians become accidental leaders. John Cain, by contrast, seemed marked out for leadership from birth. Even before he entered politics, he was being pointed out as a future Labor leader. Once he entered parliament, it seemed just a matter of time. And once he became leader, he led Labor to one of its biggest-ever victories.

Before he emerged, Labor’s longest-serving leader and premier in Victoria was his father, John Cain senior. A working-class activist, the older Cain was a commonsense, tough, honest Labor moderate, respected by the public and his opponents. Over his two decades as party leader, 1937 to 1957, he was twice elected to govern Victoria, and did so with some success. But each time he was felled by forces beyond his control — public anger over bank nationalisation in 1947, and the split in the Labor Party in 1955.

John Cain junior, born in 1931, was his only son. He grew up in an austere, grey Victorian home on Northcote Hill, looking down on the city. By the time he was six, his father was Labor leader. One suspects his childhood was a lonely one. He would certainly have stood out at Northcote High when his father was premier, and when he was sent to Scotch College it must surely have felt like enemy territory.

But the boy was bright and diligent. He sailed through a law degree at Melbourne University, became a solicitor in Preston, and was elected president of the Law Institute. He also became an activist in the Victorian ALP, then run by a dictatorship of left-wing unions fronted by state secretary Bill Hartley. Getting into power was not their priority; exercising power within the party was all they cared about.

Cain made common cause with white-collar union leader Barney Williams and a group of other aspiring lawyer-politicians — Xavier Connor, John Button, Richard McGarvie and Barry Jones, among others — to build support in party branches and lobby for the democratisation of the Victorian branch. Victoria was by far Labor’s most unsuccessful state branch: it had been out of power at state level since 1955, and its miserable performance cost Labor the 1969 federal election.

Eventually the federal executive intervened, dissolved the state branch, and reconstituted it in a way designed to prevent any one faction controlling it again. Cain’s group became the Independents, a small but influential faction holding the balance between left and right. In 1976 he himself became the MLA for Bundoora, and was immediately given a frontbench job as shadow planning minister. It was quickly obvious that he was the party’s natural leader.

But that didn’t happen immediately. In 1977, when state leader Clyde Holding decided to move to federal politics, his deputy Frank Wilkes was elected to succeed him. A stolid, self-disciplined man, Wilkes did his best, but the job was clearly beyond him, and he was comprehensively outshone by Liberal premier Dick Hamer. Cain’s first leadership challenge foundered on opposition from the left, but in August 1981, with an election drawing close and Hamer’s successor, Lindsay Thompson, off to a good start, the left dropped its opposition and Cain became leader.

Eight months later he led Labor to a smashing electoral victory. The party picked up seventeen seats, almost all in Melbourne, and won 53.8 per cent of votes after preferences. That victory was offset in the Legislative Council, however, where every two country votes had the same weight as three in the city. The Coalition would retain control of the council almost throughout Labor’s time in government.

Cain had become Labor’s first premier since his father had been defeated twenty-seven years earlier. Labor branches and policy committees still mattered in 1982, and the party came in with a massive reform agenda — much of it led by ministers from the party’s right faction, including Rob Jolly (treasurer), Steve Crabb (Transport) and David White (initially Water Supply, later Health).

It was a government of action. It set out economic plans in great detail, and seemed to be tackling every problem. Its Keynesian pump-priming clearly worked, and despite constant attacks from Kennett, newly elected as opposition leader — and a bitter controversy when Cain sacked the governor, Sir Brian Murray, for accepting a free flight to the United States — it appeared to be heading for a comfortable re-election in 1985.

That didn’t happen. Kennett’s sheer energy kept the Liberals in the contest, and in voters’ eyes he clearly had the better of Cain during the campaign. The Liberals and Nationals, running as a coalition in Victoria for the first time since 1950, won a 3.1 per cent swing and came close to victory. The Legislative Council outcome rested on the seat of Nunawading, which ended up as a dead heat — temporarily resolved when the returning officer drew the name of Labor candidate Bob Ives out of a hat.

That election exposed Cain’s limitations as well as his strengths. He was a warm human being in one-to-one conversation, but found that warmth hard to project to the wider public. To some, he came over as reserved and withdrawn, a stickler for probity, a man said to buy his own stamps for personal correspondence rather than use those provided by the taxpayer. His dismissal of the governor for the minor sin of taking a free flight cost him support among a class of Victorians already worried by the growth in the size and reach of government.

That same sense of probity made Cain refuse to take advantage of the fluke draw out of a hat in Nunawading, which gave Labor a temporary majority in the Legislative Council. Briefly, Labor had the numbers to end the Coalition’s hold on the council by bringing in Senate-style proportional representation (as Victoria has now). But Cain refrained from doing so until the courts had ruled (for a fresh election in the seat) and the voters had voted (electing the Liberal). The Coalition maintained its veto power on legislation and Kennett, for populist reasons, used it to block any tax rises in real terms — until he himself became premier years later.

This put the Victorian budget in a straitjacket. Labor had given priority to stimulating the economy rather than getting the budget back in balance; Kennett’s veto made it impossible to achieve a budget balance except by spending cuts, which the Labor family refused to accept. An inquiry by Melbourne University economist John Nieuwenhuysen came up with a sensible agenda for tax reform, but Kennett’s veto made it impossible to implement.

At the same time, the Hawke government was getting its budget into balance primarily by cutting grants to the states — while simultaneously limiting state borrowing to absurdly low levels. For Cain and his ministers, governing was no longer much fun: little reform could be attempted when there was no money to pay for it.

Cain won a third term in office in October 1988, but only just. The Coalition gained a further 1.2 per cent swing to win 50.5 per cent of the two-party vote. But Labor hung on to all but one of its marginal seats, scraping back with a 46–42 majority in the Assembly but again faced with a Coalition-controlled Legislative Council.

In hindsight, it would have been better for Cain’s reputation had he lost. Victoria was about to enter a whirlpool of financial disasters. The state government really had little or no responsibility for them; they were produced by a cocktail of poor management by executives and directors of the companies and Keating and the Reserve Bank’s terrible misjudgement in raising the cash interest rate to a crippling 18 per cent. At that level, firms were bound to crash, and it was mostly in Victoria that they did.

The problems escalated in early 1990 when the Geelong-based Pyramid Building Society collapsed — just months after treasurer Rob Jolly had assured Victorians it was solvent. In fact, the state’s regulators of building societies were too under-resourced to know what shape Pyramid’s books were really in. Especially in Geelong, depositors who had been lured in by Pyramid’s offer of high interest rates blamed the state government, not the directors, and demanded that their deposits be guaranteed. Cain, with no fiscal room to move, could not do so.

Worse was yet to come. At the government’s urging, the venerable State Bank of Victoria had acquired a merchant bank, Tricontinental, to lend to the flashy end of town, and had appointed a confident young finance guy, Ian Johns, to run it. Neither the bank’s senior executives nor its directors really understood the business or supervised it adequately. The entire Australian banking system was reckless in this era, but Tricontinental, under Johns, picked up the clients the banks had rejected. By the time the bill for losses came in, it was $3.5 billion — more than the State Bank’s entire capital reserves.

By then, Cain had thrown in the towel. Years of increasing party infighting and resistance to government actions had worn down his will to fight. The rail, tram and bus union kept calling wildcat strikes for which the government was blamed. Personal relations among ministers became frayed, former allies became enemies, and the government seemed almost visibly to be falling apart. On 7 August 1990, Cain resigned, and his deputy Joan Kirner took over.

Most political careers end in failure, but Cain’s end was particularly bitter. His government had crashed in the polls, his faction had crashed within the party, and he had few friends left. It was painful to watch the vitriol poured out against this decent man, with virtually no one willing to risk their standing by defending him. He remained a loyal team member, sitting quietly on the backbench until the election two years later; he would not cause a by-election that Labor might lose.

He had some satisfaction seven years later when one of his former staffers, Steve Bracks, defeated Kennett to lead Labor back to power — albeit, leading a far more fiscally cautious, middle-of-the-road government than his own. He returned to public life as chair of the State Library of Victoria and lent his support to fruitless moves within Labor to curb the power of the unions and factions.

Cain wrote his own memoir of his time in government: a typically candid one, which underlined his sense that by their third term in government everyone was looking after their own interests at the expense of the team’s — and that, indeed, the Labor team had more or less ceased to exist. Mutual trust had run dry.

For all that, the first two terms of his government were years of achievement and reform. In many ways, he and his colleagues followed on from Hamer’s reformist government, tackling the areas the Liberals had found too hard. They put a new focus on Victoria’s economic opportunities, and what government could do to foster them.

For better, for worse, they ended Victoria’s long history of autonomous state-owned enterprises and brought all government activity under political control. The public service became more professional but also more oriented to serving the government’s agenda. Ministerial offices grew in power — and so did many arms of the Labor Party that wanted a share of the action.

At the head of this somewhat chaotic body, John Cain set a personal example of stoic courage, integrity and altruistic endeavour. Had the seats at the 1988 election reflected the votes, he would have been remembered for those qualities and for his earlier reforms, rather than for the chaos of the last two years. He was one of the most admirable leaders Labor has produced. •

The post John Cain was a leader of integrity, courage and vision… and still he lost Victoria’s top job appeared first on Inside Story.

Yes, treasurer, that’s all correct. Australia’s exports, now mostly from mining, have never been more plentiful and profitable. The China–US trade war and other woes have pushed growth down in the big Western economies. Job growth is slowing while unemployment and underemployment are rising, yet the overall employment rate is at a record 62.6 per cent.

If you have a taste for ministerial spin, there was plenty more of it yesterday when the treasurer declared that the September quarter national accounts — which reported the economy grew by just 0.4 per cent in the quarter in seasonally adjusted terms, and 1.7 per cent in the year to September — showed that Australia remained “remarkably resilient” in the face of global and domestic headwinds. Again, nothing he said was wrong and some of it was even relevant.

But the game of politics these days is not about solving problems or even tackling them, but about making enough people think you are. The government can’t stop the Australian Bureau of Statistics releasing the full range of economic data, but it is very selective about what it chooses to notice.

In fact, the International Monetary Fund is forecasting that in 2020 Australia will have the highest growth rate in GDP (gross domestic product) of any of the world’s twelve largest “advanced economies”: a feat it has achieved only twice in the past decade. The problem is that GDP growth is not the bottom line of economic success.

The real bottom line is GDP per head. That’s what makes Australia a rich country, whereas India — which produces eight times more goods and services than we do — remains a middling poor one. And when you look at the IMF’s forecasts for growth next year in GDP per head, Australia goes from the top of the list to the bottom.

Source: International Monetary Fund

It is not GDP growth that raises living standards, it is growth in GDP per head. The IMF predicts Japan’s output will grow by only 0.45 per cent next year. But the number of Japanese residents is forecast to shrink by 0.34 per cent (more than 400,000 people), so its output per head — not a bad measure of living standards — would grow by 0.81 per cent. On the measure that matters, the Japanese tortoise would outpace the Australian hare.

How could Australia top the GDP forecasts yet be bottom on GDP per head? Because its economic growth, such as it is, is driven by population growth. Next year the IMF forecasts Australia’s population to grow by 1.69 per cent. Of the others in this group of twelve, Canada is a distant second with 0.96 per cent, and Britain a very distant third with population growth forecast at barely a third of ours.

That difference is overwhelmingly due to immigration. Almost two-thirds of Australia’s population growth consists of overseas migrants: permanent, temporary or, in many cases, temporary until they become permanent. While the government has cut its official immigration target from 190,000 to 160,000, this has had no impact so far on the level of actual net migration, which is around 250,000 a year.

Some advocates of high immigration claim that it raises the rate of growth per head, and that anyone questioning its economic benefits must be doing so simply as a cover for racism. (For an alternative view, see a new paper by Bob Birrell and David McCloskey of the Australian Population Research Institute, which compiles detailed evidence to argue that a policy supposedly targeted at recruiting high-skilled workers is in fact increasingly resulting in migrants taking over low-skilled jobs that were once stepping stones for young Australians into the workforce.)

It is worth noting that the IMF data shows that Australia’s experience of high immigration has done anything but lift the economy: since 2013, when the Coalition was elected, Australia has had by far the highest rate of immigration and population growth of the big twelve, yet the third-lowest growth in per capita output.

Source: International Monetary Fund

Source: International Monetary Fund

This is not just a story about Australia underperforming in 2019 and 2020. As the IMF data shows, it has been underperforming for years. But that is a complex story, for another day.

The news from the Bureau of Statistics is not all bad, but the good news is in the margins. The bottom line is that the economy has grown by 1.7 per cent in the past year, while the population at last count was growing at 1.6 per cent. Quarterly growth was 0.44 per cent on the seasonally adjusted measure, 0.51 per cent on the trend measure: again, pretty similar to the rate of population growth. We’re not going forwards; we’re not going backwards.

What is really remarkable in the national accounts is the conflict between two sets of figures:

• Only half of the modest growth we experienced was in domestic economic activity. On the seasonally adjusted measure, domestic demand grew by a minuscule 0.2 per cent in the quarter, 0.9 per cent in the year. Roughly half the growth in the economy in 2019 has been in net exports. Export volumes and prices are rising, while import volumes are falling.

In the September quarter, in volume alone, exports climbed 3.5 per cent from a year earlier, while weak business investment saw the volume of imports sink 1.5 per cent. But with China once again driving up prices for our minerals, export earnings shot up 14.5 per cent from a year earlier, 33 per cent from two years earlier, and 64 per cent from their low point in 2016.

This is still the lucky country. China has decided to fight the US trade war by beefing up its smokestack economy, and here we are with the coal, iron ore and gas, just as our rival Brazil is fighting fires. Unfortunately what goes up will come down, some day.

• Our small growth in domestic demand was entirely in government spending. Total spending by business and households actually shrank by 0.3 per cent in the year to September — and remember, that’s by a population growing by 1.6 per cent. Household consumption grew by 1.2 per cent (and so consumption per head declined), but that modest growth was outweighed by plunging housing and engineering construction, which pulled total private construction down by 4.8 per cent.

• Instead, the growth in domestic activity came in government spending: above all, in day-to-day spending by the federal government. The most stunning statistic in the whole accounts is that in the September quarter, compared with a year earlier, the once-small federal government increased its consumption by $3.7 billion (10.1 per cent) while Australia’s ten million households increased their consumption by $3.2 billion (1.2 per cent).

That is not a new trend: this Coalition government has never been into reducing overall spending. Its cuts have rather shifted resources from areas it has little sympathy with — foreign aid above all, the ABC, universities and research, cultural institutions and so on — to pay for the National Disability Insurance Scheme and increase funding where it will reward or entice supporters.

On the trend data, the Coalition has increased its consumption spending by 42 per cent above inflation during its six years in office. In the same period, household spending has increased just 15 per cent, and state and local government spending by 16 per cent.

But one area of government spending has flattened out in the past year. The volume of government spending on infrastructure in the September quarter was just 0.16 per cent higher than a year earlier. Public sector engineering construction — mostly roads and rail — sank from $10 billion in the June quarter of 2018 to $8.5 billion a year later. The September quarter records only a small rise.

A lot of this goes against the mythologies promoted by both sides of politics. We keep hearing people say that to lift the economy, the federal government should spend more. Well, it already has — far more than I have seen any critics acknowledge — and the reality is that its increased spending has, at best, only partly offset the private sector’s decline.

It could spend its money better by directing more to those who need it and less to those who don’t. Many have pointed out that the most direct way to increase private sector activity is to lift Newstart, which is now so far below the poverty line that you can assume that — unlike the recent tax cuts — none of the extra dollars would be saved by its recipients.

But while the tax cuts received in the September quarter were not spent immediately, they will be spent sooner or later. Deloittes economic guru Chris Richardson put it well in his recent Budget Monitor: the federal government should be ready to break all its surplus promises to stimulate the economy in a crisis — but we’re not in a crisis yet, and hopefully we never will be.

Apart from booming exports, the other encouraging sign for the economy is the unexpected surge in household incomes. Total wage and salary income soared by 4.9 per cent from a year earlier, its strongest growth since 2011. That largely reflects the job boom I mentioned at the start of this article, but the Bureau also recorded rising individual wages. The wage drought has been a very long one, and one would be wary of calling its end, but this is a promising sign.

The economic slowdown will end when enough participants in the economy — government, business or households — decide to stop saving their pennies and start spending more. With business profits continuing to soar, those firms doing well are in the best position to take the long view and start investing. But the federal government needs to get its own bushfire action plan ready to roll out if nothing else works. •

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That’s hardly new. What’s important is who is saying it this week: the International Energy Agency, the Paris-based global data source and think tank established and funded by more than fifty governments, including Australia, as the world’s authoritative source of advice on energy policy.

The IEA’s annual flagship review, World Energy Outlook 2019, puts it bluntly. On current policies, the world is on track for a “relentless upward march in energy-related emissions, as well as growing strains on almost all aspects of energy security.” Even governments’ stated policies, including promised changes in future, would merely slow that growth a little, leaving the world far short of meeting its goals in 2040.

The agency’s executive director, Turkish energy economist Fatih Birol, was equally forthright:

The world urgently needs to put a laser-like focus on bringing down global emissions. This calls for a grand coalition encompassing governments, investors, companies and everyone else who is committed to tackling climate change… For this to happen, we need strong leadership from policymakers, as governments hold the clearest responsibility to act and have the greatest scope to shape the future.

Dr Birol and his team are no “raving inner-city lunatics,” as deputy PM Michael McCormack characterised climate change protesters. They are experienced public servants, experts in their field, who collect the data from all over the world, identify the trends, and model their consequences. And their conclusion is that we’re failing.

But they also have a very different viewpoint from pretty well anybody who writes about these issues in Australia. The IEA’s focus is on “all fuels and all technologies.” While it sees expanding renewable energy — and storage — as one of the two main drivers for reducing global energy emissions, it regards improved efficiency of energy use as having even more potential, and envisages significant roles for gas, nuclear power, and carbon capture and storage.

“What comes through with crystal clarity in this year’s World Energy Outlook is that there is no single or simple solution to transforming global energy systems,” Dr Birol warns. It is an issue where the green economists and IEA part ways sharply.

We’ll come back to that. Let’s first run through the key messages from the Outlook:

• On governments’ stated policies, energy use will continue rising by 1 per cent a year for the next two decades. Greenhouse gas emissions from energy use will also rise, although more slowly, peaking in 2045 at thirty-six billion tonnes a year, up from thirty-three billion now. And energy is the sector where it is cheapest and easiest to reduce emissions.

• Global emissions from energy use fell earlier in the decade, but rebounded in 2017 and 2018 as developing countries, starting from way behind, expanded faster than the developed countries reduced emissions. Most of this was in electricity generation, where most new power stations in developing countries burn fossil fuels.

• The two biggest influences on future emissions are developing Asia — where coal, gas and solar will battle for market dominance over the next twenty years — and Africa. In 2018 the entire continent of Africa had fewer solar panels than Australia now adds in a year. Excluding South Africa, the rest of sub-Saharan Africa had fewer cars than Australia, despite having twenty times more people.

• Currently the second-biggest source of growth in global emissions is the replacement of cars by SUVs. On average, the IEA says, SUVs need 25 per cent more fuel to drive a kilometre than a car does — and they are now taking over global markets. In Australia and the United States, 60 per cent of non-commercial vehicle sales are SUVs. Global emissions from SUVs now exceed Australia’s total emissions. We’ll come back to that too.

• The pace of gains in energy efficiency is slowing. The IEA estimates that global use of energy improved just 1.2 per cent in efficiency in 2018, way short of its target of annual 3 per cent improvements. SUVs are one example of forces pushing the other way. Only a third of energy emissions face any efficiency requirements, yet the potential gains from imposing them are enormous.

• The cheapest sources of new power vary widely from country to country. The IEA estimates that solar is now the cheapest option in India, and gas in the United States (thanks to the shale industry) and Europe, but that coal remains the cheapest energy source in China. By 2040, however, solar and wind will be the cheapest everywhere.

• The Outlook highlights the massive potential emission reductions from developing offshore wind resources, especially in Europe but also globally. Offshore wind can deliver energy at a load factor of 40 per cent, giving it the potential lead role in replacing fossil fuels as a source of 24/7 power.

The IEA emphasises that there is nothing inevitable about our trajectory. With different priorities it is feasible to meet, or at least come close to meeting, the Paris targets by 2040. But it will take that “laser-like focus” that Dr Birol urged, with governments taking the lead.

With the right policies, the Outlook’s “sustainable development scenario” estimates that global emissions from energy use could be reduced by almost ten billion tonnes a year by 2030, and from 35.9 to 9.75 billion tonnes a year by 2050. But it estimates that only a third of this would come from increased use of renewable energy.

Rather, on the IEA’s modelling, the biggest potential gains (37 per cent) come from improving energy efficiency across the board: in vehicles, buildings, factories, mines and other workplaces, everywhere. A hefty carbon price — around US$100 per tonne in 2030 rising to US$140 by 2040 — would be needed to drive this. Finding energy efficiencies means you avoid paying the tax.

Wind and solar energy would become the two biggest sources of power for electricity generation by 2040, allowing electricity use to expand — among other things, to fuel the electric vehicles that are expected to make up 75 per cent of global car sales by 2050. But even by 2040, with that hefty carbon tax, the IEA modelling anticipates that wind and solar would fuel only 40 per cent of the world’s electricity use, up from 7 per cent now.

Hydro (18 per cent) and bioenergy (9 per cent) would give renewables a two-thirds share. Nuclear energy would provide 11 per cent (mostly in what are now developing countries), coal- and gas-fired plants with carbon capture and storage 5 per cent, with the other 17 per cent coming from coal and gas plants without carbon capture, almost all in developing countries.

That is the IEA modelling its assumptions of what is feasible, and seeing where that leads. Like many analysts, it underestimated the spectacular reduction in the costs of solar and wind energy in this decade; in assuming slower cost reductions ahead, it may be underestimating them again. This is particularly relevant to the marginal role it assigns to battery storage in its sustainable scenario.

But achieving gains in energy efficiency can also be politically difficult, as we saw in the May election, when the Coalition saw political advantage in campaigning against the widespread use of electric vehicles — and got away with it.

IEA modellers Laura Cozzi and Apostolos Petropoulos point out that “there are now 200 million SUVs in the world, up from about thirty-five million in 2010, accounting for about 60 per cent of the increase in the global car fleet since 2010.” That was driven by consumers, not governments. The IEA estimates that the world’s SUVs now emit roughly 700 million tonnes a year of CO2, more than Australia’s entire high-emissions economy. The savings from electric cars so far have been a fleabite by contrast.

It is safe to say that Australia will not be leading the way in applying a laser-like focus on bringing down emissions. Indeed, with the country’s annual emissions from energy use having risen by 34.6 million tonnes or 8.5 per cent in the five years since the Coalition axed the carbon tax, there is no evidence that the government seriously intends to reduce carbon emissions full stop.

This IEA report doesn’t focus on individual countries, and Australia appears in its 800 pages mainly as an exporter of coal and gas. Again, we appear to be out of sync with the goal of reducing carbon emissions. While even under existing policies the IEA modelling forecasts that global coal use will shrink by 168 million tonnes a year by 2040, with China closing more coalmines than it opens, Australia would increase its production by forty-two million tonnes (10 per cent) in that time, second only to India. It would become the main source of growth in coal exports in a world that is turning away from coal. The IEA notes in passing that that could be a risky business strategy.

The outlook for Australian gas is seriously worrying. In case you’ve yawned through this saga, the Rudd government in 2010 gave the three gas exporters permission to export (and hence, make contracts for) gas they did not have. It and they assumed the gas would come from new fracking operations. Instead, local opposition ended fracking virtually everywhere outside Queensland, and hey, the exporters had to buy the extra gas from the domestic market. That drove up gas prices, massively, and because of the swing role gas played in the national electricity market, electricity prices went up with them. It was one of the worst policy disasters Australia has seen.

But wait, forecasts the IEA, there’s more to come. Australia already exports 67 per cent of its gas production — compared with 1 per cent in North America and 17 per cent in the Middle East — and the IEA modelling suggests that on stated policies those exports will double in the next twenty years. It notes sagely, “Australia will face some near-term challenges to maintain service for both domestic consumption growth and natural gas exports.” You bet it will.

With the Victorian Labor government having banned any gas exploration onshore — despite the state’s manufacturing employment having slumped by 33,600 or 11 per cent since 2012 — and most other states effectively banning the kind of fracking that unleashed the shale gas revolution in the United States, the prospects for sensible energy policy here appear remote.

But it is nice to have the IEA outline its version of what a sensible policy would be like. It would have a serious carbon price, gas as the transition fuel to back up solar and wind, genuine energy efficiency standards across the economy — and a real commitment to making it all work. •

The post We’re way off course for Paris, says World Energy Outlook appeared first on Inside Story.

The rest of eastern Europe and the central Asian “-stans” are what the UN calls “economies in transition.” Basically, they’re what remains of the old Soviet bloc and Yugoslavia. And all the rest of the world, regardless of income, is classified as “developing countries.”

That’s a lot of developing countries. They range in levels of income and development from Qatar, Singapore and Israel at one end of the spectrum, to the former civil war zones of the Central African Republic and Burundi at the other.

And, of course, they include China.

The International Monetary Fund prefers to divide the world into “advanced economies” and “emerging market and developing economies.” But it rates just thirty-nine economies as advanced — most of those on the UN’s list plus a few newly rich countries like Singapore, Israel and Taiwan.

Fully 155 countries are developing economies, according to the IMF. They include China and even the world’s richest country, Qatar.

For its part, the World Bank dodges the issue by clinging to a set of definitions from the 1980s that classify the world into four income groups: high, upper-middle, lower-middle and low. As the thresholds in real terms are still those set in 1987, and simply indexed for inflation, the Bank now has a lot of “high-income” countries: eighty-one at last count, including Argentina, Poland, the Gulf states, and most of the Caribbean islands. But China is still not rich enough to be one of them.

And the World Trade Organization? Well, it allows countries to define themselves. The thirty-six on the UN’s list profess to be “developed countries” and are subject to a tougher set of trade rules than the rest. Countries are allowed to nominate themselves as developed: but apart from Japan long ago, hardly any have done so.

One of the many informal groups within the WTO is the “Asian developing members,” all of which have nominated themselves as developing countries. Naturally enough, China, India and Indonesia are among them. But members also include Qatar, Macao, Singapore, Brunei, the United Arab Emirates, Kuwait and Hong Kong — on both the IMF and the World Bank definitions, seven of the ten richest countries in the world.

Add Taiwan, South Korea, Saudi Arabia, Bahrain and Oman, and this is not exactly Struggle Street. If prime minister Scott Morrison wants to start a campaign to reform the WTO by pressuring rich countries like these to renounce their developing country status (and the trade concessions that go with it), he is on strong moral ground.

But no, it seems he’s not concerned about countries like these being allowed to make smaller cuts to their tariffs, with more time to do so. Nor is he advocating a general review of how developing countries are defined at the WTO, the UN, the IMF, the World Bank or anywhere else. He just wants one developing country to redefine itself as a developed country — China.

It sits oddly with the PM’s claim in Sydney last night that Australia is not taking sides between China and the United States, the country in which he chose to launch his call.

If he wants to reform the system so that countries graduate from developing country status in global institutions, why single out China, which is not even in the top third of the world’s richest countries on either the World Bank or the IMF numbers?

On the UN’s Human Development Index, perhaps the best measure of citizens’ welfare, it ranks equal eighty-sixth with Ecuador. We don’t hear the PM thundering about the need for Ecuador to redefine itself as a developed country.

Sure, China is much, much richer than it used to be. On the IMF’s estimates, its GDP per head is now roughly in line with the global average. It’s become a classic middle-income country.

In real terms — purchasing power parity, which measures how much citizens of each nation can buy with an equal per capita share of its income, rather than the comparative cost of what they buy — the World Bank estimates that China last year was the seventy-ninth-richest country in the world, with a gross national income of US$18,140 per head.

That’s a long way from the United States (US$63,390), Australia (US$49,900) or other countries claiming to be developing countries, such as Singapore (US$94,500), Saudi Arabia (US$55,950) and Israel (US$39,830). So why single out China?

Sure, the central areas of Shanghai and Beijing are pretty cool, but the French Quarter is not typical of China. You don’t have to go far off the beaten track to find the Third World. The UN’s Human Development Index estimates that while Beijing is now at a similar level to the Czech Republic in overall human welfare, the western province of Yunnan ranks between Morocco and Nicaragua, while living standards in Tibet are comparable to those in Angola.

Even if you swallow uncritically the GDP figures China puts out — which many see as PR rather than genuine economic data — China is nowhere near as rich as many other countries that call themselves “developing countries.” Here’s how it compares with other top-twenty economies:

Sources: World Bank, International Monetary Fund (IMF).
All data for 2018, and measured in real terms (purchasing power parity).

That is why the PM’s suggestion in Chicago that China should unilaterally declare itself to be a developed country was ridiculous — and hostile in a way that his much-praised speech in June to the Asialink/Bloomberg forum skilfully avoided. When you single out one country from a large group for discriminatory treatment, it is futile to pretend that it is not a hostile act.

In Sydney last night, the PM doubled down, suggesting that China should be considered a developed country because it is now the world’s biggest manufacturer, its biggest exporter, and among its biggest in terms of financial markets. That’s all true, and he could have added, if he cared, that it’s also the world’s biggest emitter of greenhouse gases. And that — in real terms, as distinct from the exchange rate measure which conflates product with price — it is the world’s biggest economy.

But China has the biggest population in the world. It’s hardly surprising if it is also the biggest on many economic measures. That is consistent with its being a middle-income country with a huge population.

Morrison’s general principle is correct. Countries should no longer receive preferential treatment given to poorer countries when they no longer need it. The Howard government made its own decision on this in 2003 when it abruptly cut off Australian tariff preferences for “developing countries” in general, and limited them to the fifty or so least-developed economies.

The World Bank was on the right track when it decided to classify its members into four income groups — in effect, dividing the developing countries into those with upper-middle incomes (such as the future China), lower-middle incomes (such as India and Indonesia) and low incomes (such as most of Africa). But its measuring stick and its thresholds are both obsolete.

And in global institutions, no one gives up anything. The WTO and the United Nations are designed so that power rests with the members, not the officials. At the WTO, every country has the power to veto anything.

It is that power that the Trump administration is now using to gradually destroy the WTO’s power to solve trade disputes. For two years, the United States has refused to allow anyone to be appointed to fill vacancies on the WTO dispute appeals panel. By next year there will be too few members of the panel left to create a quorum.

Morrison, and Australia in general have been silent on their ally’s destruction of one of the few global institutions that actually solves disputes. We have been complicit in taking the world backwards.

China will take no notice of Morrison’s call — except to note that it shows Australia aligning itself with the United States, whereas in the past it walked a diplomatic tightrope to avoid doing so. We will have to wait to see whether this was a moment of madness, when Morrison got caught up in the euphoria of his state visit, or whether it marks a definitive change in Australia’s foreign policy.

The populist nationalism the PM espoused last night in his speech to the Lowy Institute — which is dedicated to sensible globalism — is not an encouraging sign. •

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But that pillar of our growth stands on one country, and virtually one country alone.

Between 2008 and 2018, Australia’s annual export revenue grew by $156 billion. But $99 billion of that came from a boom in exports to that country, and a further $9 billion from exports to its gateway.

The country was China, its gateway Hong Kong. Together they have generated an incredible 70 per cent of all Australia’s export growth in the past decade — more than twice as much as the rest of the world put together.

Never in the postwar era has any country been so important to our economy. In the past decade, exports to China and Hong Kong shot up by $108 billion. Exports to the United States grew by just $5 billion (what a fizzer that free-trade agreement was!). We’re often told that India could be our alternative to China, yet exports to India in the same decade grew by just $6 billion.

China’s demand and our massive immigration program are what has kept the Australian economy growing. The reason the conventional wisdom can claim Australia escaped a recession in 2008–09 is that China responded to the global financial crisis with a massive construction program, using Australian iron ore and coal. In the two years to 2009–10, our exports of goods to China shot up by $19.5 billion, or 72 per cent. Our exports to the rest of the world rose by $0.4 billion, or 0.2 per cent.

There are echoes of that in 2019. To prevent the Trump tariffs dragging China’s economy down, president Xi Jinping has revved up China’s construction activity even higher, and once again it’s Australian iron ore and metallurgical coal that have been the big winners. Their prices have soared and our terms of trade have jumped to a six-year high, and these results have helped keep the economy growing and put the budget almost back in the black.

Yesterday treasurer Josh Frydenberg declared, “As a result of the Morrison government’s economic plan and responsible budget management the budget has returned to balance for the first time in eleven years.”

Well, no, treasurer. In fact, the budget is still in deficit by $690 million. And while that is nearly in balance, it’s due to a massive $6.1 billion underspend in 2018–19 on the National Disability Insurance Scheme, higher than expected income tax receipts — and a $4.6 billion windfall in company tax revenue, thanks to China.

Australia has experienced export dependency before, but it’s a long time since Britain ruled the waves and bought half our exports. Even our dependence on exports to Japan in the seventies and eighties was nothing like this. When two-thirds of our export growth relies on one country, we are seriously dependent on it to provide for our future. And that matters for three reasons.

• First, it makes us highly vulnerable to the Chinese applying economic pressure to secure political/diplomatic goals. An example we rarely discuss: we support the US freedom of navigation patrols in the South China Sea, and no doubt the PM will repeat this at the weekend in Washington, but we refuse to join them, for fear of Chinese retaliation. And when even Australia won’t join the United States in these patrols, no Asian country dares do so.

• Second, when China’s economy falters — as one day it will, and possibly quite soon — it will take Australia down with it. China has chosen to keep pursuing a pattern of growth that is very favourable to Australia’s export mix. But it is unsustainable, and when it collapses, it is likely to be succeeded by a long drought in those same exports.

• Third, when the United States and China eventually end their trade war — as one day they will — part of the settlement will almost certainly see China ordering its importers to buy American goods, in areas now dominated by Australian exports.

Some of our key exports have a frightening dependence on China.

Last year China provided 81 per cent of export revenues for iron ore — now our biggest export earner. Together with Hong Kong, it bought 68 per cent of our gold, and by itself it provided 59 per cent of export revenues from confidential trade (usually alumina) and 79 per cent from miscellaneous minerals.

Okay, if demand drops, minerals can be stockpiled indefinitely: but their prices will fall, and if demand drops steeply, Australian miners could suffer big falls in export volumes and prices alike. The very forces that have inflated our growth will work to deflate it, and that will hurt.

China has not only been buying minerals. It’s also become the biggest buyer of our farm produce. China comprises the vast bulk of Australia’s export market for wool, barley, prawns and other crustaceans, woodchips, cotton, and miscellaneous foods (mostly fast-growing new exports). Of Australia’s key exports that have seen rapid growth in the past decade, all but one owe that growth to China. (The exception is beef, where Japan remains the biggest market, but China is making up ground fast.)

Until recently, on its own figures at least, China was the world’s fastest-growing economy. Australia has been fortunate to be able to swim alongside it, in a relationship that has worked for both countries.

Indeed, it has created dependence at both ends. As Angus Grigg and Angela Macdonald-Smith documented recently in the Financial Review, China now relies on Australia to supply three-quarters of its iron ore imports and almost half of its LNG. Security analyst Ross Babbage told the Fin: “China is in some respects more dependent on us than we are on them. This is one of the reasons why the leadership in Beijing is cautious about pushing Australia too hard.”

To date, Australia has been perhaps the biggest beneficiary of the China–US trade war. Other Asian countries normally export lots of components to China to be assembled there for export to the United States and elsewhere. That trade has been severely hit, whereas Australia’s China-bound exports over the year to June soared by $28 billion, or 27 per cent. That rise is likely to be undone, one way or another, as the trade war comes to a crisis.

It certainly hasn’t happened yet. The stimulus measures the Chinese government has taken — such as ordering developers to build more new apartments on top of the fifty million empty ones already in China’s cities — require plenty of steel, which in turn requires even higher imports of Australian iron ore and metallurgical coal. And its diversion of import demand from the United States — which had been its main source of LNG — has only made Australia more important.

But it won’t last. Our gains will unwind when the trade war ends and Chinese demand is diverted from Australia to the United States. Demand for our iron ore and metallurgical coal will shrivel when China decides there’s a limit to how many empty apartments it can build. And there are good reasons why China itself might want to stop producing more than half the world’s steel and aluminium.

There are also good reasons why Australia should want to reduce its economic dependency on a superpower that in other ways has shown itself far from friendly to us.

The economic pain we are feeling is coming from the domestic economy. On the global front, our trade surpluses have grown very large — partly because China is buying up big, and partly because we are not. The June quarter saw Australia record its first quarterly current account surplus since 1973.

But another view is that, in net terms, it means we’re investing more in the rest of the world than it is investing in us. About time, you might say, but it’s happened partly because business investment is now exploring its lowest levels in decades as a share of GDP.

The domestic economy is on the ropes. The Bureau of Statistics estimates that unemployment this year has grown by 45,000 — only from 5 per cent to 5.25 per cent, but the National Australia Bank’s monthly business survey confirms that business confidence is low and heading lower. Almost half the jobs created this year have been part-time, and half of them have gone to people who want more work — usually full-time.

The youngest generation of workers — those aged fifteen to twenty-four — are getting it in the neck. On the Bureau’s preferred trend measure, there are 2.225 million of them in the workforce, up 30,000 this year, but the number in full-time work has grown by just one hundred. The number unemployed has grown by 13,000, while the number underemployed — mostly people who want full-time work but can only find part-time jobs — has swollen by 28,000.

The Bureau estimates that 30 per cent of all workers in this age group are now “underutilised.” What will happen to the rest of them if the pillar of China’s support to our economy crumbles, and falls? •

The post China, the world, and us appeared first on Inside Story.

But seven out of eight Indonesians are Muslims. This time, the exit polls tell us, they divided almost evenly — 49 per cent for Jokowi and 51 per cent for Prabowo, a Trumpish former general who won overwhelming endorsement from Muslim conservatives, just as Trump’s support base is among Christian conservatives.

That 49–51 split hid deep divisions. The Javanese heartland in East and Central Java gave Jokowi a massive 71 per cent, after its dominant Muslim organisation, the Nahdlatul Ulama (Rising of the Scholars), which promotes a pluralist “Indonesian” Islam, formed a de facto alliance with the president — a relationship cemented when Jokowi chose a veteran NU cleric, Ma’ruf Amin, as his vice-president.

Yet on the other side of the island, the Sundanese heartland of West Java, which more reflects the Saudi version of Islam, gave 60 per cent of its votes to Prabowo. The challenger — as implausible a role model for Islam as Trump is for Christianity — also won 57 per cent of votes on Indonesia’s second island, Sumatra. That figure rose to 86 per cent in the deeply conservative provinces of West Sumatra and Aceh.

A conference of Indonesia experts in Canberra last weekend heard that Indonesia is now more polarised — and its democracy weaker — than at any time in twenty years of democratic rule. And it’s not clear if Jokowi’s second five-year term will heal that polarisation, or see it grow even more confronting, forcing Indonesia’s leaders to redefine what kind of country it is.

The annual Indonesia Update at the Australian National University shone its spotlight on the social divisions left by the election, and by years of increasing tension between supporters of Indonesia’s traditional pluralism and those who want to impose conservative Islamic values. At the extreme, some conservatives would like to see sharia law enforced and Indonesia declared an Islamic country.

The conference also focused on what its organisers see as the “regression” of Indonesian democracy towards authoritarianism, after Islamic militants succeeded in having the former mayor of Jakarta, Basuki Tjohojo Purnama, a Chinese Christian known as Ahok, jailed on a charge of blasphemy against Islam. Speakers accused Jokowi of retaliating by using the powers of government to suppress opposition and conduct the election on a playing field sloping his way.

The past three years of social conflict have threatened hopes that Indonesia is becoming a “normal” middle-income democracy. The momentum is now with those who want it to be a less diverse, less tolerant, more authoritarian state reflecting traditional Islamic values.

If the conflict of values between Indonesia’s traditional religious pluralism and conservative Islam intensifies further in Jokowi’s second term, the tolerant, open Indonesia we know could become a very different country.

To Australians, Jokowi seems one of the most attractive leaders on the world stage: a smiling, politically skilful man of the people; an honest entrepreneur-turned-politician building the infrastructure Indonesia sorely needs. But Indonesia watchers in Australia’s universities have been concerned for some time that his government has slid towards authoritarianism in trying to suppress the rising conflict over Indonesia’s national identity.

The ANU’s Marcus Mietzner and Ed Aspinall opened the conference with a bleak overview: Mietzner declared that Indonesia’s democracy is now in its worst shape since 2000. The former army commander in East Timor, General Wiranto, has been put in charge of the government’s response to the rise of Islamic militancy, with results Mietzner summed up as “executive illiberalism.”

Rock star Ahmad Dhani, a prominent critic of the government, has been jailed for two and a half years for a series of inflammatory tweets. In all, eighty-two Prabowo supporters have been prosecuted for insulting Jokowi, although only sixteen have been convicted. The government leant on the TV channels during the election campaign to ensure that most supported Jokowi. Police and public servants were told to go out and sell the government’s achievements.

Along with the usual Indonesian custom of “envelope campaigning” — one government candidate was arrested with eight billion rupiah (about A$800,000) in envelopes intended for voters — the message went out to moderates: “They came for Ahok. Next they will come for us, unless we support Jokowi.”

Aspinall added that it was no better on the other side: Prabowo’s team told voters that Jokowi was not a true Muslim and would, if re-elected, ban prayers and legalise same-sex marriage. And it is no secret that, having forced Ahok from Jakarta’s mayoral office and into jail, the Islamic militants’ next target is Jokowi.

Conference co-convenor Eve Warburton argued that Jokowi himself used smears to try to polarise Indonesians; his supporters are now urging him to purge the civil service of Islamists. She cited surveys showing that the polarising campaign rhetoric was matched by “rising intolerance at grassroots level” towards anyone with different views.

But perhaps this needs to be seen in context. In his keynote speech, University of Michigan political scientist Allen Hicken, a pioneer of measuring the quality of democracies, emphasised that the tide of liberalisation has been receding the world over since about 2012, including in the West; Indonesia is no exception.

Hicken has to live in Trump’s United States, and specialises in the Philippines, the den of Duterte, and Thailand, the land of coups. Yes, Indonesia has lost some democratic ground, he said, but along with East Timor it remains streets ahead of the other countries in Southeast Asia — even Malaysia and Singapore — for the depth and spread of its democratic culture.

Indeed, on any reasonable measure, Indonesia is a stand-out success among the world’s newer democracies. It has seen election after election at which power has passed peacefully between elected rulers at all levels of government. The media is uncensored, political parties operate freely and the courts are independent, if at times corrupt.

Hicken argued that its recent experience reflects a global zeitgeist in which leaders and citizens are turning away from the liberal ideals of “being able to see others’ point of view, and being able to disagree without being disagreeable.”

This is exacerbated, he said, when elections lead to a winner-takes-all outcome, when candidates who might build bridges to unite the country are blocked from standing by extremists in their parties, and when governments use rule by law rather than the rule of law to punish groups opposed to them.

He did not speculate on what has made the world turn more authoritarian. In Indonesia’s case, “executive illiberalism” was clearly driven by the rise of militant Islam in the streets, and the fear of this fuelling a resurgence of the terrorist bombings of the previous decade. Indonesia has the largest Muslim population of any country, and the most to lose if Islamic radicalism grows out of control.

Back to the election. The defining event of Jokowi’s first term was the toppling of Jakarta’s mayor, largely because Ahok was a Chinese Christian. And, in turn, Jokowi’s defensive response to this — forming a de facto alliance with the Islamic moderates of the Nahdlatul Ulama, or NU — was the decisive factor in his re-election.

NU’s Javanese heartland (East Java, Central Java and Yogyakarta) contains almost a third of Indonesia’s voters. In 2014, they gave Jokowi a healthy 59–41 victory over Prabowo, a majority of eight million votes. In the other two-thirds of Indonesia, by contrast, his margin over Prabowo was a slender 300,000 votes.

This time the rest of Indonesia, taken together, swung to the challenger: Prabowo won that two-thirds of the country by 3.6 million votes. But in the Javanese heartland, with almost fifty million voters, Jokowi won a stunning 12 per cent swing to win 71 per cent to Prabowo’s 29 per cent. This time, his majority there was more than twenty million votes. Sure, it’s his part of the country — his political career began as Mayor of Surakarta (Solo) — but what gave him such a massive swing there when West Java held firmly with Prabowo and the three other big islands — Sumatra, Sulawesi and Kalimantan (Borneo) — swung strongly towards the challenger?

The decisive factor was NU’s role. Nava Nuraniyah of Jakarta’s Institute for Policy Analysis of Conflict gave the conference a fascinating account of how NU set about organising its millions of mostly moderate members and supporters to become militant campaigners defending Indonesia’s traditional pluralism.

As Indonesia’s largest Muslim organisation, NU largely focuses on welfare. It is best known in Australia for its former long-time leader Abdurrahman Wahid (aka Gus Dur), the courageous, almost-blind cleric who was a rare voice of opposition in the Suharto years. Gus Dur became president himself in 1999, but found day-to-day politics beyond him, and was dumped for PDIP leader Megawati Sukarnoputri.

Confronted with the rise of radical Islam on the streets, NU turned itself into the army of “militant pluralism,” Nuraniyah said. It trained its cadres to be campaigners armed with techniques and arguments, including martial arts training. And Jokowi returned the favour by choosing senior NU cleric Ma’ruf Amin as his running mate, despite the crucial role Amin had played in 2016 in issuing a fatwa against Ahok, one of Jokowi’s allies.

On the streets, NU’s young militants confronted the radical Islamists with similar tactics: burning opponents’ flags, holding big prayer rallies and trying to recruit those on the sidelines. There was no serious violence during the campaign, but Nuraniyah warns that violent clashes between the two groups could happen in the future.

Jokowi’s five-year term will finally start in October. What role will the NU and his new vice-president play in it? So far, their hand has not been visible in the issues he has nominated as his priorities: ensuring that “no one [is] left behind,” pushing through reforms to attract more business investment — including lower company tax and investment in infrastructure and education — and building a new capital city (of which, more in a moment).

But Jokowi has yet to announce his new ministry, and he is a pragmatist. If Islam’s influence in Indonesia continues to expand, his decisions are likely to reflect it. Moderate Islam saved him at this election; he now owes it some favours. What will the NU seek?

The role of Islam in society is not the only difficult issue facing Indonesia’s leaders. It is a land with both widespread corruption and a powerful, committed anti-corruption commission, the KPK. That’s a lethal cocktail. According to the Jakarta Post, the commission is currently investigating 255 MPs, six political party leaders, 130 regional leaders, and twenty-seven heads of departments and agencies under suspicion of graft. Not surprisingly, the MPs don’t like it, and they are fighting back.

The outgoing House of Representatives has unanimously put forward a draft law which would see it appoint a council to oversee the KPK’s operations, issue or deny approval for any use of telephone surveillance, and remove its freedom to hire. Anyone who has read Elizabeth Pisani’s wonderful analysis of Indonesia by travelogue, Indonesia Etc., will understand the MPs’ point of view. After all, our constituents expect us as MPs to keep handing them cash-filled envelopes and other goodies. How can we afford to do that if we don’t take bribes?

At issue, however, is Indonesia’s ability to progress to becoming a modern, high-income economy. Even in 2007, Transparency International’s Corruption Perceptions Index ranked Indonesia at a disappointing 143rd of 180 countries on corruption, with an average mark of just twenty-three out of one hundred. But by 2018, Indonesia’s ranking had jumped to eighty-ninth, and its average mark to thirty-eight — and few would dispute that that is largely due to the work of the KPK, which has already sent powerful figures such as former Golkar party chairman and speaker of the House, Setyo Novanto, to jail for fifteen years.

Jokowi, typically, has remained silent so far. But he has told party leaders he plans to appoint a non-politician as attorney-general, and have only a minority of politicians in his ministry. His finance minister, Sri Mulyani Indrawati, is one of Indonesia’s most highly regarded economists and has spearheaded a range of reforms, including measures to tackle corruption in the bureaucracy. One can imagine what advice she will give Jokowi on the House’s draft bill.

With the conference program decided long ago, there was only cursory reference to the recent riots in Papua, whose Melanesian people resent being an outlying province of a largely Javanese country. As they see it, they are viewed by other Indonesians through a prism of condescending racism; even in Papua, government and commercial activities are dominated by outsiders, and their land remains cut off from the world. (Even under Jokowi, foreign journalists are effectively banned from Papua.)

Ed Aspinall touched on the conflict only to warn that Papuan separatists have embarked on “an unwinnable war,” given Jakarta’s military muscle and determination to retain control. Some of us remember the same phrase being used a generation ago to dismiss the East Timorese resistance.

A different slant was put by Charlotte Setijadi of the National University of Singapore. While Jokowi has visited Papua more often and invested more in its development than any previous president — including building a trans-Papua highway — she said solving Papua’s complaints “needs more than a development approach. Papua must have political reform.”

The issue that has sprung out of left field since the election is Jokowi’s snap decision to build a new national capital — and not on Java, but in the sparsely populated jungle of East Kalimantan.

He timed it well, to chime with alarm over Jakarta’s toxic air pollution, and what is now seen as the inevitable sinking of northern Jakarta under the ocean as a result of the long, reckless depletion of its groundwater resources. Greater Jakarta now has roughly thirty million people, more than all of Australia. It has to be Indonesia’s commercial capital; it doesn’t have to be the national capital.

But as the ANU’s Paul Burke argued in a searing critique, a developing country with so many infrastructure needs could do without the added cost of building a new capital. He dismissed the official cost estimate of 466 trillion rupiah (roughly A$50 billion) as an underestimate that ignored the extra operating costs imposed by having a Brasilia-like capital far from where most people live.

“Indonesia has a long list of more compelling priorities than a new capital,” Burke said. “Jakarta is not going away. It will still be Indonesia’s biggest city… Investments and policies will be needed to tackle groundwater management and air pollution, to build an outer sea dike, and implement its own (A$60 billion) regeneration project.”

A new capital will inevitably be funded partly from the resources that would otherwise be deployed in meeting infrastructure needs in the cities and regions where Indonesians are already living, he said. The opportunity cost of giving the new city priority will be significant.

If a new capital were needed, it would be far cheaper to build it on Java, where almost half of Indonesia’s people live, and road, rail and air links are concentrated. But Burke said the reality is that Jakarta is already the hub to which all of Indonesia connects, and changing that will be expensive.

It does seem a premature decision, even for an economy that has done as well as Indonesia has. In its twenty years as a democracy, gross domestic product has almost trebled, averaging growth of 5.25 per cent a year. Indonesia’s GDP per head has more than doubled — and in the past decade has grown four times as fast as Australia’s.

Indonesia is now a middle-income country in real terms (using purchasing power parity to measure the volume of output rather than its price), making it the seventh-biggest economy in the world. In this decade it has overtaken Brazil, Britain and France. Within another decade, if it can sustain its current growth rate, it will overtake Russia, Germany and Japan to become the world’s fourth-largest economy.

Its most serious economic weakness is that the gains from growth have gone disproportionately to those at the top. The ANU’s Christopher Hoy said reforms in Jokowi’s first term have gone some way towards reducing income disparities, but the richest 20 per cent of Indonesians hold 85 per cent of the country’s wealth, while the poorest 60 per cent hold just 5 per cent between them. Jokowi’s team has made some headway in reducing income disparities, but there is a long way to go.

Few Australians think of Indonesia as a success story. The Lowy Institute’s annual poll reveals that two-thirds of Australians don’t even realise that it’s a democracy. Nor have they grasped that Indonesia’s military and police have succeeded in more or less shutting down one of the world’s most lethal terrorist networks since the 2002 Bali bombing — and that, in the world’s most populous Muslim country.

Indonesia could have done a lot worse, on many fronts. As its neighbour, we should be grateful to have a thriving, democratic success story on our doorstep.

The question is whether it will remain that way. That’s one question the conference could not answer. •

The post The wrong kind of momentum in Indonesia? appeared first on Inside Story.

Only with a lot of guile and resourcefulness have treasurer Tim Pallas and his Treasury team delivered a projected budget surplus, using a mix of cash-and-grab raids on obscure state funds, small tax rises in obscure areas, and unstated, obscure and unidentifiable spending cuts.

How much could go wrong when your state is booming economically — real spending in Victoria grew almost 5 per cent in 2018 — and is one of the nation’s two growth engines? When your party is fresh from a sweeping election victory in which it decimated the opposition? And when a flood of migration from overseas and interstate keeps creating jobs and new spending like a magic pudding?

Well, plenty has gone wrong for Tim Pallas in the past year (offset by his stunning success in losing weight). For example:

• Housing prices in Victoria have slumped by 10 per cent and home sales by 15 per cent, cutting more than $1 billion off the state’s stamp duty receipts in 2018–19 alone, and even more in the years ahead.

• New national accounting standards will require governments to bring many of their public–private partnership projects back on the budget books — a long-overdue move that Victoria supported. But it abruptly lifts the state’s net debt by $9.6 billion, accounting for the bulk of a spectacular growth in net debt from $23 billion to $39 billion. It also shifts $481 million of previously off-budget interest bills onto the budget.

• Labor won its second term last November on a platform that committed it to more free-spending budgets to boost investment in transport infrastructure and social spending alike. And it doesn’t pay to break promises.

The last four years have been high summer for the Victorian economy. In 2018, real spending in the state was almost 20 per cent higher than in 2014. The state now has 433,000 more people in jobs, three-quarters of them full-time, than when Labor took office in November 2014. And growth has been so high because the state’s population has increased by 570,000 in four years, or almost 10 per cent; Melbourne alone has grown by roughly 500,000 in that time. It’s been boom time.

But this boom time has not seen the state salt away funds to tide it through the inevitable bust. On the contrary. The budget surpluses have been kept small because Labor had other priorities — many of them. In the Andrews government’s first term, the state’s wage bill jumped by a third, total spending on services rose 30 per cent — and, after a slow start, transport investment almost trebled, spearheaded by its policy of removing fifty level crossings from Melbourne’s congested roads.

Sure, taxes rose in line with the increased services. Debt was piled up to finance the road and rail projects, justifiably, given how cheap it is for governments to borrow. It all went down well with the voters, who gave Labor a landslide win at November’s election.

By then, however, the housing boom had already bust. The Victorian Treasury estimates that falling home prices and sales cost the budget more than $1 billion in 2018–19, and roughly $1.25 billion a year for the next three years, relative to its forecasts in last year’s budget. (Peter Martin, then at the Age, warned at the time that Treasury’s forecasts were far too rosy. He sure was proved right.)

The boom saw stamp duty on property transfers become Victoria’s biggest tax. Its collapse has punched one hole in the budget, the new accounting standards have punched another, and the surplus was always more slender than it should have been. So how could Pallas deliver the new spending Labor promised in the campaign — on services alone, $3.7 billion in the coming financial year, plus record infrastructure spending — without big tax rises?

The answer is the real core of this year’s budget. The government leaked its own tax rises to the media early — basically, because they were surprisingly small and obscure, targeting groups with little public support: primarily, foreigners buying property, people buying luxury cars, and company restructures. They add up to just $180 million a year in a budget spending $80 billion a year. The tax hikes on foreign property buyers simply replicate what the Coalition did across the border in New South Wales.

Instead of raising taxes, Pallas and his team used a clever mix of measures to fill the financing gap and emerge with a projected surplus for 2019–20 of just over $1 billion. Their recipe (explained nowhere in the budget papers) was this:

• Spending was cut in the way governments now prefer to do it: by “reprioritising” existing spending plans (no dollar figure given); delaying projects yet to begin (saving $694 million in 2019–20); and cutting every department’s funding by 0.5 per cent, except for frontline services such as teachers, nurses and police ($251 million, but rising steeply thereafter, as a taskforce reviews all spending to search for efficiencies).

That’s on top of the annual “general efficiency” spending cuts, which in Victoria see every department start off with effectively the same nominal funding as the year before, even though inflation means that buys it about 2.5 per cent less. Sadly, often essential maintenance bears the brunt of the cuts, as you can see when you visit a Victorian national park or tourist spot and find it full of weeds. In principle, though, it’s as good a way of cutting spending as any other — and after four years of big spending increases, most departments should have plenty of fat to cut.

• Other taxes came to the rescue. Payroll tax soared as jobs boomed. And while stamp duties fell, new land tax valuations took effect, based on property values close to the height of the boom. Land tax bills in some areas are now double what they were four years ago — with disastrous effects for some, but highly beneficial effects for the budget. (Labor has promised annual reviews in future to prevent such big hikes again.)

• Commonwealth grants came to the rescue. The budget excludes all of the federal Coalition’s election promises — such as spending $7 billion itself to build the controversial East West Link (a politically inspired project that has failed three cost–benefit examinations) and $2 billion to extend the Geelong train line to Waurn Ponds — as these are not yet part of any agreement with the Victorian government (and the first is unlikely ever to be). Even without them, grants are forecast to swell by 50 per cent in five years, as Victoria’s population growth, low mineral royalties, and real estate slump qualify it for a larger share of GST funding.

• The government set up a new Victorian Infrastructure Fund and raided the “hollow logs” of the state insurance agencies to pay for it. The Transport Accident Commission, Worksafe and the Victorian Managed Insurance Authority will pay for their (in the government’s eyes, excessively) prudent management by being forced to cough up $2.3 billion in the next four years to finance priority infrastructure projects.

• Victoria’s Treasury has been optimistic in forecasting the economic parameters. In Victoria’s budget, as in Canberra’s, wage rises are assumed to rise rapidly in coming years — which many economists think unlikely. The slump in property prices and sales is assumed to turn around in coming months, giving way to a gradual recovery. And in summing up the state of the economy, Treasury argues that “the risks to the Victorian economic outlook are broadly balanced.” That’s an optimism you don’t see too often these days.

The net effect is that the state is forecast to generate a $1 billion surplus of revenue over services spending in 2019–20, and bigger ones ahead. They would help finance its record infrastructure spending, which Pallas says will average $13.4 billion a year over the next four years. Most of that is on transport, with four projects dominating: the West Gate road tunnel ($1.6 billion), the Melbourne Metro rail tunnel (also $1.6 billion), the level crossings removals ($1.45 billion), and a much-needed investment in new trains ($910 million).

The government is also planning its next wave of mega-projects: the North East Link to complete Melbourne’s ring road and widen the Eastern Freeway (total cost $15.6 billion), the Melbourne airport rail link ($8 billion to $13 billion), and its worst decision, the Suburban Rail Loop ($50 billion). The federal government, which for political reasons usually opposes whatever Victoria proposes, is however funding the planning work on the airport rail link.

All these, of course, are politically driven choices. The last thing a government on either side of politics would do is to ask the experts which projects would do most per million dollars spent to reduce traffic congestion and/or make public transport more reliable, more consistent in speed and quality, and more useful to the people it is meant to serve.

I suspect the experts might recommend that the mega-projects be replaced by spending on making what we’ve already got work better. Duplicate congested roads, remodel intersections, build more overtaking lanes and highway dividers, and lift the priority given to road maintenance. Give the rail network a twenty-first-century signalling system, more frequent services, and more maintenance. And please, focus attention on what this budget ignored: the under-resourced bus systems that serve the middle and outer suburbs of Melbourne, and country Victoria.

The infrastructure spend will see the state’s net debt rise to a forecast $50 billion by 2021–22, or 10 per cent of gross state product. I have long argued for putting infrastructure needs before debt concerns when borrowing is so cheap. Labor won the state election by doing so, but lost the federal election partly because so many voters believed the Coalition’s taunt that “Labor can’t be trusted with money.”

In politics, wheels can turn. The Andrews government would be far more secure against such taunts in 2022 if it stopped choosing infrastructure projects for political reasons and started selecting the ones that would deliver most value per dollar to Victorians. Voters have given it their trust. It must now give them value for money. •

The post Victoria: where black is always in appeared first on Inside Story.

The Morrison government’s election win killed Labor’s plan to shut the gate on negative gearing and reduce tax breaks for capital gains. The Australian Prudential Regulation Authority lowered the excessive safety margins it required on home loans as insurance against rate rises. And Reserve Bank governor Philip Lowe made it very clear that the bank is about to cut interest rates.

AMP chief economist Shane Oliver now forecasts that prices will bottom out by the end of 2019, not much below current prices. That would allay fears of further price falls dragging down the economy. But it would also end the progress made on housing affordability, which has allowed first homebuyers back into the market.

The key question is: what comes next? What do the Morrison government and the Reserve Bank want the next stage of the housing market to look like?

Will they aim to create the conditions for another boom in housing prices? Or will they aim to create stability in house prices — just as the Reserve Bank aims for price stability in more humdrum purchases?

And as the global and Australian economies lose momentum, could the housing market once again be conscripted to lead the fight against the threat of recession — with housing affordability sacrificed as collateral damage?

Welcome back to government, Mr Morrison. There are a few challenges waiting for you.

The housing market is one that Scott Morrison knows a lot about: he used to work there, and he made it a central issue in the election campaign. And now it’s his opportunity, and responsibility, to set the goals for what happens next.

The central issue is: do we want to return to the way the housing market has developed in the past forty years, and continue those trends into the future? Or do we want to end this long period of high inflation in housing prices, declining affordability, and declining home ownership?

In 1980, the median home cost less than three years of median household income. Home ownership was not universal, but it was close. The 1981 census found 75 per cent home ownership among thirty-five- to forty-four-year-olds, and 61 per cent even among twenty-five- to thirty-four-year-olds. If you aspired to own your own home, you usually could.

Then housing prices took off.

We had a boom from 1983 to the end of 1985, a pause when Labor ended tax breaks for negative gearing, then back to boom when it restored those tax breaks. Prices had roughly doubled by the time the boom ended in 1989, when the Reserve Bank lifted mortgage rates to 17 per cent.

National housing prices 1980–2019

December 1980 = 100. Logarithmic scale
Source: Reserve Bank of Australia chart using CoreLogic data

There was a small correction, and seven years of roughly stable markets allowed incomes to catch up a bit. Then prices took off again in 1997, in a boom that essentially ran until rising interest rates choked it at the end of 2007. By then the median house cost two and a half times as much as it had in 1996, and five times as much as it had in 1986.

A big correction was needed: a long period of slowly declining or stable prices, to allow household incomes to catch up. Instead, we were hit by the global financial crisis. Interest rates went down, so housing prices went up. The Reserve soon slammed on the brake, raising interest rates by far more than the economy required, and prices edged down. But in 2012 a crucial policy choice intervened.

The mining investment boom had seen the Australian dollar soar to levels that made Australian industries across the board globally uncompetitive. After the boom would come a bust, and some of us noted that every time mining investment had gone bust in the postwar era, the economy had gone bust with it. This was a colossal boom compared with any before it. We were facing a colossal bust.

The Reserve got the message.

It repealed every one of its interest rate hikes, and then some. In fifteen months during 2012–13 it gave us the equivalent of seven interest rate cuts, taking the cash rate to a record low of 2.5 per cent. Two more cuts followed in 2015, and another two in 2016.

Reserve Bank cash rate, 1990–2018

Source: Reserve Bank of Australia

These interest rate cuts had nothing to do with the 2 to 3 per cent inflation target. They aimed at stopping the economy going into recession as the mining boom turned to bust. And the housing market was to be its saviour.

The mining boom peaked in September 2012. In the next four years, the volume of housing construction and property transfers shot up by 35 per cent. With their links to manufacturing, transport, professional services and so on, they largely offset the fall in mining construction.

Alas, this created another boom in home prices. The Bureau of Statistics estimates that Sydney prices shot up 80 per cent and Melbourne 57 per cent. Housing affordability became collateral damage in the war against recession. As the Reserve Bank graph shows, national housing prices by December 2017 were almost ten times higher than in December 1982.

Household incomes had not kept pace. Buying a home now required six or seven years of the median household income, not two or three. The 2016 census found home ownership rates had slumped from 75 to 62 per cent among thirty-five- to forty-four-year-olds, and from 61 to 45 per cent among twenty-five- to thirty-four-year-olds. Young buyers could not compete with rental investors enjoying tax breaks on rental losses and capital gains. For a while, most of the money banks lent for housing purchases went to investors, not owner-occupiers. Sir Robert Menzies would have turned in his grave.

Another long correction was needed. And a year and a half of falling prices has made some progress in improving affordability. Housing analyst CoreLogic reports that median prices have fallen 15 per cent in Sydney, 11 per cent in Melbourne, and 10 per cent across capital cities. Its head of research, Tim Lawless, noted that the pace of decline has slowed in 2019, easing fears of a hard landing in which investors might panic and rush for the exits.

Some say Labor’s plan to shut off tax breaks on negative gearing for new purchases was a factor in the price fall. Certainly, the real benefit of that plan was that over the long term it would weaken the incentive for investors to jump in, and hence reduce the frequency and size of future booms, creating a period of price stability in which renters could again afford to become first homebuyers.

Lowe implied in his answers to questions on Wednesday that the looming rate cuts will be aimed not at the housing markets but at stimulating the economy in general. The Reserve Bank is sufficiently worried by the trends in global markets and at home that it is prepared to use up scarce ammo to try to boost activity.

Morrison and treasurer Josh Frydenberg also did their bit for the economy in the budget, with a tax break offering up to $1080 to low- and middle-income earners, and a $284 grant to people on welfare. Economist Chris Richardson of Deloitte estimates that this is equivalent to a 2 per cent rise in after-tax wages: significant at a time like this.

But the long-term issues must be faced. If the PM and his team want to keep negative gearing, do they want it to play as big a role as in the past?

In the four years to 2016–17, the tax office notes that a quarter of the growth in negatively geared taxpayers was among people who owned three or more investment properties. Morrison as treasurer tried to cap this, but was blocked by opposition from MPs and senators, one of whom owned fifty properties. To revive his plan would be a small step, but a useful one that sends a message.

And the message from both the government and the banks needs to be: we don’t want any more housing booms. We want to make homes affordable for ordinary Australians. •

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It may be that Labor lost the election for the same reason that Hewson lost in 1993. They proposed an ambitious plan of tax reforms. Their opponents launched an all-out scare campaign that misrepresented the taxes, created fear, uncertainty and suspicion, and won the election. If that’s the explanation for Labor’s shock defeat, it is a bad sign for the chances of future reform — and hence, for the quality and wellbeing of Australian society.

At most, seven seats remain in doubt. More in doubt is whether Scott Morrison will lead a majority government or a minority one. As of Sunday morning, the Coalition was ahead in seventy-six of the 151 seats. Labor was ahead in sixty-nine, and others in six. That’s very tight, especially when in Bass, the Coalition led by just over 300 votes.

It could easily end up in a minority on the floor of the House, as it was before the election. Indeed, the current state of the parties in the count is exactly the same as it was six months ago, before Julia Banks defected from the Coalition. But if that’s how it ends up, that should be workable — and if not, it will probably be because the government is trying to do something fundamentally wrong.

There will be plenty of time for considered opinions on why Labor lost its own unlosable election, after having led in every opinion poll since September 2016. It might help us understand why it happened if we first learn more about exactly what happened.

1. We expected a medium-sized swing to Labor. Instead we got a medium-sized swing to the Coalition

The opinion polls estimated on average that Labor would win 51.7 per cent of the two-party vote, a swing of just over 2 per cent. Instead, the ABC’s Antony Green estimated at the end of Saturday night that the final results would show a swing to the Coalition of 1.5 per cent, giving Labor just over 48 per cent of votes after preferences. (The Australian Electoral Commission’s results website shows a two-party swing of 0.5 per cent, but that excludes sixteen seats where the final contest includes a Green, independent or minor party.)

That is a big difference from what the polls were forecasting, and well outside their margin of error. It follows the Victorian election six months ago when the polls got it even more wrong, that time by underestimating Labor’s vote. For a decade, we’ve had the good fortune of having opinion polls we can trust. Now, alas, we can no longer rely on them for accurate information on how the voters see things.

(When did the polls wander off track? Before all those bad Newspolls helped to overthrow Malcolm Turnbull? Yesterday’s Newspoll was 3.5 per cent out. Had the public long been saying one thing to the pollsters, while thinking something else? Or was the result just the effect of the scare campaigns against Labor’s tax reforms and against Bill Shorten?)

The outcome also made fools of the punters — and of Sportsbet, which on Thursday, as a publicity stunt, offered to pay out early for anyone who put their money on Labor. Even Ladbrokes was offering odds of 6 to 1 against the Coalition until the voting stopped and we discovered it had won.

The only polls that gave any hint of the result were the final seat polls YouGov Galaxy published in the final days, and even they were hit-and-miss. (They reported the Queensland seats of Herbert and Forde as 50–50, but the Coalition won them both by at least 58–42.) But the polls did find that in some seats the swing was to the Coalition, and in others the swing to Labor fell short of what was needed. But because seat polling has a poor record, most of us discounted them as reliable evidence.

2. We were divided. Any district within ten kilometres of a GPO was probably swinging to Labor. Any district outside that was probably going the other way

In most seats, the swing was to the Coalition. But there were exceptions. In Victoria, Labor won two-party swings of 2 per cent or more in roughly half the seats. And in the inner cities, of whichever city in Australia you look at, the Coalition lost ground, and Labor and the Greens gained.

The election has left Australia more divided than ever. In central and north Queensland, electorates suffering high unemployment were looking forward to the prospective Adani coalmine, so they dumped Labor and swung massively to the Coalition.

It sums up the mood in central and north Queensland that the biggest swing to the Coalition anywhere went to the MP whom southerners see as a joke: George Christensen. He won an 11.26 per cent swing in the Mackay-based seat of Dawson, and there were big swings on either side of it: 10.68 per cent in Capricornia (Rockhampton) and 7.62 per cent in Herbert (Townsville).

The anti-Labor mood in Queensland was felt everywhere outside the southeast except Leichhardt (Cairns). It extended to outer-Brisbane seats like Blair, Forde and Longman (which the Coalition won back), and even to Bonner in the eastern suburbs and to Lilley in the north. Wayne Swan’s old seat was shaken by a 4.8 per cent swing, although it looks like Labor will survive.

But inner-suburban Brisbane, Liberal or Labor, went the other way. Ryan, Brisbane’s poshest seat, recorded a 3.68 per cent swing to Labor, and there were noticeable swings in its neighbours, Brisbane and Griffith. In all three, the Greens’ vote topped 20 per cent — at least partly due to their fervent opposition to the Adani mine.

Adani has become a fault line dividing Australians. To people in regional Australia, especially regional Queensland, the mine represents an opportunity for well-paid, full-time private-sector jobs: manna from heaven, to relieve the lack of jobs. But to others, especially in inner cities, it represents expansion of the world’s use of coal, the fuel largely responsible for warming the planet, with all the risks that follow as icebergs melt, weather patterns worsen, the sea rises, and low-lying land is submerged.

The first group doesn’t want to see the government tackle climate change seriously; the second insists that it must. Scott Morrison is basically with the first group. But unless the Coalition accepts that climate change is real and serious action has to be taken urgently, the reality of the climate emergency means the issue will keep growing like a cancer within the party.

But this cancer is spreading within Labor ranks too. Outside central and north Queensland, the biggest swing against Labor was in the coalmining areas of the Hunter Valley. Frontbencher Joel Fitzgibbon lost 9.24 per cent of the vote and held on only narrowly in his normally safe seat of Hunter, while neighbouring seats like Shortland and Paterson also recorded big swings against Labor. Neither party has an easy way out of its dilemma.

The division within Brisbane was repeated in other cities. In Sydney, a swing of almost 20 per cent saw independent Zali Steggall eject former prime minister Tony Abbott from his seat of Warringah, while across the Heads, fellow independent Kerryn Phelps is still a chance to retain the Wentworth seat she won in last year’s by-election. Bradfield, Bennelong, Mackellar, North Sydney: the affluent Liberal heartland swung as one against its government. It’s hard to believe it did so because it was attracted to Labor’s tax reforms. Climate change was surely the key issue.

But on the other side of Sydney, in Labor’s heartland, it was a different story. The Liberals won back Lindsay with a swing of 6.14 per cent, and won an even bigger swing in Chifley against Labor trailblazer Ed Husic, the parliament’s first MP from a Muslim family. Shadow treasurer Chris Bowen’s seat of McMahon was shaken by a swing of more than 5 per cent.

In Melbourne, the trends we saw in November’s state election continued with slightly lesser force. The swing to Labor in the Liberals’ blue-ribbon seats was 7.38 per cent in Kooyong, 6.41 per cent in Higgins, and just under 5 per cent in Goldstein. That was not enough for any of them to fall to Labor or the Greens, but Higgins is now more marginal than La Trobe, which is a classic outer-suburban marginal that the punters expected to fall to Labor this time but instead went strongly the other way.

In Perth, Labor failed to take any of the three marginal middle- and outer-suburban seats it had hoped to gain, but won a 6.36 per cent swing in the city’s richest electorate, Curtin, vacated by former foreign minister Julie Bishop. In the ACT, it won a 3.64 per cent swing in affluent, educated Canberra, now an inner-suburban seat straddling both sides of the lake.

3. The Greens polled well, One Nation so-so, Clive Palmer no-no

The seat of Canberra embodies another trend: by and large, these big swings to Labor in two-party votes in the inner cities were matched by a big rise in the Greens vote. In Canberra, Greens candidate Tim Hollo, who was chief of staff to former Greens leader Christine Milne, ran second for most of the night, and was overtaken by the Liberals only when the pre-poll votes came in.

Across Australia, the Greens vote was almost unchanged at 10.1 per cent, but that masks an increasing geographical division. It continues to build as a formidable force in the inner suburbs, Liberal and Labor, while losing relevance almost everywhere else.

The $50 million Clive Palmer reportedly spent on election advertising certainly damaged Labor, but did nothing for Clive’s electoral chances. His United Australia Party ran in almost every seat, but won only 3.4 per cent of the vote, a third that of the Greens. It got to double figures only once: in Riverina, where it was the only right-wing alternative to Nationals leader Michael McCormack, and hence reaped the gains of the widespread anger shown in the area at the state election.

Bad results for the Liberals often went hand in hand with a strong showing by the Greens, and the same was true for One Nation’s impact on Labor. Pauline Hanson’s party was unable to top 20 per cent in any seat in Queensland, but it did so in the seat of Hunter, almost pushing the Nationals out of second place. Bob Katter held his seat of Kennedy for Katter’s Australia Party, but his bid to expand its reach to neighbouring seats failed.

4. The independents’ surge was patchy, but still reverberated

The independents did better than expected in some areas, worse in others. Former Olympic skier Zali Steggall had an emphatic win in Warringah to send Tony Abbott on his way. Health administrator and academic Helen Haines won an unexpected victory in Indi to succeed Cathy McGowan. And Kerryn Phelps, written off by the punters weeks ago, is still in the contest to hold Wentworth, although the Liberals’ Dave Sharma now has a 1000-vote lead.

But Rob Oakeshott failed to make the soufflé rise twice in his attempt to win Cowper, and Albury mayor Kevin Mack was easily beaten by former health minister Sussan Ley. Apart from Andrew Wilkie, now a fixture in his Hobart electorate, no other independent topped 15 per cent of the vote.

But one long shot has been overlooked. In Mallee, where Nationals MP Andrew Broad retired early as a result of an unfortunate trip to Hong Kong, thirteen candidates have sliced up so much of the vote that his intended successor, Anne Webster, won only 29.5 per cent. That leaves a lot of preferences to be distributed, especially between three independent candidates. Webster is likely to win, but no one knows for sure where those preferences will end up.

5. More than one in twenty Australians voted informal

With the votes of 75 per cent of electors counted, some 677,000 Australians have voted informal. They include well over 10 per cent in Mallee and six other seats, all in western Sydney. In some seats, more than one in eight votes were informal. Some of that was presumably deliberate, but some is due to inconsistent voting rules at federal and state level, which are hard to explain to inattentive voters, or those with little English.

Most of them are in Labor electorates, so it should be Labor’s responsibility to find ways to usher in common laws at federal and state level. Should voting be compulsory? Should preferences be compulsory? We should debate how to avoid the unnecessary disenfranchisement of so many.

Arguably, it could have affected the result in a seat like Lindsay, where more than one in ten voters had their votes ruled informal.

6. Coalition Senate gains could make it easier to pass key bills

The Senate count is only half-done, but the results are clear in almost all seats. The one exception is in Queensland, where the collapse of Labor’s vote could see it lose a Senate seat to the Coalition. Elsewhere the Senate results are much as I forecast, but with the Queensland outcome updated by Lonergan’s final poll for the Australia Institute — one of the few polls in the whole campaign that proved to be of any use — which predicted the failure of Clive Palmer.

On the right, the Coalition has won three of the six seats in all states except Tasmania and probably Queensland. Jacqui Lambie will return to the Senate from Tasmania, and One Nation’s Malcolm Roberts from Queensland.

Palmer and his United Australia Party did not come remotely close to winning a seat in the Senate or the House. One Nation proved it is still by far the biggest of the many non-Coalition parties on the right, but only in Queensland was its support strong enough to win a seat.

On the left, by contrast, the Greens defied expectations by retaining their senators in all six states. Labor at best has won two seats in every state, and its second seat in Queensland is far from certain.

The bottom line is that the Coalition is likely to have thirty-four or thirty-five of the seventy-six seats in the new Senate, up from thirty in the old, meaning it will need either four or five votes from the crossbench to pass legislation opposed by Labor or the Greens.

The existing crossbench of eleven non-Green senators will be whittled down to six: Pauline Hanson and Malcolm Roberts, once again at her side; Cory Bernardi, elected as a Liberal in 2016, only to quit the party immediately afterwards; Stirling Griff and Rex Patrick, the two Centre Alliance senators left from Nick Xenophon’s glory days in 2016; and Jacqui Lambie.

Gone are former Liberal Democrat David Leyonhjelm and his replacement Duncan Spender (New South Wales); former radio and TV livewire Derryn Hinch (Victoria); centrist independent and former Xenophon follower Tim Storer (South Australia); Nationals senator and former Lambie follower Steve Martin (Tasmania); and Liberals senator and former Family First senator Lucy Gichuhi (South Australia).

Also gone are three senators who arrived in Parliament on Pauline Hanson’s coattails: Peter Georgiou (Western Australia), her last loyalist in the current Senate; Brian Burston (New South Wales), who eventually quit to run for Palmer’s party; and, of course, Fraser Anning (Queensland).

Anning’s party stood everywhere and won just 0.6 per cent of the national vote; he himself came last in the four-man battle for Queensland’s final seat on the right, in which Roberts also easily beat Palmer and Liberal conspiracy theorist Gerard Rennick.

Bernardi’s party, which had success in its days as Family First, won just 0.75 per cent of the national vote. Even Palmer’s party won just 2.2 per cent, despite the fortune he spent to win the election.

Hanson’s 5.1 per cent of the vote was less than half the Greens’ tally (11.2 per cent) — but however obvious her limitations, she remains the biggest brand on the right after the Coalition parties. They must be grateful that they do not have a more formidable rival.

7. The battle for Queensland’s final seat is now crucial to Senate control

If the Coalition wins the final seat from Labor in Queeensland, it will have three options for passing legislation Labor opposes: making a deal with the Greens, winning the support of the Centre Alliance and two of the four crossbenchers of the right; or persuading One Nation, Bernardi and Lambie to vote together for the measure.

That makes the battle for the final seat in Queensland crucial. If Labor wins, the Coalition will need support from the Greens or the Centre Alliance to pass legislation Labor opposes; if the Coalition wins, it does not need the centrists on side. As of Sunday, with less than half the vote counted, the Coalition had 2.55 quotas and Labor 1.65.

The Greens (0.82) and One Nation (0.69) both look assured of a seat after preferences. In 2016 both of them won far more preferences than the big parties did. A lot was made of Clive Palmer directing his preferences to the Liberals. This will be the test of whether his voters followed instructions.

And the outcome may help decide how Scott Morrison’s government will govern: on crucial issues, will it seek consensus, or just try to crash through? •

The post The great divide appeared first on Inside Story.

But if you trust instead the barrage of individual seat polling released this week by YouGov Galaxy, Saturday night is unlikely to produce a result. We would be headed for a hung parliament, with neither side having a majority and — as happened in 2010 — the crossbenchers would be left to choose the next PM and government.

In the past, the nationwide polls have been much more reliable than the individual seat polling, and that’s most likely to be the case this time too. The Coalition has not won a credible nationwide poll since the last election. John Howard three times came back from being well behind in the polls, but he had always regained the lead well before the finish line. That hasn’t happened this time.

Australia’s national polls — which are now done mostly by the YouGov Galaxy group, including Newspoll — generally have a fine record in measuring state and national voting intention. But we saw a startling exception six months ago in Victoria, when Labor was re-elected with 57.5 per cent of the vote, far from the 53.5 per cent predicted by Newspoll or the 53 per cent predicted by the Galaxy poll published in the Murdoch tabloids. The NSW election saw them back on song.

Seat-by-seat polls, meanwhile, have a sad history of being hit-and-miss, as we saw at the 2016 election. Analysis by the Poll Bludger, William Bowe, concluded that, on average, their margin of error was almost 7 per cent “and with an overall skew of at least 1 per cent in favour of the Coalition… results tended to look too much like the last election and too little like this one.”

Galaxy’s performance at the Victorian election was even worse. Its seat polling kept reporting seats as having changed little since the last election — when in fact the two-party vote was shifting by more than 10 per cent in some of them. On average it overstated the Liberals’ primary vote by more than 8 per cent. So its polls released over the past two days should be treated with scepticism. If correct, they would be very bad for Labor; they report the Coalition hanging on to almost every marginal seat polled.

At face value, in fact, this week’s twenty seat polls by Galaxy and Newspoll imply either no change and a hung parliament, or a slight Liberal gain. They report Labor getting small swings where it needs a slightly larger swing, and large swings only in seats where it needs an even larger swing. In total, they average a swing to Labor of 1.2 per cent, but the only seat Labor would clearly win is Gilmore, whereas it would lose Lindsay (and on the Newspoll, Herbert).

I’ll believe all that when I see it.

But the evidence does suggest the outcome will be a lot closer than most of us assumed a month ago. The Coalition has offered next to nothing in new policies, and has focused on making Labor the issue. Its scare campaign against Labor’s plans to withdraw tax concessions has been effective, if dishonest. Labor may come to regret its failure to prepare better campaign defences on these fronts, particularly over its plan to stop sending billions of dollars a year in cheques to retired shareholders.

(One example: Labor in fact is not proposing a “retiree tax.” It is proposing to end an expensive, bizarre and unique practice whereby the government in effect sends part of each company’s tax payment to some of its shareholders, rather than to revenue. Not surprisingly, research by Ben Phillips and Matthew Gray of the Australian National University concludes that almost 90 per cent of the benefits go to the wealthiest 20 per cent of households. It’s welfare for the wealthy, it happens in no other country, and it costs us $6 billion a year.)

People will rarely vote to give up their own tax breaks. The 2016 census found high concentrations of elderly people in some of the key marginal seats: Gilmore (where 26.2 per cent of people were aged sixty-five or over), Flinders (24.6), Cowper (23.2), Page (21.8), Robertson (21.0), Indi (20.9), Braddon (20.7), Boothby (20.1) and many more. The issue may well cost Labor crucial seats.

Older people (and Coalition voters) are always over-represented in the pre-poll votes, and this time there will be close to five million of them (4.05 million had voted by Thursday night). The pre-poll booths always have the largest vote, and hence will be the last to report in on Saturday night.

A warning for Labor supporters: if the early counts show your candidate edging ahead of the Liberal, don’t get too euphoric. The Liberals will edge their way back late in the night. Labor candidates will need to have a sizeable lead in the booth votes on polling day — which will be the first ones reported in — to be sure of victory.

(There is an interesting sociological essay to be written on who prefers to vote pre-poll, and why. Demographic factors are obviously the biggest influence, but I get the sense that the romance of the “democracy sausage” is primarily experienced by Labor and Green voters — whereas Coalition voters, being less communitarian in outlook, prefer to get their voting done quickly and privately.)

For what it’s worth, the national polls published this week have all reported Labor winning 51 or 52 per cent of the vote after preferences. Poll Bludger’s tracking poll has Labor at 51.6 per cent after preferences, a swing of just under 2 per cent. If there were a uniform swing across Australia, Antony Green’s pendulum tells us that would see Labor take eight seats from the Coalition — five in Queensland (Capricornia, Forde, Flynn, Petrie and Dickson) and three in New South Wales (Gilmore, Robertson and Banks) — on top of two already transformed by the Victorian redistribution (Dunkley and Corangamite).

But we know the swings are never uniform. And the Poll Bludger tracking poll reports very different swings between one state and another. New South Wales is reported as showing a 1.7 per cent swing to the Coalition (which on paper could see it take Lindsay from Labor and Wentworth from independent Kerryn Phelps). South Australia is showing a swing to Labor, but only 1.4 per cent, too small to shift any seats. And no poll has released figures for Tasmania.

The largest swings to Labor are reported as being in Victoria (3.1 per cent), Queensland (2.8) and Western Australia (2.4). Votes will start trickling in from about 7pm — beware, those early figures are usually from small country booths, and are rarely a good guide to the outcome — and sizeable numbers will start to land from about 7.30pm. I doubt that any commentator will try to call this election early in the night.

To build the picture, let’s start with Queensland. It has thirty seats, a fifth of the parliament, and in recent decades it has usually been a Coalition stronghold. But when it swings, it can do so with the force of a cyclone: Labor picked up eight seats in 2007, and for a while the polls were suggesting it might do so again this time. But divisions over the Adani mine have left Labor stranded uncomfortably in the middle, and Clive Palmer’s massive advertising blitz has also had an impact — although it looks as if he may have attracted more voters from One Nation than from either major party.

For the past year or more, the Coalition has pandered to the concerns of regional Queensland — its MPs drove the decision to dump Malcolm Turnbull as prime minister — so it’s not surprising that the punters are tipping the Coalition to hold the marginal seats of Flynn (Gladstone), Capricornia (Rockhampton), Dawson (Mackay) and Leichhardt (Cairns), and take back Herbert (Townsville), which Labor won by thirty-seven votes last time. That seems to be roughly in line with what the parties themselves are telling journalists.

But if there’s a swing against Labor in north and central Queensland, and a sizeable swing to Labor at state level, that implies an even bigger swing to Labor in Brisbane. It wouldn’t be the first time: the 2017 election left the Coalition with just five of the forty-one seats in Queensland’s capital. Most of the focus has been on Peter Dutton’s outer-fringe seat of Dickson, but the punters are also tipping Labor to win Forde and Petrie. If there is a big swing to Labor, keep an eye on Brisbane and Bonner as well.

New South Wales has forty-seven seats, which last time divided 24–23 in Labor’s favour. Since then, Wentworth has fallen to independent Kerryn Phelps, but the punters are convinced that was a one-off, and tomorrow the blue-ribbon seat will revert to the Liberals’ repeat candidate, former diplomat and Howard staffer Dave Sharma.

The Coalition is fighting on two fronts: against Labor in Sydney, and against independents in the bush. Rob Oakeshott, who had five years as MP for Lyne, is odds-on to return as the MP for Cowper (which now covers much the same territory). The mayor of Albury, Kevin Mack, is rated just ahead of former health minister Sussan Ley in a tight battle for the southern seat of Farrer. The Shooters Party, which at state level now represents half of the territory of New South Wales, is running only in Calare, where it is tipped to miss its target.

The Nowra-based south-coast seat of Gilmore is seen as the seat most likely to fall to Labor. Robertson on the central coast is another. With Turnbull supporter Craig Laundy quitting politics, Reid is now too close to call. And in recent days, former Olympian Zali Steggall has become outright favourite to displace Tony Abbott from the North Shore seat of Warringah.

Labor has already notionally gained three seats in Victoria as a result of the redistribution, which lifted the state back to thirty-eight seats. The new seat of Fraser is in the heart of Labor’s western suburbs, while two marginal Liberal seats have become marginal Labor on 2016 voting: Dunkley, around Frankston, and Corangamite, covering the Bellarine Peninsula, Geelong’s new southern suburbs, and southwest down to Lorne. On 2016 voting, Antony Green estimates Labor starts with twenty-one Victorian seats to the Coalition’s fifteen, with one Green (Adam Bandt) and one independent (Cathy McGowan).

That imbalance is likely to get worse tomorrow night. The eastern-suburbs seat of Chisholm, deserted by its MP Julia Banks, is expected to be one Coalition casualty. The outer southeastern seat of La Trobe is seen as the next most likely. Between them lie Deakin and Casey, with Deakin on a knife edge. South of Melbourne, health minister Greg Hunt is now expected to survive in Flinders.

The inner-eastern suburbs are normally safe Liberal territory, but not now. Nowhere is the gulf between the Liberal-led government and the Liberals’ base wider than in seats like Higgins and Kooyong, home to educated, affluent voters who know that climate change has to be tackled, and are tired of their government dodging the issue. Higgins, an open seat with Kelly O’Dwyer’s departure, is seen as the more vulnerable of the two, to either Labor or the Greens.

The Greens are also given a chance of taking Macnamara (nee Melbourne Ports) from Labor, but the inner-north seats of Cooper (nee Batman) and Wills are seen as out of danger. Adam Bandt appears to have a firm grip on Melbourne.

The one seat the Liberals hope to pick up in Victoria is Indi. With McGowan’s retirement, it too is an open seat, and the punters are tipping Liberal Steve Martin to win it back from McGowan’s intended successor, Helen Haines. But the punters have a track record of underestimating independents.

The northern Tasmanian seats of Bass (Launceston) and Braddon (Burnie/Devonport) are always marginal, and this time it’s Labor defending them. The punters are assuming that Bass will stay with Labor while Braddon falls to the Liberals. Both could be close.

In South Australia, Labor once had hopes of taking Christopher Pyne’s old seat of Sturt, but they have faded. Boothby is now seen as the only seat in play, but Liberal MP Nicolle Flint is expected to hold on.

Conversely, the Coalition had hopes of regaining the Darwin seat of Solomon and even the NT outback seat of Lingiari, but punters expect them to stay with Labor.

The same is true for the Western Australian seat of Cowan, held by the first Muslim woman in the House, Labor’s Anne Aly. The question in the west is rather how many seats Labor will gain. The punters’ answer is: three. Hasluck is the state’s most marginal seat, held by the first Aboriginal person to become a minister, the aged care minister Ken Wyatt. Stirling has been vacated by former justice minister Michael Keenan, while inner-suburban Swan is where Kim Beazley’s daughter Hannah is challenging Liberal MP Steve Irons. All three are tipped to fall to Labor.

But if the swing to Labor is larger than anticipated, look out for Pearce, held by attorney-general and potential Liberal leader Christian Porter; Curtin, the blue-ribbon coastal seat just vacated by former foreign minister Julie Bishop; and even Andrew Hastie’s seat of Canning. But all are tipped to stay with the government.

The exact numbers from the bookies’ odds vary from hour to hour, and from bookie to bookie. Overall, though, they imply that Labor will win roughly eighty seats, and the Coalition roughly sixty-five, with half a dozen or so on the crossbench.

That’s in line with the nationwide polls. But with the Victorian election still fresh in my mind, I would not be surprised if Labor does a bit better than that. The betting markets have exaggerated the Coalition’s prospects at three of the last four elections; on average, at each election, the Coalition loses four seats the markets expected it to win. Every election is different, but that is its track record to date.

The Senate is notoriously hard to call. I wrote about it yesterday and at greater length three weeks ago.

The fresh news is that Senate polling by Lonergan for the Australia Institute suggests that for all the millions of dollars he has spent on those yucky yellow ads, Clive Palmer’s campaign is falling well short of winning enough votes to give him a seat in the Senate. While Senate polling has an even worse history in Australia than seat polling, Lonergan’s polling suggests that the One Nation vote is holding up better than Palmer’s.

The institute predicts that Malcolm Roberts, the climate change denier who lost his Senate seat to section 44, will regain it tomorrow in his three-way contest with Palmer and Fraser Anning. It says One Nation is also in with a chance for one of the final seats in Tasmania and South Australia — and to me, if these numbers are right, it also has a chance of pushing the Liberals and Nationals out of the final seat for the right in New South Wales, Western Australia — and possibly even Victoria.

Senate polling is usually unreliable, but it’s worth noting the solid size of the actual votes piled up by minor parties in upper house voting at state elections held since the last federal poll. Excluding the Greens, they’ve polled around 20 to 25 per cent of the vote — and in New South Wales, Queensland and Western Australia, the biggest of them has been One Nation. Like it or not, it’s proved a durable brand.

The Senate votes are the last to be counted at each polling booth, and it is often the small hours of the morning before they are added to the count. It could be even worse tomorrow night, with the vast numbers to be counted at pre-poll booths. It could be Sunday before we have a fair idea who will be in the next Senate.

Or, perhaps, who will run the country. •

The post It could be a long night appeared first on Inside Story.

Druery’s day job is as chief of staff to Victoria’s senator Derryn Hinch, the former TV and radio journalist they call the Human Headline. And this time his preference art is designed to get his boss re-elected.

In an unheralded coup, Druery has negotiated preference deals with all three major parties that could see Hinch sneak home with Victoria’s final Senate seat.

Hinch is poised to receive preferences from Labor voters, and possibly Coalition voters and Greens. In short:

• Labor has directed its voters to preference Hinch second — in apparent defiance of a national agreement to swap preferences with the Greens, who have been demoted to third.

• The Coalition has listed the centrist senator as its sixth preference, but that lowly position is deceptive. Of the four parties preferenced above him, only Clive Palmer’s United Australia Party has any hope of being there in the final stages. If the UAP drops out before Hinch does, Coalition preferences will head his way.

• The Greens, meanwhile, have given Hinch their third preferences — behind Labor, but ahead of everyone else in the contest.

• And, in a bizarre twist, Hinch’s own preferences will in effect be directed to the Greens, then Labor, then the Liberals.

This extraordinarily cosy arrangement was negotiated by Druery, on behalf of his boss, with Labor and the Greens, after the two parties of the left became concerned that Hinch’s preferences might otherwise end up with the Liberals.

Druery declined to discuss the deal, but conceded that it was “a complex arrangement” that would make Hinch competitive in the battle for the final Senate seat — which he thinks will be with Palmer’s United Australia Party.

“The last polling I saw, the Liberals were close to two quotas,” he told me. “The wild card is Clive Palmer’s party. Can you sell the voters a dud twice? I wouldn’t have thought so, but he’s spending far more money this time than he did in 2016.”

Sources close to the negotiations said the Greens ultimately agreed to allow Labor to override their own agreement for a preference swap, because all sides expect Greens senator Janet Rice will win enough votes to retain her seat, and the Greens would rather help Hinch return than to see his seat go to Liberals or Palmer’s party.

No other candidate in Australia has been as lucky as the former broadcaster, who delivered one of the best lines of the campaign this week on ABC TV, when he began his reply to a question with the words “The last time I was in jail…”

In South Australia, the Centre Alliance (the former Nick Xenophon Team) also appears on the preference tickets of all three larger parties, but it is unlikely to receive any from Labor or the Greens, because they are looking after each other. In Queensland, Katter’s Australia Party appears on the tickets of both main parties, but is well down their cards and unlikely to benefit.

Senate preferences aren’t as good as they used to be. From 1984 to 2013, the 95 per cent of Australians who vote above the line had their preferences distributed for them by the parties. It was Glenn Druery who worked out how to corral micro-parties of all types into deals to direct preferences to each other to get them elected.

His most famous feat was in 2013, when his preference architecture got Ricky Muir of the Australian Motoring Enthusiast Party elected from Victoria with just 0.5 per cent of the vote. Muir received preferences from virtually every other party to overtake Liberal senator Helen Kroger, who had begun with 11.5 per cent.

Results like that led the Coalition and the Greens to negotiate reforms to abolish group voting tickets and return control of voters’ preferences to the voters themselves. The 2016 election saw preferences spray everywhere, reflecting the diversity of voters’ views. They ultimately changed only one result — electing Malcolm Roberts of One Nation to Queensland’s final Senate spot instead of a Liberal Democrat.

In the new system, the preference tickets of minor parties are mostly irrelevant. They lack the support base to staff more than a fraction of the polling booths, and their voters don’t do what they’re told anyway.

(Druery has nevertheless wooed the micro-parties for preferences, and with some success. “I’ve seen a lot of elections come down to a handful of votes, so every vote is precious,” he explained.)

But the goldmine in the new system is Liberal and Labor preferences. The big parties have volunteers at almost every booth, and research by the Victorian Electoral Commission has shown that their voters are those most likely to follow exactly the party’s how-to-vote card.

Their preference tickets (and to a lesser extent, those of the Greens) are arguably the only ones that will matter in Saturday’s election.

All states at half-Senate elections usually vote in three candidates from the left and three from the right. Labor and the Coalition are certain to win at least two seats each from each state, so Saturday’s Senate contest is really about who wins the final two seats in each state.

Hinch was elected in 2016 with 6.1 per cent of first preferences after winning top place in the Senate draw. His campaign focus on tackling crime primarily drew votes from the right, but as a senator he has been basically in the centre, calling issues as he sees them. If elected, he and the Centre Alliance would be part of a small crossbench holding the balance of power.

Overall, as I have argued earlier, neither major party is likely to control the new Senate, although both are likely to make gains at the expense of the crossbenchers. The Greens should retain most of the six seats they are defending, but the minor parties of the right might win only a single seat: the last seat in Queensland, likely to be fought out between Clive Palmer, Malcolm Roberts and possibly Fraser Anning.

The Greens meanwhile will have their fingers crossed. If their vote in Victoria turns out to be less than expected, there is an outside chance that they could end up fighting Hinch for the final Senate seat — and that Labor preferences could take it from them, as has happened so often in the past under deals Druery negotiated. •

The post Victoria: where preferences whisper the name Hinch appeared first on Inside Story.

The merits of the first homebuyers scheme have sparked a lot of debate, but the key point to understand is this: it would be a niche operation. In a housing market that in recent years has lent purchasers about $250 billion each year, the new fund at its peak would take on liabilities equivalent to 0.2 per cent of annual lending.

The transport projects announced in Melbourne, by contrast, are seriously big — and seriously unviable.

East West Link, the freeway the Liberals want to build under the inner suburbs of Collingwood, Fitzroy and Carlton, would unquestionably be a useful addition to Melbourne’s freeway network. You could drive from the Eastern Freeway at Clifton Hill to City Link at Flemington in ten minutes. It is very likely that if it is built, it will also include outlets that would shorten the journey from the eastern suburbs into the CBD and surrounding areas — and it’s those cars that the locals don’t want on their streets.

But it would be horrendously expensive. Tunnelling at freeway width costs well over $1 billion a kilometre. The whole 4.4 kilometre freeway was estimated to cost $7 billion in 2013; Morrison optimistically assumes the same cost now.

The link has been subjected to cost–benefit analysis three times, and has failed every time. The first, for the Eddington report in 2008, estimated the cost was about twice the likely benefit. The second, for the state Coalition government in 2013, was hardly any better, so the government assumed a lot of “wider benefits” to try to make it look good. And even a sympathetic Infrastructure Victoria, costing the plan at its own initiative in 2016, found the benefits would be well short of the cost: $3 of benefit for every $4 of cost.

One must add that standard cost–benefit analysis uses interest rates that are now quite unrealistic: the 7 per cent interest rate assumed is more than twice what governments actually pay. But that is true for all infrastructure projects. East West Link might well pass the test if the test were more realistic — but other projects would still return much more benefit for the same cost.

The best one can say is that East West Link would probably waste less money than the rail line Shorten has now committed federal Labor to help build: a ninety kilometre rail loop — also mostly underground — through Melbourne’s middle suburbs, from Cheltenham to Glen Waverley, Box Hill, Reservoir and Melbourne Airport, where it would connect with the future Airport Rail Link to Sunshine, and eventually, on to Werribee.

We have no cost–benefit analysis for this project, and for good reason. The Andrews government has airily declared that it could be built for $50 million, but no one believes that. If it were subjected to analysis, the Suburban Rail Loop would make the East West Link look good.

The loop would work only if future Victorian governments could do what past Victorian governments have been unable to do: shift Melbourne’s future growth from the outer fringe and the inner core to middle-suburban centres like Box Hill — or Sydney’s Parramatta, a more successful example — which would then grow to become so big that a circular train line to link them would make sense.

It might be safer to bet on seeing pigs fly. At least you wouldn’t be likely to waste $10 billion, or $50 billion, or $100 billion, on that dream.

(I know that many readers assume that rail investments must be a Good Thing. There are a lot of good rail investments governments could make in Melbourne, as urban commentator Alan Davies has pointed out, but this is not one of them. And that view is widely shared.)

What do these three plans — the home loan guarantee, East West Link and the rail loop — have in common? None of them passed any economic assessment. All of them were dreamed up for political reasons. None was put through the normal policy process. Rather, in each case, the government first decided to commit to them — then let the experts work out what they would cost.

They were adopted, that is, because a government decided it needed them for political branding — not because they would be good investments for the state or nation.

When Labor governments set up Infrastructure Australia and Infrastructure Victoria, they promised us that the new agencies would provide open, transparent, honest assessments of proposed transport projects. It was like manna from heaven. But then reality struck.

Having set up Infrastructure Australia, the Rudd and Gillard governments refused to give it adequate funding. It had only eleven staff, and was unable to carry out more than a handful of project assessments. Its advice, when offered, was ignored. Under the Coalition government, it has been much the same, with frequent changes at the top leading to changes of assessments (of Brisbane’s Cross River Rail, for example) that appeared to be politically motivated.

Infrastructure Victoria has not been politically compromised in the same way, but it has been ignored. Its advice was exactly what Labor had promised: bold, insightful and independent. As a result, it was sidelined when Labor was planning its rail loop. Political staffers replaced the experts as the government’s sounding board, and source of advice.

As Marion Terrill of Grattan Institute has argued, most recently in its excellent Orange Book of advice to the next federal government, Australia must ditch this bipartisan addiction to choosing infrastructure projects on political grounds. Anthony Albanese too has sometimes voiced the same view, but as Labor’s infrastructure minister he would take office with his priorities already decided: a host of projects chosen for political reasons, with neither bipartisan support nor appraisal by independent experts.

Some government, some day, must be brave enough to break out of this habit of treating infrastructure as a political battleground. Two political leaders must be brave enough to take the lead to achieve it. Long ago in Victoria we had an all-party parliamentary public works committee that generally operated in a non-partisan way — as many federal parliamentary committees still do. That’s one key to a solution. The other is to let your infrastructure advisers do their job.

Scott Morrison’s housing plan is less a plan than a thought bubble with virtually no details attached. On Sunday we were told it would have a capital of $500 million, but by Monday Morrison was promising to increase that amount if there was more demand. His goal is to ensure that it helps homebuyers throughout Australia, but there is no mechanism to achieve that. Another goal is to favour homebuyers borrowing from banks other than the big four, but there is no mechanism to achieve that either.

The whole thing is a work in progress, made up in a hurry, so that the prime minister had something new to announce at his policy launch — which he fed to the Murdoch press first, so that they could mislead voters by making it seem much bigger than it is. Treasury had not been consulted on the plan, the Age tells us, and neither was cabinet.

But at least this policy will have small costs — which is why Labor was quick to sign on to it, to squash the issue. More than half a million properties change hands in Australia each year, but, as Morrison has presented it, no more than 10,000 would be eligible for this scheme. That’s just as well, because the way he’s done it makes it more risky than the New Zealand scheme it is based on.

Helen Clark’s Labour government introduced Welcome Home Loans, the New Zealand scheme, in 2003. It was then enthusiastically supported by John Key’s National government, although it remained small-scale. In 2017–18, it approved just 1674 loan guarantees, and its total liability was only around NZ$30 million.

Unlike Morrison’s idea, it is carefully targeted to help those in the bottom 60 per cent of the population — those who genuinely need the government’s help to buy a property. You can’t buy an above-average property using this scheme. To be eligible, you need to be on an income that’s at best roughly average. And you must be able to raise at least 10 per cent of the purchase price independently for your deposit.

(The New Zealand government and its offshoot, Kiwibank, have other ways to help you to do that, and they play a bigger role in helping young people buy a home. In a country without compulsory superannuation, the young are encouraged to save in a Kiwibank superannuation account, from which they can withdraw virtually all their money when buying a home, and receive a home-saver grant averaging about NZ$5000.)

To be eligible, assuming you’re buying an existing property, the property must cost no more than NZ$600,000 in Auckland, NZ$500,000 in the other cities, and NZ$400,000 in the rest of New Zealand. (A$1 is currently NZ$1.06.) Slightly higher budgets are allowed for new buildings. You must be a genuine first homebuyer — no investment properties — and your income must be no more than NZ$85,000 for a single borrower, or NZ$130,000 for a couple.

Morrison has blown out those limits. His idea has the thresholds higher by half as much again as the New Zealand version: A$125,000 for a single borrower, A$200,000 for a couple. He didn’t mention any cap on the price of properties — nor on the value of the guarantees offered.

Moreover, instead of requiring applicants to have a 10 per cent deposit, he set that bar at only 5 per cent — with the government guaranteeing the banks for 15 per cent of the purchase price should the borrower default.

The lower you set the bar, the more likely it is that falling prices will leave the borrowers with negative equity: having a property that is worth less than what you owe on it. The lower the bar, the greater the financial pressure that borrowers will be under, and the higher the risk that they will default. And, as the banks warned in today’s Financial Review, the higher the interest rate they are likely to ask borrowers to pay.

One of the reasons why New Zealand’s scheme remains so small is that three of the big four banks (the same as ours, although two have different names) have refused to take part. Westpac is the only big bank participating, and Kiwibank (New Zealand’s fifth-biggest bank) writes 40 per cent of the loans.

If Labor wins Saturday’s election, one hopes it will study the New Zealand scheme carefully before deciding the design of its own scheme: it is now committed to it in some form or other, but it needs to find a way to maximise the benefits while minimising the risks.

At best, this could be a useful niche measure to help those who have been squeezed out of home ownership. As Grattan’s Brendan Coates and John Daley have pointed out in the Conversation, in 1981 even the poor in the twenty-five to thirty-four age group were mostly homeowners. Now fewer than one in four own their own home. Coates and Daley warn: “At this rate, almost half of retirees will be renters in forty years’ time.”

No political party will advocate that outcome, but that is where the existing policy is leading us. The balance has been tilted for too long in favour of housing investors. The Coalition lacked the political courage to fix it. Now, if the polls are right, Labor will have its chance. •

The post Helping first homebuyers, and other misdirected pledges appeared first on Inside Story.

The comparison is telling. For all the radicalism of its tax proposals, Labor’s approach to the budget bottom line is conservative. For a host of reasons, though, most of these bottom line projections shouldn’t be taken seriously — just as the government’s own projections can’t be taken seriously.

Some decisions are left out or largely postponed: increasing Newstart, foreign aid, research funding and the refugee intake. If Labor wins the election, new spending needs will emerge — and tax cuts will suddenly appear as the next election approaches.

The income tax cuts Labor is offering now are so tightly targeted to low-income workers that they would cost the budget only $1.1 billion over four years. Shadow treasurer Chris Bowen and shadow finance minister Jim Chalmers say further tax cuts must wait until the budget surplus is back to 1 per cent of GDP. That will be in 2022–23, says Bowen, which looks optimistic on their numbers and Treasury’s projections.

A footnote in the plan tells us that on its “technical working assumptions,” if all goes well, a cool $200 billion would be available for tax cuts over the decade. But they’re not spelled out in this document — for good reason, since it is seriously bad policy for any party to make tax commitments six years in advance, as the Coalition has, when it doesn’t know what the state of the economy or the budget will be at that time.

The key thing this fiscal plan tells us is that when it comes to the crunch, Labor’s shadow economic ministers are running the show. Bill Shorten and other shadow ministers may entice us with a vision of how they will change Australia (as Shorten did memorably in his final answer in Q&A last Monday night), but there are only fleeting signs of that vision here.

The moral imperative of raising Newstart payments — which the ANU’s Ben Phillips estimates have now fallen $170 per week below the poverty line — is apparently such a complex issue that Labor can promise nothing except to review them if it wins the election.

It’s a similar story with research. Shorten and Kim Carr voice an ambition to raise Australia’s research spending massively to 3 per cent of GDP (close to the levels of the advanced manufacturing countries), but the only commitments here are $1 million for another review, and just $56 million over four years for new research infrastructure.

On foreign aid, Labor’s vision is an increase from 0.2 to 0.5 per cent of GDP, but on these figures the official aid program would grow only to 0.22 per cent in its first four years.

So what is Labor proposing to spend more money on in the next four years? The main beneficiaries are:

• Infrastructure: $4.94 billion
• Business tax cuts, primarily through its investment allowance: $4.02 billion
• Childcare: $3.97 million
• Schools: $3.94 million
• Free dental care for pensioners: $2.42 billion
• Pre-schools/kindergartens: $1.8 billion
• Free cancer treatment: $1.71 billion
• Increased foreign/refugee aid: $1.6 billion
• Universities/TAFEs: $1.57 billion
• Hospitals: $1.3 billion
• Income tax cuts: $1.1 billion
• Undoing the Coalition’s welfare cuts: $1 billion

These are line-item costings by the Parliamentary Budget Office, and signed off by the same eminent trio of budget experts as Labor deferred to in 2016: James MacKenzie of Deloitte, Mike Keating, former head of the prime minister’s department and the finance department, and Bob Officer of the University of Melbourne. They can be taken seriously.

The spending items here account for the great bulk of Labor’s increased spending plans, and they amount to just $24.3 billion over four years: $6 billion a year in a budget that already spends more than $500 billion a year.

On the PBO’s estimates, they will be more than paid for by the tax increases and spending cuts Labor proposes. The key items, and their four-year savings, are:

• End dividend imputation cheques to non-taxpayers: $14.2 billion
• Scrap the Coalition’s stage 2 tax cuts: $13.63 billion
• Reform tax breaks for trusts: $7.79 billion
• Cut tax breaks for superannuation: $5.42 billion
• Budget repair levy on higher incomes: $3.8 billion
• Close negative gearing and increase capital gains tax: $2.79 billion
• Cut spending on consultants: $2.64 billion
• Close tax breaks for multinationals using tax havens: $1.53 billion.

The bottom line would see a minor increase in the budget surplus for the next three years, rising to a substantial one in 2022–23, when Labor scraps stage 2 of the Coalition’s proposed tax cuts. But as we’ve seen, Labor envisages coming up with tax cuts of its own at that time, so that substantial rise can’t be taken seriously.

Similarly, taking any significant action on Newstart would capsize Labor’s proposed gains to the budget balance. If its review proposed simply to lift the Newstart allowance back to the level of the poverty line — let alone lift it to the level of pensions — that would cost the budget about $6 billion a year. Yet until that is done, any budget surplus would be achieved only by condemning the unemployed to a life in poverty: and increasingly, abject poverty.

The fiscal plan also estimates Labor’s budget bottom line for the next eleven years, with the Coalition’s bottom line for comparison. These can’t be taken seriously: there are too many moving parts, too much is left out, and too much is simply unpredictable from this distance. To give you an idea, both Labor and the Coalition have pencilled in surpluses of more than $60 billion for 2029–30, which by then would be 2 per cent of GDP. Does anyone believe that?

Both parties’ costings have other sizeable problems. They start, as they must, with the baseline of the existing budget settings and the existing budget forecasts. A Labor government would inherit most of the problems and uncertainties highlighted in the recent post-budget commentary. These shroud future budgets with uncertainty, whichever side wins the election. They include:

• The budget assumptions that wage growth will soon return to its old average: up by 2.75 per cent next year, 3.25 per cent the year after, and 3.5 per cent in every year from then on. That’s quite a jump from its recent average of 2.1 per cent growth over the past four years.

Lower wage growth implies lower growth in the economy and lower tax revenues. It’s an obvious risk ahead. If Labor wins, Bowen said, he would ask Treasury to provide its “most realistic forecasts going forward” for wages and other variables for the economic statement he would bring down sometime in the September quarter.

• The spending forecasts are unrealistic. The existing forecasts assume no spending on new policy initiatives for the next decade, with spending on existing programs falling steadily, partly because of decisions already made by the Coalition government and partly as a result of the so-called “efficiency dividend,” which cuts departmental budgets each year by at least 1 per cent (in recent years, usually much more) with the stated aim of forcing departments to operate more efficiently. Labor itself estimates that all this amounts to spending cuts of $40 billion a year within a decade.

• It’s uncertain whether either side can get its tax plans through the Senate. I argued last week that neither will have a majority in the new Senate. While many different outcomes are possible, the most likely could see the remnants of the Nick Xenophon Team, now called the Centre Alliance, holding the balance of power. And Phillip Coorey of the Financial Review has reported that the Alliance senators Stirling Griff and Rex Patrick say they would reject most of the Coalition’s proposed tax cuts and Labor’s proposed tax increases. (The political comedy act known as the Australian finally covered one half of the story last week, almost a year after it was first reported by Coorey and highlighted by Inside Story. The Oz headed its belated catch-up “EXCLUSIVE.” Yes, the Australian alone finally caught up with the story a year after its rival.)

• The Parliamentary Budget Office has warned that the rapid growth in the number of aged people dependent on government spending will weaken the budget by $36 billion a year — yes, $36 billion a year — within a decade. It is not clear that this is factored into Treasury’s numbers.

• The global economy could be shipwrecked in that time. The Chinese economy could capsize. Our own economy could fail to weather the downturn in property prices. There’s no more uncertainty than usual, but it is an uncertain future.

It is essential to note, however, that these uncertainties apply equally to both sides. They are not unique to Labor, as some wrongly imply.

The bottom line is that Labor’s economic team has asserted its dominance over the idealists, and that future circumstances are more likely to tighten its grip than to loosen it. A Shorten government would have to face a lot of disappointed supporters, whose expectations have been raised by campaign speeches and promises only to be dashed by this, its real campaign policy.

Its failure to promise any interim increase to Newstart — such as the $75 a week rise suggested by senator Derryn Hinch — in my view is a serious mistake. Given the importance of the issue, fiscally and morally, it raises doubts about the credibility of both this budget plan and Shorten’s promise to raise Newstart. Labor’s policy would have been more sustainable in the long term had Bowen and Chalmers lost that battle.

That said, there is not much in this document that the government can target in political attack ads. It would be surprising if the polls released on Sunday and Monday do not show Labor poised for victory. •

The post Labor’s bottom line appeared first on Inside Story.

In the year to June 2018, a net 255,480 people from overseas migrated to Australia. That’s just over one new arrival for every 100 people already here. About two-thirds of them settle in Melbourne and Sydney, where they are the dominant cause of both cities’ rapid population growth.

It is an election issue, but only at the fringes, where it is one of the factors driving voters to One Nation and other parties of the far right. There is no debate between the major parties on this because there is an overwhelming consensus among Australian elites that high immigration is a Good Thing, and anyone who criticises it must be a racist.

Opinion polls consistently show that most Australians have a different view. They are not against immigration, but want to reduce it to lower levels. The government has quietly been reducing the permanent migration intake, and has now lowered the annual target from 190,000 to 160,000.

Yet at the same time, unnoticed in the debate, the combined net flow of permanent and long-term arrivals into Australia has soared to its second-highest level ever, and the highest for a decade: 299,190 in the twelve months to February, up by 20 per cent in the past three years.

Most of the arrivals are coming here not as permanent migrants or temporary workers, but as students. And one source stands out: the little Himalayan country of Nepal, just thirty million people, living in one of Asia’s poorest countries.

In 2017–18, one in every 1500 inhabitants of Nepal emigrated to Australia. In an era of strict immigration controls, that is an astonishing number for two countries so far apart, with no common language, heritage or ethnicity.

Over the five years to mid 2018, one in every 500 Nepalis emigrated to Australia — and that’s in net terms, after deducting those who returned. In 2017–18, little Nepal became Australia’s third largest source of migrants after India and China.

Tonight’s ABC Four Corners program will explain how it has happened. Deregulation has allowed universities to selectively lower their standards to bring in more fee-paying foreign students, even when they fail to meet the thresholds for English language skills or academic achievement. And put under financial pressure by the Commonwealth’s funding cuts, some universities have done so.

And it’s not surprising that many of these students are struggling, and that lowers the academic standards that are one of Australia’s selling points in competition for overseas students — along with the ease of moving from student visa to permanent residency.

This is not the first time immigration from Nepal has surged. A decade ago, we saw a scam with training visas, in which “students” from India and Nepal came for training courses in Australia, then quickly vanished into the workforce. The scam saw net immigration set record levels in 2008–09, before then immigration minister Chris Evans shut it down. But most of those who came stayed on here.

At the current pace of immigration, Australia will soon have more residents born in Nepal than in Greece. Nothing wrong with that if they’re doing jobs that only they can do, but the persistence of very high youth unemployment and underemployment — taken together, 633,000 people in March, or 29 per cent of the youth workforce — suggests our leaders and Australians as a society have let them down.

As I have written before, a report last year by Treasury and the home affairs department estimated that in the previous five years, 73 per cent of all net full-time job growth in Australia went to recent migrants. That implies a net growth of only 20,000 full-time jobs a year for Australian-born workers.

That was far too few to keep up with population growth. The Bureau of Statistics reports that between 2012 and 2017, the number of Australians aged fifteen to twenty-four in full-time work shrank by 113,000, while the number unemployed rose by 25,000 and the those underemployed (mostly, wanting full-time work but having to settle for part-time) rocketed up by 102,000.

As with declining housing affordability and growing congestion in Sydney and Melbourne, high immigration is not the only reason why young people can’t find jobs, but it is a central one.

Elite Australian opinion has been indifferent to this epidemic of young people unable to get full-time jobs to get started in life. But it is a reality that is being felt in families and communities throughout Australia, and it is one issue driving the rise of the minor parties on the right. •

The post Australia’s student visa blowout appeared first on Inside Story.

The state’s voters will elect six senators. Almost certainly, three will come from the left and three from the right. Two of the first four seats will go to Labor, and two to the Liberal National Party, or LNP, and then Labor and the Greens will fight it out for the last seat for the left. But the main contest will be who wins the last seat on the right.

Three of the contenders are clustered together at the top end of the ballot paper, and the other a few columns away. They are:

Group B: Malcolm Roberts (One Nation), the former senator elected with Pauline Hanson in 2016 but then forced out in the section 44 purge. Still loyal to Hanson, still an outspoken climate change denier, he is now shorn of his British citizenship.

Group C: Clive Palmer (United Australia Party), the mining tycoon and one-time MP. He owes millions to his former workers and the Australian Taxation Office, but is spending an estimated $50 million to set up his own party and advertise his candidacy all over Australia.

Group D: Gerard Rennick (LNP), the least-known of the four at this point. The ABC reports that he has put forward conspiracy theories such as accusing the Bureau of Meteorology of “rewriting weather records to fit in with the global warming agenda” and disputing Russian involvement in the murder in Britain of its former spy Sergei Skripal.

Group I: Fraser Anning (Fraser Anning’s Conservative National Party). Say no more.

Only one of these four can win. But one of them almost certainly will. Whom will you vote for? In a Senate election whose outcome is clear in broad structure, but mostly unpredictable in detail, this will be one of the key contests.

And it will matter. If Labor wins a majority in the lower house, it will still have to get its legislation through the upper house — and it won’t have the numbers to do so in its own right, or even with the support of the Greens.

Phillip Coorey of the Australian Financial Review has pointed out repeatedly that the minor parties don’t support Labor’s tax reforms. This doesn’t take them off the table — governments have many ways to persuade senators, and many a minor party in the Senate has voted for reforms it had pledged to oppose — but it does raise uncertainty about how much Labor can achieve in office, and whether it will have to cut back its spending plans.

The Senate doesn’t matter so much to the Coalition, since it doesn’t seem to want to fix anything. But this will be an important election. It will be the first time that the voting reforms negotiated between senator Mathias Cormann and the Greens will be in place at a normal half-Senate election. And I suspect the result will be very different from what most are expecting.

The only polling for the Senate has been undertaken by the Australia Institute. Its latest report is still unpublished, but it points to what its researcher Bill Browne summarises as “a large and diverse crossbench” — with the Greens returning with eight or nine seats, the Centre Alliance two or three, and the minor parties on the right holding up to eight.

But polling for the Senate has not been a good indicator in the past, and it may not be this time. My own hunch is that the Coalition is likely to do much better than expected, at the minor parties’ expense — and that the Greens will do better than expected, at Labor’s expense.

Cormann’s reforms are the key. They gave voters control over their own preferences, which were once decided in backroom deals between party bosses and “preference whisperer” Glenn Druery and then locked into group-voting tickets.

In the new system, voters are back in charge. They must give preferences to at least six parties if they vote above the line, or twelve candidates if they vote below it. Subject to that, you can vote for as many parties and candidates as you like. Gone is the great distortion that frequently saw voters’ preferences ending up with parties they would never have voted for.

The reforms were attacked at the time by Labor and the fringe parties as a scam to help the Coalition. They are not a scam — the Greens took care of any attempts to make them that — and they will help the Coalition only because they remove a distortion that had diverted preferences from it to groups such as Family First, the Liberal Democrats, Palmer United Party, Australian Motoring Enthusiasts’ Party and so on.

We are all free to vote for them, or direct preferences to them, if we want to. But we will no longer be required to do so.

The 2016 election showed that when voters are free to choose their own preferences, they tend to give more of them to the bigger parties. The Greens and One Nation reaped the biggest haul last time, followed by the Coalition and Labor. The minor parties didn’t do so well, particularly those on the right.

So what will happen this time? This is what we know

• Neither side will emerge with a majority.

• The thirty-six senators who were elected to six-year terms in 2016, or who have inherited them from others, lean to the right. Eighteen of them are from the right (sixteen Coalition, plus Pauline Hanson and Cory Bernardi), sixteen from the left (thirteen Labor, three Greens), and two from the centre (the Centre Alliance).

• This election is essentially about who wins the last two seats in each state. The first four seats will go two-all between Labor and the Coalition, and the two seats in each territory will divide one-all. Only those final twelve seats are in any doubt.

• As the legendary psephologist Malcolm Mackerras first noted, when each state has to elect six senators, they will usually divide three-all between left and right. As a rule, it takes 14.3 per cent of the vote after preferences to win one senate seat, 28.6 per cent to win two and 42.9 per cent to win three. But to win four of the six seats requires at least 57.1 per cent of the vote. It is rare for one side or other to dominate so completely. The Cormann reforms will make it even more rare.

• In an extraordinary run of good fortune for the government, the Australian Electoral Commission’s ballot draws have put the Coalition at or near the top of the ballot in almost every state. With between sixteen and thirty-five parties on each ballot paper, this could make the difference in a close contest.

In an earlier piece, I described the baseline created by the 2016 election. Because it was a double dissolution, it almost halved the quota of votes needed for election to just 7.7 per cent; that was why we ended up with a record number of crossbenchers. This time the quota is back to 14.3 per cent — and this will be the first time for years that we will emerge with a smaller crossbench in the new Senate.

Let’s start with Queensland. Six seats: two LNP, two Labor, two up for grabs. Given that Queensland voters divide roughly equally between left and right, it’s pretty certain that one of the final two will go to the left, and one to the right.

The Greens usually win a seat in Queensland. Labor would have to poll unusually well to stop Larissa Waters, now back in the Senate as Greens’ co-deputy leader, winning a new term. At the state election eighteen months ago, the Greens won a solid 10 per cent of the vote; it’s plausible that the state’s divisions over the Adani coalmine could push them even higher this time.

Roberts was the favourite to win the seat on the right until recently. But One Nation’s vote in the polls was ebbing even before Al Jazeera’s “gotcha” video in which party leaders sought funding from the National Rifle Association. Palmer is spending very heavily to promote his candidacy. Anning is running to the right of One Nation and has outdone it in publicity. And in this voting system, as a rule, voters are more likely to preference the big parties they know than the small parties they don’t, helping the chances of the LNP’s Rennick.

Forecast: Labor 2, LNP 2, Greens 1, last seat hard to call, possibly Palmer.

In New South Wales the Coalition has only one seat to defend, so it will gain at least one. The Greens, the Liberal Democrats and Palmer’s UAP also have seats to defend — the latter because Brian Burston has joined the UAP since defecting from One Nation.

On state election voting, it’s hard to see the Greens losing their seat: putting the upper house votes into Senate quotas, Labor won just 2.08 quotas, the Greens .69 of a quota, and the rest were way behind. That would see Australia’s first female Muslim senator, former engineer Mehreen Faruqi, win over Labor’s third candidate, the prominent lawyer and commentator Jason Yat-sen Li.

There will be a four-way or five-way contest for the final seat on the right. At the state election, the Coalition won the equivalent of 2.44 Senate quotas, One Nation .48, the Shooters .39, and the UAP did not stand. This time the UAP has nominated Burston, One Nation has put up farmer Kate McCulloch (who narrowly missed out on a Senate seat from Tasmania in 2016), and the Shooters have electorate officer Brett Cooke.

Burston will take votes from One Nation. The Shooters are running only one candidate in the lower house. So the prospects look good for another woman with an unusual past: former journalist, safari cook, army reservist and water consultant Perin Davey, a Nat from the Riverina who is third on the Coalition ticket.

But a wild card is former army general Jim Molan, the right-wing hardliner who replaced Fiona Nash in the Senate after the section 44 purge. Molan was placed fourth on the Coalition ticket but is actively campaigning for Liberals to vote for him below the line in the hope that he will win a seat ahead of those placed above him. It’s a very, very long shot.

Forecast: Labor 2, Coalition 3, Greens 1.

Western Australia looks like delivering another three-all split between left and right. If you take the 2017 state election voting for the upper house, Labor would have won all three seats on the left (it won the equivalent of 2.83 Senate quotas, the Greens .60). But it is very unlikely to match that high-water mark on 18 May.

At every election since 1984, the Greens and their political forebears (the Nuclear Disarmament Party, the Jo Vallentine Peace Group and the Australian Democrats) have won a Senate seat in Western Australia: thirteen elections in a row. You would not want to bet against them doing it again.

The Liberals and Nationals run as separate parties in the west. At the state election, the Liberals did not even win enough votes for two Senate quotas, but they will poll much better on 18 May. One Nation had .57 of a quota, the Nationals just .31. The Palmer United Party of course won a seat in the rerun of the state’s 2013 Senate election, so the UAP can’t be ruled out.

Adding colour to the cast is Rod Culleton, elected as a One Nation senator in 2016 before being ejected by the High Court over looming criminal charges (which were later dismissed). Culleton has founded his own Great Australia Party, and this time, listing his occupation as “senator in exile,” he will take on his brother-in-law and Senate successor Peter Georgiou (One Nation), long-time Palmer employee James McDonald (UAP), youth employment worker Matt O’Sullivan (Liberal) and Kalgoorlie businessman Nick Fardell (Nationals).

Forecast: Labor 2, Greens 1, Liberals 2, last seat hard to call, possibly Liberal.

Tasmania voted in three Labor senators and one Green in 2007 and 2010, but that won’t happen this time. The Liberals under premier Will Hodgman won a smashing victory at last year’s state election: on that voting, the result would be a clear three–two–one for Liberals, Labor and Greens. Is there anything out there this time that could make that different?

Well, for a start, there’s another internecine war in Labor ranks over the decision to — once again — dump independent-minded senator Lisa Singh to an unwinnable position on the party ticket. Party members voted for Singh to be second on the ticket, but she ended up fourth after the union votes were counted.

When the same happened in 2016, Singh won more than 20,000 first preferences from sixth place on the ticket to retain her seat. This time she will need twice as many, but it’s not impossible that she could end up duelling with the Greens’ Nick McKim for the final seat.

Then there’s Jacqui Lambie: elected as a Palmer United Party senator in 2013, re-elected in her own right in 2016, and then ousted in the section 44 purge of dual nationals from parliament. Her party made no impact at the state election, but she sure is well known and could attract a lot of preferences.

Lambie will be competing against her former running mate Steve Martin, who inherited her seat when she was displaced and is now running for the Nationals; Tanya Denison, the third-placed Liberal, another engineer and also a Hobart councillor; long-time Palmer supporter Kevin Morgan (UAP); and One Nation’s Matthew Stephen, who was its candidate in the Brisbane seat of Sandgate at the Queensland election just eighteen months ago.

Forecast: Labor 2, Greens 1, Liberals 2, last seat hard to call.

South Australia is perhaps the most unreadable state. In 2016 the Nick Xenophon team came through the middle to claim three of the twelve Senate seats, two of them with six-year terms. But then came Xenophon’s surprise resignation, his quixotic bid to win the 2018 South Australian election, and his complete withdrawal from public life. The Poll Bludger estimates that the Centre Alliance is now back to being a minor party, even though its MP Rebekha Sharkie is favoured to hold Mayo.

Xenophon himself escaped unharmed in the section 44 massacre, but his colleague Skye Kakoschke-Moore was gunned down because her mother was born in Singapore. Tim Storer replaced her in the Senate, quit the party and became a conscientious independent, but is not standing again. And Kakoschke-Moore is back heading the Centre Alliance ticket.

Family First leader Bob Day, the last one elected in 2016, quit politics when his building business went bankrupt. His running mate Lucy Gichuhi replaced him in the Senate, but left the party when Liberal turncoat Cory Bernardi took over and rebranded it as the Australian Conservatives; she joined the Liberals, where she was then relegated to the unwinnable fourth place on their ticket.

Despite support from Malcolm Turnbull, who was then PM, Gichuhi was demoted in favour of Alex Antic, a young Adelaide lawyer and conservative. Bernardi’s party is running a long-time staffer, Rikki Lambert. Palmer’s party has again nominated former Adelaide United defender Kristian Rees, and One Nation’s ticket is led by Hanson adviser Jennifer Game.

On the left are Sarah Hanson-Young for the Greens, and Emily Gore, a young policy advisor, for Labor. Hanson-Young always lives dangerously at election time. She was first elected in 2007 when Democrat preferences squeezed her above Labor, made it again in 2013 when Clive Palmer’s preferences pushed her above Labor, and was one of the last two to be elected in 2016. This is definitely the Greens’ worst state.

The presence of the Centre Alliance makes South Australia hard to pick. When Xenophon was elected in 2007, he pinched a seat from the Liberals, but in 2013 he got back at the expense of Labor. The Mackerras rule does not operate here. The last two seats will be fought out between the Liberals, Centre Alliance, Labor and Greens.

On voting at last year’s state election, the Centre Alliance would regain Storer’s seat, Labor would take Gichuhi’s, and Hanson-Young would scrape home again. One Nation has never polled well in South Australia. Palmer made no impact there in 2013, and Bernardi’s party made no impact at the state election. The Liberals will probably be the last party standing on the right, and they and Hanson-Young will most likely fight out the final seats with the Centre Alliance.

Forecast: I don’t dare make one. Two Labor, two Liberals, two too hard to call.

Until recently, Victoria looked like the one state that might return a four–two result. At the state election, on my estimate, the two-party vote for Labor was 57.6 per cent in the Assembly. If the upper house vote were repeated in the Senate, the most likely outcome would be three Labor, one Green, and two Liberals — with Derryn Hinch’s party missing out.

But the gap in the polls has narrowed, so that outcome now looks less likely, though still possible. A three-all result is the most likely outcome.

On the right, Hinch is the defending titleholder. In 2016, having formed his own new party, he fluked pole position on the ballot paper, and made good use of it to win 6 per cent of the vote — and a seat. But he will need a much bigger vote to win this rematch, and this time his main rivals, the Liberals, are in pole position. Their third candidate, David Van, who owns his own PR firm, is well placed to seal the win.

As in South Australia, One Nation and the original Palmer party failed to make headway in Victoria. The Shooters, Fishers and Farmers have some following, and are putting up former Senate independent Ricky Muir as their candidate. But on the right, the real battle is Liberals v Hinch.

On the left, it’s between Greens senator Janet Rice and her Labor counterpart Gavin Marshall. A sparkie in his youth, Marshall has been in the Senate since 2002, but this time was relegated to third spot on the ticket behind United Voice state secretary Jess Walsh, in what was widely seen as an internal revolt by the left against its veteran faction boss, senator Kim Carr.

Victoria is Labor’s strongest state, but it’s also the Greens’ best state. They not only poll well on first preferences, but in Victoria in 2016 — the only election at which this system has been tried out — they also won more preferences from other parties’ voters than any other team. Labor would have to poll very well to hold them out.

Forecast: Two Labor, one Green, three Liberals.

I haven’t tried to put all these forecasts together. There are too many uncertainties. If you want to know more, I recommend the Senate preview by the Poll Bludger, William Bowe, in his comprehensive election guide — and the Australia Institute’s latest projections, which will eventually appear on its website.

But my bottom line is that the smaller parties of the right will find it hard to get the 14.3 per cent of votes they need after preferences — given that their voters tend not to preference each other. One Nation was an exception last time, but I doubt that it will do as well this time. And that means the Coalition has a good chance of winning three seats in every state except Queensland.

My hunch is that the Greens will also do better than many expect; they might lose Hanson-Young in South Australia, but they will probably hold their ground elsewhere. And in turn, that would limit Labor’s potential gains, and its bargaining power, in the new Senate. •

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That’s just Queensland. Sportsbet’s odds imply the punters are also tipping the Coalition to lose six seats in New South Wales, five in Victoria, four in Western Australia, and one in South Australia. In all, the Coalition would lose twenty-five seats and win back just one: Wentworth, the seat it lost last October after it overthrew Malcolm Turnbull as prime minister.

The starting point for this election is significantly different from the 2016 result. Redistributions covering half the country have created two new Labor seats, in Melbourne and Canberra, while abolishing a Labor seat in Adelaide. They have also made two marginal Liberal seats in Victoria into (very) marginal Labor seats. And an independent now holds Wentworth.

The bottom line is that the Coalition begins with just seventy-three seats, three short of a majority in the new 151-member parliament. Labor starts off with seventy-two, with another six MPs on the crossbench.

If the same group came back, the Coalition could not form a viable government. To retain power, it will need to win more seats than it loses. In the situation it finds itself, that is a huge ask.

As I pointed out last week, the Coalition has not won an opinion poll by any established pollster since September 2016. Every one of the 153 opinion polls Wikipedia records since then has pointed to a Labor victory. The average margin has narrowed slightly, but the four latest polls show Labor with an average of 52.5 per cent of the two-party vote to the Coalition’s 47.5 per cent. That’s a 3 per cent swing, which would give Labor a comfortable majority.

Indeed, if the punters are right, the Coalition would return with only fifty-one of the 151 seats in the new house. Labor would have ninety-four, with six on the crossbench. That implies a bigger landslide than the polls are now pointing to.

On average, the betting agencies’ odds imply that Labor has an 80 per cent chance of winning the election. The Coalition has just a 20 per cent chance. The polls and the punters are telling us that this election is over before it has even started.

But could they be wrong? Remember: in 2004, the polls at the start of the campaign also showed Labor ahead. Newspoll then had exactly the same result as it has now. But the Coalition was confident that most Australians trusted John Howard as prime minister, but did not trust Mark Latham — and confident that it remained ahead in the marginal seats that mattered. It was right: it won a thumping victory.

Scott Morrison is trying to run his campaign the same way. The Coalition and its media support pack have put the blowtorch to Bill Shorten many times since he became Labor’s leader, but we are likely to see them outdoing themselves this time. They know that the public has not warmed to Shorten, that they see him as an old-style union leader, and that he trails Morrison as preferred prime minister.

Shorten is clearly not a great asset for Labor, but unless the Coalition is holding something back to spring on us late in the campaign, it’s hard to see that he is much of a liability. After all, Labor has won the last 153 opinion polls under his leadership. Newspoll shows Morrison’s lead as preferred PM is only half as big as Turnbull had in the middle of last year, while Shorten’s net disapproval rating has shrunk appreciably.

Yesterday morning, Morrison told us repeatedly that the Coalition had given Australia a “strong economy” — a somewhat contestable claim when many voters have not had a real wage rise since it took office, some have gone backwards, household debt is at record levels and consumer spending is falling. The Liberals presumably are saying this to reinforce the traditional doubts about Labor’s capacity to manage the economy, but they themselves are vulnerable on that front. These are indicators that go to the heart of household finances.

And when the PM tries to imply that what disrupted the economy in 2008 was not the global financial crisis but the election of a Labor government — well, that’s on a par with his insistence that you couldn’t have an electric ute. I guess it must work with a lot of voters, but at some point his habit of going over the top must hurt him.

Security and personal safety got token mentions in Morrison’s opening salvo, and he kept steering us towards Howard’s old slogan: “Who do you trust to run the country?” And when asked his response to Labor’s focus on fairness, he repeated his mantra: “I believe in a fair go for those who have a go.” Presumably that explains the big tax cuts for the well-off that the Coalition is promising, but what does it mean beyond that? Who doesn’t “have a go”? Who does?

But the PM and his team clearly are getting through to many Australians with messages like that, and the polls suggest they are gaining ground. Is it possible that they could do the unthinkable, and take enough seats from Labor and the crossbench to offset the inevitable losses?

Yes, they say, we can. This morning their house paper, the Australian, listed no fewer than ten seats held by Labor or the crossbench that Coalition strategists see as winnable.

They include Wentworth and Indi, taken back from the independents, and eight seats from Labor: Lindsay and Macquarie in western Sydney, Bass, Braddon and Lyons in Tasmania, the Townsville seat of Herbert, Anne Aly’s seat of Cowan in Perth, and the Darwin seat of Solomon.

The punters see only four or five of these as realistic chances (that is, better than a one in four chance). The Liberals’ Dave Sharma, a former ambassador to Israel, is narrowly favoured to win his rematch with Kerryn Phelps, the independent MP for Wentworth. Cathy McGowan’s retirement in Indi opens up a three-way contest between her intended successor, Helen Haines, the Liberals’ Steve Martin and the Nationals’ Mark Byatt.

Labor won Herbert by only thirty-seven votes last time, and Townsville wants the Adani mine to go ahead. Emma Husar was an expected winner in Lindsay in 2016, and the controversy over her ousting clearly makes the seat vulnerable. Braddon in northwest Tassie is probably a realistic chance too; the Liberals absolutely blitzed Labor there at last year’s state election.

But even if the Coalition could win these five seats, that is an inadequate buffer against the losses it is facing in Australia’s big cities and coastal areas — if the polls and the punters are reading the tea leaves right.

Let’s return to Queensland. The latest figures from Newspoll and YouGov (nee Galaxy) imply swings to Labor there of 7 to 8 per cent. That will probably soften by election day, but with the Coalition holding eight seats by margins of less than 4 per cent, even a swing of half that amount would do serious damage.

Queensland is the most important state in federal elections. Whereas Sydney and Melbourne are stratified by class into regions that are consistently Liberal or Labor — think of Sydney’s North Shore versus the southwestern suburbs — Brisbane and regional Queensland are not. Most Queensland seats can and do change hands, often with the force of a tropical cyclone.

In 1949 when Menzies led the Coalition to power, he did so on the back of a 9 per cent swing in primary votes in Queensland that left Labor with just three of the state’s eighteen seats. In 1961 with the credit squeeze sending unemployment soaring, eight of those seats swung back to Labor, almost bringing the Menzies era to a premature end.

In 1975 the anti-Whitlam landslide left Bill Hayden as Queensland’s only Labor MP. But by 1983 most Queensland MPs were Labor. By 1990 Labor had a fifteen-to-nine edge, but two elections later it was down to two seats again. Then, when Kevin07 hit town, Queensland’s seats slid his way en masse: at the 2007 election, Labor made nine of its twenty-two gains in Kevin Rudd’s home state.

What the polls and punters are predicting is not a mirage: it is something that has happened repeatedly in Queensland’s history. The question is whether this election will see it happen again.

The bookies’ odds imply that Labor will hold Herbert, and add Leichhardt (Cairns), Dawson (Mackay — George Christensen’s seat), Capricornia (Rockhampton) and Flynn (Gladstone), giving it almost the entire coastline of North and central Queensland.

The Coalition would hold its seats on the Gold Coast, Sunshine Coast and the farmlands of the southeast. The two vast outback seats of Kennedy and Maranoa would stay with Bob Katter and the Nationals respectively. But Brisbane would be a disaster area for the Coalition.

In 2016, the LNP and Labor split the city’s seats seven-all. This time, if the punters are right, it’ll be twelve-two Labour’s way. Inner-city Brisbane, outer-suburban Petrie, Forde and Bonner, and Peter Dutton’s urban fringe seat of Dickson would all be casualties. Only Ryan and Bowman would stay blue.

Warning: these are only the bookies’ odds, and they and the punters can get it wrong. But in 2017, the LNP won just five of Brisbane’s forty-one seats in Queensland’s state election. Swings of this magnitude are as common as cyclones in Queensland.

Victoria is another potential disaster area. The state election saw Labor win a near-record 57.6 per cent of the two-party vote. If Victorians vote the same way on 18 May, the Coalition would lose six seats to Labor (including the two notionally lost from the redistribution). I wrote on this last month, and won’t repeat the details here, but on those figures, Dunkley and Corangamite would be certain Labor gains, Chisholm, Casey, Higgins and La Trobe probable ones, with Deakin, Flinders, Goldstein, Kooyong, Menzies and Aston all within the realms of possibility.

The bookies’ odds imply that the Liberals would hold Casey and Higgins but lose Deakin. Indeed, the punters are now confident that Labor’s vote this time will not match the highwater mark it set at the state election in those blue-ribbon Liberal seats. Labor is given a decent chance in Higgins, the Greens’ Julian Burnside an outside chance in Kooyong, and Goldstein is rated safe.

But the only serious threat to any Labor seat in Victoria is from the Greens’ Steph Hodgins-May in Macnamara (nee Melbourne Ports). Were the Coalition governing for people living in this century rather than indulging those stuck in the last century, Melbourne Ports’s upmarket suburbs would probably be Liberal turf by now. Morrison has spent much more time in Victoria recently, announcing imaginary transport projects such as a fast train between Melbourne and Geelong. But the Coalition decided long ago that Victoria is not its priority. If the bookies’ odds are right, it stands to win only twelve of the state’s thirty-eight seats.

New South Wales has just seen a Coalition government triumphantly re-elected with minimal losses. You’d assume it is looking good for them at the federal level too. Not so, say the bookies: six Liberal or National seats are thought likely to fall to Labor or independents, with Wentworth the only seat to move the other way.

As in Queensland, the bookies expect Labor to sweep the north coast, in company with independent Rob Oakeshott. Labor already holds Richmond (Tweed Heads to Ballina), and is tipped to win Page (Lismore, Grafton), while Oakeshott regains Cowper (Coffs Harbour to Port Macquarie).

Labor is also favoured in the central coast seat of Robertson (where it polled strongly at the state election), the south coast seat of Gilmore (where the conservative vote will split three ways), and the Sydney seats of Banks (inner south) and Reid (inner west).

That sounds excessive. The Liberal vote held up well at the state election in the suburbs comprising Banks, and while seats like Reid and Gilmore are clearly vulnerable, losses on the scale forecast would leave the Coalition with only seventeen of the state’s forty-seven seats — and in Sydney, just ten out of twenty-nine seats. That would be a very different result from the state election.

Western Australia is the other state where the bookies have Labor poised to make big gains. While the seats in the outback and southwest would remain unchanged, the odds show Labor is tipped to take four of the Coalition’s eight seats in Perth — attorney-general Christian Porter’s seat of Pearce, aged care minister Ken Wyatt’s seat of Hasluck, Michael Keenan’s seat of Stirling, and inner-suburban Swan.

In Adelaide, the Liberals are tipped to hold the eastern suburbs seat of Sturt, vacated by Christopher Pyne, but lose Nicolle Flint’s southern suburbs seat of Boothby — a seat Labor has not won since 1946. Sturt would be the Coalition’s only seat in Adelaide, and one of just three in South Australia.

Labor already holds all but one seat in Tasmania, and every seat in the Australian Capital Territory and the Northern Territory, so it’s unlikely to make any gains there. As mentioned, the Liberals believe they can regain all three Tasmanian seats outside Hobart, as well as the Darwin seat of Solomon. At this stage, the punters disagree.

Add them all up, and Labor would have a majority of thirty-seven seats in the new house. As I’ve argued, that overstates its likely margin, but the Coalition would have to make up a lot of ground to win the election from here.

The Senate, meanwhile, is always hard to predict. As yet, we don’t know who the candidates will be, their positions on the ballot paper, or their preference deals (although the Cormann reforms in 2016 ensured that voters will determine their own preferences, rather than having them traded in backroom deals). We can look at the Senate once those details are clear. It is clear that no one will have a majority, but the two major parties are likely to increase their numbers slightly at the expense of the Greens and the minor parties.

The Coalition’s dream is that this will be a repeat of 2004. So far it reminds me more of 1972: a bumbling, backward-looking Coalition team with an unimpressive leader and a focus on palace coups, up against a Labor opposition eager to make reforms on issues that the Coalition has discarded as too hard.

The difference is that Labor then had a brilliant but flawed leader — witty, arrogant, visionary, determined and disorganised — whereas this time it is led by a solid, unexciting political pragmatist, who has taken some political risks to give a lead on important issues, but has yet to win over the voters after six years in the job.

This morning the papers all shouted in unison: “It’s on!” It made me recall the song with that name, written decades ago by the old leftie folk singer Don Henderson:

A sad story you’ll hear if you listen to me,
About two men who could never agree.
What one said was white, the other called black.
They’d argue a while, then they’d go out the back.

And it’s on! And it’s on!
All reason and logic are gone.
Winning the fight won’t prove that you’re right.
It’s sad, it’s true, but it’s on! •

The post Over the top with Scott appeared first on Inside Story.

So it’s a shame that the best of the six budgets under this Coalition government will probably be irrelevant. What the treasurer spelt out last night will become reality only in the improbable event that his government is re-elected.

The bookies reckon there’s only a one-in-five chance of that. On average, they give Labor an 80 per cent chance of winning next month’s election, and the Coalition just 20 per cent.

As for the opinion polls, every one of the thirty-three polls Wikipedia records since Scott Morrison became prime minister has shown Labor ahead, on average by a commanding 53.5 per cent to 46.5. Indeed, Wikipedia records 150 polls by Australia’s established pollsters since September 2016 — and Labor has led the Coalition in every one.

This suggests that last night’s effort was not the real 2019–20 budget. That one will probably be brought down in July by Labor’s treasurer, Chris Bowen, for a new government that will leave a very different imprint on Australia’s choices.

Frydenberg’s budget will probably end up as a first draft for what Bowen will deliver in July. Where there are no important differences between the parties, the details announced last night will hold. But many of them will be swept away — in some cases, fortunately so.

Why? Because Frydenberg’s quality architecture was not matched by his government’s sense of decor. There are some terrible policies here.

A prime example? Try the $2 billion — that’s $2 billion of our money, folks, as well as a further $2 billion from Victorian taxpayers — that the Morrison government wants to spend on building a very fast train line between Geelong and Melbourne. Why build a VFT there? Because the Liberal Party has a marginal seat, Corangamite, at one end of it.

The federal government has already committed a breathtaking $750 million to duplicate eleven kilometres of Corangamite’s rail line between South Geelong and Waurn Ponds. The business case for the main part of the project found it would return only 60 cents benefit for every $1 spent on it. And the government has pledged to fund stage three of the project, duplicating Geelong’s rail tunnel, without even waiting for a business case.

Pork-barrelling? That understates it. This is misuse of funds on a colossal scale: taking $2.75 billion of our money to try to save one marginal seat. Some would call it grand larceny.

This budget is full of soft corruption like this, by which the government takes our taxes and uses them for Liberal and National party electioneering. For example, the daily ads for the government’s infrastructure spending, which the Guardian says are costing us $250,000 a day. And another spotted in passing: the budget commits to upgrade six commuter car parks at Melbourne suburban stations — not the federal government’s job — and they are all in endangered Liberal electorates: Goldstein (two), Deakin (three), and Aston (one).

Enough: you get the picture. Your taxes are being rorted. Let’s return to the architecture.

Frankly, this is not the budget we were led to expect. The headlines suggested it would be a great cash splash. Yet since Christmas the government has committed just $4.6 billion of net new spending for the eighteen months to mid 2020. That increases its planned spending by just 0.6 per cent — partly because the government has pledged to spend $632 million to repair damage from the North Queensland floods.

The other areas of new spending in that year and a half are mainly in health and aged care ($858 million), transport projects ($700 million), the royal commission into abuse of people with disabilities (almost $200 million) — and the Energy Assistance Payment ($284 million), which is basically a cash handout to people on welfare.

In an unexpected twist this morning, the energy payment became the first budget decision to be changed. Frydenberg used a post-budget interview on AM to announce that the handout will also go to people on the dole, even though his budget papers said the opposite. One suspects his hand was forced after a government representative airily defended the exclusion by implying that people on the dole were unemployed by choice.

Look carefully at the table on pages 49–51 of the budget’s expenses statement and what stands out is the austerity of their spending plans. The so-called efficiency dividend lowers spending in each area by 1.25 per cent a year unless the government decides otherwise. And in almost half the areas the budget covers, it plans to spend less in three years’ time — even in nominal terms — than it does now.

The areas facing cuts include parliament itself, foreign aid, pharmaceutical benefits, arts, culture and even sport, primary industry, immigration, aviation, miscellaneous welfare programs, public order and safety, government superannuation benefits, and administrative costs across the board.

All those areas will have their nominal spending cut during a period in which we can assume population growth of 4 to 5 per cent, and inflation of 6 to 7 per cent. Even more areas will experience cuts to their real spending per head — so that, if they can’t find ways to transform how they work, they will have to reduce services, and in many areas, significantly.

By contrast, in the next three years most of the growth in spending will be in just six areas:

The tax handouts are even more modest: they’ll cost just over $1 billion over the same eighteen months. Most of that comes from a new end-of-the-year tax handout, the Low and Middle Income Tax Offset, first announced in last year’s budget. Its maximum level will roughly double from the original plan to $1080 — a significant amount to a battling family — with most taxpayers receiving some payout.

That’s millions of people, yet the government estimates the cost of doubling the handout will be just $750 million, or about 0.15 per cent of its annual revenue. That looks surprisingly low. But only those earning between $48,000 and $90,000 would receive the maximum offset, and Grattan Institute figures imply that they make up only roughly a third of all taxpayers. Those earning less than $48,000 or between $90,000 and $126,000 will get lesser sums.

A second tax change will provide short-term stimulus: the tax break allowing small business to immediately write off capital spending against tax will be expanded to cover medium businesses, and spending of up to $30,000. But Treasury expects only modest use of that until next year.

The big tax cuts lie ahead, in 2022–23, which is beyond the election after next, and again in 2024–25, just before the election after the election after next. You would think that after the Howard–Costello tax cuts in 2007 blew a hole in the budget, our politicians would have learnt not to legislate for big future tax cuts until we know we can afford them. Nope: even the Centre Alliance senators buckled under pressure to vote these ones into law.

The second and third stages of those tax cuts are very regressive, so this year Frydenberg has tried to provide something to those on lower and middle incomes. If the Coalition is re-elected, the key changes would be:

• The top threshold for the 19 per cent (low) tax rate would rise from $37,000 to $45,000 from mid 2022.

• The 32.5 per cent (middle) tax rate would be reduced to 30 per cent from mid 2024. By then, under the tax changes passed last year, that rate will apply to all income in the range of $45,000 to $200,000. That was a huge step towards the right’s dream of a flat income tax. It is a regressive change that Labor will struggle to undo.

Labor will unveil its own tax cuts tomorrow night. And if it wins the election, as most assume, they will be the ones that matter.

The make-up of the new Senate will be crucial to one key question: will Labor be able to enact its plans to halve the capital gains tax break and limit negative gearing to newly built properties? When the crunch came last year, South Australia’s Tim Storer was the only crossbencher to hold firm against government pressure to vote for the big tax cuts. But others like the Alliance senators and Derryn Hinch must have realised that this could rebound badly on us.

By contrast, Frydenberg’s budget this time is almost reticent in its modesty. Despite the government apparently heading for electoral defeat, its tax cuts amount to only 0.2 per cent of tax revenue. That is a surprise, and a relief to those who believe that constantly running up debt is a bad strategy, for governments and households alike.

We have had false surplus predictions before — Wayne Swan recklessly claimed in 2012 that the budget would be in surplus from then on — but this one looks real. The short-term budget forecasts it is based on were described by ANZ bank economists today as “reasonable… even conservative.”

Treasury may be a little optimistic in forecasting that growth will accelerate in the year ahead to 2.75 per cent (roughly average for the years since the global financial crisis), with household spending growing by the same amount. But it is also forecasting that unemployment will flatten at around 5 per cent, jobs growth will slow, and wage growth will continue rising on its current trajectory.

The forecast budget surplus of $7.1 billion allows some room for error. The economy could grow more slowly than Treasury expects, endangering the surplus. If you think running a surplus doesn’t matter, consider this: we have had eleven years straight of budget deficits, under both sides, and they have lifted gross government debt from $55 billion to $560 billion, and taken us from $40 billion of net assets to $373 billion of net debt.

Global interest rates are at or near record lows, yet we are now paying $17 billion a year in interest — almost as much as the federal government spends on schools or hospitals. Deficits provide valuable support when an economy slumps, but they are not something we should rely on in normal times. After eleven years of deficits, it matters that we repair the damage to our finances — with eleven years of surpluses, we must hope, and substantial ones.

But the medium- and long-term outlook for the budget is not good. On budget eve, the nonpartisan Parliamentary Budget Office put out a sobering document trying to forecast how much damage our ageing population will do to the federal budget. It concluded that within a decade, the ageing of the baby boomers will worsen the budget balance by $36 billion a year through lower workforce participation, superannuation tax breaks, and the costs of aged pensions, healthcare and aged care.

We could also be facing higher interest rates. China’s economic stability is more precarious than it seems. The rivers of gold flowing into the budget from higher mineral prices have helped lift company tax revenue by almost half in three years, from $68 billion in 2016–17 to an estimated $99 billion in 2019–20. That is the main reason why we have moved from deficit to surplus — but we know that those revenues can recede as fast as they can surge.

One of the subtler fine points of this budget’s architecture was that it chose to be conservative in estimating future mineral prices. Frydenberg and his team could have made the budget outlook appear rosier, and used that to justify spending more, had they followed past practice and assumed that current prices will last. They put their long-term credibility ahead of any short-term fix.

That’s wise in political as well as economic terms. People don’t believe politicians any more. They want to see the budget back in the black, and they want to see problems demonstrably fixed. Promises have been dishonoured too many times to be worth much now.

One last point. The doyen of budget commentators, Chris Richardson of Deloittes, pointed out in the Financial Review this morning that the combination of tax changes announced in the past year will amount to more than $8 billion of tax cuts from 1 July. That’s equivalent, he argues, to a 2 per cent increase in the typical after-tax wage — and much of it will be coming as a lump sum. Many households are under pressure, and bad debts are rising, so some of that will be saved — but a lot of it will be spent, and soon.

Moreover, if Labor wins next month’s election, its plans to restrict negative gearing to newly built properties from 1 January are almost certain to trigger buying by some investors to get in first, so their properties are “grandfathered” by that date and immune from Labor’s tax changes. That will inject new demand into property markets, and hopefully reduce the glut of unsold properties that has been dragging down housing prices in Sydney and Melbourne.

The Reserve Bank has left itself little room to move interest rates now when it needs to. But the markets expect at least one rate cut ahead, maybe two. That might affect property markets more than business investment, but it’d be worth it.

Add the three potential stimuli together, and it’s plausible that the economy might move up into a higher gear — say, from second to third — as 2019 rolls on.

This budget is not an election winner: no budgets are anymore. But it won’t hurt the government’s chances, and could improve them. Finally, after six years, we are in sight of the balanced budget Tony Abbott promised us back in 2013. •

The post Not the real budget? appeared first on Inside Story.

What would have been the outcome?

It felt like Labor was heading for victory. At that point Daley had performed well in the campaign; his on-air rebuff of Alan Jones over the demolition of the Allianz Stadium was a defining moment. Gladys Berejiklian was criticised by her own team for not focusing voters on a defining theme. The polls suggested the state was heading for a minority government, from either side.

Then came the final week. The video showed Daley speaking frankly about the negative impact of high immigration on the employment and housing prospects of young people in Sydney — most of it true, saying things you and I could say freely, but a political leader can’t without being misrepresented and called a racist. (Daley’s choice of words was not the best, but to call him racist, for pointing out the negative impacts of high immigration, as the usually judicious Sean Kelly did this morning, is PC triumphing over common sense.)

It wouldn’t have mattered so much had Daley not then made a botch of expressing his own policies in the leaders’ debate. It was on Sky after dark, so nobody saw it, apart from political staffers. But everyone heard about it, and the two events taken together did suggest that Daley was a decent bloke out of his depth.

Did they shift the outcome, from a Labor victory to the re-election of the Berejiklian government,  probably with an absolute majority? Impossible to say for sure, but quite likely.

Antony Green estimates that the Coalition will probably end up with forty-eight of the ninety-three seats in the Assembly, Labor thirty-six, with nine crossbenchers: three Greens, three Shooters and three independents. If so, that would mean the Coalition lost just four seats on Saturday on top of the two it lost earlier in by-elections.

Three of those six losses were to the Shooters, Fishers and Farmers, whose electorates now cover most of New South Wales: the vast outback seats of Barwon and Murray, as well as Orange. The Coalition also lost Wagga Wagga to an independent, local medico Joe McGirr. But it lost only two seats to Labor.

If that’s right, the Nationals have lost four seats since the 2015 election, but the Liberals just two. And in Barwon and Murray, Shooters candidates Roy Butler and Helen Dalton won by campaigning not on gun issues but on water: trenchantly denouncing the Nationals for failing to protect the Darling’s water for downstream users — farmers, fishers and people in the towns. The photos of masses of dead fish and dark water flowing out of taps sent powerful messages.

The Nationals’ water minister, Niall Blair, has shouldered the blame and will leave politics. Barnaby Joyce ought to do the same, but probably won’t.

It was apparent as soon as counting began on Saturday night that we were seeing two different elections. Parts of the bush, especially west of the Divide, were erupting against what they saw as mismanagement and neglect of their needs. But in Sydney and about half the regional seats, the government was cruising to victory.

Sydney has two-thirds of the state’s people, so its election ruled. Of all Australian cities, it is the one most segregated by income and race, so it has few marginal seats. That allows the government of the day to concentrate its defences — and this government defended its turf very well.

Across New South Wales, on both sides of politics, only a third of the seats were won with majorities of less than 10 per cent. Only one in seven seats were won by majorities of less than 5 per cent. Most seats always vote one way or other, unless an independent or minor party breaks in.

The Coalition had only two marginal seats in Sydney to defend: East Hills (on 0.4 per cent) and Coogee (2.9 per cent). Its next most marginal seat was Penrith, where Labor needed a landslide 6.25 per cent swing. It lost Coogee, but looks likely to retain East Hills and Penrith, if narrowly.

Some parts of Sydney saw big swings against the government. In the southwest, for example, Liberal-voting Camden swung by 10.3 per cent to Labor, while next door in Campbelltown Labor boosted its lead by 11.9 per cent. Just south of them, independent Judy Hannan almost broke through in the mostly rural seat of Wollondilly.

The federal seat of Hume takes in some of Camden and most of Wollondilly. The federal implications of this election were limited, but one of them is clearly for Hume MP and energy minister Angus Taylor, himself under challenge from independent Huw Kingston.

Labor also made gains on the Central Coast, including an 8 per cent swing in Gosford (at federal level, half of the marginal Liberal seat of Robertson). The Coalition’s best area was the middle-southern suburbs, where Chinese migrants reportedly aided a swing that saved East Hills, swelled the Liberal majority in Oatley, and halved the majority of Labor leadership contender Chris Minns in Kogarah. That’s good for immigration minister David Coleman, whose marginal seat of Banks covers the area.

Outside Coogee, Labor’s gains in Sydney were in votes, not seats. East Hills and Penrith were the only other seats where it came close. In Newcastle and Wollongong, the Coalition had no seats to lose anyway, unless you count the hinterland seat of Upper Hunter, which the Nationals successfully defended.

Labor’s other gain was on the North Coast. In 2015, with passions against coal seam gas mining running high, the Greens unexpectedly won Ballina and almost added Lismore. This time they held Ballina, though it looks like Labor will pip them in Lismore to claim the seat. But the Nationals beat Labor out of another on its must-win list, the urban electorate of Tweed (Heads).

In most of New South Wales, this was an election won by the defenders. One lesson is that voters like governments to build infrastructure. We saw that in the Victorian election, and while Gladys Berejiklian’s road and rail projects have been messier and more disruptive of daily life — and are still incomplete — they defined what the Coalition stood for, whereas Daley defined Labor as standing against spending a lot of money on stadiums.

By focusing so much on one issue, Labor dumbed down its message to voters, and took attention away from its policies in other areas. There’s a lesson there.

One surprise was that the Greens did better than expected. The internal turmoil that forced upper house MP Jeremy Buckingham, a moderate, out of the party after hardliners accused him of sexual violence (which he denied) had no impact on voters. The Greens retained their three lower house seats, all with big swings their way, and got even closer to winning Lismore. The negative was that in the council they seem to have lost not only Buckingham but also his seat.

The NSW Electoral Commission has released only strangely limited data on the upper house voting. It gave voting figures for just seven parties, and bundled all the others, plus the informal votes and all the votes filled in below the line, in a big heap marked “others.” Hidden in there, among other things, are the votes for Liberal Democrat David Leyonhjelm and Sustainable Australia’s William Bourke, and the votes of anyone who takes the trouble to vote for candidates rather than parties.

All we can say with certainty is that the Coalition will win at least seven of the twenty-one seats being contested, Labor six, the Greens two, and the Shooters and One Nation — Mark Latham, that is — one each. Four seats remain to be filled. On the numbers so far, the Coalition could win one of them, One Nation could win a second and the Christian Democrats and Animal Justice also have a chance.

For the Coalition, it was a landmark result in two ways. Gladys Berejiklian was already the first woman to lead a Coalition state government. (Indeed, she and Kate Carnell, as ACT chief minister in the 1990s, are the only women ever to have led a Coalition government in Australia — while Labor has had ten female leaders, in every parliament in the nation.) Now she has been the first female premier outside Queensland to be re-elected — something that was not remotely possible for Kristina Keneally when Labor elected her as NSW premier in late 2009 to try to salvage what she could from the impending wreckage. The Coalition is moving into the twenty-first century, sometimes at glacial pace.

It is also the first time in almost forty years that a state or territory Coalition government has won a third term anywhere in Australia. The Howard government did so at federal level, but the last state or territory leader to win a third term was Sir Charles Court, in Western Australia in 1980. Since then, eight Coalition governments had sought a third term, but every one was thrown out by the voters.

What made this government different?

First, it got off to a stunning start, winning a record 64.2 per cent of the two-party vote in 2011.

Second, it has been a government run by the broad centre of the Liberal Party, rather than by the reactionary right. Mike Baird certainly put voters offside by banning greyhound racing, merging local councils and privatising electricity assets, but this has generally been a government of the middle, not one driven by fringe ideologies.

Third, it has seriously tackled Sydney’s infrastructure backlog — helped by a Sydneycentric federal government that has poured money into transport projects in that city while (until recently) ignoring the needs of Melbourne.

Fourth, Berejiklian may not be the leader to make hard decisions, but she is a conscientious workaholic, and, unlike her federal leader, she comes over as a relatively sincere and sympathetic person.

And fifth, her government got lucky last week, with the Daley video and the TV debate.

Which of these five elements mattered most? You choose. •

The post Raking through the embers of Labor’s loss appeared first on Inside Story.

The banks rip off all of us. The rich and powerful who own the franchise firms we buy from rip off only their franchisees. It’s to be hoped that only a minority of the franchisors do so, but Adele Ferguson’s journalism in the Age and its siblings has exposed enough of them — 7-Eleven, Domino’s Pizza, Pizza Hut, Caltex and Retail Food Group — to suggest that abuse of power by franchisors over franchisees is widespread.

We’re not talking small beer here. Franchises cover tens of thousands of branded stores and service firms that we shop with every day — from Australia Post to McDonald’s, Aussie Home Loans to Tabcorp, Ray White to the Coffee Club, as well as Forty Winks, Flight Centre, Ella Baché, Autobarn, Jim’s Mowing and so on. Walk down your main street, or into a shopping mall, and you’re in a world largely run by franchisors selling their products to us through their franchisees.

Together, their daily sales have been estimated to comprise 9 per cent of the Australian economy, roughly the same size as the finance sector that Hayne investigated. No one is suggesting that most of them, or any of the firms named in the list above, have abused their power over franchisees. The franchise model is a good one when its owners operate it in the interests of both parties. The evidence suggests that most of them do.

But Thursday’s report by a parliamentary committee, Fairness in Franchising, confirms that the imbalance of power inherent in the franchisor/franchisee relationship has been exploited by many franchisors, at times more ruthlessly than the banks at their worst.

Examples abound; the Nine/Fairfax papers are full of them this morning. A SumoSalad franchisee who tried to set up a franchisee association arrived at his shop one day to find tradies demolishing it — on the orders of the franchisor. A couple who bought a Michel’s Patisserie franchise from the Retail Food Group paid so much money for it that they ended up losing not only the shop but their home, which was the security on their bank loan. When this parliamentary inquiry began, Muffin Break and Jamaica Blue franchisees received threatening letters from their franchisor warning that they would be sued if they made any “defamatory” statements about it.

Some have likened their experience as franchisees to slave labour. Small wonder.

Yet only the Age ran the committee’s report as its lead story today, and only its siblings gave it full treatment. The Financial Review, still outraged by the existence (and success) of industry super funds, relegated the story to page seventeen. The Australian had so many stories attacking Labor, the Greens and the unions that it had to bury this one on page twenty-three. From what I can see, the Murdoch tabloids ignored the story altogether, as did the TV news.

Sure, the issues are complex. The victims of the abuses are franchisees, not bank customers. And this is the latest of umpteen reports by parliamentary committees over the past thirty years into franchise abuse. But the recommendations in this report are far more sweeping than its predecessors’, and with Labor poised for power and on a mission to fire up competition policy, this one matters.

In a time of extreme partisan polarisation, it’s also remarkable for its unanimity. The committee’s chair in the final stages was Michael Sukkar from the Liberals’ hard right. His deputy was Labor’s Deborah O’Neill. Nationals’ senator John “Wacka” Williams was a driving force from go to whoa, and Queensland Liberal Bert van Manen and Labor’s Chris Ketter and Ged Kearney were heavily involved. Add Greens senator Peter Whish-Wilson, and all the four main parties agreed on a unanimous report, urging big changes.

“The current regulatory environment has manifestly failed to deter systemic poor conduct and exploitative behaviour, and has entrenched the power imbalance (between franchisors and franchisees),” the committee concluded. “The committee received a raft of evidence about how the abuse of contractual power can manifest in a franchise agreement. Further, the committee also received evidence that pointed to shortcomings in the current regulatory responses in relation to the duty to act in good faith and unfair contract terms provisions.

“The committee notes that wage theft continues to occur in many franchises: partly due to the business model franchisors operate, and partly due to a range of socio-cultural problems. At times… wage theft was encouraged by franchisors.”

While government intervention until now has focused mainly on requiring disclosure of relevant information to prospective franchisees and establishing a Franchising Code, the committee found some franchisors have been able to drive a truck through the gaps in those measures.

“The extent and breadth of misconduct and exploitation by franchisors… demonstrates that disclosure and transparency alone, while vitally important, are an insufficient response to power and information asymmetry,” it reported. “The evidence presented to the committee during this inquiry indicates that the extent of poor corporate governance in some areas of franchising is comparable to that in the financial services sector. There are deeply rooted cultural problems that will not be resolved by a franchisor replacing a few senior executives.”

So how should we fix it? The committee is wary of overburdening franchisors that operate a genuinely collaborative business with excessive regulation. But it wants to shift from a failed model of light-touch regulation to a policed business environment by giving the Australian Competition and Consumer Commission a much bigger role, with more power to intervene and serious penalties to punish franchisors who abuse their power.

Its key recommendations are:

• The holes in the Franchising Code should be plugged, and a breach made an offence attracting the sort of penalties that now apply in other areas of consumer law. (Breaches now attract either no penalty or a “derisory” penalty capped at $63,000 per offence.)

• Information provided to prospective franchisees, including the financial records and current contact details of the previous franchisee, should be accurate and meaningful.

• Franchisees should develop “a strong national association” to represent them, and the government should authorise franchisees to bargain collectively when negotiating with the franchisor. (The report dismissed the existing Franchise Council as dominated by franchisor interests.)

• The ACCC should investigate apparent conflicts of interest when franchisors require franchisees to use specified suppliers (who often slip the franchisors an unreported “financial incentive”) even when cheaper alternatives are available.

• Whistleblowers in the industry should be given protection and brought under the new whistleblower law adopted last month.

• It should be illegal to impose unfair terms in a franchise contract, and penalties should apply to breaches. (The ACCC told the committee that the laws protecting small business from unfair contracts rarely protected franchisees because the thresholds defining small business were set too low.)

• Franchisees should have the right to exit a contract in defined circumstances.

• Arbitration of disputes between franchisors and franchisees should be compulsory when mediation fails because one side did not engage in good faith.

• The ACCC should be empowered to intervene to stop franchisors engaging in systematic “churning and burning”: repeatedly selling off the same failed franchise to new franchisees, or allowing new franchises within the territory of an existing franchise.

Much of this is what the ACCC asked the committee to recommend. From here, the report suggests, its proposals should go to a taskforce comprising Treasury, the Department of Jobs and Small Business, and the ACCC, who would come up with detailed proposals for legislative change. The unanimous backing from all parties suggests that this time, we will see real action.

Two final points. Adele Ferguson was not grandstanding when she argued in the Age today that what made this report different from its predecessors was “a series of media investigations that helped put the spotlight on misconduct.” Like the Hayne royal commission, this inquiry was essentially brought about by a tripartite collaboration between Senator Williams, Ferguson herself and the whistleblowers who came forward, with no legal protection, to shine a light into the murky secrets of how business really operates in Australia today, and force an official investigation.

They deserve our thanks. Williams retires from the Senate at this election, and what a wonderful legacy he is leaving us; few backbenchers have achieved so much to make Australia a better place.

Adele Ferguson, in my opinion, has been the journalist of the decade in Australia. She has brought to light the systematic abuse of power in both the banking and finance sectors, and in the franchise sector, by relentless digging and collection of facts, with such power and firm sense of principle that it has forced governments to embark on official investigations and reforms. She is a role model of journalism at its best.

Finally, these two reports raise the question of what else is out there. So much of Australian business seems to be focused on gaining the power to dictate the terms of contracts, and abusing it in ways alien to the competitive ideal, and to Australian notions of fairness. We need to find out more about the way our world really works, and think hard about how to make it work the way we want it to. •

The post Ending the franchise to exploit your franchisees appeared first on Inside Story.

But in that same six months, the Bureau now tells us, Australia’s total output on the trend data grew by just 0.7 per cent. On the more excitable (but unreliable) seasonally adjusted figures that journalists and bank economists prefer to use, it grew by just 0.4 per cent — well behind the rate of population growth.

My esteemed colleagues at formerly Fairfax, the ABC and elsewhere reckon that Australia has entered a “per capita recession.” They can say that if they want to, since the economics profession has no agreed definition of a recession, per capita or otherwise.

That’s not the way I see it — not if we were adding the equivalent of 300,000 full-time jobs a year during that time. What we have, rather, is a heap of confusion. One major source of statistics says the economy was thriving, another says it was stalling. They can’t both be right.

More of that later. But the most important part of the confusion is not over what’s behind us, but what lies ahead.

Across the developed countries, and China, growth is rapidly losing pace. Overnight, the OECD cut its 2019 forecasts for all of the ten largest Western economies, including Australia, as well as for China, India, Russia and most of the other big developing countries. (The sole exception was Indonesia.)

A glance at the recent data in Western countries explains why:

A lot has changed in six months. The global economy has been rattled by the ongoing US–China trade war, by fallout from the looming Brexit, by rising populism elsewhere in Europe and the world, and by the abrupt slowing in the Chinese economy (still not conceded in its official data).

In Australia, the trend GDP figures show our economy grew at an annualised rate of 3.1 per cent in the first half of 2018 but by just 1.5 per cent in the second half. GDP per capita fell marginally, but national income per head, a more useful measure for our current debates, grew slowly.

The most startling aspect of the figures was that the growth we did have mostly came from government spending. In the second half of 2018, on these figures, the private sector accounted for less than a quarter of the total growth in demand. The federal government alone added almost as much to total consumer spending as Australia’s ten million households. State governments were the main driving force for new investment.

On the trend figures, household spending grew at an annualised rate of 1.9 per cent, while private expenditure, on housing and business ventures alike, fell at an annualised rate of 2.8 per cent. By contrast, public consumption grew by an annualised 5.1 per cent (almost entirely by Canberra), and public investment by an annualised 7.6 per cent (almost entirely by the states).

The contrast was striking. Callam Pickering, an economics commentator with the job search company Indeed, points out that over the past decade household spending growth has averaged only 2.7 per cent. That’s about 1 per cent in per capita terms, and a long way from its booming rate over the decade before the global financial crisis. But right now there is virtually no growth in per capita terms. Households, in aggregate, are just treading water.

Why? It’s not hard to find the reasons in these figures:

• Average wages per employee grew by just 1.7 per cent in 2018, a tad less than prices (1.8 per cent). Over the seven years to December, the national accounts tell us, the average wage grew by just 11.2 per cent, while prices grew 14.3 per cent on average. The annual average growth in wages has been 1.5 per cent, compared with 4.5 per cent over the eight years before the GFC.

• Households are now saving just 2.2 per cent of their disposable income, as more and more of their stalled incomes disappears in increased taxes and mortgage bills. The nation’s income tax bill alone has grown by 16 per cent, and 9 per cent last year alone.

Before the GFC, Australians were running down their savings because their incomes were booming, jobs were plentiful, house prices were soaring, and they and the banks thought they could afford to go deep into debt on their mortgages. It’s a different world now.

Income growth is now essentially keeping pace with prices. It is important to remember that the Bureau has reported significant jobs growth over these years, with workforce participation now at record levels. But close to a million Australians are classified by the Bureau as underemployed — mostly people who want to work full-time but can only find part-time jobs. House prices where most Australians live are now falling, and the banks have become much more careful about whom they lend to and how much.

Let’s not criticise them for that: they’re now doing what they should have done in the boom. Even with stricter lending rules, falling house prices are opening up the market to first homebuyers who had previously been priced out. In the second half of 2018, the banks issued 27 per cent more loans to first homebuyers than in the same period of 2016, and lent them 34 per cent more cash. There’s no credit squeeze there.

The crucial question is what happens next: to the global economy, wages and house prices — and hence consumer spending, which usually provides 60 per cent of economic growth. These are big issues I can’t fully explore here, but here are a few thoughts.

The fall in house prices clearly has a way to go, and that’s welcome. Prices in Sydney grew by 85 per cent in the boom, and are still 63 per cent higher than they were seven years ago. Prices in Melbourne grew by 67 per cent in the boom, and are still 52 per cent higher than they were then. What we are seeing is still a correction, not a crash. CoreLogic’s figures show the pace of decline has slowed this year, although it’s anyone’s guess when it will bottom out.

The Reserve Bank is now expected to cut interest rates in the second half of the year. Normally it lifts or cuts rates in the month after the quarterly inflation figures come out — that is, in February, May, August, or November — but the inflation figures have nothing useful to tell us now, and you can understand why the Reserve would not want to be cutting rates in the middle of an election campaign.

The move is now inevitable, and as Macbeth told himself, “If it were done when ’tis done, then ’twere well it were done quickly.” The Reserve’s April meeting is on budget day: hmm, problems in going then. The May meeting will be a fortnight or so before the election, the June meeting a fortnight or so after it. On economic grounds, it should go in April. On political grounds, it might be wisest to wait until June. •

The post It’s not where we are, it’s where we’re heading appeared first on Inside Story.

Transposing the state vote to federal boundaries would see the Liberals lose five seats in Melbourne and a sixth, Corangamite, in the hinterland of Geelong. Of their other seven seats, three would be left on a knife edge, with another three potentially within Labor’s reach.

On state voting figures, Labor would have won the federal Liberal seats of Corangamite, Dunkley, Chisholm, Casey, Higgins and La Trobe. It would also have come within 1 per cent of winning Deakin, Flinders and Goldstein, and within 2.5 per cent of winning Kooyong, Menzies and Aston.

On the state voting, the Liberals’ only safe seats in Victoria are now the Western District seat of Wannon and the West Gippsland seat of Monash (the renamed McMillan). All of the party’s other twelve seats in Victoria are at risk of being lost.

Opinion polls carried out by ReachTEL for the CFMEU in November and December reported Labor leading the Liberals by 53–47 in Higgins and 52–48 in Kooyong. But individual seat polling in Australia has proved erratic. Instead, we present here the first published estimates of what the 3.7 million actual votes cast in Victoria’s state election would mean if replicated on the new federal boundaries.

They send a warning of disaster ahead. Unless the Morrison government does vastly better in May than its state counterparts did six months earlier, Victoria alone would tip it out of office.

The Coalition has already done badly from the Victorian redistribution. Labor gained a new seat in Fraser, Dunkley became a Labor seat on its new boundaries, and Corangamite is lineball. Add the spectacle of Julia Banks, the party’s heroine in 2016, quitting her marginal seat of Chisholm in protest at attempts by unnamed Liberals to order her how to vote on the leadership, and the Liberals already looked likely to lose three Victorian seats, and possibly more.

If the state election vote is repeated, they will lose much more. The ABC’s Antony Green estimates that on the new boundaries alone, the Liberals won 53.2 per cent of the two-party vote in La Trobe, 54.5 per cent in Casey, and 60.1 per cent in Higgins. On state election voting, all three would be Labor seats.

Similarly, Green estimates the Coalition’s 2016 vote on the new boundaries as 56.4 per cent in Deakin, 57 per cent in Greg Hunt’s seat of Flinders and 62.7 per cent in Tim Wilson’s seat of Goldstein. On state voting, its majority in all three has slumped to less than 1 per cent.

The question is whether the state voting pattern will be repeated. State and federal elections are fought on different issues, with different leaders and different candidates — or at least they usually are. State Liberals say their poll ratings nosedived after their federal colleagues dumped Malcolm Turnbull as prime minister, and have never recovered.

The most surprising thing about the landslide in Victoria last November is how little difference it has made to the Morrison government’s policies and style. Yes, there have been token changes to give women more prominence in the government and make it appear that the government is tackling climate change. But they were transparent marketing ploys. The government is simultaneously promoting new investment in coal-fired generation — possibly subsidised by taxpayers — while halving Australia’s emissions reduction target by using a legal loophole that global negotiations have yet to approve.

For Morrison and his ministers, it’s been business as usual, despite an election in which Victorian voters made it clear they don’t like the way the Coalition is doing business.

Queensland has seen sustained differences between federal and state voting — the Coalition does better federally, and Labor better at state level. But there is no such pattern in Victoria. In 2010, in fact, the Coalition won the state election with 52 per cent of the two-party vote, but was thrashed in the federal poll, scraping just 44.7 per cent.

At last November’s state election, on my estimate, Labor won 57.6 per cent of the two-party vote. At federal level, Newspolls carried out between October and December found Labor with 56 per cent of the two-party vote in Victoria, down marginally from 57 per cent in the previous six weeks.

The state vote showed a landslide swing of 5.8 per cent against the Liberals and Nationals since their 48.2 per cent vote at the federal election in July 2016.

The swing was largest in Melbourne and “inner Victoria” — roughly, areas within 150 kilometres of Melbourne, including Ballarat, Bendigo and Geelong. It was much less in the outlying seats, in most of which Labor made only a token effort. Apart from Corangamite, no Coalition seat in country Victoria would be threatened by the state election vote.

But Labor’s two-party vote in Melbourne seats surged from 54.4 per cent in July 2016 to 61.2 per cent in November 2018: a colossal swing of 6.8 per cent. And the heaviest swings of all were in Melbourne’s blue-ribbon Liberal seats, where Malcolm Turnbull’s popularity had pushed the Liberal vote up in 2016 when it was falling in most of Australia.

Higgins, which includes Melbourne’s richest suburb, Toorak, would be among the casualties. On my estimate, the state voting figures saw Labor win 51.8 per cent of the vote. It has never come close to winning Higgins before.

That was a swing of almost 12 per cent from the votes cast in the 2016 federal election. It seems incredibly large, yet similar swings were recorded in Melbourne’s two other traditional blue-blood Liberal seats in the inner-middle suburbs: Goldstein, centred on Brighton, and Kooyong, covering Hawthorn and Kew.

At the state election, Labor unexpectedly won Hawthorn in a swing of 9 per cent, its first victory there since 1952. It won a similar swing to almost take Brighton, where it had never been within cooee before. And it won swings of more than 10 per cent in Malvern (Higgins) and Bentleigh (half of which is in Goldstein).

In 2016, all three blue-blood seats were among the few where the Liberal vote rose from its 2013 level — a high-water mark in most of Australia — as well as being higher than at the 2014 state election. It’s fair to assume that was because voters saw Turnbull, as he seemed then, as their kind of guy.

But Victorian Liberal leader Matthew Guy was not their kind of guy, and neither, I suspect, is Scott Morrison. Relative to 2016, on my estimate, the Liberal vote in 2018 crashed by 11.1 per cent in Kooyong, 11.9 per cent in Higgins, and 11.8 per cent in Goldstein. It is the strongest vote Labor has ever racked up in this Liberal heartland.

The federal member for Kooyong is treasurer Josh Frydenberg. He’ll be battling an independent Liberal, Oliver Yates, former head of the Clean Energy Finance Corporation, who is running to highlight the government’s refusal to tackle climate change seriously. Josh knows his history, and is no doubt aware that the only time his party has ever lost Kooyong was in 1922, when John Latham, later opposition leader and chief justice, ran as an independent Liberal with the aim of forcing Billy Hughes to step down as prime minister. He succeeded.

Kelly O’Dwyer, minister for women, jobs and industrial relations, announced in January that she would not recontest Higgins, but take time out to focus on her family. After six years as a minister, and with the Coalition facing a few years in opposition, she probably would have made that decision anyway, but the bleak outlook for her own seat would have confirmed it.

Labor ran dead in Higgins in 2016, and the Greens’ Jason Ball came second, though well short of winning. But the Green-voting booth of Windsor has been shifted into Macnamara (nee Melbourne Ports), Labor booths have been added in the southeast of the seat, and media coverage of the Greens has been dominated by their vituperative internal feuding. The state election showed a huge swing to Labor, with the Greens’ share of the three-party vote in Higgins crashing from 28 per cent to just under 20 per cent, while Labor soared past.

The member for Goldstein is Tim Wilson, chair of the House economics committee. His insouciantly opportunistic management of its inquiry into franking credits may well have added to his own re-election problems. Labor still has no candidate, and apparently no intention of wasting money on a seat it still sees as out of reach. Wilson should be relieved: on state voting, his majority shrivelled from 12.7 per cent in 2016 to 0.9 per cent in 2018.

If the state vote bears any resemblance to the federal vote ahead, then Dunkley and Corangamite are already lost. The redistribution shifted some very strong Labor areas north of Frankston into Dunkley, and the election saw the state seat of Frankston swing from ultra-marginal to safe Labor. On my estimate, the Liberals won just 42.7 per cent of the two-party vote.

It was even worse in Corangamite, where Liberal MP Sarah Henderson held off Labor in 2016 with 53.1 per cent of the final vote. She has been a serious victim of the redistribution, which radically changed the design of the two Geelong seats, moving the best Liberal suburbs into Corio, some strong Labor suburbs into Corangamite, and conservative farming areas around Colac into Wannon. Antony Green estimates this wiped out Henderson’s majority entirely. At the state election the Coalition’s vote on the new boundaries shrank to just over 41 per cent.

The eastern suburbs seat of Chisholm was the Liberals’ sole gain nationwide in 2016, partly because Labor’s former speaker, Anna Burke, retired, costing Labor her personal vote. Julia Banks won the seat for the Liberals, but since Turnbull was forced out and she quit the party, it’s been seen as another almost-certain loss. It will be a historic contest, however, with two Chinese-Australian women — Jennifer Yang (Labor) and Gladys Liu (Liberal) — competing for an electorate with many Chinese migrants. At the state election, Labor won 53 per cent of the vote.

La Trobe, once in Melbourne’s outer northeast, has gradually migrated southeast to Pakenham. The redistribution has improved the odds for Liberal MP Jason Wood — Green estimates it lifted his majority from 1.5 to 3.2 per cent — but under the new boundaries, it’s almost a different electorate from the one the former counterterrorism cop first won in 2004. And on state voting, it too would go to Labor, if only narrowly: 51 per cent to 49.

Wood’s old home in Ferny Creek is now in Casey, normally a safe outer-eastern suburban seat, and held by the speaker of the House of Representatives, Tony Smith. Smith won it in 2016 with 56.1 per cent of the vote, but the redistribution gave him the Labor suburbs Wood lost, cutting his notional majority to 4.5 per cent. On state election voting, the Labor landslide capsized that completely, and the Liberal vote dropped to just 47.3 per cent.

The big question is whether Smith’s personal vote will counteract that. He is seen by observers across the board as one of the best speakers, perhaps the best, that the House has had in a long time. But there are probably not many voters in Casey who follow the proceedings of the House. As a rule of thumb, only about half the voters in urban seats can even name their MP. And this is not Westminster, where both sides follow a convention that the speaker should be unopposed at elections.

In several other safe Liberal seats the state election saw Labor come very close. Apart from Goldstein and Kooyong, they include Deakin (where the Liberal vote fell to 50.3 per cent), Flinders (50.5), Menzies (52.3) and Aston (52.4). While it would be a stretch for Labor to win any of these, the first three are certainly not entirely out of reach.

Deakin is held by the hard right’s Michael Sukkar. With a notional margin of 6.4 per cent on the new boundaries, you would think him safe, yet Labor unexpectedly picked up Ringwood and Bayswater at the state election, and on my estimate it was within 300 votes of having the numbers in Deakin. If there is a voter reaction against Sukkar’s role in dumping Malcolm Turnbull, it could be crucial. Deakin and Corangamite are Victoria’s bellwether seats: at the past eight elections, whoever wins them has won government.

Flinders is held by health minister Greg Hunt, one of Peter Dutton’s key supporters in his leadership bid. It is also where Julia Banks is making her stand against bullying in the federal Liberal Party. The state election saw Labor win the Mornington Peninsula resort seat of Nepean (formerly Dromana) for only the second time in fifty years, and loom close in Hastings. Hunt’s notional majority is 7 per cent, but on state election voting, Labor came within 0.5 per cent.

Add the Turnbull factor, add the Banks factor, and Hunt too is under serious threat. For what it’s worth, Sportsbet now shows Labor as odds-on to win both Deakin and Flinders.

Former defence minister Kevin Andrews, another man of the hard right, used to have the safest Liberal seat in Melbourne. But the redistribution has shifted his outer-suburban seat of Menzies to include Labor-voting Eltham. Antony Green estimates this has trimmed his majority from 10.6 per cent to a notional 7.8 per cent — and at the state election, Labor sliced that to 2.3 per cent. Andrews needed head office intervention to retain preselection after a branch revolt, and his personal vote could well be negative. Keep watching.

Aston, in the foothills of the Dandenongs, saw a similar vote at the state election. The bookies have it at shorter odds than Menzies, Goldstein or Kooyong, but in my view it’s probably the safest Liberal seat in Melbourne after Russell Broadbent’s electorate of Monash (nee McMillan), where outer Melbourne meets West Gippsland. On state voting, the Liberals would have retained Monash by 5.3 per cent, and on a rough estimate, education minister Dan Tehan would have held his Western District seat of Wannon by a similar margin.

On the other side of the ledger, the state vote gives the Coalition no prospect of winning any of the eighteen Victorian seats held by Labor, or the new seat of Fraser, or the Greens seat of Melbourne. Its best chance on paper is in Macnamara, the renamed Melbourne Ports, but the state election saw its vote there crash 8 per cent from 2016 levels.

The only Victorian seat the Coalition has a realistic chance of gaining is Indi, where independent MP Cathy McGowan is stepping down after six years, making way for health researcher Helen Haines. Moreover, former MP Sophie Mirabella will not be standing again, and it’s clear that voters’ antipathy to Mirabella played a big part in McGowan’s victories.

At the state election, the Coalition held off challenges from independents in Benambra, Eildon, Euroa and Ovens Valley, the four state seats that overlap with Indi. Only Benambra (Wodonga) was close. This suggests that, with McGowan and Mirabella no longer the contestants, there’s a strong chance that one or other Coalition party will win Indi back this time.

If Victorians vote at the federal election exactly as they voted at the state election, the crossbench stands to lose another seat. Adam Bandt has held Melbourne for the Greens since 2010, with increasingly large majorities. But at the state election, Labor outpolled the Greens in his electorate, by 52 per cent to 48.

Yet, as with Indi, the personalities matter. Labor won that notional majority at the state election with a 3.6 per cent swing in the seat of Richmond, where a popular Labor member, planning minister Richard Wynne, beat Greens candidate Kathleen Maltzahn for the third time in a row. The federal election will have a different cast. In the state seat of Melbourne, Labor won a 1.1 per cent swing, but the Greens retained the seat.

The difference here between state and federal voting is marked. Even at the 2014 state election, the Greens barely edged out Labor on votes within the federal electorate. Yet when the real contest came at the 2016 federal election, Bandt thrashed his Labor opponent, winning 47 per cent of the three-party vote to Labor’s 26 per cent.

In the inner suburbs, personalities matter a lot. Thousands of voters oscillate freely between Labor and the Greens, judging them not only by their stance on the issues that matter most to them, but also by their candidates. In 2016 Labor almost lost Batman and Melbourne Ports because its MPs, David Feeney and Michael Danby, did not appeal to inner suburban progressives (Danby offset this to some extent by being a vote-winner in the Jewish community). When Ged Kearney replaced Feeney in Batman, Labor’s vote there returned to normal.

Adam Bandt would be a tough opponent for Labor to knock over. The punters have him as the clear favourite for the seat, and I suspect they’re right.

Taken literally, the state election voting would see Labor win six seats from the Coalition and one from the Greens, giving it twenty-six of Victoria’s thirty-eight seats. The Coalition would be reduced to eleven (eight Liberals, three Nationals), with Indi impossible to call.

The punters are not always right — they often overstate the Liberals’ chances and understate the swings — but for what it’s worth, Sportsbet’s seat-by-seat odds imply similar numbers. The punters are backing Labor to take Chisholm, Corangamite, Deakin, Dunkley, Flinders and La Trobe, while the Liberals retain Casey, Higgins and the rest. They see the Greens holding Melbourne, and Indi as evenly balanced.

You might have thought the landslide in Victoria on 24 November would send such a jolt through the federal cabinet room that it would lead Morrison and his ministers to make serious policy changes. That’s the kind of response Menzies would have made.

Instead, nothing has happened, except that ministers in the prime of their careers are announcing their retirements — while assuring us that they are confident that the government will be re-elected.

Yes, of course. We believe you. As you assume we always do. •

The post Twilight of the Liberals? appeared first on Inside Story.

Whether it is enough to turn greedy banks into good citizens, only time will tell. For reasons beyond Hayne’s control, one can’t be optimistic. Australia’s four major banks form a de facto cartel that is extremely powerful and without serious competition. By and large, businesses and households who need to borrow money have nowhere else to go.

It may be, as RMIT University’s Andrew Linden and Warren Staples argue, that we will need another royal commission in ten years’ time to open the way for more far-reaching structural changes. But it is not clear what those changes might be, whether there is strong demand for them, or whether an appetite exists on either side of politics for doing much more than Hayne proposes.

Hayne and his team have already taken us a long way. Remember that just two years ago, the Coalition and its media echo chamber routinely dismissed calls for a royal commission as “bank bashing.” John Howard was even sillier, calling it “rank socialism.” You don’t hear that anymore.

The first great achievement of the commission was to put the facts about the way banks have behaved out there before the public in a manner so stark that nobody could defend them. It showed us that these examples of exploitation were not accidents, or administrative errors, but the result of a system-wide culture of corporate greed in which responsibility to customers was brushed aside to maximise profit.

Thousands of victims of financial malpractice made submissions to the commission. Hayne has been criticised for inviting only twenty-seven of them to give evidence in public hearings, but he was surely right that they had got their message out, and it was time to move on to repairing the damage.

The short-term impact on the banks’ reputation has been devastating. In public, their dismissal of any criticism gave way to confession and apparent contrition. It has created a political environment in which reforms are possible at last.

One can argue that Hayne could have been bolder. Several of his seventy-six recommendations are to retain the status quo. He rejects calls to give small-business borrowers the same consumer protection as households. Rather than forbid banks to own financial advice firms, as many advocated, he proposes that advisers employed by banks be required to inform clients in writing of that fact.

While he is sharply critical of the way the banks calculate their executive and staff remuneration, he does not criticise the extraordinary level of that remuneration, which has been a pacesetter for the obese levels of executive remuneration throughout the economy.

Nothing in this report will threaten the four banks’ dominance of Australian finance. The surgery Hayne proposes is to be performed with a scalpel, not a chainsaw.

He certainly could have — in my view, should have — explored how the Abbott government’s deep cut in funding for the Australian Securities and Investments Commission in the 2014 budget affected its willingness (and ability) to launch legal actions against miscreant banks with unlimited resources to fight any charges.

An outgunned ASIC has had some bad experiences in the courts. Its record of inaction against the banks is easy to criticise, and Hayne does so, accusing it of seeing the banks as “clients” and punishing them with press releases rather than prosecutions. All true, but a realist must recognise that inadequate funding has limited its choices.

ASIC chief James Shipton told the commission that his organisation is “woefully underfunded.” Although the business environment it polices has grown enormously since 1991, its staff has grown by just 14 per cent. Yet, just last May, Scott Morrison’s final budget proposed cutting its funding by $41 million a year over the four years to 2021.

That has changed since Shipton gave evidence. And on Monday treasurer Josh Frydenberg announced that the former chair of the Australian Competition and Consumer Commission, Graeme Samuel, will carry out a capability review of the banks’ financial regulator, the Australian Prudential Regulation Authority, to ensure it has the resources to do its job.

The lesson is clear: if we want our corporate regulators to be tough cops on the beat, we have to resource them properly. Even Labor has been reluctant to do that. In opposition in 2007 it also proposed cutting ASIC’s funding. Unlike the Coalition, it dropped that idea once it got into office, but it did little to increase the regulator’s resources in its six years in power.

One thing that will decide if this royal commission makes a lasting change, or merely a transient one, will be whether our next government gives ASIC and APRA the resources they need to fight and win cases in the courts.

This is a conservative report, in the best sense of the word. Hayne has not set out to reinvent banking, or to do what the banks’ regulators should be doing, or to propose his own blueprints to solve every issue before him.

He has focused on the things he believes matters most — above all, changing the culture of the banks to give priority to serving customers’ needs as well as making money, and resolving the conflicted interests of mortgage brokers.

The last is the big change his report proposes. It is also the recommendation that now faces most resistance.

Back when the Gillard government tried to resolve the conflicts of financial advisers, mortgage brokers were left out of the reform. The legislation we ended up with was severely watered down by the Coalition, “grandfathering” the existing conflicts of interest of advisers who worked for the big banks, and exempting retailers such as car dealers who sell insurance to their clients.

Urged on by Treasury, Hayne has called for government — which will almost certainly be the government we elect in May — to sort out the mess by applying the same rules to financial advice across the board. And the key rules are that a mortgage broker or financial adviser must work in the best interests of the client, and be paid by the client, rather than (as now) by commissions from those whose products he/she sells.

Hayne put it trenchantly. “The interests of client, intermediary and provider of a product or service are not only different, they are opposed,” he wrote. “An intermediary who seeks to ‘stand in more than one canoe’ cannot. Duty (to client) and (self) interest pull in opposite directions.”

He dismissed the hope embodied in current legislation that such conflicts should be “managed.” “Experience shows that conflicts between duty and interest can seldom be managed,” he countered. “Self-interest will almost always trump duty.”

Hayne lines up with Treasury in arguing that by simplifying the law to impose the same rules on all those offering financial advice — including compulsory registration, as well as banning commissions — you make advisers focus on what the law expects them to do, rather than try to find ways around it.

The mortgage brokers are not taking that lightly. They are warning loudly that scrapping commissions would put them out of business — and that the ultimate impact of that would be to strengthen the oligopoly of the big four banks, reduce competition, and hence give the banks more room to raise interest rates.

The brokers and their supporters argue that if intending homebuyers have to pay $2000 or more for using a mortgage broker, they simply will not do it. Instead, they will just walk through the doorway of a bank and deal directly with it free of charge — even if that means they won’t know about alternatives that would cost them less in the long term. And the banks with doorways on the street are the big four.

It’s not a negligible argument, and it’s not a bad idea to have a public debate before resolving it. Treasurer Josh Frydenberg says the government will put off a decision on mortgage broker commissions until it has brought all the financial advisers under the one legislative roof.

Similar reforms were introduced in the Netherlands after the global financial crisis, without dire consequences. The Dutch government used the sweetener of making the brokers’ fees tax-deductible. But 60 per cent of our mortgages are now written through mortgage brokers. The politicians will need to go out and explain to homebuyers why in future they will have to pay for a service they now get for free.

That aside, Hayne’s report really does three things. First, it trenchantly criticises the boards and senior management of the banks. Second, it proposes to induce a new culture in the financial sector that might best be called “responsible.” And third, it recommends a number of changes to fix other problem areas.

Most of Hayne’s recommended reforms, each relatively minor in themselves, collectively aim to make the banks and other financial firms more responsible in the way they deal with their customers.

Farmers would not be harassed for interest payments when a drought has frozen their income. If you walk up to a bank teller to make a deposit, he or she would not be allowed to divert you into buying an insurance or superannuation policy. APRA would work with the banks to create a remuneration system in which sales would be only one component, with other indicators to measure the quality of service.

Importantly, what is now the banking code of practice would become law. You could sue your bank if it breaches it.

I would sum it up by saying that Hayne wants the banks to be more like Bunnings.

When you walk into a hardware store and you don’t know exactly what you need, in my experience the service staff will ask the right questions, tell you what you need, and show you where it is. If you walk into a bank and you don’t know exactly what you need, you can have no confidence that the staff will tell you to do what is in your best interest. They are trained to persuade you to do what’s in the interest of the bank.

That’s the culture that has to change. We have to lift the customer service levels of the banks and the financial sector generally to match those of our hardware stores. It won’t be easy, and Hayne makes it very clear that it won’t come without direction from the top.

“There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management,” he writes. “Everything that is said in this report is to be understood in the light of that one undeniable fact.”

Media reporting has highlighted Hayne’s sharp criticism of evidence given by NAB chair Ken Henry (whom he quaintly calls Kenneth) and chief executive Andrew Thorburn. But one suspects that what really fired him up was a report in the Australian at that time, citing an email sent by NAB management to staff urging them “to sell at least five mortgages each before Christmas.” Whatever the NAB chiefs were saying publicly, the culture within clearly had not changed.

Several of the recommendations dealing with specific problem areas relate to how banks deal with farmers in financial trouble. Hayne wants the banks’ ruthless approach of seizing land and assets and selling them to clear the debts to give way to a revival of older-style banking, in which “experienced agricultural bankers” engage in mediation — to be required by law — with the farmers to work out “the best outcome for bank and borrower.”

It’s the only area of specific lending that Hayne explores in such detail, leading some to question why farmers were singled out for such a benevolent blueprint. Why isn’t there a similar mediation path proposed for urban borrowers who lose their jobs and, largely owing to their age, become long-term unemployed?

It’s a fair question. One answer might be that the blueprint Hayne laid out for dealing with farm debts is an example of the way his vision of responsible banking should be applied throughout society.

Another is that it might be Hayne’s way of recognising the political courage of John “Whacker” Williams, the retiring NSW National Party senator without whom this royal commission would never have taken place. Williams himself had experienced rough treatment from the banks when his farm got in trouble, and he was determined to use his time in politics to set up a full-scale inquiry to ensure that others were not treated the same way.

(The ABC’s Stephen Letts has written a fascinating backgrounder relating how in 2011 Williams introduced Commonwealth Bank whistleblower Jeff Morris to Adele Ferguson, financial columnist for the Age. It began Ferguson’s public exposure of the extraordinary wrongdoings of the banks, other financial firms, and now other firms generally. I can think of no other journalist in Australia who has done so much to shine a torch into the dark corners of business practice, above all in the financial sector.)

On some other issues Hayne, probably wisely, passed the buck to those in a better position to negotiate detailed blueprints for reform. For example, he gives firm support to the principle that each of us should have one superannuation account, rather than multiple small accounts that get eaten away by service fees. But how we get there is an issue he leaves to others.

Similarly, it is left to APRA to sort out new remuneration practices with the banks. And while Hayne proposes that charges be considered against financial entities over twenty-four matters, he refers them to APRA and ASIC instead of using the commissioner’s prerogative to go straight to the DPP.

This restraint is sensible; a commissioner, however clever, is not in a position to lay down blueprints in these areas. And if you feel, as he does, that the regulators need to develop an appetite for and a habit of taking firms to court when they break the law, what better examples to begin the process than those he has perused himself in the course of the royal commission?

Hayne is clearly not dewy-eyed about what will follow from his inquiry. At one point he writes that the aim of his recommendations is to “reduce the chance that conduct of the kinds identified will happen again,” then adds more warily, “or happen again with the same effect for consumers.”

The banking oligopoly will remain an oligopoly, powerfully positioned to overcharge and exploit its customers. If this royal commission is ultimately judged to be successful, its legacy will be to change the financial sector’s culture to one that sees serving the customer well as being as important as making sales and profits.

But that can only be temporary. That culture will change again, and change for the worse. Memories are too short, and the ability to exploit customers too strong, for poor behaviour to remain suppressed forever. Hayne has told the government how to close some egregious avenues of exploitation that financial firms used in the past decade. But new ones will be discovered. It’s to be hoped that future governments will be quicker to set up an inquiry like this to shut them down. •

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But a few things worth noting haven’t been widely discussed. In the spirit of Hokusai’s views of Mount Fuji, may I offer a few random views of the Victorian election?

1. Labor’s victory was even bigger than it seemed on the night

In most seats, the swings in the pre-polls and postal votes were as big as the swings in the booths, so the Liberals didn’t make the gains in late counting they expected. (Caulfield was a notable exception.) On my best estimate, with the vote count almost complete, Labor has won 57.6 per cent of the two-party vote. That’s only a tad below the 57.8 per cent Steve Bracks won in his record victory in 2002. The swing was 5.6 per cent, the stuff of landslides.

But in 2002, Labor won sixty-two of the eighty-eight seats. This time it won fifty-five. It won Box Hill, Hawthorn and Nepean, all of which eluded it in 2002. It came close to taking two seats it has never won, Brighton and Caulfield. Its tide rose to record levels in the tree-lined, wealthy, educated Liberal heartland of the inner and inner-middle suburbs. But it was not strong enough to win back the established outer-eastern suburbs and rural seats that were once Labor turf.

It’s not hard to see these voting differences — inner versus outer suburbs, Melbourne versus the bush — as evidence of a growing polarisation, an Australian version of the “great divide” that New York Times columnist David Brooks has written of in America.

Yet the divide is always there; and while the swings to Labor were certainly much smaller anywhere beyond a two-hour drive from Melbourne, Labor did pick up votes almost everywhere, suggesting that Australians have not yet reached the impasse that Brooks sees in his own country — where, he concludes, “politics is no longer mainly about disagreeing on issues. It’s about being in entirely separate conversations.”

2. This win will be Labor’s peak

These days you only win victories on this scale once. In New South Wales, the Coalition won a massive majority in 2011, but four years later, with Mike Baird still on his honeymoon with the electorate, most of it vanished. Daniel Andrews seems to recognise this, hinting that he doesn’t expect to stay on as premier for years.

It’s to be hoped that the result will be a trigger to continue the infrastructure building program that was the main reason for his crushing victory. The most important development in the whole campaign came on election eve, when Andrews and treasurer Tim Pallas removed a key obstacle to a successful second term by proposing to lift the cap on the state’s net debt to 12 per cent of gross state product (about $54 billion in current dollars).

That tells us where the money will come from to keep building infrastructure at the current rate. There is no shortage of claimants: in roads, the North East Link — the “missing link” of Melbourne’s outer ring road — and the associated widening of the Eastern Freeway, plus the West Gate tunnel and many road widenings and duplications. In rail, completing the first line of the Melbourne Metro, now under construction; a costly upgrade of the overflowing Cranbourne and Sunbury lines; a new rail link to Melbourne Airport; and so on. And the next tranche of projects to remove the level crossings that plague suburban Melbourne.

So long as projects are chosen on merit — which is often not the case — the government will be well set up for a second term of tackling the infrastructure backlog. As treasurer and shadow treasurer, the new Liberal leader Michael O’Brien instead gave priority to keeping the debt down. That line has reaped dividends for the Coalition all over Australia in the past, but this election result left no doubt that Victorians now care more about infrastructure than low taxes.

It will be interesting to see how O’Brien and his shrunken team respond to this reality. It is possible that the Victorian Liberal Party will continue to see the fight against Labor enemies as less important than the fight against factional enemies — that’s one reason it has lost twelve of the last thirteen elections in the state. But a defeat on this scale, probably followed by another when the Morrison government faces the voters, will surely trigger changes.

3. Virtually all Liberal seats are now marginal

The National Party now has only six seats in the Assembly, down from nine in 2010. (It lost Shepparton in 2014, Mildura and Morwell this time.) But all six are held with majorities against Labor of 12 to 24 per cent; their only threat is from independents.

It’s a different story for the Liberals. Since 2010 they have lost two-fifths of their seats in the Assembly. From thirty-six seats when Ted Baillieu won office, they have shrunk to twenty-one: they lost one in the 2013 redistribution, five in 2014 (Bentleigh, Mordialloc, Carrum, Frankston and Prahran) and nine at this election (Hawthorn, Burwood, Mount Waverley, Box Hill, Ringwood, Bayswater, Nepean, Bass and South Barwon).

Of the twenty-one seats they still hold, thirteen were won by margins of less than 3 per cent: Ripon (0.02 per cent), Caulfield (0.27), Sandringham (0.64), Gembrook (0.79), Hastings (1.07), Brighton (1.12), Forest Hill (1.14), Ferntree Gully (1.64), Croydon (2.12), South West Coast (2.32), Eildon (2.44), Benambra (2.45 v independent) and Evelyn (2.65).

Labor won a lot of close seats too: four by less than 1 per cent, nine by less than 3 per cent. But the Liberals won only eight seats by more than 3 per cent; Labor won forty-seven of them.

The safest Liberal seat is now the West Gippsland electorate of Narracan (7.26 per cent). Labor has forty-one seats safer than that.

4. The looming redistribution will make the Coalition’s plight worse

Victoria has redistributions every eight years. In the past eight years, its population has swollen by 18 per cent, mostly on Melbourne’s outer-suburban fringe or within five kilometres of the city. There are now enormous discrepancies in the size of its electorates, so the next redistribution will be significant.

For this election, outer-suburban Cranbourne had 61,814 voters and inner-suburban Brunswick had 53,340, while middle-suburban Mount Waverley had just 38,937. The average Coalition seat going into the election had 5 per cent fewer voters than the average Labor seat. Most of them are middle- and outer-middle-suburban seats southeast of the Yarra.

Their share of Victoria’s population has been shrinking rapidly, and will continue to do so. In my view, the redistribution will have to abolish two seats in the eastern and southern suburbs to create two new ones further out, one around Cranbourne and Pakenham in the southeast, and another in the booming new blocks on the northwest fringe.

The other discrepancies in seat sizes can be fixed by shifting the boundaries of seats. In the bush, the western seats will continue to push east, and the northern seats will edge closer to Melbourne: Macedon and Eildon could lose much of their territory and become more clearly based on Melbourne’s fringe. The inner suburbs will push out into the middle ones.

All of that will have political implications. The eastern and southern suburbs are the Liberals’ home turf in Melbourne. The new outer suburbs, on both sides of town, are Labor’s turf. The Liberals lost by talking crime, crime and corruption over the past four years, when these voters want roads, rail, preschools and other health, education and welfare services. The redistribution will probably cost the Liberals at least one seat, maybe two.

5. Urban Australians don’t see the Liberals as their party

Peter Dutton and George Christensen have been urging the party to move to the right to be more popular in Queensland. They forget that almost half of Queenslanders live in Brisbane, and the election results suggest there is not much difference between their views and those of voters in Melbourne — or Sydney, Perth or even Adelaide.

A year ago, Queenslanders expressed their views about what they want from politicians when they voted in their own state election. In Brisbane, the Liberal National Party won just five seats out of forty-one. It was an even worse result than the Liberals got in Melbourne (fifteen out of sixty-three). The LNP was even more out of touch with its base in the capital of Queensland than the Liberals were in the capital of Victoria.

Earlier, voters in Western Australia expressed their views in their state election. The Barnett government, for all its faults, was a traditional centre-right Coalition government, not a hard-right one as in Queensland. But in Perth, it too was cut down to single figures: it won just nine seats out of forty-three.

The Liberals did better in Adelaide at this year’s SA election, winning fourteen of the thirty-two seats in the capital. But that was an unusual election, on boundaries specially designed to help them, and four of their wins were by narrow margins.

The next big test will be in Sydney, and the rest of New South Wales, when the state votes on 23 March. Two opinion polls a week after Victoria voted reported that the Berejiklian government is also on the brink of defeat, although Labor’s margin is fragile: 52–48 in the YouGov Galaxy poll in the Daily Telegraph, 51–49 in the ReachTel poll in the Sydney Morning Herald.

The message from the elections in the three biggest states outside New South Wales should be getting through to Canberra, but clearly isn’t. When Andrews wrote to Morrison after the election to ask him to unfreeze the $3 billion set aside for the rejected East West Link and use it to build the North East Link instead — a move that could only help the federal government politically — the PM brusquely rejected the idea.

Urban Australia wants climate change policy to be taken seriously, and based on renewables. Morrison is not offering either. He believes he can win in May without it. We will see.

6. The dumping of Malcolm Turnbull played a clear but not decisive role in the Liberals’ defeat

It was only part of the story, but Liberals say it was definitely a factor. Newspoll has reported a 3 per cent slide in the Coalition’s two-party vote in Victoria since Morrison replaced Turnbull. Liberal sources have told reporters that their state polling took an immediate hit of similar dimensions, and never recovered. It is hard to believe that they would have lost a seat like Hawthorn if Turnbull were still the party’s national leader.

Even so, Labor did win 57.6 per cent of the two-party vote. Every opinion poll in 2018 pointed to a Labor win, and even before Turnbull’s dumping, Andrews’s leadership ratings had recovered to a position of dominance. Matthew Guy’s satisfaction ratings as opposition leader made Bill Shorten look popular. The Liberals also ran a terrible campaign, which focused on being tough on crime and divided their traditional supporters. There’s plenty of blame to go around.

7. The Greens did better than reported

It was certainly a bad election campaign for the Greens. Labor dirt-diggers had them constantly on the defensive after raking through social media posts of young Greens candidates to find embarrassing acts of stupidity. The Greens’ own internecine warfare contributed, as did a suspiciously late allegation of sexual assault against a candidate. Any messages the party had were drowned out in the hubbub.

They’re putting it down to Labor, and that’s probably true. Its dirt-diggers are like hackers: they’ve refined their skills in fighting each other, and an election allowed them to unleash the whole barrage on the unsuspecting Greens. The former Greens MP for Northcote, Lidia Thorpe, who was narrowly defeated, documented her version of the campaign in the Age.

But the worst part of the election for the Greens was the outcome in the Legislative Council. With preference whisperer Glenn Druery coordinating the preference tickets of a dozen minor parties — and calling on Labor for support — the Greens have won just one seat in the forty-member Council, down from five in the last parliament.

Many have pointed out that this was partly due to a fall in their vote: for the Council, from 12 per cent in 2010 to 10.75 per cent in 2014 to 9.25 per cent this time. But the reason the Greens have lost votes is very clear.

In 2010, they had almost all the space to the left of Labor to themselves. This time, in every region, they had to compete with candidates from Animal Justice, Fiona Patten’s Reason Party, the Voluntary Euthanasia Party, the Victorian Socialists and Sustainable Australia. Those five parties won 6.8 per cent; in 2010, there was just the Sex Party, which won just 1.9 per cent, and much of that was not from the left. The vote for the left is expanding, but the Greens now have to share it.

That wouldn’t matter if Labor and the micro-parties directed preferences to the Greens, as in the past. This time only the Socialists did so. Druery signed up all the other parties left of centre, including Labor, to direct their preferences to his target party or parties in each seat.

The result was that in Southern Metropolitan, Greens MP Sue Pennicuik, with 13.5 per cent, lost her seat to Sustainable Australia’s Clifford Hayes, who won 1.3 per cent — but received preferences from every party except the Socialists.

We’ll come back to this disaster. The key point to remember is that the Greens’ loss of support basically reflects massively increased competition in their part of the political spectrum. The fall in their number of seats is mostly due to Labor and Animal Justice, in particular, directing preferences to whomever Druery wanted them to support.

In the Assembly, the Greens vote also fell, but only slightly: from a peak of 11.5 per cent last time to 10.7 per cent. Northcote, which it won at a by-election a year ago, went back to Labor narrowly. Another key seat, Richmond, was retained triumphantly by Labor’s planning minister Richard Wynne, even without a Liberal candidate to direct preferences his way.

For the Greens, that was the bad news. But remember: the reason Labor sees them as such a threat is that — unlike the Australian Democrats, One Nation, or the DLP in its heyday — the Greens have invaded part of its electoral territory and made it their own. They are the first new party to establish their own electoral base since the Country Party emerged a century ago. Along with a few independents, they are out to make themselves the party of inner-suburban Australia — and those inner suburbs are expanding.

In 2010 the Greens broke through in the federal sphere by winning Melbourne. In 2014 they broke through in the state sphere by winning Melbourne from Labor and Prahran from the Liberals. This time they retained both those seats, and local medico Tim Read captured Brunswick from Labor to make it a third. Sam Hibbins once again won Prahran from third place in primary votes; with the voters free to direct their own preferences, he overtook Labor by 264 votes (0.33 per cent) to comfortably defeat the Liberals.

The Victorian Electoral Commission has yet to count out most of the second tier of inner-suburban seats, but it looks like the Greens beat the Liberals into second place in Williamstown, Footscray and Preston, while still a long way behind Labor. The redistribution should help them widen that battleground.

Elsewhere, the Greens vote has mostly faded. With so many parties to choose from on the ballot paper, they are no longer the all-purpose alternative for those who are jack of the two main parties. That matters for upper house voting. But they are slowly gaining ground and consolidating where it matters most to them: they now have seven seats in the lower houses of state parliaments in the eastern states, plus one in Canberra.

This was not an election where the Greens were going to make a big stride forward. They suffered a disaster in the Council. In the Assembly they basically held their ground, and a bit more. If things go badly for Labor in the next term, the Greens will be well placed to capitalise on it.

8. This was Glenn Druery’s crowning masterpiece

Most Australians have never heard of Glenn Druery. He has been called “the preference whisperer,” the man whose genius for maths and deals has allowed parties with small votes to vault over those with much bigger votes by skilful preference deals. His work has been central to the rise of micro-parties such as the Shooters Party, Family First and others — including the Sex Party, now renamed Fiona Patten’s Reason Party.

The key to Druery’s work is bringing all the little parties together and persuading them to swap preferences with each other — as much as possible. He works it so that every child gets a toy somewhere, or at least the hope of one.

At this election, everyone directed preferences in Eastern Metropolitan to Transport Matters, set up by hire-car owner Rod Barton. He won the seat from the Greens with just 0.6 per cent of the vote to their 9 per cent. In South Eastern Metropolitan, both Transport Matters and the Liberal Democrats were given a big share, with the Liberal Democrats taking the seat with first preferences of 0.8 per cent from Liberal MP Inga Peulich, who managed 12.7 per cent.

In Southern Metropolitan, as mentioned, a tide of preferences swept Sustainable Australia (with 1.3 per cent) across the line just ahead of the Greens (13.5 per cent). Western Metropolitan was meant to go to the Shooters, the DLP or the Aussie Battlers, but those plans were thrown into disarray when Derryn Hinch’s candidate, Catherine Cumming, a former mayor of Maribyrnong, won 6.8 per cent of the vote to claim the final seat from the DLP, even though Druery’s preference deals intended her to lose.

In Eastern Victoria, Shooters Party leader Jeff Bourman won 5 per cent of the vote to see off the rival micro-parties. But they made up for it in Northern Victoria, where Shooters MP Daniel Young lost his seat despite winning 7.8 per cent of the vote — the highest of any of Druery’s candidates — because Druery gave priority to Hinch and the Liberal Democrats. Both of them won, taking seats from Young and the Nationals.

In Western Victoria, Druery arranged the tickets so that Animal Justice won a seat, along with Hinch’s former running mate, Stuart Grimley. (Druery’s day job is as chief of staff to Hinch.) The most closely watched seat was Northern Metropolitan, in the inner and inner-middle suburbs to the north of the city. That was Druery’s one miss: his former client Fiona Patten, elected with his help in 2014, turned against him and arranged her own deals, which saw her re-elected with 3.5 per cent of the vote and many, many preferences from Labor, the Socialists, Animal Justice and others.

The bottom line is that, despite its huge victory in the lower house, Labor remains a minority government in the upper house, winning just eighteen of the forty seats. The Coalition won only eleven, and there are also eleven crossbenchers: Greens leader Samantha Ratnam, Fiona Patten, and nine from Team Druery — three from Derryn Hinch’s Justice Party, two Liberal Democrats, and one each from Animal Justice, the Shooters, Sustainable Australia and Transport Matters.

Labor is clearly happy with this outcome, since it worked to make it happen: Labor preferences were directed to all those groups in their target seats, helping to decide for them against the Greens. In the last parliament Labor was in an even bigger minority in the Council, but was able to make the system work for it by making deals to get the numbers needed for each bill to pass.

So far, Andrews has refused to follow South Australia, New South Wales and the Commonwealth in banning the group-voting tickets that are the key to Druery’s system. If voters are given back control over their preferences, as the last federal election showed, they spray everywhere — because we are a diverse bunch of people, with diverse preferences. With open preferences, it is impossible for a party to win a Senate seat without a substantial vote of its own. For the micro-parties, that would be curtains.

One can empathise with their argument that the current system brings diversity into political representation. Sure: it gave us senators Ricky Muir, Steve Fielding, Jacqui Lambie and Glenn Lazarus, to name a few. But it is impossible to make a convincing case for a system in which Hinch’s party can win three seats with 3.75 per cent of the Council vote while the Greens win one seat with 9.25 per cent.

It could be that we have just seen Glenn Druery’s final masterpiece. It was a real work of art, working out preference deals for each party that were within their ideological comfort zone and ensured that someone in the team claimed the final seat. It could be that this is the marvellous deal that worked so remarkably well that the big parties will agree there should never be another.

9. The implications for the federal government are dire

In 2016 the Coalition won 48.2 per cent of the two-party vote, roughly the same as its state colleagues won in 2014. Were the 2018 state result repeated at the coming federal election, Labor would win a swing of 5.8 per cent. If that happened across the board, it would cost the Coalition five seats in Victoria alone.

Last time Labor won eighteen of Victoria’s thirty-seven seats, and the Coalition seventeen, with two crossbenchers (the Greens’ Adam Bandt in Melbourne, and independent Cathy McGowan in Indi). Since then, a redistribution has added a new seat in Labor’s fast-growing outer west, and on Antony Green’s estimates it has turned Dunkley (southern end of the Frankston line) and Corangamite (southern Geelong and its region) into marginal Labor seats.

Add to them Julia Banks’s seat of Chisholm (2.9), in the inner middle suburbs, and the Coalition was looking set to lose three of Victoria’s seats anyway. If Victorians vote federally as they did on 24 November, the Liberals would also lose the outer eastern seats of LaTrobe (3.2), Casey (4.5) and possibly Deakin (6.4).

At a federal level, however, the three traditional Coalition seats in the inner and inner-middle suburbs all look safe: Higgins is on a margin of 10.1 per cent, having shed the Greens stronghold of Windsor, and Goldstein (12.7) and Kooyong (12.8) are very comfortable.

Source: Estimates by the ABC’s Antony Green.

The Greens will not be a threat to the Liberals, but they are to Labor. Macnamara (nee Melbourne Ports) is a lineball seat between Labor and the Greens under its new boundaries. Cooper (nee Batman) and Wills will probably hold this time, but will be vulnerable when Labor support softens.

Then there are the independents. This election in Victoria saw their numbers swell to three: Ali Cupper, a lawyer, social worker and local councillor, won her local town of Mildura from the Nationals, arguing that the big parties ignore it when it’s held by one of them. Similar arguments just failed in Benambra, where a former Cathy McGowan staffer, Jacqui Hawkins, went down by 2.45 per cent. Suzanna Sheed retained Shepparton, which she won from the Nationals last time, while Russell Northe retained his seat of Morwell, which he won as a National last time.

Cathy McGowan appears to be preparing for a third term in Indi, although she has invited anyone else interested in standing to meet with her for “succession planning.” We’ve not heard of other independents entering the field: the lesson from the success of McGowan, Sheed and Cupper is that it takes a lot of doorknocking, a lot of fetes, rodeos, conversations and handshakes, to win people’s trust.

For the next election, the battle is already on. •

The post Final reckoning: nine views of Victoria’s election appeared first on Inside Story.

Many have written about the reasons for this, and the political consequences. This was my take in the Age, and among the stand-outs were James Campbell in the Herald Sun and Paul Strangio in the Conversation.

The critical element in most commentary is the same. The times have changed, yet the Liberal and National parties have let themselves be dominated by a clique bent on resisting change. Menzies isolated his right-wing rebels. Today’s Liberal leaders have given them veto powers over policy and party matters alike.

This will change only when the sensible moderates of the party agree that the only way to stop the right-wing fringe taking it over is to go into battle. Monday morning’s intervention on Radio National by Senate president Scott Ryan was an important sign that some of them are taking the fight to the bullies of the right and the Murdoch media. Ryan is an economic dry and no bleeding-heart liberal, but he lives in the twenty-first century, and he’s not prepared to see his party dragged away from mainstream Australia and made unelectable.

This fight will be a long and bitter one. For what it’s worth, the bookies now give the Morrison government just a 20 per cent chance of re-election. If the federal election results in a landslide like this, the Coalition parties will have lots of time to decide which century they want to live in. It will not be a battle for the faint-hearted.

In Victoria, the counting continues. It was a landslide that resulted in lots of close seats, with as many as twenty seats, almost a quarter of the Assembly, likely to be decided by margins of less than 2 per cent. As of now, my reading is:

Labor — 53
Coalition — 25
Greens — 2
Independents — 2
Too close to call — 6

Even that could be rash: more than six seats are in some measure of doubt, including two Coalition seats in the bush, where there’s an outside chance that independents could vault over the field on preferences. Of the six seats I count as too close to call, Labor leads in three (Bayswater, Hawthorn and Prahran), the Coalition in two (Caulfield and Ripon) and an independent in one (Mildura). Labor will end up with roughly twice as many seats as the Coalition parties.

With 80 per cent of the potential vote counted, Labor’s vote had jumped 4.7 per cent from the 2014 election, while the Coalition’s vote plunged 6.6 per cent. The median swing was 6 per cent in Melbourne and surrounding seats, just over 5 per cent in the three regional cities (Geelong, Ballarat and Bendigo) and just 2 per cent in the rest of the state — where five seats, against the trend, recorded swings to the Nationals.

To get a full picture of what’s happened to the Coalition, we should go back to 2010, when Ted Baillieu led it to an unexpected victory over an apparently impregnable Brumby government. It was a unique event; it is the only election, federal or state, that the Coalition has won in Victoria since 1996. It stands out sharply against the twelve losses in that time.

Baillieu not only hammered the Brumby government over its mistakes — the most glaring one being its decision to build a huge, ultra-expensive desalination plant at Wonthaggi, which has barely been used since. Along with the usual Coalition agenda of tougher sentences, cutting waste, and so on, he also put forward a positive agenda for open government, including an anti-corruption commission and a plan to tackle Melbourne’s high construction costs. He was known as a liberal: tall, tolerant, intelligent and progressive. Victoria decided to give him a go.

For reasons too many and too complicated to explain here, it didn’t work. Baillieu was forced out in early 2013 after rogue backbencher Geoff Shaw defected to the crossbench. Denis Napthine took his place but was unable to turn the ship around. Labor returned to power in 2014 on a 3.5 per cent swing. The Coalition lost the four Frankston rail-line seats to Labor, Prahran to the Greens and Shepparton to independent Suzanna Sheed, while gaining Ripon.

This is the second election in a row at which the Coalition has suffered a heavy swing. In the seats it notionally held going into the 2014 election (based on Antony Green’s estimates for the Victorian parliament), the combined swing over those two elections has been 9.6 per cent. That excludes the three seats it has lost or looks like losing to independents: include them, and the average swing is over 10 per cent. One in five Victorians who voted for a Coalition government in 2010 voted against them this time.

Sources: Antony Green’s estimates of 2010 vote on new boundaries, and 2018 election results. Swings counted for forty-four seats notionally won by the Coalition in 2010 and contested against Labor or the Greens in 2018.
# Seats lost total includes seats lost or possibly lost to independents.

Part of it was an inner-suburban revolt. Take Hawthorn. It is one of the four seats of Melbourne where rich people congregate. It has been rusted on to the Liberal Party. Labor has won the seat only once in 120 years.

In 2010, Ted Baillieu won Hawthorn by a thumping two-to-one majority. Now his successor, shadow attorney-general John Pesutto, a well-regarded frontbencher seen by many as the next leader, trails by 154 votes and Labor is confident of taking the seat. Hawthorn, a Labor seat?!

Its wealthy neighbours Kew and Malvern, which includes Melbourne’s most exclusive suburb, Toorak, are now marginal seats. In the two elections, the combined swing against the Liberal Party has been 16.8 per cent in Hawthorn, 14.5 per cent in Malvern, 11.1 per cent in Kew and 13.3 per cent in Brighton, where nineteen-year-old student Declan Martin, who joined the Labor Party only two months ago and spent just $1750 on his campaign, almost won a seat Labor has never held before.

Why? See the analysis above. Whether the issue is climate change, patriarchy, race, gender or mode of transport, the Coalition seems to be clinging to the values of last century. The killer ad of this campaign was Labor’s billboard depicting opposition leader Matthew Guy with Tony Abbott, Peter Dutton and Scott Morrison. All of them are unpopular in Victoria, where the polls suggest the Coalition will lose heavily next May.

A ReachTel poll for the CFMEU this week reported that even industrial relations minister Kelly O’Dwyer would lose her safe seat of Higgins. Frankly, I’ll believe that when I see it, but it captures the mood.

The Liberal brand has been severely damaged, and the party has suffered a huge loss of support, narrowing its base to those who want to hear the tough-on-crime message that was its main campaign theme. (“Get Back in Control” is a candidate for the dumbest election slogan I can recall.)

Guy did have more positive things to say on issues like decentralisation, but they got lost in the endless negative campaigns that the Coalition and its media Siamese twin, Murdoch’s Herald Sun, kept hammering at voters: the “red shirts” scandal of 2014, in which Labor hired campaign workers at taxpayers’ expense, the Skyrail elevated train line, and others.

These issues failed to connect. Voters were sceptical that changing the government would change the crime rate. They believe parties constantly rort the system, and the “red shirts” scandal was small beer once Labor repaid the money. As for Skyrail, the elevated line ran mostly through the seat of Oakleigh, and voters there didn’t mind at all. Oakleigh gave an 8 per cent swing to Labor.

In 2010, the Coalition held twelve seats within fifteen kilometres of the CBD. Over two elections, it has lost roughly half of them: Bentleigh, Prahran, Burwood, Mount Waverley, Box Hill and possibly Caulfield and Hawthorn. Those it still holds are now marginal.

But it is not just in the inner suburbs that the Liberals have taken a hammering. It is throughout Melbourne. On the other side of that fifteen-kilometre line, it has already lost another six seats, and Bayswater looks likely to be a seventh. Yan Yean, on Melbourne’s northern fringe, is booming with new housing estates. Labor has built a new train line to Mernda for them, it’s duplicating the main road, and it’s stashing the place with services. Yan Yean too has recorded a 16.8 per cent swing against the Coalition since 2010. What its voters want and what the Coalition offers are two different things.

With the solitary exception of Forest Hill, where new residents are largely Chinese Australians, every Coalition electorate in Melbourne has recorded a swing to Labor since 2010 of at least 7 per cent.

Looking at the Coalition seats where it has done best since 2010, two things stand out. This first is evident in the names of the six MPs:

The Coalition went into this election with just six sitting female MPs. Four of them are on this best performers list. A fifth, Heidi Victoria, is just outside it. It is only fair to add that the party did endorse female candidates for roughly half of Labor’s marginal seats. But they all lost in the landslide to Labor. Meanwhile, the two retiring female Liberal MPs in the Assembly, Louise Asher (Brighton) and Christine Fyffe (Evelyn), were replaced by just one new one, Bridget Vallence (Evelyn).

If the Liberals lose Heidi Victoria from Bayswater, as appears likely, Vallence will be the only woman among the sixteen or so Liberal MPs from Melbourne.

Victorian Liberal president Michael Kroger suggested this week that long-serving male MPs retire to create vacancies for women to come through. But just three months ago, Kroger himself steered through a new rule to scrap preselections and renominate all federal MPs. It was widely seen as a move to save long-serving right-wing MP Kevin Andrews from a preselection he might lose.

Second, the only part of Victoria where Labor has not gained much traction has been in regional Victoria — above all, in areas more than 200 kilometres from Melbourne that have always been safe Coalition territory, at least until Cathy McGowan showed they could be won by independents. A year later Suzanna Sheed followed her example by taking the previously safe Nationals seat of Shepparton.

This time former Nationals MP Russell Northe — who quit the party last year saying he was suffering depression after allegations of financial irregularities, unpaid loans and a gambling addiction — held his seat of Morwell as an independent against the combined assault of the Liberals and Nationals. In distant Mildura, a young lawyer, councillor and former Labor candidate, Ali Cupper, appears on track to narrowly defeat Nationals MP Peter Crisp.

Independents also have an outside chance of scoring upsets in Benambra, based on Wodonga, and South-West Coast (formerly Warrnambool) but need improbably strong preference flows to pull it off.

Glenn Druery’s success in turning candidates with minimal support into senators or MLCs inspired a record number of candidates to stand for the Legislative Council. Record numbers of them will win seats when the final votes are tallied on 11 December. More on that when the outcome is clear.

In the same way, the success of the independents is bound to lead to more of them standing next time. Cupper came within cooee of winning Mildura in 2014; she has effectively been campaigning ever since, and this time it looks like she’s done it. Next time the independents will be more formidable again, threatening safe seats on all sides.

What the independents share is a complaint that their areas have been overlooked because governments focus taxpayer resources on the marginal seats that matter for their own re-election. And they’re right. The only way to change this, they argue, is to make your own safe seat marginal — by voting for an independent. They’re right again: Suzanna Sheed delivered far more for Shepparton from a Labor government than Nationals MPs were ever able to deliver from their own governments.

This election saw concerted attacks by independents in several previously safe Labor seats in the western suburbs. They all failed, but some came close enough to put the wind up Labor MPs, including treasurer Tim Pallas in Werribee. One suspects that we may see a different approach to resource allocation in this term of government.

Amid all the retribution, we shouldn’t forget that voters vote primarily on their judgement of governments — and clearly they have given the Andrews government a positive endorsement. The economic times have suited Victoria, and jobs have flowed to match the record flows of new migrants. But the government has also been building the infrastructure that Melbourne is crying out for. The voters like it, and they’ve rewarded the government for doing it.

Two days before the election, Labor revealed the most important policy announcement of the campaign. After secret discussions with the ratings agencies, it announced that it will finance the construction of its $80 billion infrastructure wishlist by gradually lifting the state’s net debt from its current limit of 6 per cent of gross state product to 12 per cent. This is a very important policy shift by Labor — and by the ratings agencies — and a welcome one, so long as it chooses its projects with care and economic rigour.

The next big event in the electoral calendar is the New South Wales election on 23 March. Premier Gladys Berejiklian must be hoping that her voters likewise reward her government for its infrastructure blitz (which, unlike Victoria’s, is largely funded by the federal government) rather than punish it for being made up of Liberals and Nationals.

The bookies think so. They give the Coalition a 60 per cent chance of winning in New South Wales, as against a 20 per cent chance of winning the federal election. But then, at the start of the Victorian campaign they gave Matthew Guy a 30 per cent chance of winning. In reality, he had no chance.

All of which means that the year 2019 will be a very important one for the future of the Coalition parties. •

The post Washed up in the wash-up appeared first on Inside Story.

Opinion polls, bookies and commentators all expect the Andrews Labor government to be comfortably re-elected. The Coalition’s victory under Ted Baillieu in 2010 looks like an aberration: Victoria is a Labor state these days, and it is reverting to type.

It’s a long time since Dick Hamer led the Liberals to their ninth consecutive Victorian victory back in 1979 — in each case winning enough votes to govern alone. Since then, the Liberal–National coalition has won just three out of ten state elections, and has won a majority of Victorian seats at just three of the last thirteen federal elections. Combining them, the Coalition’s election record in Victoria since 1980 is stark: won six, lost seventeen.

This could be its eighteenth loss. Statewide opinion polls taken in late October by the firm formerly known as Galaxy — one as a YouGov Galaxy poll for the Herald Sun, one as a Newspoll for the Australian — both showed a swing to the government, with Labor polling 53 to 54 per cent.

This week YouGov Galaxy has polled four marginal Labor seats for the Herald Sun, and for what it’s worth — as marginal seat polling, even by Galaxy, has proved unreliable — all of them found Labor holding its ground: against the Coalition, against the Greens, and against a maverick independent.

A week out from the election, the online bookies on average are offering $1.20 on a Labor victory, $4.25 on a Coalition one. That implies a 78 per cent probability that Labor will win, and less than a one-in-four chance for the Coalition. And they’re offering the same odds on Labor to win next year’s federal election.

It’s a dramatic shift from a year ago. In the first half of 2017, both Galaxy and ReachTEL published polls showing the Coalition poised to win back Victoria in landslide swings of 5 to 6 per cent. Even last December, Galaxy reported that it was a 50–50 contest. But every poll this year has pointed to a Labor win, and as the year has gone on, the gap has widened.

An opinion poll, of course, is not an election. And the one issue the polls have found to be working in the Coalition’s favour is crime. Victorians prefer the Coalition’s “tough on crime” stance to Labor’s watered-down version of the same.

The dominating event of the campaign has been last Friday’s tragedy in Bourke Street, committed by a deranged Somali Muslim refugee. And it’s no surprise that opposition leader Matthew Guy is making the most of it as a vindication of the Coalition’s “tough on crime” policies.

Guy has seized on an unguarded remark Andrews made after the Lindt Café siege in Sydney in 2015, when he warned that “all of us, as Victorians and indeed Australians, have to accept that violent extremism is part of a contemporary Australia.” Every time Guy has faced the cameras in recent days, he has declared over and over: “I do not, have not and never will accept that violent extremism is part of contemporary Australia… There can be no complacency and no equivocation when it comes to protecting the community.”

The Coalition keeps rolling out new plans to toughen penalties for crime, this week proposing to require suspected terrorists to keep away from the CBD, wear electronic monitoring devices and lose access to communications. The issue has been fanned over the years by the incessant focus of the TV evening news on crimes, and the incendiary reporting by Melbourne’s Herald Sun of crimes committed by African gangs, as if these matter more than the 95 per cent of crimes that are committed by others.

Most of the issues the Liberals and their media ally have focused on have failed to bite: the Skyrail project, which has elevated the Cranbourne–Pakenham railway line through some suburbs; the “red shirts” scandal, in which Labor in 2014 broke the rules by allocating electoral staff to campaigning (it has since repaid their salaries); and so on. But the crime issue has a solid base in reality, even if, as Age columnist John Silvester has argued, the solutions are far more complex than the simple retribution the voters are looking for.

Andrews, by contrast, has stayed in the background since the tragedy, mourning cafe owner Sisto Malaspina, while adopting a kind of dignified silence on the causes. He has got to where he is by focusing on building a lot of much-needed transport infrastructure, and by the good fortune of Victoria’s economic boom. He is sticking with those stories.

Indeed, Labor’s priority now seems to be to say as little as possible. Andrews has refused to meet Guy in a debate on ABC television, where many people would be watching, choosing instead the safety of a debate on Sky, where few will see it. Treasurer Tim Pallas has even refused the traditional debate with his counterpart, Michael O’Brien, on ABC radio. Labor is feeling comfortable, and doesn’t want to rock the boat.

But this election might not be as clear-cut as it seems. In seat after seat that is traditionally safe for one major party or the other, this is the year of the independent uprising.

Encouraged by Victoria’s ridiculously low deposit fee of only $350, independent candidates have put themselves forward for seats all over the state, arguing that their area has been neglected because it’s not a marginal seat. Vote for me, they say, and you will start to get new infrastructure, better-resourced schools and hospitals, and all those other services that go to marginal seats.

For many, it will be a persuasive argument. Fewer voters these days are rusted onto either side. What can we lose, they ask, by voting for an independent, to make the big parties take notice of us?

It worked for Suzanna Sheed in 2014, when she took the previously safe seat of Shepparton from the Nationals, after the high dollar almost bankrupted the town’s biggest employer, SPC-Ardmona, and the party’s federal ministers did nothing to help rescue it.

This time, independents are everywhere — and who knows what effect they will have? Every state seat within Cathy McGowan’s federal electorate of Indi has one or two independents standing, most of them running open tickets. In Mildura, where local cop Russell Savage dethroned the sitting National in 1995 in a revolt over the Kennett government’s broken promises, two independents are campaigning hard to unseat the current National MP, Peter Crisp.

In South-West Coast, upper house independent James Purcell is trying to change houses by winning his local seat from the Liberals. A potentially dangerous one for the Nats is Ovens Valley, where Nationals MP Tim McCurdy has been committed to face trial on fraud charges from his earlier life as a real estate agent.

Then there is Morwell, in the heart of the Latrobe Valley, which has been in a generation-long depression since Kennett privatised the previously overstaffed power stations. Local footy legend Russell Northe took the seat from Labor in 2006 for the Nationals, but last year quit the party over claims of financial irregularities due to his gambling addiction. Northe is standing again as an independent. The Liberals and Nationals are both standing. And so is former senator Ricky Muir, this time for the Shooters Party, while Labor too has a strong chance.

But it’s not just a rural phenomenon. While most of the independents standing in Melbourne seats look like ethnic vote harvesters for the Liberals, Pascoe Vale has three independents exchanging preferences to try to unseat Labor MP Lizzie Blandthorn. For now, the bookies think Suzanna Sheed will be the only independent to win, but Northe and a few others are given a decent chance.

The independents are mostly threats to the Coalition. The threat to Labor is from the Greens.

In 2002, 2006 and 2010, the Greens kept creeping closer to Labor in four inner-city seats — Brunswick, Melbourne, Northcote and Richmond — without breaking through. In 2014, they focused their resources on winning Melbourne from Labor and Prahran from the Liberals, and succeeded in both. Northcote followed at last year’s by-election. This time they hope to hold all three seats, and take Brunswick and Richmond.

That could potentially give them the balance of power in the new eighty-eight-member Assembly. It’s a prospect the Liberals are simultaneously facilitating and warning against. Victoria has not had minority government since 1952, and while Labor and the Greens cohabit amiably in the ACT, it would require a dramatic cultural change in the Victorian Labor branch for it to work successfully there. Expect a barrage of TV ads from the Liberals in the final days about this scary prospect.

But the Liberals are also helping to make it a reality. In 2014 their preferences gave Labor victory in Brunswick, Northcote and Richmond. This time they are not standing in Richmond — the first election since 1952 at which they have left a Labor seat uncontested — to try to ensure that the Greens win it and unseat planning minister Richard Wynne. As of Friday morning, they have still not lodged their final how-to-vote cards for the other seats, but they are expected to be open tickets.

The Greens are tipped to take Brunswick, which former minister Jane Garrett has abandoned to take a seat in the upper house. The bookies have them as narrow favourites in Richmond; but earlier this year Labor retained the federal seat of Batman without Liberal preferences, and it would be no surprise if Wynne hangs on. Richmond, once solidly working-class, now comprises mostly professional/business couples in which both work full-time, giving it the third-highest median household income in Victoria. In the long term, it is a potential Liberal seat.

One Nation has always been weak in Victoria and is not standing this time; nor are Cory Bernardi’s Australian Conservatives. In the lower house, the threat to the major parties is from the independents and the Greens. In the upper house, it is from “preference whisperer” Glenn Druery, who has produced his most complex and wide-ranging set of deals yet, which could send a tsunami of micro-party candidates into the new chamber.

Victoria has eight regions for the Legislative Council, each electing five members — similar to Senate elections, but with four-year terms and the old group voting tickets, in which you just tick the box and the parties decide your preferences in these backroom deals. They’ve been abolished in most other places, with Victoria and Western Australia the last holdouts. And Druery has excelled himself this time.

In 2014 his team won five of the forty seats. Of them, Fiona Patten (Northern Metro) of the Sex Party (now the Reason Party) has made the biggest impact, spearheading Victoria’s controversial dying-with-dignity bill. But Druery’s tickets also elected two MPs from the Shooters Party, a Western District independent who called his party “Vote 1 Local Jobs,” and Rachel Carling-Jenkins, who was elected in Western Metro for the Democratic Labour Party, then joined the Australian Conservatives, then quit them, and is now running as an independent for the Assembly seat of Werribee.

This time Team Druery looks set to win at least one seat in all eight regions, possibly more. We now have eighteen parties standing in every seat, and only the Socialists have refused to take part in these labyrinthine preference swaps. A right-wing “life coach,” Stuart O’Neill, who wants new migrants to be put on a ten-year good behaviour bond and named his team the Aussie Battler Party, looks likely to win a seat in Western Metro on preferences from the Greens, Labor and ten other parties.

Druery now works as chief of staff to senator Derryn Hinch, and he’s set up Hinch’s party nicely in a number of seats, mostly in unobtrusive positions, and it would be no surprise if it wins several seats next Saturday. The Shooters, the Liberal Democrats, a new party called Transport Matters, and possibly even the Dick Smith–backed Sustainable Australia party could win seats under his deals. Fiona Patten, who has fallen out spectacularly with Druery, concedes she now has only a 50–50 chance of holding her seat.

Most of these seats will be taken from Labor, the Coalition and the Greens — who don’t seem to mind, since they made no effort in the last parliament to reform the electoral laws. The Coalition–Greens reform of the Senate voting system provides a model if they ever want to. But in Victoria, Labor was able to work quite well with the crossbenchers in the last parliament and seems to prefer that to putting them out of business.

If the Coalition were to pull off an upset, how could it do it?

First, it could win with less than 50 per cent of the vote. Victoria has seen massive population growth, but mostly in Labor or Greens seats. The average Coalition seat now has 5 per cent fewer voters than the average Labor seat. The differences that have evolved in the six years since the last redistribution — leading to 61,814 voters in Cranbourne versus 38,937 in Mount Waverley — suggest that states growing this fast need a redistribution after every election.

Second, the new socioeconomic geography of Melbourne — higher-income households in the inner and inner-middle suburbs, lower-income households further out — creates electoral opportunities for the Liberals. Census data shows that while the old Liberal heartland (Brighton, Malvern, Kew and Hawthorn) has the greatest concentration of high-income households, Labor and the Greens hold nine of the eighteen seats in the second tier of wealth. And five of them are marginal.

In the inner south, Prahran (Greens, 0.4) became in 2014 the first lower house seat the Greens have ever taken from the Liberals, after narrowly pushing Labor into third place. It’s a three-way contest again this time, and for what it’s worth, the bookies give the Liberals the best chance of the three.

Next-door Albert Park (Labor, 3.0), by contrast, has never been won by the Liberals. But its median household income is now the highest of any Victorian electorate, and when the Liberals eventually get sick of losing and dump the hard right for the political centre, seats like Albert Park and Prahran will form part of the next Liberal majority.

In the northeast, Ivanhoe (Labor, 3.4) has wealthy pockets and poor ones, and is usually held by whoever is in government. Much further out, the same is true of the gumtree-and-mudbrick suburb of Eltham (Labor, 2.7), which has Melbourne’s second-highest concentration of households speaking English only. Chinese buyers don’t go for Eltham style.

The Liberals have hopes in all these four seats. And they will need to win three or four of them to have any hope of forming government.

Third, they need to win back the four seats along the Frankston railway line: in order of distance from Melbourne, Bentleigh (0.8), Mordialloc (2.1), Carrum (0.7), and Frankston (0.5). When they won power in 2010 under Ted Baillieu, the key was that they picked up all four seats, largely on discontent about the poor rail services and road links. But they failed to fix those problems, and in 2014 Labor won back all four seats, and hence government.

The four seats are constantly grouped together, but they are very different. Bentleigh these days is in the second tier of high-wealth electorates by income, and in the top tier for mortgages and rents. It’s full of two-income professional/business families, attracting an ethnic mix of Jewish, Chinese, Greek and Italian voters.

By contrast, Frankston is far more downtrodden. One-in-four households there told the census they lived on less than $650 a week. Its average income is the fourth-lowest of any Melbourne electorate, behind only the three where refugees are concentrated: Broadmeadows, St Albans and Dandenong.

But Frankston has few of them. It’s an old Anglo-Australian mix, the only part of Melbourne with fewer foreign-language speakers than Eltham. But it does have Victoria’s highest divorce rate.

Labor has worked hard to look after these four seats. Level crossings have been removed, a new station has gone up at busy Southland, work is about to start on the Mordialloc Freeway, and it continually announces new services of all kinds. The Liberals have promised their own new freeway, by removing intersections along the Dingley bypass, and thumped the drum about rising crime. For what it’s worth, this week’s YouGov seat polls showed Labor holding Mordialloc and Frankston, with slight swings its way.

The Liberals are hoping that’s wrong. The bookies rate Frankston, Carrum and Bentleigh, along with Prahran and Albert Park, as their best chances of picking up seats anywhere in the state. They need to win most of these to win the election.

On paper, the outer suburbs should provide plenty of prospective gains. In 2014 Labor won the marginal seats of southeastern Cranbourne (2.3 per cent), Narre Warren North (4.6) and Narre Warren South (5.5), as well as the northern fringe seats of Yan Yean (3.7), Macedon (3.8) and Sunbury (4.3), and the Dandenongs electorate of Monbulk (5.0). But only Cranbourne is seen as a frontline seat, and it has many more voters now than in 2014.

It’s a similar story in Geelong, Ballarat and Bendigo. Labor holds seven of their eight seats, mostly by narrow margins. But while the Coalition still hopes to win Bellarine (4.8), the bookies think there is more risk of it losing the one seat it still holds in Victoria’s three main regional centres: the southern Geelong seat of South Barwon (Liberal, 2.9), where the rapidly growing new housing estates are not core Liberal territory.

And in the rest of Victoria, Labor lost its last seat in 2014. It’s the Coalition that is on the defensive against independents (and, in some seats, against Labor).

Overall, a re-elected Labor government is the most likely possibility. But a Labor-led minority government is the next most likely, and one that would require Andrews and his party to climb a steep learning curve. A Coalition-led minority government relying on the independents is an outside chance, a Coalition majority government a very slim one.

And if this election gives Labor an 18–6 winning record in the last twenty-four elections in Victoria, will it lead the Liberals and Nationals to rethink their decision to abandon the political centre for the hard right? Or do its right-wing powerbrokers just want to control their branch, rather than win elections? •

The post Is Victoria reverting to type? appeared first on Inside Story.

When you add this democratic transition to Indonesia’s longstanding tradition of religious tolerance — in the world’s largest Muslim country — and a solid pace of economic growth that has doubled real incomes in twenty years, it has been a remarkable success among developing democracies, even if few Australians seem to grasp that.

But now clouds are gathering, and its future is uncertain. Last Friday a conference of Indonesia experts at the Australian National University heard that under the man who seemed to epitomise its democratic transition, president Joko Widodo (Jokowi), Indonesia is lurching towards a more authoritarian style of government. Conservative Islam is growing increasingly powerful, the army and police are being used for politically partisan ends, and dissidents and those seen by Muslim clerics as deviants are experiencing rising repression.

Jokowi was a successful furniture manufacturer before entering politics, and his main policy priorities as president had been to build infrastructure, cut red tape, and run a sound economic and fiscal policy. That has been a stunning success. Jakarta today is a city of infrastructure projects under construction everywhere you look — a metro railway, tramlines, exclusive bus routes — and every part of this country has its own projects under way.

But those priorities have changed in the wake of the defining event of his presidency: the dramatic fall from power last year of his former deputy and successor as mayor of Jakarta, Basuki Tjahaja Purnama, a clever, some say arrogant, Chinese Christian known as Ahok, who is now in jail for blasphemy after accusing his enemies of distorting the Qur’an.

With Ahok behind bars, some of his enemies turned their sights on Jokowi. Yes, he is a Javanese Muslim, which puts him in a very different category. (Some Muslims do not accept the idea that non-Muslims should be able to rule over them.) But enemies have questioned even that, or alleged that he is not a real Muslim. The local elections in June went badly for his party, the PDI-P, headed by former president Megawati Sukarnoputri, which won just three of the sixteen posts contested for provincial governors (premiers).

Jokowi has never lost an election, and he is bending over backwards to make sure he doesn’t lose this one.

Next Sunday sees the official start of Indonesia’s 2019 presidential election campaign, even though election day is not until 17 April. Restrictive rules have ensured that there are only two candidates, making it a rematch between Jokowi and the man he defeated in 2014, the Trumpish retired general Prabowo Subianto. The polls show Jokowi well ahead of his rival by a two-to-one majority. But then, the polls were similar at this stage in 2014, and that ended up as a very close race.

As Tom Power of the ANU explained at the conference, Jokowi’s strategy is to head off the risk that the Muslim campaign that brought down Ahok will be used against him. And hence, with vice-president Jusuf Kalla ineligible to seek another term, he has chosen as his running mate Ma’ruf Amin, the seventy-five-year-old conservative chairman of Indonesia’s clerical body, the Indonesian Ulama Council, or MUI, and president of the mass Muslim organisation Nahdlatul Ulama, or NU.

It was a stunning embrace of the enemy. Amin played a crucial part in the campaign against Ahok, issuing a “religious opinion” in November 2016 that Ahok’s comments amounted to blasphemy. That ruling triggered the massive street protests that shook Jakarta in the following month, followed by Ahok’s defeat at the polls and his sentence to eighteen months in jail.

In what Dr Power calls “the post-Ahok landscape,” Jokowi chose to seek accommodation with Amin. “NU has become a target of patronage,” Power said, quoting an official of the group as saying: “Whatever Kyai Ma’ruf asked, Jokowi gave him. This way, Kyai Ma’ruf is comfortable, and Jokowi is comfortable. They have become closer and closer, and now NU is always at the side of the government.”

The choice of Ma’ruf may have neutralised the threat of an organised Muslim campaign against Jokowi, but it could have a cost. Jokowi had already chosen the progressive chief justice of the Constitutional Court, Mahfud MD, as his running mate, which would have been a more plausible pairing. But that choice ran into opposition from the parties in his alliance, who feared that it would make Mahfud the heir apparent, and from the NU, which wanted one of its own. So the president gave way.

“Jokowi was made to look weak and beholden to party bosses,” Power concluded. “He disappointed many of his own non-religious supporters, who remembered [Ma’ruf’s] role in the Ahok case.

“The question is, to what extent will he [Ma’ruf] exert influence? Will he sway Jokowi’s administration to be less tolerant? If he said (as he has in the past) that homosexuals should be in prison, what would Jokowi do? It could be very damaging.”

The conference focused on the rights of minorities in Indonesia, including LGBTI communities, religious minorities seen by the MUI as deviant (such as Shi’ite and Ahmadiyya Muslims) and ethnic minorities such as the Chinese. While there have been some steps forward for human rights in the courts — and for the disabled, in the legislature — many of those decisions remain unimplemented. The steps backwards are far more visible.

Take the case of Meiliana, a forty-four-year-old Chinese Buddhist living in North Sumatra. In 2016 she complained about the excessive noise from the loudspeakers of the mosque close to her home. The faithful were outraged. Someone quickly organised a mob of Islamic extremists, which ransacked and set fire to fourteen Buddhist temples. The courts then acted: not against the arsonists, but against Meiliana. Like Ahok, she was sentenced to eighteen months’ jail on a charge of blasphemy — just for making a complaint.

This is not the Indonesia of old. Historian Robert Cribb, also of the ANU, interpreted it as the “pious Muslims” taking back the social dominance they lost when Indonesia was set up under a constitution enshrining Sukarno’s philosophy of Pancasila (five principles). Pancasila prescribed religious tolerance, recognised five religions (now six), and gave the Buddhist, Hindu, Catholic, Protestant and now Confucian minorities equal rights with the Muslim majority.

“They want it to be clear who is in control,” Professor Cribb said. “It is as if they are saying collectively, ‘We will decide the meaning of Islamic law in this country, and the terms in which it is introduced.’ Tolerance has been seriously eroded. It worries me that something very special about Indonesia is under threat.”

It is not just under threat in Indonesia. Professor Cribb drew parallels with the fatwa issued by the Murdoch press here against Yassmin Abdel-Magied for “civic blasphemy” in suggesting that Anzac Day should also be a time for remembering the injustices committed by Australians — and the excoriation of senator Fraser Anning by some because he used the phrase “final solution” in a speech, unaware that uttering those words is a form of blasphemy to some.

It is not only diminishing tolerance that worries Tom Power and Murdoch University’s Jacqui Baker. Baker cited Jokowi’s regular calls for police and army officers to promote his goåvernment’s achievements in their villages and kampungs, and the growing number of Duterte-style extrajudicial killings of drug sellers and petty criminals. “It sounds the alarm for further democratic backsliding,” she said.

Power noted that the conservative Islam embodied by Ma’ruf and the MUI has little in common with the radical Islam of the terrorists. Indeed, during this period Jokowi has given the green light to increasing repression of “anti-Pancasila” groups, such as the Hizb ut-Tahrir, a global movement to establish a single Islamic caliphate to rule the world.

Indonesia has adopted an electoral system that restricts the number of candidates for high office by requiring presidential candidates, for example, to be supported by parties holding at least 20 per cent of the seats in parliament. Increasingly, Power pointed out, this is coming to mean no election at all, as there is little ideological difference between most of Indonesia’s parties, and everyone wants to be on the winning side.

In this year’s regional elections, he said, more than 10 per cent of the mayors and bupatis (heads of regions) standing faced no competition, either because no one else nominated or because courts ruled out rival candidates. Voters could vote either for the single candidate or for the empty column where a challenger was meant to be.

In Makassar, a city the size of Brisbane, the courts blocked the mayor from standing again after the parties decided to unite behind one of their own, Munafri Arifuddin. Faced with the choice of Munafri or the empty column, the city’s voters elected the empty column, creating a new first in Indonesia’s unusual democracy.

It nearly happened in the election for president. At one time even Prabowo faced trouble getting enough party support to be on the ballot. As Power recounted, Prabowo then went to Luhut Pandjaitan, one of Jokowi’s key ministers, and asked if Jokowi would allow him to join the ticket as his running mate — removing any need for an election. Negotiations began, but failed, Power said: “the stumbling block was reportedly disagreement over the distribution of cabinet spoils.”

Indonesian democracy is still standing. But, Power concluded, its quality is in decline.

Some commentators say Jokowi has focused on the wrong threat. As a Javanese Muslim, he is a much less vulnerable target for Islamists than Ahok was. Rather, the main threat to his re-election could come from economic problems.

That might seem extraordinary, given Indonesia’s record. Susan Olivia of the University of Waikato told the conference it has achieved consistent economic growth of 5 per cent or more. The budget is in relatively healthy shape — a deficit of 2.5 per cent of GDP, including all that infrastructure spending — and net debt is just 25 per cent of GDP, the second-lowest of the world’s ten biggest economies.

Jokowi’s infrastructure program has been widely popular. On Transparency International’s measure, corruption is no longer as bad as it was, partly because the online revolution promotes payment systems that cut out the middleman. And his award-winning finance minister, Sri Mulyani Indrawati, has spearheaded a program of serious deregulation to cut red tape and make Indonesia more business-friendly.

But what is happening in the United States is creating waves through the developing world. The ANU’s Ross McLeod pointed out that rising US interest rates mean Indonesia too has to raise its interest rates to maintain the capital inflow that finances much of its investment. The Fed’s rate rises have led the dollar to appreciate in value, and the rupiah to depreciate. And with a big trade in exporting components for Chinese factories to assemble into finished goods, Indonesia too is vulnerable to Donald Trump’s expanding tariff hikes on Chinese exports.

Australia faces similar issues. But we have political bipartisanship in these areas, so they can be handled sensibly. The Reserve Bank has not only allowed the Australian dollar to decline, it has welcomed it, because that makes Australian exports more competitive. (We have also been lucky so far with mineral prices rising to offset the dollar’s fall.)

That is not the case in Indonesia. Prabowo keeps attacking Jokowi in what we treat as no-go areas, and policy-making is suffering as a result. The rupiah this year has fallen by 8 to 9 per cent against the US dollar, in line with the Australian dollar’s falls. But Prabowo argues that this is making Indonesians poorer, and the government should intervene to maintain its value.

And intervene it has. McLeod pointed out with regret that, to prop up the rupiah and keep capital inflow coming, Bank Indonesia has sold off US$4 billion of its reserves, and lifted its interest rates by 1.25 per cent — equivalent to five Australian rate rises. To try to hold down the increase in the current account deficit, the government has hiked tariffs on imported vacuum cleaners and other goods.

And as Prabowo is also banging on about rising oil prices, Jokowi has increased the petrol subsidies he had earlier cut, and slowed infrastructure spending to pay for them. All of this will slow Indonesia’s growth, McLeod argued, compared to an Australian-style policy response that lets nature take its course and relies on the automatic stabilisers to keep the economy upright.

Indonesia’s previous president, Susilo Bambang Yudhoyono, had two terms in office. The first saw an impressive five years of reform combined with reassurance; he was comfortably re-elected. In his second term, however, SBY dropped the oars and stopped rowing; he no longer wanted to make hard decisions, he just wanted to stay popular. Indonesia drifted off course. Islamist groups and economic nationalists became more assertive, infrastructure was left to become even more backward, and the crisis of Indonesia’s low education standards grew even worse.

For all his faults, Jokowi’s first term has been a successful one. Like SBY, he will probably be re-elected, and comfortably. But what will his second term deliver to Indonesians? Will it continue the progress of his first term, or see it regress into a less tolerant, more backward country? Will the president keep rowing — or will he too drop the oars, avoid the hard decisions, and gradually let his country drift off course? •

The post Indonesian democracy’s gathering clouds appeared first on Inside Story.

The country’s total output of goods and services — gross domestic product, or GDP — swelled by 3.4 per cent over the twelve months to June. Indeed, on the seasonally adjusted figures used by most analysts, the economy grew at a stunning annualised rate of 4.1 per cent in the first half of 2018.

Moreover, as Frydenberg pointed out, while business investment made no contribution to growth, “the strength in the June quarter was broadly based. Household consumption, dwelling investment, new public final demand” — that’s government spending — “and net exports all contributed to growth in the quarter.”

Household consumption? Dwelling investment? That’s us! Aren’t we meant to be victims, squeezed between low wage growth, high debt and rising prices? Yet we’re spending up big, and because of us, the economy is booming?

Why doesn’t it feel like that? What have we failed to see?

At face value, if Australia really is growing at this pace then the Reserve Bank ought to be seriously considering raising interest rates, to repair some of the damage it did to housing affordability by its misguided rate cuts in 2016.

But it would need to think carefully. For another explanation of these Goldilocks figures is that this snapshot captures the lucky country at a lucky moment: just before the waves break, and the swells that have surged up in the past couple of years recede, leaving the economy flat — and maybe experiencing a heavy undertow.

In their way, the national accounts only confirm the economy’s core weaknesses: stagnant wages, widespread underemployment, unaffordable housing (at least in Sydney and Melbourne) and a dangerous reliance on borrowing to make reality meet our aspirations.

Let’s look at how we grew so fast, and whether that is sustainable, via ten takes on the data in the national accounts:

1. Our population is booming. The accounts imply that in the year to June, our population grew by just under 400,000, up more than 1.6 per cent. That’s not an official population estimate — they take months to finalise — but it incorporates information that the Bureau knows and we don’t. It implies that in the first half of 2018, when we thought population growth was slowing, it accelerated at its fastest pace in the five years since the mining boom peaked in 2012. Our population probably passed twenty-five million in the first week of July, not in August, when we celebrated it.

In all, almost half of our 3.4 per cent growth in output can be attributed to population growth. Per capita GDP grew by 1.77 per cent: that was also its strongest growth since the mining boom, but still below the 1.9 per cent that was our long-term average before the global financial crisis. And sorry Josh, it doesn’t outpace growth in all G7 countries: per capita, the deficit-driven United States has raced past us.

2. Victoria is setting the pace, Western Australia sliding back. Partly because of its population growth, Victoria had by far the fastest growth in economic activity of any state in the year to June. Its total spending (state final demand) grew by 5.2 per cent, and by 2.9 per cent in per capita terms. By June, Victoria was the only state in which government infrastructure spending was still growing. But Western Australia went backwards in the first half of 2018, as mining investment continued to wind down.

3. Nothing is seriously holding us back. Usually the economy is running into some headwind that slows its pace, as the end of the mining boom has been doing ever since 2012. The accounts show there are plenty of problem areas — slow wage growth, slowing infrastructure spending, the end of the housing boom, Western Australia, flat business investment and the drought — which could combine to make 2018–19 a year of slower growth. But in the first half of 2018, the economy was in a sweet spot, with those headwinds outmuscled by the tailwinds blowing us on.

4. Consumers are spending more and saving less. Households are collectively the biggest spenders, and with the population growing fast, their total spending is growing fast. Over the year to June, consumer spending grew by 3.1 per cent on the trend measure, providing more than half the growth in total activity.

While part of that went on necessities like rent, mortgage payments, food and healthcare, the single biggest increase was in spending on entertainment. And the fastest growth was in spending on clothing and footwear, followed by spending on mobile phones, entertainment, household equipment and transport.

This doesn’t sound like households are burdened down by low wage growth and rising prices. But we were spending more because we were saving less.

The Bureau estimates that households saved just 1.1 per cent of their disposable income in the June quarter — a sharp fall from 3.6 per cent two years earlier, let alone from the average of 6.7 per cent over the first seven years after the global financial crisis. Saving can’t continue to fall without creating much bigger problems than slow economic growth.

An important caveat, however. The Bureau calculates savings as what’s left after it’s estimated everything else. That means the savings figure tends to be revised as better data comes in, and sometimes it’s been revised up a lot. It could be low because the Bureau doesn’t have the data yet to provide a better picture of what’s really happening. But for now, we have to assume it’s right and, if so, add it to our list of worries.

Even so, these figures — especially those showing which areas of spending are growing fastest — challenge the general picture of an Australia in which ordinary people have their backs to the wall. Frugality does not leap out at you from these numbers.

5. The professional sectors are enjoying strong growth. The health and welfare sector had both the biggest absolute growth and the fastest pace of growth of any industry over the twelve months to June, its output swelling by 6.9 per cent. The NDIS accounts for part of that, but most of it reflects the increasingly central role of healthcare in an ageing society. The financial sector and the professional and scientific services sector — accountants, lawyers and the vast range of consultants — were also among the five sectors with the biggest growth. The financial oligopoly has had decades of unrestrained pricing power that has allowed it to appropriate an ever-increasing share of the nation’s income and become the biggest sector of the economy. Its profits rose in 2017–18 by another $7.5 billion — a growth of 7.4 per cent. They’ve had better years, so you can see why the poor old things are having to raise their interest rates to ensure profits keep rising.

6. The blue collars are also doing well. Mining had the second-fastest growth in the volume of output (up 6.1 per cent), and the unexpected boom in coal prices meant its revenues went up even faster. The revival of business investment and the peaking of the booms in housing and public infrastructure made construction the next fastest-growing industry (up 5 per cent). Even manufacturing rebounded in 2017–18, its output growing 2.9 per cent after five years of falling output shrank the sector by 10 per cent.

7. A good year for business, a bad one for wage-earners. Corporate profits rose 8.3 per cent through the year, helped by those record coal prices, and the lack of countervailing power among workers. By contrast, total wage and salary income rose only 4.9 per cent, and the average compensation per employee by 1.7 per cent. At least that was a marked improvement on the 0.3 per cent wage growth in the previous year.

There was plenty of work around, and that benefits those looking for work and those with less work than they want. Hours worked grew 2 per cent last year, and 5 per cent over the past two years. As a result, last year saw the biggest rise in total wage income for six years — because cheap workers got hired.

But is this operating in the interests of workers as a whole? Not yet, maybe never. Over the past six years, the average compensation per employee has risen by just 1.4 per cent a year, partly because most new jobs created have been part-time. And in that time, household income from wages — which includes both employment growth and wage growth — has grown on average by just 3.1 per cent a year.

All the new treasurer could say to console us was that the Reserve Bank is confident that, eventually, the tighter job market will cause wages to rise. Sorry, Josh, I know you’re new in this role, but the Reserve has been saying this for years and has got it persistently wrong, but it keeps repeating its mantra without asking itself why it hasn’t worked.

Here’s a clue: next time you talk with Reserve governor Philip Lowe, ask him why, after telling us that the economy needs bigger wage rises, he nonetheless insisted that the Reserve’s own staff should make do with wage rises of 2 per cent a year. Australia’s unemployment is only in the middle of the pack of Western countries — half of them now have lower unemployment than we do — but few of them have seen wages pick up significantly.

There is a deep-seated culture among the business elite that expects and welcomes big pay rises at their own level yet suppresses them among their workers. Menzies would have taken business leaders on over this class warfare, but no Liberal leader today would do so. It’s a reform the next Labor government will have to tackle.

8. Investment has stalled — and public sector infrastructure investment is falling. Year on year, investment grew by 2.8 per cent, but that growth had slowed sharply by June. Home-building activity, which had been falling, rebounded in the first half of 2018 — but private business investment, which had been rising, fell unexpectedly, with activity shrinking 2.5 per cent in the June quarter after seasonal adjustment. With housing approvals, prices and finance all sliding, it is hard to see home building generating momentum in 2018–19. And the Bureau’s latest survey found business expecting to invest less this financial year than it had in the same survey last year.

The lack of a private investment driver would not matter so much if government infrastructure investment matched the hype. But as I have pointed out here before, federal and state governments have worked out a way to fool us on that. They announce bigger and bigger projects — WestConnex, a railway to Melbourne Airport, and now Daniel Andrews’s thirty-year plan to build a seventy-kilometre rail loop under Melbourne’s outer middle suburbs — and use that to disguise the reality that they are planning to build less.

On the seasonally adjusted figures, governments in the June quarter invested almost $2 billion less than a year earlier, down 8.1 per cent. The Andrews government is planning a big election year spend this year, followed by sharp cuts to infrastructure spending ahead. The federal government has already cut its infrastructure investment. This is now a headwind slowing the economy, not a source of growth.

9. By contrast, routine federal government spending is booming. The national accounts report that in the first four years of the Abbott–Turnbull–Morrison government, its spending (excluding investment) increased by 22.8 per cent in real terms. That’s an average annual growth of 5.25 per cent in real terms, or 7.25 per cent including inflation. In sharp contrast, household spending grew by just 11.2 per cent over the same four years, and state and local government spending by 11.1 per cent.

Where did the feds get the money? From us. Income tax collections shot up 25 per cent in those four years, the company tax take rose 28 per cent, and tariff revenue — with imports replacing local manufacturing — climbed 69 per cent. (The accounts note that imports now account for 40 per cent of domestic sales.)

And, like Labor before it, the Coalition keeps spending far more than the taxes it collects, which is why Australia is still in deficit ten years after the crisis that put us there.

10. The drought is starting to bite. Farm output in the June quarter shrank by almost 10 per cent from a year earlier, which had been the first good year on the land for almost a decade. When will the National Party, which supposedly represents farmers, admit the reality of climate change and try to do something to stop it?

One thing the national accounts don’t tell us about are housing prices, which are now falling in most Australian cities. In itself, the fall is not a problem — in six years, prices had shot up by 85 per cent in Sydney, 67 per cent in Melbourne and 52 per cent nationwide, and no one should have expected them to stay there, let alone keep rising. The trick for the federal government and the Reserve Bank will be to manage that inevitable and welcome decline so that it makes housing more affordable without causing a collapse that could destabilise the economy.

And the accounts can’t reflect the other great risk we face: the fallout from Donald Trump’s trade war against China, and China’s own attempts to correct its unsustainable reliance on debt and overinvestment. Negotiations between the two superpowers have broken down, and China has suggested they be resumed only after November’s congressional elections. If current voting intentions are reflected on election day, that could see Trump’s Republicans routed — which might make him more willing to deal.

We live in dangerous times. The risks are rising, and the year ahead could have less good news on the economy than the last one. •

The post The surge before the storm? appeared first on Inside Story.

In electing Scott Morrison, it has chosen the second option. In a party as deeply divided as this one, no one could be a consensus candidate, but Morrison was the closest to it. By a narrow majority of five votes, the party has voted for unity over insurgency.

It is also a vote for continuity. As treasurer, Morrison has been one of Turnbull’s closest colleagues, and has never given a hint of disagreement with the direction his leader was taking. That arm he put around Turnbull’s shoulder at their press conference on Wednesday was not some false mateship hammed up for the cameras. His policies, as far as we know, will be Turnbullism without Turnbull.

A significant footnote: by a majority on the first ballot, the party also elected Josh Frydenberg as deputy leader. He too was the consensus candidate. In effect, the party anointed him as the outstanding candidate to lead it into the future, should it lose the coming election.

To many, it is bizarre that we ended up here. How many of the forty-five MPs and senators who voted for Morrison really believe he will make a better leader than Malcolm Turnbull? This week the best of the nation’s political commentators conveyed a clear undercurrent that the Liberals’ best option as leader was the one they were discarding.

Time will tell. But it is hard to believe that the electorate’s antagonism to Turnbull was so strong that it outweighs our dislike of these leadership coups. There is no evidence that Morrison has won significant support of his own in the electorate. This is likely to be a step backwards.

Let’s just revisit the findings of a recent Essential Research poll on whom the voters — including Liberal voters — wanted to lead the Liberal Party:

PREFERRED LIBERAL LEADER

                              All voters    Liberal voters
                                                %                  %
Malcolm Turnbull              38                 55
Julie Bishop                         29                 12
Tony Abbott                        14                 14
Peter Dutton                       10                 13
Scott Morrison                      9                   7

It is very clear whom Liberal voters wanted as their leader: Malcolm Turnbull. Just one in four wanted to switch to Tony Abbott or Peter Dutton. Those who justified this insurgency as being demanded by the Liberal base were either deluded or trying to delude us.

The most likely election-winner in the field after Malcolm Turnbull had been vetoed was Julie Bishop. In every poll I’ve seen in recent times, she has been the voters’ first choice as Liberal leader after Turnbull. An archetype of the modern career woman, a well-regarded foreign minister, articulate and a political moderate on most issues, she was the candidate most likely to take votes off Labor. She was the one in this field they would have feared most.

Yet she came last in the leadership ballot. The Liberals are a blokes’ party: they have sixty-five men in parliament and only twenty women. Moreover, Team Abbott (or Team Sky) has never forgiven Bishop for abandoning Abbott for Turnbull in the previous leadership coup — conveniently ignoring the fact that Abbott had already offered her position as deputy leader to Morrison. Of the three candidates, she was the one most clearly on the left of the party. In the minds of those seeking party unity at all costs, that probably counted against her, and her electoral appeal was ignored.

Dutton was the candidate of the right-wing insurgency, and of Queensland. If you believe (with one correction) the Fairfax papers’ list of who voted for him in Tuesday’s ballot, he won two-thirds of the votes of Queensland MPs and senators while Turnbull won almost two-thirds of the votes of those representing the rest of Australia. The Liberals’ poor result in the Longman by-election — where they won less than 30 per cent of the vote and suffered a 3.7 per cent swing to Labor in a seat that some polls predicted they would win — scared Queensland MPs, who somehow convinced themselves that their problem was One Nation, not Labor.

But Dutton’s support did not carry outside Queensland, and nor did it carry to those outside the party room’s majority of white Anglo males. Female Liberal MPs and senators voted three to one for Turnbull in Tuesday’s ballot. Virtually anyone from an ethnic minority (except Italian-Australians) did the same. This reflects Dutton’s lack of support among women and ethnic minorities in the electorate, rising to an intense dislike among some for a series of insensitive actions and remarks he has made about refugees, Aboriginals, and African migrants.

The Liberals would have faced huge problems at the election had he won, and the antipathy he has aroused even among some of his colleagues probably meant that he would have to go to an election almost immediately.

Given his electoral unpopularity, it puzzles me that he won forty votes in today’s ballot. Almost half the party room voted for the most unelectable candidate on offer. Either he has strengths that are not apparent to most of us, or almost half our Liberal representatives are focused on their own career paths, vengeance, or who controls the party, rather than on retaining government.

Scott Morrison came fifth out of five in that Essential Research poll, yet now he is number one in the real world. What sort of leader will he make? Will he be, as some expect, Turnbull Lite, making more concessions to the right without changing the overall policy direction? Or will he attempt to heal the division in the party, by making another ideological jump like the one he made under Abbott, when he went from being on the left of the party to being the hardliner who stopped the boats?

Or will his priority be to tackle Labor by standing up to the right where Turnbull folded to them, and setting out to capture the political middle ground that Team Abbott seems to want the government to abandon?

Time will tell. I have just one observation.

In my view, Morrison is generally not a bad decision-maker — judged by those decisions that are clearly his — but he is a poor communicator. And unless he can transform his approach into trying to persuade people rather than harangue them, that could cost the Liberal Party dearly between now and the election.

Morrison on his way up struck me as a sensible, intelligent man with a quick mind. Setting aside the party’s obsession with company tax cuts — there is good investigative work to be done on what drove them to such an unsaleable policy — he has mostly made good decisions as treasurer, as he did earlier in social security. He has appointed good people to key jobs, made sensible decisions on foreign investment issues, and (again, leaving aside the company tax cuts, and the regressivity of the recent income tax cuts) his budgets were not too bad.

But the Morrison you see on TV is different. He reminds me of one of those yappy dogs, straining at the leash to attack. He rarely engages with the questions he is asked, spurting out his lines, always party political, at great speed. He seems to be ticking the boxes for his conservative base rather than trying to win over undecided voters. Even Turnbull succumbed to that somewhat by the end, but he is a far better communicator than Morrison.

Whether or not Morrison has another ideological makeover at this point, he dearly needs to undertake a makeover of how he speaks to the nation. If he stays as he is, that would suit Labor fine.

The first test of his leadership will be putting a cabinet together. Will he bring Abbott back into it? Who will he promote, and demote? Will he opt for continuity, or change — and if the latter, in which direction?

There were many losers in this leadership ballot, but none more so than Malcolm Turnbull.

Turnbull began his time as prime minister with such great expectations and so much public support, only to see it end in less than three years. He certainly made mistakes, many, yet no leader has ever been overthrown by his party for weaker reasons. On the whole, he was a steady hand on the tiller. He was unfailingly articulate, and argued the party’s case well, even if fewer people listened to him. And he had wins on some big issues for his side, getting its income tax cuts and at least part of its company tax cut through the Senate.

Turnbull yesterday described himself as “a reforming prime minister” and listed a catalogue of what he saw as his achievements: getting the same-sex marriage legislation through parliament (although it was a private member’s bill), the redress scheme for those abused as children, childcare reforms, and his infrastructure investments in cities (well, Sydney, anyway). He made a passionate parting comment in support of Australia’s “successful multicultural society,” adding: “We must never allow setting Australians against each other to be part of our culture.” He clearly meant it.

There is no time here to look back at what went right and wrong in Turnbull’s meteoric political career.  He is leaving federal politics, but one suspects he is far from ready to leave public life. Watch for the next chapter in his story. ●

The post Turnbullism without Turnbull? appeared first on Inside Story.

Turnbull is not dead yet. At 1pm today he launched a two-pronged effort to remain prime minister. First, he demanded that the Dutton camp produce a petition signed by a majority of Liberal MPs and senators to request a party meeting on the leadership. Second, before such a meeting takes place, solicitor-general Stephen Donaghue should deliver his opinion on whether Peter Dutton is eligible to sit in parliament at all, given that his family trust runs childcare centres that receive money from the government.

If Dutton’s supporters can get forty-three MPs and senators to sign the petition — they couldn’t do so last night, but last night was a long time ago — then Turnbull will call a party meeting for midday Friday. Someone will then move a motion to spill the leadership positions. If that motion fails, Turnbull will remain PM. If it passes, he promised today, he won’t contest the position, making way instead (we assume) for Scott Morrison.

Some may recall that Turnbull promised a similar procedure when Tony Abbott launched his leadership challenge in 2009 — only to renege when the spill motion passed by just one vote. Turnbull then renominated, against not only Abbott but also his own intended successor, Joe Hockey. Turnbull beat Hockey, but lost to Abbott in the runoff. He and Morrison should remind themselves of that.

This dramatic turn of events was triggered this morning when probably the most respected figure in the government, finance minister Mathias Cormann, led a group of three ministers previously in Turnbull’s camp to tell the PM that he had lost the support of the party room, and that they had switched their support to Dutton.

Tuesday’s party room was an earthquake, but the PM survived it. Cormann’s decision was a devastating aftershock that has left him tottering. Unless the solicitor-general opines against Dutton, the house of Turnbull seems likely to crumble tomorrow. If so, Australia’s new prime minister will be either Peter Dutton or Scott Morrison.

Who? Why? If you follow the polls, this is bizarre. Just two weeks ago, Essential Research asked Australians who they wanted to lead the Liberal Party. Their answers were:

PREFERRED LIBERAL LEADER

                              All voters    Liberal voters
                                                %                  %
Malcolm Turnbull              38                 55
Julie Bishop                         29                 12
Tony Abbott                        14                 14
Peter Dutton                       10                 13
Scott Morrison                      9                   7

We have heard Dutton supporters like Concetta Fierravanti-Wells justify pulling down their leader by claiming to represent the party base. It is pretty clear that they don’t.

Then there was last night’s ReachTEL poll — commissioned by the CFMEU, sure, but it’s a straightforward poll. Asked whether Dutton as prime minister would make them more or less likely to vote Liberal, 55 per cent of Australians said it would make them less likely, and just 23 per cent said more likely.

Even among Liberal voters, 50 per cent said they would be less likely to support the party if Dutton became its leader (that’s the party base!); just 29 per cent said Dutton would make them more likely to vote Liberal. Only Nationals and One Nation voters wanted Dutton rather than Turnbull. Liberal, Labor, Greens, others and undecided voters all heavily preferred the guy who’s there now.

Then there was yesterday’s Morgan poll, carried out by SMS, testing how Turnbull and Dutton respectively stand up against Bill Shorten. It found that Turnbull still maintains his usual lead over Shorten, by 52 per cent to 44.5. But under Dutton, that would swing around dramatically, with Shorten preferred by 59 per cent of voters, and Dutton by only 36.5 per cent.

What is going on here? We are used to leadership challenges every two or three years now, but usually they are aimed at saving the party from defeat. This one appears more likely to ensure its defeat. It looks like electoral suicide.

Turnbull’s parting words today were to say that if the spill motion succeeded, the new leader should seek an immediate general election. I think he is right. An early election to resolve the issue would be in Australia’s interests, and that of the new leader himself.

If Dutton becomes prime minister, it is difficult to see him surviving an immediate vote of no-confidence in the House. Of the crossbenchers, only Bob Katter would be likely to back him in a confidence vote. Turnbull would probably be somewhere else. Several National MPs — Kevin Hogan, Darren Chester and Damian Drum — have hinted that they might not support him, and who knows what the Turnbull supporters might do.

If Scott Morrison emerges, like Steven Bradbury, as the last man standing, he will have to tie his hands by making huge compromises to keep the party together. He would be relying on goodwill, and there doesn’t seem to be a lot of that around in the Liberal party room. Many of those on both sides of the divide will want ministries: Tony Abbott for one, and many of those now supporting Dutton. To put a ministry together would put a lot of people’s noses out of joint. He would have to work flat out to keep everyone on side.

And then there is the small matter of climate change policy. The government can’t go to the voters without one, but the PM would be in a weak position to get his way. The polls show an overwhelming majority of Australians want the government to do more on climate, and the Abbott camp has become feral in demanding that Australia instead openly break its Paris commitment to reduce emissions.

Dutton would have no choice but to seek an immediate election. Morrison might be tempted to sit it out. He is not the first choice of many Liberals, but nor has he many enemies. Given that Cormann is in the Senate and hence ineligible for leadership, Morrison is probably the closest thing the Liberals have to a consensus candidate. He could probably win a confidence vote in the House, which would give him time to choose.

The election does not have to be held before next May; that’s still nine months away. Morrison, like all politicians, has a high opinion of his own abilities, and might believe that he could use that time to build up support, define his own agenda, and work to heal the wounds that the last month has created.

But it would be a miracle if those compromises are enough to do the job. The divisions in the party are too wide to be closed by what goodwill the party room might grant him.

If an election is to be put off until May, then there is no valid excuse for denying Liberal Party members their right to choose who represents them. Those preselections would further inflame tensions between the moderates and hardliners.

And while every new leader is greeted with some goodwill from the electorate, it doesn’t last long. Malcolm Turnbull was leader for nine or ten months before the 2016 election: early on he reached stratospheric poll ratings, but by the time the election came, he was in freefall. Had the election been held a month or two later, Labor could well have won.

The events of the past two weeks have shown us that those on the hard right of the party think they own it. Their words and actions suggest that they think they are the only true Liberals, that they alone represent the party base, and the liberal wing of the party consists of interlopers like Turnbull.

This is completely false, of course, but a Morrison victory in the party room would not change their minds. Dutton too would have his problems.

The bottom line is that, even with the polls as bad as they are, the new leader might be well advised to go straight to the voters, and seek a mandate in his own right.

Of course it is unlikely that the Coalition would win the election: ReachTel found Labor ahead after preferences by 53–47. The average of the previous three polls, all by different companies (Newspoll, Essential and Fairfax–Ipsos), was also 53–47. On those figures, it would be a Labor landslide.

But a new leader would gain some bounce from being new, and there is no good reason to think the Coalition would do any better next May. If he wins the campaign, he could well become a party hero, as Paul Keating did in 1993, by winning an election that seemed to be unwinnable.

That would allow him to govern from a position of strength. It would give him more chance to control the party room, shape the consensus on issues, and use the powers of a PM to whip the party into line.

He would still have Tony Abbott to deal with, but with Turnbull gone, maybe that could be an easier task. He would still have to push and prod the party into a sensible policy on climate change, and establish a sense of overall direction, a reform agenda. None of this would be easy.

And, of course, it is more likely that Labor will win the election whenever it is held. But the most likely course is that the right wing of the Liberal Party will not be able to handle its differences with the left sensibly until it has spent years in opposition — and Tony Abbott has left parliament. ●

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In politics, disunity is death. Labor is already an odds-on bet to be in government within months. A disunited Coalition could be facing a long period in opposition.

That is now its normal place in Australian politics. In the thirty-five years since Bob Hawke led Labor to victory in 1983, Labor has governed most of the time, at national level and in all six states. The Howard era was the outstanding exception; but John Howard has been the only Liberal leader since 1983, federal or state, to win more than two terms.

Once the natural parties of government, the Liberals and Nationals have become the natural parties of opposition. And many of them are at home in that role. As Norman Abjorensen has argued, politics on the right has become “a form of cultural protest” as much as a movement that aims at winning political power.

But why did this happen? How did a Coalition that dominated Australian government for most of our history become so divided that it cannot agree on a policy to tackle climate change — an issue that is not even a partisan matter in most Western countries?

All parties of any size are coalitions of people with differing views. The larger the party, the wider the range of views. There’s nothing unusual about that; Robert Menzies too had his dissidents. There will always be some on the left of the party and some on the right; that’s natural. It’s a question of how their differences are handled.

In the Liberals’ golden era of the fifties and sixties, leaders were in a strong position to shape the terms of consensus on issues. The party rooms were full of men who had served in the war and were used to respecting authority. Politics was less intense, and leaders had more time to spend with ministers and backbenchers, define the consensus, and make it stick.

The Liberals and the Country Party of the time were parties of the centre right. Menzies was not averse to compromise. When he retired as prime minister, the journalist Alan Reid wrote that to call Menzies a conservative was to stretch the meaning of the word to the limit. “On his record, probably the most accurate description of him within the framework of domestic politics is that he is a cautious reformer,” Reid wrote.

John McEwen, the dominant Country Party leader in that era, achieved one of the greatest transformations of Australian policy when he persuaded his party and the Liberals to set aside their strong anti-Japanese feelings in 1957 to approve a trade agreement with Japan. Labor, which claims to be the internationalist party, opposed the deal, but McEwen — in the end, backed by Menzies — had the courage to take on his own side of politics and make them see that realities had changed, and they had to let go of their old antagonisms and move on. Labor eventually followed.

Thirty years later, another conservative was the first political leader to take seriously the risks of climate change. Margaret Thatcher was a cultural warrior of the first order. But she was also a former researcher in chemistry, the first British prime minister with a science degree. As PM, she was instrumental in setting up the intergovernmental panel on climate change — although later, in a retirement that sadly ended in senility, she changed sides to line up with her fellow cultural warriors.

But the example she set in office stuck. Britain under its conservative government today is phasing out coal and has become a global leader in renewable energy. Germany under chancellor Angela Merkel, another conservative, is now generating almost 40 per cent of its power from renewables.

France under its last conservative leader Nicolas Sarkozy had similar ambitions. The United States, of course, is on a totally different path, but it is alone in that.

So why is Australian conservatism so different? It’s hard to disagree when Norman Abjorensen argues that part of the problem is that contemporary conservatism has no “cohesive set of beliefs or values,” and can unite only in opposition to others’ policies.

Tony Abbott is a prime example: as a student politician in the seventies, his crusade was against feminism. As opposition leader, he crusaded against an emissions trading scheme (and much else). And now, as a Liberal backbencher, his crusade is against the man who overthrew him as prime minister, Malcolm Turnbull.

When rising temperatures forced climate change onto the political agenda, the reaction of most Australian conservatives — and crucially, John Howard — was to treat it as pure politics. Global warming was a core issue for their political opponents: that in itself was reason to reject it. Taking action would hurt the interests of Coalition donors in mining and related industries; that too was reason to reject it.

What science told us was irrelevant. Geologists like Bob Carter and Ian Plimer were paraded by conservatives as if they were experts on atmospheric physics and chemistry. A culture of denialism took root, dignified as “scepticism” — which it wasn’t, as sceptics are open to evidence, and the denialists weren’t. The evidence of global warming is now overwhelming. But how many of those Howard-era “sceptics” have accepted that evidence?

Howard himself did in his last year or so in office, persuaded by his department head, Peter Shergold, and his ebullient young environment minister, Malcolm Turnbull. He and his cabinet committed Australia to an emissions trading scheme. (Alas, in retirement, Howard, like Thatcher, has slid back into the camp of the cultural warriors and denialists.)

The Coalition’s commitment to act against climate change was shallow, and grew weaker as Kevin Rudd cynically used the issue to try to divide the opposition rather than seek national unity on “the greatest moral challenge of our time.” Rudd never condescended to negotiate with the Greens, and negotiated with the Coalition only when it became clear that he needed its numbers to get the bill through the Senate. It was too late. The Liberal party room dumped Turnbull as leader, and Abbott became his successor, pledging to block emissions trading or anything like it.

On the eve of that party-room vote, I wrote in the Age:

Make no mistake. The division that has opened up in the Coalition on climate change could cripple it for a decade. This is the worst threat to Coalition unity in our lifetime… Whoever leads the Liberals, there is only one way this dispute could end. One day, all of them will have to agree that global warming is a problem that governments cannot ignore, and support emissions trading or a carbon tax to fight it.

I got two things wrong. Like most people, I expected Joe Hockey to emerge from the party room as the new leader. And I assumed that the Coalition would have a showdown long before now to end its denialism and forge a genuine climate change policy. That has been postponed, so that the decade in which disunity on climate change will cripple it has only just begun.

It’s easy to blame Turnbull for this. But many others share the blame — above all, three successive leaders of the Nationals, who have insisted that Turnbull take little or no action. The main victims of climate change in Australia, as we are seeing, are the farmers. For decades they have been the Nationals’ core constituency. But in the past decade, their political leaders have betrayed them to cosy up to the big money of the mining industry.

Lest we forget: when Malcolm Turnbull was elected Liberal leader in 2015, the Nationals’ leader, the otherwise sensible Warren Truss, demanded that he foreswear real action against climate change as the price of maintaining the Coalition. Turnbull, too eager to smooth the waters after his victory, promptly agreed. Possibly he felt he could renegotiate the deal from a stronger position after the 2016 election. Or possibly, he just wanted to be prime minister, and didn’t care what it took.

The ostrich faction of the Liberals is also to blame. The hotter the climate gets, the more of them seem to retreat into denialism. In most of Australia, the Liberals’ shrinking party branches increasingly comprise a narrow base of cultural protesters rather than the broad base of mainstream Australians they had when national development was the issue.

Whoever leads the Liberals into the next election will confront the same dilemma as Turnbull. Australia is the second-biggest emitter per capita of greenhouse gases in the G20, behind only Saudi Arabia. In Paris, Abbott pledged to reduce Australia’s total emissions in 2030 to at least 26 per cent below 2005 levels. We cannot walk away from that.

(The deputy prime minister and my ABC colleagues might note: that pledge was to reduce our total emissions by 26 per cent, not just emissions from the electricity sector. As I have pointed out in a table here, total emissions and emissions from electricity generation are moving in very different directions. We cannot reduce our total emissions by 26 per cent without making much bigger cuts to emissions from the electricity sector.)

Turnbull could have handled it much better. In hindsight, he must regret allowing the Nationals to tie his hands as the price of becoming PM. Nothing has damaged his credibility with voters more than his endless retreat from the commitments on climate change that once defined him in our eyes. He has survived this test of party-room support, but he will need a lot of luck or inspiration to get out of this escape room.

Turnbull was the Liberals’ big opportunity. He won them the 2016 election, and no other leader was more likely to steer the party back to the centre-right position it occupied in Menzies’s time. That is impossible now.

Both the Liberals and the Nationals need a new John McEwen, willing to sit down with his own MPs and senators and, by persuasion or banging heads, get them to see that realities have changed, and they need to let go their old antagonisms, and move on.

That could be a decade away. Until then, the Liberals and Nationals appear headed for another spell in opposition, and it could be a long one. •

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The government wants a deal the Coalition can unite behind — one so nuanced that both its realists and its climate change deniers can support it — while convincing the public that the policy will actually reduce prices, improve network reliability and reduce emissions.

To achieve that, the plan has to win the support of the electricity industry — which, by and large, it has done — the states, which appear to be holding out, and probably the federal Labor Party, which is yet to declare its hand.

Long negotiations have seen the plan’s details change repeatedly, and there will be more changes ahead. The silliest comment being made now is that this is “the only plan on the table.” Yes, this week, it is. But before that we had many other plans — the Finkel report’s clean energy target, the Climate Change Authority’s emissions-intensity scheme — as well as many variations of this one, with more to come.

The negotiations that really matter have been within the Coalition. They have been between the Liberal Party and the Liberal Party — and, of course, the National Party. The Turnbull government and its Energy Security Board have made numerous concessions to try to win over those in the Coalition ranks who are opposed to doing anything to tackle climate change. The most important of these concessions is that it offer no concessions to Labor.

So far, Malcolm Turnbull and Josh Frydenberg have offered no significant compromise to win the support of federal Labor or the Labor-run states. That may change in the weeks ahead. But right now it is asking them to give bipartisan endorsement to a deal that has been negotiated entirely within the Coalition, tramples on Labor’s own policy, and would mean that Australia effectively abandons our share of the Paris agreement to cut greenhouse gas emissions worldwide.

There are differences within Labor ranks over what to do, at least ultimately. In the short term, they are playing for time, and demanding that the Commonwealth decide its position first — in the Coalition party room — before asking the states to come on board.

The Turnbull government is insisting that the states agree to the plan first before it goes to the Coalition party room — where it could well be changed. The Labor states, not unreasonably, are insisting that the Coalition should decide first what its policy is, before putting it to them.

Who will give way? Would the government dare to put the plan before the party room before it has got the Labor states to commit? If not, why not?

If it does intend to make concessions to try to get a genuine bipartisan agreement, this might be the best time to reveal them. Otherwise, why expect Labor to endorse a policy that is radically different from its own — above all, one that would cut emissions from the electricity sector by only 26 per cent between 2005 and 2030 — which it had no say in drafting?

The consequences matter. In Paris in 2015, the Abbott government committed Australia to cut its total emissions in 2030 by at least 26 per cent from 2005 levels. While Tony Abbott wants Australia to now walk away from that, the Turnbull government still officially upholds that pledge.

But the cheapest place to cut emissions is in the electricity sector, where old emissions-intensive coal-fired power stations can be replaced with emissions-free energy from the wind and the sun — backed up by batteries and hydro storage. It would be prohibitively expensive to make similar cuts in Australia’s other major sources of emissions: agriculture, transport, industry and mining.

The emissions target for the NEG means that Australia would effectively abandon its commitment under the Paris agreement. If emissions in the electricity sector are to fall by only 26 per cent, it will be impossible to meet our commitment to reduce total emissions by 26 per cent.

The government’s own figures show how Australia’s emissions have progressed since 2005:

Emissions from electricity generation in the second half of 2017 were about 10 per cent below 2005 levels and declining. But combined emissions in industry, transport, agriculture and mining were up 15 per cent and rising. It is completely unrealistic to expect that they can decline at the same pace as emissions from electricity generation — as the NEG targets imply.

Those who argue for the NEG as it stands — all the business groups and the mainstream media — are effectively calling on Australia to abandon its Paris commitment. They never admit that, and nor does the government, but it follows inescapably. How could Labor agree to that?

Well, Labor too is in the business of trying to win elections. And it knows that, above all, Australia is fed up with the climate wars that have divided us for the past decade. Ordinary Australians and the electricity industry just want an agreement, any agreement, that will end the debate, and allow us to move on to something else.

If the government refuses to compromise, Labor’s feet will be held to the fire. If it stands up for the Paris agreement, it will be attacked by the government and the mainstream media for wrecking the so-called “experts’ plan” to end the climate wars — and that could lose it seats and support to the Coalition.

If it accepts the NEG in its current form and effectively abandons the Paris agreement, it will be seen as betraying its supporters, like Kevin Rudd did in 2010 — and that could lose it seats and support to the Greens.

The short-term political equation is that Labor can lose seats to the Greens and still form government. But if it loses seats to the Coalition, it risks its chances to form government.

The longer-term political equation is that if Labor forms a government after accepting the Coalition’s emissions target written in law — as the Coalition is demanding — it will have to try to get the Senate (and possibly the states) to amend that law after the election. That would be difficult, even impossible; as I have argued elsewhere, Labor is likely to face an unfriendly Senate even if it wins comfortably in the House. But it is unrealistic to think that Labor can govern successfully with this policy.

If the Coalition can get the NEG past the Labor states, past the party dissidents, past the Senate, and then win re-election, we would have three years of the policy security its Energy Security Board has promised.

But energy companies will not make long-term investments if they are secure under only one side of politics. Long-term policy security — and the consumer savings the board predicts will flow from that — will come only if there is genuine bipartisan agreement.

This policy is not it. If the Turnbull government wants the NEG to have genuine bipartisan support, it has a number of options to make changes to achieve that. So far, it has rejected the lot.

● The only way to provide certainty to investors is through a bipartisan agreement on Australia’s overall emissions target for 2030. There is room to do so, because Labor’s leaders must be aware that their current target of a 45 per cent reduction in emissions is quite unrealistic. Instead, the Turnbull government has moved the other way, trimming Australia’s Paris commitment to reduce emissions from 2005 levels by “26 to 28 per cent” by 2030 to just 26 per cent.

● The government could have asked Labor to accept Australia’s Paris target, and in return set a realistic target to reduce electricity emissions by 2030 — say, by 45 to 50 per cent — to ensure it is met. Instead, the Coalition has pledged to reduce electricity emissions by just 26 per cent. Since it is not possible to reduce other emissions by 26 per cent, that ensures that Australia will not meet its Paris commitment.

● It could have offered Labor a mechanism that would allow the government of the day to change the emissions target, by setting it as a regulation. Instead, it is insisting that its target be adopted in legislation, so that a future government would need to pass another bill through both houses to amend it.

● It could have allowed state governments to set their own renewable energy targets to provide further emissions reduction. Instead, it insists that the NEG disregard these targets, making them useless, because lower emissions in one state would allow higher emissions in another.

This is not minor nit-picking. The Paris agreement is the most important international agreement of recent years. The commitments each country made are crucial to achieving progress, however inadequate, towards reducing the pace and extent of global warming. Australia already produces the highest per capita emissions of any country outside the Middle East. We cannot walk away from our pledge.

I have repeatedly defended the government’s commitment to cut our emissions by 26 to 28 per cent against criticism from the left that it is too small; in fact, it requires us to halve our per capita emissions in a generation. Yet with each year showing how real the threat of global warming is, it is bizarre that the target is now under attack, openly or surreptitiously, by those who wrote and supported it.

It is misleading to call the NEG “the experts’ plan.” Malcolm Turnbull created the Energy Security Board to sit above the three existing electricity agencies, and brought in his old colleague Kerry Schott, a veteran problem-solver who worked with him for years at the Turnbull Wran merchant bank, to come up with a fix that would meet his political objectives. And that she has done.

The plan is tailored to meet political objectives. And whether it can achieve its professed goals — knocking $150 off the average household electricity bill, guaranteeing electricity supply, and lowering emissions — is debatable for prices and security, and clearly impossible for emissions, where its own modelling predicts it will have virtually no impact.

The technical debates about the merits of the NEG are another story, which I will not enter here. It is certainly true that the plan now has consensus support from the electricity industry, but it is far from clear how great an improvement, if any, it will actually make. The supposed $150 per household saving appears to have been plucked out of thin air. The report’s claim that most of it will come from “unleashing new investment” is contradicted by its own modelling, which forecasts minimal change to generation capacity compared with what would happen anyway.

I can only refer those interested to the best of the criticisms: by Victoria University energy analyst Bruce Mountain in the Financial Review (paywall), by Giles Parkinson in Renew Economy, and by Simon Holmes à Court in the same publication today.

The case for the scheme has been put best by Australian Industry Group chief executive Innes Willox today in the Age. But his argument that the Labor states should just pass it now and try to fix it later really defies the political law of gravity. The time to fix it is now, before it becomes law. It would be much harder to do so afterwards.

The government has rejected other plans that were once the only game in town: the Finkel report’s clean energy target, and the emissions-intensity scheme for the electricity industry (Labor’s preferred option, and in my view the best politically plausible option that has been put on the table). And, of course, it rescinded Labor’s carbon tax, which by now would have seen an emissions trading scheme covering most of the economy.

The government rejected all of these because of opposition from party hardliners. For the same reason, it has refused to compromise with Labor now, even though it knows that without that, it cannot achieve a genuine, lasting bipartisan agreement that will unlock investment.

No company is going to build new coal-fired stations, or gas-fired stations unless gas prices fall. We now have three million homes producing solar power or hot water on their rooftops, but only a fraction of those producing solar power can store it for when it’s needed. And across the country, solar and wind farms have gone up far in advance of the batteries or pumped hydro plants that could store their power to use at peak times. Those crucial storage investments will be in doubt without a bipartisan blueprint to meet Australia’s Paris commitment.

So far, the Turnbull government has not even tried to reach a genuine bipartisan deal. The inescapable conclusion is that the Coalition in its current state is incapable of negotiating an agreement. If Frydenberg offered Labor a deal it could accept, that deal would be rejected by the Coalition’s own backbench.

That will not change until the Liberals and the Nationals have leaders like Gough Whitlam or Bob Hawke who are prepared to take on those in their own party who are blocking the way to a realistic policy. There is no sign of that now. It might be years away. ●

The post On the National Energy Guarantee, it’s Libs versus Libs (and Nats) appeared first on Inside Story.

He’s hardly alone in that right now. I’ve lost count of the number of commentators who have told us that a “normal” by-election swing is 5 per cent to the opposition. That might be true if your “normal” by-election is in a government-held seat. But it’s certainly not true for by-elections in opposition-held seats — as all of Super Saturday’s by-elections were.

They are very different. First, governments rarely contest them. In the past thirty years, before Saturday, there had been nineteen by-elections in seats held by the opposition — but the government of the day contested just two of them. And when they did contest them, the swings went either way.

Since Federation, until Saturday, there had been just sixty by-elections in opposition seats. In half of those, the government of the day didn’t contest the seat. In another one, it hadn’t contested the previous election, making it impossible to estimate a swing.

There have been just twenty-nine contests where a two-party swing can be estimated, and they have produced wide-ranging results. But until Saturday, the average swing to the opposition in by-elections in its own seats was just 1.5 per cent.

Fifteen by-elections recorded swings to the opposition. Fourteen by-elections recorded swings to the government. Some swings were very large, in both directions, but most were small. Even in the past thirty-five years, when resignations replaced deaths as the main cause of by-elections, the median swing to the opposition was just 1.2 per cent.

Yes, it is true that governments have won seats from the opposition only twice: in 1904 and 1920. But of the thirty contests the government sat out, the opposition lost three of them to other parties or independents — including Labor losing Cunningham to the Greens in 2002, and the Nationals losing Lyne to Rob Oakeshott in 2008. That’s recent history that underlines how vulnerable any seat-holder can be at by-elections.

My source for all this is the wonderful database of election results amassed by psephologist extraordinaire Adam Carr, on his Psephos website. That is supplemented by a useful Parliamentary Library paper, “House of Representatives By-elections: 1901–2017,” by researcher Stephen Barber.

The estimates of the swing at each by-election are Adam Carr’s, at least until the 1980s, when Hawke government minister Robert Ray made it a rule that all preferences should always be counted.

Carr’s data shows there is a very clear difference between by-elections in government seats and those in opposition seats. Stephen Barber estimates that between 1949 and 2017 the average swing to the opposition in government seats was 4.7 per cent — roughly the swing recorded against John Alexander in last year’s Bennelong by-election.

By-elections in opposition seats are sometimes like that, if voters use them to give the government of the day a spanking. As the panel below shows, six of the twenty postwar by-elections of this genre have recorded big anti-government swings. Gough Whitlam rode a 12.4 per cent swing when he entered parliament at a by-election in Werriwa in 1952, when the Korean war wool boom and wage indexation sent inflation soaring above 20 per cent. In 1973, as prime minister, he copped a 7 per cent swing in the Parramatta by-election against his government’s plan to site Sydney’s second airport directly north, at Galston. And when he retired from politics in 1978, Labor won another 12.1 per cent swing as the electorate punished the Fraser government for brazenly breaking its election promises. 

But these are the exceptions, not the rule. In our times, if the government fears a bad reception, it doesn’t stand a candidate. This began with Menzies, but the Liberals set a new record on Saturday by refusing to stand even in Perth, which Labor held last time by just 3.3 per cent.

To state what should be obvious: if the government was expecting a swing of 5 per cent against it, or even 3 per cent, it would not have stood candidates in Braddon, Longman or Mayo. It contested these seats because it thought it could win them.

It delayed the elections for three months until a date it thought was ideal for its chances: the weekend on which Labor was scheduled to hold its national conference. Turnbull told us they were a referendum on Bill Shorten’s leadership: he didn’t say that because he thought it was a referendum Shorten would win.

The swings against the government after preferences in these three seats, on current counting, average 2.4 per cent. If that doesn’t sound like much, remember that all three saw huge swings against the government in 2016: 4.8 per cent in Braddon, 7.7 per cent in Longman and 17.5 per cent in Mayo. The Liberals were expecting to win some of that back. Instead, they lost on Saturday by even more.

And in Longman, they benefited this time from a larger One Nation vote, with a how-to-vote card preferencing them instead of Labor. I have pointed out before that the vast majority of One Nation voters do as they please on preferences, but One Nation’s 16 per cent of the vote should have swung another 1.5 per cent or more to the Liberal National Party. The 3.7 per cent swing recorded on current figures masks an underlying swing against the government of more than 5 per cent.

Why does that matter? Well, the Turnbull government is in power because it won a lot of seats in Queensland in close contests.

Eight of its seat there are held by margins of less than 4 per cent: on Antony Green’s calculations post-redistribution, Capricornia (0.6), Forde (0.6), Flynn (1.0), Petrie (1.6), Peter Dutton’s seat of Dickson (2.0), Dawson (3.3), Bonner (3.4) and Leichhardt (3.95).

The government is already going into the next election two seats down as a result of the redistribution in Victoria. It can’t afford to lose significant ground in Queensland. As things stand, this by-election result suggests it will.

So Turnbull and his ministers are turning to the task of changing the way things stand. There will be no company tax cuts for the top end of town, even if Derryn Hinch’s proposed compromise is adopted. That money could be redirected to something electorally popular: perhaps bigger personal tax cuts, perhaps more health spending — perhaps even making its claims of record infrastructure spending a reality, rather than using them to cover up a diminishing infrastructure spend ahead.

Who knows, the Coalition and its media entourage might even abandon their incessant campaign to persuade Australians that Bill Shorten is too awful a person to be entrusted with the job of prime minister. I have made my criticisms of Shorten clear, but as someone (I think, Laurie Oakes) put it once, Turnbull has a tin ear. Voters do not love Bill Shorten, but they don’t see him as an ogre, and they switch off when the Liberals and their media supporters try to depict him as such.

It is sad to see Turnbull, who once stood for something better, engaging in gutter politics, avoiding any hard decisions — especially on climate change, where his government has now effectively abandoned Australia’s pledge under the Paris agreement — and relying on rosy forecasting to hide the still-parlous state of the budget the Coalition had promised to fix.

Malcolm, if I may, one piece of advice. The people you have lost are broadly those in the political centre. They are looking for the values you promised to bring to politics: adult conversation about issues; an end to mud-slinging and personal attacks on opponents; respect for truth and objective facts; respect for people; and willingness to look ahead, plan for the long term and explain the issues to voters.

That is the new politics they thought you would bring to replace the thirty years of leaders who tried to divide us and rule. The election must be held by May. You have nine months to regain the goodwill you have squandered since 2015. ●

The post What it means to lose the political centre appeared first on Inside Story.

Initial hopes of a quick diplomatic solution have been dashed. Instead, Donald Trump has widened the conflict, and promised to widen it further, massively. It is not clear when, or how, it will end — and the damage could be significant, to China and the world.

Last Friday, global experts on the Chinese economy gathered in Canberra for the Australian National University’s annual China Update. The plan was to look back over the triumphs and tribulations of the forty years since former Chinese leader Deng Xiaoping began steering the country towards market reforms in 1978. But any nostalgia was overshadowed by alarm at where this trade war could take us.

There was no consensus about what China should do to try to end the dispute, and it seemed useless to discuss what the United States should do. And there was no dissent when keynote speaker Professor Yiping Huang, of Peking University, warned that this war could be a long one.

Economic and political issues have become entangled, he said. There are four separate issues, and their rights and wrongs are mixed. No obvious and politically plausible solution exists — even if it were clear that Trump wants the dispute solved, which it isn’t.

In case you’ve spent the last month hanging out in some deep cave in Thailand, I should recap. On 6 July the Trump administration imposed US$34 billion per year in punitive tariffs on Chinese exports to the United States, with US$16 billion more to come. Four days later, after China retaliated in kind, Trump ordered officials to prepare tariff hikes on a further US$200 billion of Chinese exports. All this is in addition to his earlier hikes on imports of steel and aluminium from virtually anywhere — and his even earlier tariffs on (mainly Chinese) solar panels and (mainly Korean) washing machines.

The United States says its actions are intended to redress its merchandise trade deficit of US$370 billion with China and Hong Kong, and to retaliate for various alleged Chinese actions, including the widespread theft of US intellectual property, hidden state subsidies for Chinese manufacturers, and a services sector that remains largely closed to foreign firms despite repeated promises to open it up.

At the gathering of experts, an hour-long session allocated to the dispute ran thirty-five minutes overtime as various solutions were debated and discarded. The Australian contingent mostly urged China not to retaliate, as that would only widen the dispute. Modelling by the ANU’s Jenny Gordon had found that the potential loss of confidence among global investors would do more damage than the tariffs themselves.

But to do nothing is politically unfeasible, replied the Chinese economists, and the Americans — none of whom supported Trump’s actions — agreed. Harvard University’s veteran China-watcher Dwight Perkins intervened to point out that the dispute was seen as primarily a political rather than an economic issue in the United States — and it has only strengthened Trump politically.

“You’re not winning the war in terms of what [American] people think should happen,” Perkins told his Chinese colleagues. “It’s a Trump victory. He can be the centre of attention, and [in his mind] he’s got to be the centre of attention.” Far from abstaining, one way China could help end the conflict would be by imposing retaliatory tariffs on US imports. “Anything that hurts politically might be a partial road to a solution,” he said.

So far, the United States has presented China with unilateral demands; to comply with them would be intensely humiliating for president Xi Jinping, whose foreign policy is focused on China asserting its proper place in the world. Within the United States, Trump seems to be under no pressure to find a solution, and his redneck base loves to see him taking on China. It is not clear what compromise solution Trump would accept.

The Nikkei Asian Review this week published an intriguing piece by Katsuji Nakazawa that joined the dots on a series of apparently unrelated events to speculate that some in the Chinese hierarchy might be pushing back against Xi’s handling of the issue. Nakazawa claims there is a growing realisation among the elite that a protracted dispute could cost China heavily, on many fronts. I have no idea whether he is right, but those risks are real.

And it is not just China’s problem, it is the world’s. Professor Huang cited the iPhone: while it is exported from China, he said, it is simply assembled there, from components mostly made in other countries — Taiwan, Korea, Malaysia, wherever. “It might cost US$500 in the US, but only 5 per cent of it is made in China,” he said. Yet the new US tariffs are based on the full US$500 value.

China has become the assembly plant of the world, and Chinese economists have estimated that almost two-thirds of the value of its exports come from other countries, as imported raw materials or components (such as Australian coal and iron ore). An extended trade war between China and the United States would cause fallout everywhere.

What to do? The economists universally denounced the idea that the United States is entitled to discriminate against Chinese imports because it has a trade deficit with China. International trade is never balanced. Last year, for example, Australia ran a combined $60 billion surplus on trade in goods and services with China and Hong Kong, but a deficit of $25 billion with the United States. On Trump’s logic, we would be entitled to impose discriminatory tariffs on US exports, and China would be entitled to do the same to us.

But Professor Huang suggested that China should give ground on the issues where the US demands match its own reform plans. Intellectual property, for example: Chinese reforms are already well under way, and are bearing results — Chinese courts have upheld the claims of foreign firms in 85 per cent of cases they have brought alleging intellectual property violations by Chinese firms — but there is more work to do.

“Protection of intellectual property rights is in the interests of the Chinese economy,” Huang added. “Without protection of intellectual property rights, there is no future for the economy.” (Especially as China aims to become a global leader itself in high technology.)

Similarly, China has already reduced its import tariffs over the past twenty years from 43 per cent on average to 15 per cent (when it joined the World Trade Organization in 2001) and then to 10 per cent. But it should do more to open up to the world, especially in services. This was part of the reform agenda Xi Jinping set out in 2013, but it has gathered dust as his priorities have shifted.

Others at the conference joined Professor Huang (whose views are encapsulated in his recent commentary for the Financial Review) in questioning other aspects of the US case against China, such as its claims of hidden support for manufacturing exports. Nicholas Lardy of Washington’s Peterson Institute for International Economics estimated that while China’s state-owned enterprises receive the bulk of lending from state-owned banks, they now produce only 8 per cent of manufacturing output. Indeed, China’s lending policies seem to discriminate against the very firms it is relying on to lead its transition into high tech, as envisaged in its Made in China 2025 policy.

Many other interesting issues were raised at the conference, with speakers exploring some of China’s vulnerabilities and recent shifts. Among other things:

● Wang Xiaolu, deputy director of the National Economic Research Institute in Beijing, noted that colossal overinvestment in the past decade means that industry is now operating at only 60 per cent of capacity. (In Australia, around 80 per cent is normal.) The overinvestment also left firms with massive debts: his unofficial estimate is that their debt-to-equity ratio is now 2.5–1, compared to half that a decade ago.

● Xin Meng and Bob Gregory, of the ANU, told the conference that net migration of rural workers to the cities has effectively stopped, without explanation or obvious cause. Dr Meng said one hundred million workers moved from farms to cities in the decade to 2007, but migration has virtually stopped in the past three years, with farm workers instead staying in their villages and earning second incomes by working in the local town.

● There was lively debate over whether China is still a state-dominated economy. Nicholas Lardy noted that the private sector now generates between 70 and 75 per cent of its GDP, provides 85 per cent of employment, and produces 90 per cent of exports. The government sets prices for only 2 per cent of retail sales, and 10 per cent of producer purchases. Moreover, he said, China has an extraordinary level of competition; very few industries are dominated by a handful of firms.

● But Professor Barry Naughton, of the University of California, San Diego, argued that the Chinese economy will remain state-dominated as long as the government controls finance and attempts to steer enterprises to its will. While industry is mostly in private hands, he said, the state still dominates the financial sector, communications, education and the scientific and technological frontiers.

● Naughton also joined conference founder and co-host Ross Garnaut in warning against the increasing role President Xi has given to Communist Party committees within state enterprises. Those changes, he said, mean that “the major decisions must be made first by the party committee, then by the enterprise board.” This trend has matched a stunning fall in the rate of return earned by state-owned enterprises, from 6.7 per cent in 2007 to an average of 3 per cent over the past three years.

Professor Garnaut, now at the University of Melbourne, was generally optimistic about China’s prospects. But he warned that many state enterprises are losing money and that “increased centralised concentration of authority” carries risks for China in a world where high-income countries are overwhelmingly democracies. (Indeed, Professor Huang unearthed a 1997 paper by Garnaut, his old mentor, in which he forecast that China’s increasing role in the world was likely to see established Western countries push back against it — prophetic words!)

China is certainly trying to slow or reverse its colossal overinvestment in steel, aluminium, and coal-fired electricity. But these are huge ships, and they take a long time to turn around. China still burns more coal than all other countries combined; last year it produced 57 per cent of the world’s aluminium and 49 per cent of its steel. The damage this overinvestment has done to the world’s economy and climate will take decades to unravel.

Even now, with air pollution in Chinese cities at critical levels and more than a thousand coal-fired power plants closed or shelved, China remains the main driver of global coal demand. The Global Coal Plant Tracker published by anti-coal campaigners CoalSwarm shows that almost half the world’s new coal-fired generation under construction is in China. That’s a lot less than in the past decade, when China built 70 per cent of the world’s new coal-fired generation. But even in 2017, after global commitments to new coal generation had shrunk to just a third of their 2015 level, the International Energy Agency reported that half of the remaining investments came from China. It will be a long time before this story plays out.

One last word. Justin Yifu Lin is probably China’s best-known economist. That’s surprising, since he was born in Taiwan. A rugged guy, he was an officer in the Taiwanese army when, guarding an island in the strait separating China from Taiwan in 1979, he decided to defect — by swimming to the nearest Chinese island. When his bona fides were eventually accepted there, he migrated to Beijing and studied economics. A Chicago PhD followed, and much else, including a stint as chief economist of the World Bank from 2008 to 2012.

These days he too is a professor at Peking University, and his speech to the conference celebrated China’s achievements. China, he told us, would be a high-income country by 2025, escaping the “middle-income trap” that had seen other countries’ growth rates slow down as they left poverty behind.

China’s productivity would grow much faster than that of the United States, he said, because of the rapid improvement in average education levels, the advantages of being such a huge economy and thus able to enter every new field, and the “inherent ability” of its people. He pointed to a global study of the top fifty “unicorns” — start-up companies that are now worth US$1 billion — which found that twenty-six of them were Chinese firms.

He estimated that China could potentially sustain 8 per cent growth over the next decade, but that the weakness in the global economy makes it more likely to grow by 6.5 per cent a year to 2025, and 5 per cent thereafter.

At this, your scribe boiled over. The International Monetary Fund’s database, using China’s own figures, estimates that China’s GDP per head this year is US$18,066 in real (purchasing power parity) terms. That’s just below the global average of US$18,087, and less than a third of the average of the thirty-nine countries the IMF groups as “advanced economies,” which is US$55,004.

That’s some gap to close. Even assuming China keeps growing at this pace, the IMF projects that while its GDP per head will have climbed to US$26,086 by 2023, the average for the advanced economies by then will be US$60,294. Even Greece, now the tail-ender among advanced economies, would still be much richer than China, as would Russia, Turkey and numerous other countries outside the top group.

Lin explained that he was referring to the World Bank classification of “high-income,” which measures income using exchange rates. Well, I have written recently about how misleading exchange-rate measures are, and the World Bank figures only confirm this. Its threshold for “high-income countries” was set in 1987 at US$6000, and has simply been updated each year for inflation.

Under this measure, a country’s ranking depends on the value of its currency. Russia was a high-income country until the West imposed sanctions in 2015; the rouble plummeted, so Russia slid out of the group. Yet Russians overwhelmingly buy Russian goods and services, so they were only briefly and very slightly less “high-income” in real terms.

The updated threshold is now US$12,055, which is so low that eighty-one countries — including Argentina, Poland and Croatia, the Gulf states and much of the Caribbean — are classified “high-income.” That doesn’t mean high-income in the sense that we, the United States and Western Europe are high-income countries. China is welcome to join the World Bank’s club, but it doesn’t count for much.

As I wrote last month, China is now the world’s biggest economy. But that’s because it has more than four times the population of the United States, with a GDP per head approaching 30 per cent of US levels. In another decade, China will probably be almost twice the size of any other economy. But it will be a long time before it comes close to having American (or Australian) standards of living. In the meantime, Justin Yifu Lin’s excellent contribution to this year’s China Update book, China’s 40 Years of Reform and Development: 1978–2018, is well worth a read. ●

The post Forty years on, a sense of history gives way to alarm appeared first on Inside Story.

Thankfully, much of the territory covered in the debate is now common ground between the Coalition and Labor. But key gaps remain, and everyone wants a say in the outcome. A final bipartisan agreement on the structure for Australia’s energy and emissions policies is within reach — but it does require common sense to prevail, especially on the Coalition side. In energy policy, that’s no certainty.

The outcome matters for three reasons. First, in just ten years, electricity and gas prices for Australians have doubled. From being among the cheapest in the Western world, they are now among the most expensive. Electricity prices are the reason battlers are angry about the rising cost of living. And those prices are threatening the existence of our energy-intensive industries, which set up here because we had cheap power and now find it is so expensive it could put them out of business.

Here’s the evidence. Since the birth of the National Electricity Market, or NEM, almost twenty years ago, power prices have risen by 232 per cent nationally — and by 100 per cent in real terms, relative to the prices of other goods and services.

Prices have risen far higher in the east coast cities, where the NEM operates, than in Perth and Darwin, where it doesn’t (or in Hobart, where it’s made little difference). Moreover, the more privatised a city’s electricity system is, the more its prices have risen. That is not what the regulators or the politicians want to hear, but it is what the evidence is telling us.

The contrast between east and west shows that the national market has been a failure. We want electricity and gas prices to fall substantially. And two reports by government agencies in recent days propose reforms that they argue will do that.

The second reason why an agreement matters is that global governments, including Australia’s, have promised to reduce or reverse emissions growth to keep global temperatures no more than two degrees above pre-industrial levels. But most governments, including Australia’s, have shrunk from implementing policies that would deliver the targets they signed up to.

Tony Abbott is calling on Australia to abandon his pledge in Paris three years ago to reduce our greenhouse gas emissions in 2030 to 26–28 per cent below their 2005 levels. But the Turnbull government has already effectively abandoned that commitment by promising to reduce electricity emissions by only that amount — although they are by far the easiest and cheapest emissions to reduce and so could support greater reductions.

The government’s own figures show that Australia’s greenhouse gas emissions grew from 516 million tonnes to 534 million tonnes between 2013 and 2017. To meet the Paris target, emissions would need to shrink to roughly 450 million tonnes by 2030. There is no sign of that happening. Last year, emissions grew by 1.25 per cent — despite the closure of the Hazelwood power station, Australia’s single worst polluter.

Of the two latest government reports — from the Australian Competition and Consumer Commission and the Australian Energy Market Operator — one sets out a road map for meeting the government’s modest target while the other, for all its strengths, ignores the target and proposes a change that could threaten even that.

The third reason is energy security. The only power plants being built in Australia are wind and solar; they rely on nature, and nature does not commit to supply power when we need it. Look ahead, and in a renewables-based future we will need to also meet our energy needs when the sun is not shining and the wind is not blowing. For the right, that means new coal-fired stations. For the policy-makers, it means a mix of existing coal and gas stations, batteries to store solar and wind energy, hydro power using pumped storage, and contracts with large customers or groups of customers to cut off their power when a crisis looms.

That’s the context of our long, bitter energy policy debate. It is about to come to a head, with environment minister Josh Frydenberg trying to get the states (and, in effect, federal Labor) to sign up next month to the government’s plan for a National Energy Guarantee, or NEG, as a policy framework for meeting whatever emissions targets the government of the day decides.

And it’s the context for the mob of reports that have assembled in recent days. Last week began with a warning from the Grattan Institute: “Get used to high energy prices.”

Grattan analysts Tony Wood and David Blowers argue that while wholesale (generators) electricity prices have doubled in two years, the reasons were largely beyond government control, and while some reforms would help trim them, any lowering of prices will be minimal.

That message barely had time to register before the Australian Competition and Consumer Commission released its diagnosis of why Australia’s electricity has become so expensive. The ACCC proposes reforms it says would slash up to $420 a year off the high electricity prices we’ve just been told to get used to — including a very conditional government guarantee to help new generators into the market.

“PM Weighs Coal Fix for Energy Wars,” shouted the Australian, reporting that Nationals MPs and Tony Abbott saw the report as calling for new coal-fired (or “baseload”) power stations. No, replied Malcolm Turnbull, my government is technology-neutral. And ACCC chairman Rod Sims said the firms that had raised the guarantee idea with him were working on potential gas generators or pumped storage, not coal.

Then the Australian Energy Market Operator, or AEMO, issued its own “integrated system plan,” telling us we could save billions of dollars a year by focusing on upgrading transmission links between the states to provide future energy security, rather than building new generation powered by fossil fuels.

“King Coal to Rule for 20 More Years,” shouted the Australian. No, the AEMO plan foresees no new coal-fired station whatsoever. It merely suggests that some existing ones be renovated so that they last fifty years rather than thirty or forty. In twenty years’ time, on its “neutral” projection, only 18 per cent of east coast electricity will be generated by coal. Some kingdom.

We could also throw in the International Energy Agency’s annual World Energy Investment roundup, released this week, which reports that commitments were made last year to build just 31 GW (gigawatts) of new coal-fired generation — down by almost two-thirds in two years from the 87 GW approved in 2015. China still accounted for half of that, though its investment fell even faster than the rest. India committed to build just 5 GW, equivalent to two Bayswaters. The aversion to coal is worldwide.

The AEMO blueprint is a key document, since AEMO coordinates what we call the National Electricity Market, although it actually covers less than three-quarters of Australia’s electricity use (essentially, the eastern seaboard, Tasmania and South Australia). It is effectively a detailed map of how we will achieve our goals of cleaner generation and (hopefully) cheaper electricity without risking our energy security.

AEMO has four key things to tell us — and the politicians.

1. From here on, almost all electricity investment will be in renewables — mainly solar, but also wind and hydro, including pumped storage and battery storage for the solar and wind plants (as will be required under the NEG). But it suggests that, to ensure energy security in future, New South Wales could use a second gas unit as well as the 300 MW station AGL is planning to build as part of its suite of new generation to replace Liddell.

2. To further ensure security while keeping prices down, owners of the newer existing coal-fired plants should plan to renovate them so they can keep running until they are fifty years old. As AEMO’s chief executive Audrey Zibelman puts it, it’s like refitting an old car because it’s cheaper than buying a new one.

3. We could save a lot of money by upgrading transmission links between the states and, when local electricity production falls short, importing surplus electricity from interstate rather than building expensive but rarely used power stations as backups. Links between all states in the grid would be expanded massively over the next twenty years.

4. Solar and wind energy will become the mainstay of Australia’s electricity generation, and to minimise transmission costs, suitable areas in each state should be defined as Renewable Energy Zones and their transmission links upgraded.

And coal? That issue has been dealt with already by the market. No coal-fired station has been built in New South Wales or Victoria this century, and none in Queensland for the past decade. No one is planning to build one. The professionals know that the world will have to reduce carbon emissions, and investing in coal would be a big financial and environmental risk. And while it might be cheap to keep an old coal station going as long as you can, building a new one is another matter.

The AEMO report does the sums, and comes up with the same conclusion: “The least-cost transition plan is to retain existing resources for as long as they can be economically relied on,” it says. “The delivered cost of energy from wind and solar in combination with storage from pumped hydro and batteries is anticipated to be lower than generation based on new coal or natural gas when the existing coal generators retire.”

It goes on: “The analysis projects the lowest cost replacement… will be a portfolio of resources including solar (28 GW), wind (10.5 GW), and storage (17 GW and 90 GWh, or gigawatt hours), complemented by 500 MW of flexible gas plant and transmission investment. This portfolio in total can produce 90 TWh [terawatt hours] net of energy per annum, more than offsetting the energy lost from retiring coal-fired generation.”

In the next twenty years, the market operator sees the capacity of coal-fired generators in the grid shrinking from 23 GW to 9 GW, as most of the old stations reach the end of their working lives. In New South Wales, Eraring, Bayswater and Vales Point would follow Liddell into retirement. In Victoria, Yallourn would follow Hazelwood out, while Queensland would farewell Gladstone, Tarong and Callide B. Even by 2030, and without further policy shifts, coal would produce less than half the power in the grid.

It’s a measure of Audrey Zibelman’s political skills that she has produced a report that seems to have compromised nothing important yet has been greeted warmly by everyone from the coal-huggers to the Greens. Just sample the headings on these press releases:

Josh Frydenberg: “AEMO Backs Turnbull Government’s Energy Plan.”

His opposition counterpart Mark Butler: “AEMO Integrated System Plan Backs Labor’s Energy Vision.”

The Greens’ Adam Bandt: “AEMO Report Shows Only 6 Coal-fired Power Stations Will Be Left.”

Ms Zibelman clearly has a talent for politics. If she ever gets bored with the AEMO, perhaps she should move into politics herself and become our peacemaker. But then, she’s American, and there is that small problem of section 44(i).

If Zibelman is a diplomat, Rod Sims is the tough cop on the beat. The chair of the Australian Competition and Consumer Commission probably has the biggest workload of any job in Australia, as the frontline executive making decisions on a wide range of corporate policy issues, crimes and misdemeanours on many fronts. The job of governor of the Reserve Bank is a breeze by contrast.

It’s a good thing that Sims has a deep-seated faith in markets, because a lot of us lose that faith when confronted with evidence of failure as serious as that of our National Electricity Market. Sims has not lost faith: his 398-page report is a searing analysis of why the market failed, but also offers fifty-six recommendations on how it can be put right.

Its assessment of what went wrong is not novel: that ground has been well-tracked already. But the ACCC does a thorough job of marshalling the evidence — although it fails to ask why it is that the NEM, dominated by privatised firms competing in an elaborate market, has done so much worse by its customers than the government monopoly that both sides of politics have preserved in Western Australia.

The report is dense and full of information and opinions — albeit within significant, self-imposed limitations. A reader can hardly be unimpressed by its thoroughness, its focus on the interests of electricity consumers and, in some areas, the boldness of its proposed reforms.

The ACCC’s own assessment is that those reforms would rapidly and significantly roll back the stratospheric price rises of the past decade, within three years saving the average east coast household between $291 and $419 a year, depending on which state you’re in. For comparison, that’s about the size of the tax cut the government is promising most voters.

Its key recommendations are to:

1. Instil more competition into the oligopoly of electricity generation. Sims doesn’t propose to force the big three — AGL, Origin, and Energy Australia — to divest any of their generators, but he wants to ban them from taking over other generators where they already have 20 per cent of the state market, and to expand the regulators’ powers to tackle market manipulation.

2. Offer a government guarantee for ten years to improve the bankability of “appropriate new generation projects which meet certain criteria”: they must be new players, have some big customers signed up, and be able to provide a reliable product (solar and wind projects must have backup generation, that is).

3. Require government-owned transmission networks to write down the value of their assets, which are seen as excessive, thereby reducing the return the regulator allows them and reducing prices by at least $100 a year. It is not clear why the same obligation was not proposed for the privately owned networks in Victoria and South Australia, where electricity prices have risen fastest of all.

4. Encourage the rollout of “smart meters,” and ensure that the regulatory framework allows consumers to use them to shift their electricity consumption to times when it’s cheap.

5. Abolish subsidies for rooftop solar energy by 2021, on the grounds that retail prices have fallen substantially. We’ll come back to that.

6. Require electricity retailers to adopt a default price to be set by the Australian Energy Regulator (an arm of the ACCC), and then offer consumers discounts from that price alone. They could still compete on price, but consumers would no longer be bamboozled by being offered discounts from an incomprehensible “standing offer.”

Most of the response to the report has focused on its plan for a government guarantee to generators — which, as mentioned earlier, does not specify either coal or “baseload” (twenty-four-hour) generators. Sims himself says he doubts that it will ever be needed. Possibly that’s because the conditions the ACCC sets are so tight that only a small field of applicants could qualify — and then the proposed guarantee of $45–$50 per megawatt hour would not be enough to make it worthwhile.

The default price may be a more significant change, and many of us would welcome it with relief. It comes with other proposals designed to restore to consumers the power to make their own sensible decisions — which is impossible at the moment, because the retailers’ various discounts from so-called standing prices have become an unnavigable labyrinth.

The ACCC is convinced that government-owned power companies, especially in Queensland, have been the main sinners in manipulating the market to push up prices. But that is contradicted by the evidence in our earlier chart, which shows that the biggest price rises since the NEM began in December 1998 have been in Melbourne and Adelaide — in the two states that fully privatised their power networks — while the smallest have been in Perth and Darwin, which are not in the NEM, and where electricity is still supplied by government.

John Quiggin, who has written extensively on environmental economics and privatisation, as well as being a former member of the Climate Change Authority under governments of both sides, has delivered a scathing verdict in the Guardian on the ACCC’s apparent ideological bias. It would be useful for public debate if he could give us a more detailed argument — and if Sims addressed those issues in response.

The ACCC forecasts that if its recommendations are implemented, power prices would fall by roughly 25 per cent. Others are deeply sceptical about this, and about earlier claims by the government’s Energy Security Board that its reform blueprint could cut $400 a year from household power bills. I hope it’s true, but I confess I’m with the sceptics.

One problem is that the report focuses solely on cutting electricity prices. By contrast, the earlier reports by chief scientist Alan Finkel and the Energy Security Board had a broader perspective. They aimed to meet three goals simultaneously: lower electricity prices, greater security of supply, and lower emissions. The ACCC focuses on the first goal, gives a nod to the second, but ignores the third.

Given the government’s destruction of the carbon tax/emissions trading scheme, the little progress Australia has made towards reducing electricity emissions has come mostly from the renewable energy target. It is still the only federal policy driver for lower emissions. Yet the ACCC report, after a one-sided examination of the costs of the scheme but not its benefits, proposes ending the RET nine years early, by 2021 — without any examination of the potential impact.

It also proposes that state governments shift the cost of their solar feed-in tariffs to the state budget so they are paid by taxpayers rather than electricity consumers. But consumers are taxpayers, so what’s the benefit in that?

Its figures imply that the RET subsidy for rooftop solar costs consumers on average $17.50 a year — about 1 per cent of their electricity bill — and that will wind down to very little as we approach the scheme’s end date of 2030. The subsidy is now small, will become tiny, and then will disappear. For consumers, it’s barely noticeable.

But for those installing rooftop solar, it’s a vital incentive. The report quotes a recent estimate by consultants Green Energy Markets that the subsidy in 2020 will pay almost a third of the cost of buying a typical 5 kW rooftop solar power system. Think about that.

If that’s right, then removing the subsidy would lift the effective cost of solar power systems by almost 50 per cent. That is one hell of a cost increase to be proposing in a report that aims to make electricity cheaper. And bear in mind: the highest concentration of solar panels is not where wealthy people live, but in the bush and in the new outer suburbs, where battlers live, and dollars matter.

In an otherwise good report, this is an odd exception: sloppy policy analysis that ignores the impact of its own proposal.

Politically, both reports have been greeted warmly. The main criticism has been of the ACCC report by the Greens and environmentalists. Amid the bipartisan canter towards the National Energy Guarantee, their main concern is that the government’s target for reduced emissions from electricity generation — almost a third of the nation’s emissions — is only 26 per cent by 2030, the same target it has adopted for our total emissions.

That is a surrender in the fight to reach the Paris target. We simply can’t cut emissions significantly in agriculture, and it is relatively expensive to cut them in transport and industry. Electricity is where emissions can be cut meaningfully at low cost. We can close down an old polluting power station like Hazelwood or Liddell and replace it with zero-emissions wind and solar, backed up by batteries, pumped storage and demand response.

When Treasury modelled the emissions trading scheme, it estimated that 60 per cent of the emissions reductions would be in electricity, because that is where it is cheapest to reduce them. Where is the Turnbull government proposing to reduce them instead?

The answer is that it isn’t. It knows it won’t still be in power in 2030 to answer for its actions, so it is upholding our Paris commitment on paper while abandoning it in practice. Its plan B is to hope that other countries do more than they have to, so we can buy the rights to some of their surplus achievements and present them as ours. Every previous government ruled that out.

Australia still generates the biggest greenhouse gas emissions per head of any country outside the Middle East oilfields. Those emissions continue to rise, along with electricity prices. We are being asked to believe that under the NEG, and guided by these reports, both will soon start falling.

That’s a lot to ask us to believe. ●

The post Cheaper electricity and lower emissions: so near and yet so far appeared first on Inside Story.

Sure, when Shorten told the world yesterday that Labor in government would move to repeal the recent measures cutting the company tax rate to 25 per cent for businesses with turnover of between $50 million and $10 million a year — and possibly even down to $2 million a year — he was not stating new Labor policy. Labor opposed the tax cuts when they were passed in the Senate, and had not set out a new policy position since.

But trying to repeal a tax cut that has already become law is a different matter from opposing it in the first place. Then, Labor was opposing a bill to give small and medium businesses a benefit they did not have. Now, it is proposing a bill to take that benefit away from businesses that already have it.

The biggest flaw in Shorten’s position is not even the fact that it would affect small and medium businesses, for which the media and the government are now flaying him. The real problem is he will not be able to get his tax increase through the Senate — so Labor is exposing itself to a public flogging from here to election day for a policy it will be unable to deliver.

Moreover, if Labor counts the anticipated revenue from its tax rise to pay for its spending commitments, then its election costings will not be credible. This will be a zombie tax rise. And while the Coalition has been able to implement some of its zombie spending cuts simply by freezing spending on things it doesn’t like, such as universities, there is no back door a Labor government could use to get around the Senate’s opposition to tax rises.

What on earth was Shorten thinking when he made this “captain’s call”? It offers no gain, and a lot of pain. It could cost him the election.

As one of Napoleon’s aides remarked after his leader used flimsy evidence to order the execution of the Duc D’Enghien, “It’s worse than a crime. It’s a blunder.”

It wasn’t Shorten’s first misstep this week. Labor’s new ads implying that Malcolm Turnbull is supporting company tax cuts to line his own wallet may leave some mud that yields political benefit, but at some damage to Labor’s own integrity and to the level of Australian political debate.

It’s a ludicrous argument. Turnbull is already a zillionaire; money is not what he needs. What he needs are our votes, and he has defined himself as a tax cutter because he thinks that will make us more likely to vote for him. He’s also looking after the corporate interests that finance the Liberal Party. Turnbull may be an aristocrat in nature, but it’s ridiculous to imply that he’s a kleptocrat.

Shorten himself has been the object of equally offensive and untrue insinuations by the Liberals and their media allies, but that is no excuse for getting down in the gutter with them.

Nor is there any real excuse, on such an important policy issue, for Shorten to be making policy on the run, like Tony Abbott or Julia Gillard, without consulting the shadow cabinet or caucus. One of his great strengths as leader until now has been his self-discipline, and respect for process.

Yes, when the government is planning another attempt to get its proposed company tax cuts through the Senate, it’s natural for the media to ask Shorten what he will do about the tax cuts that are already L-A-W. He might have felt nettled on Tuesday morning after the Financial Review’s bureau chief Phillip Coorey confirmed with Senate crossbenchers that they would block any attempt by Labor in government to take back the tax cuts that are now law.

But politics is a nettling occupation, and Shorten always appeared to be rather good at putting up with its stings. He only had to do what his shadow treasurer Chris Bowen does every other day, and play a dead bat, telling the world that Labor’s position on this matter is being carefully worked through, and its policy will be released before the election.

Was it that Shorten had become unhinged by the now-famous Whitlam Oration last Friday night by shadow infrastructure minister Anthony Albanese, in which his main leadership rival clearly did put out a partial political manifesto which, while praising Shorten effusively in places, nonetheless set out an approach to government that is clearly at odds with the style of his current boss.

It might have been the Whitlam Oration, but Albanese’s approach echoed Bob Hawke’s 1983 campaign slogan “Bringing Australia Together.” He argued that Labor should try to enlist the support of business through “collaboration and compromise” and went on: “Our job is not to sow discord. It is to bring people together in the service of the national interest. Labor doesn’t have to agree with business on issues such as company tax rates, but we do have to engage constructively with business large and small.”

Albanese also advocated party reform to give more power to branches — definitely not a Shorten priority — and went out of his way to praise a Liberal party icon, former NSW party secretary and Fraser government minister Sir John Carrick, who died recently at the age of ninety-nine. Carrick was a wartime mate and lifelong friend of Albo’s mentor Tom Uren. And Uren himself was a Whitlam and Hawke government minister who came from Labor’s left — yet made it his priority to find common ground with conservative state governments so they could get things done. He was one of Whitlam’s more successful and effective ministers.

Albanese made no direct criticism of Shorten, but rather seemed to be offering a different model of leadership. You would have thought Labor has had enough of changing leaders shortly before elections, but you don’t have to be a conspiracy theorist to read Albanese’s speech as a job application.

If so, it may explain why Shorten appears to have become so rattled. He would be sensible to front the media again, eat humble pie, and wave away his words on Tuesday as simply stating Labor’s current policy, and not as one that it will be taking to the election.

As I pointed out last month, there is little chance that the next Senate will agree to repeal the tax cuts it voted on just a year earlier. If anything, there could be even fewer Labor and Green senators in the next parliament than in this one. A smart Labor leader would accept that, cut his losses, and reshape his priorities to promise the voters only things he will be able to deliver.

To continue on this course would be to destroy Labor’s fiscal credibility. It won’t get that measure through the Senate. Therefore it won’t have the money it had assumed from it, and it won’t be able to spend it, however noble the intended cause. It lost that battle, so it has to go back to the drawing board and work out what to do next.

If Shorten won’t do that, Labor MPs might look for a leader who will.

The question of what the right rate for company tax is, and what size of business should pay what rate, is entirely subjective. It essentially comes down to weighing up the balance between the government’s desire to stimulate new investment and its need for revenue.

Taxes are a necessary evil. Virtually any tax cut, in itself, stimulates more economic activity. Those who suddenly pay less tax have more money to spend, and even if they save some of it at first, they will spend it some day. That’s as true for companies as it is for you or me.

Proof of that comes from a valuable exercise by Alpha Beta, the consultancy founded by economist Andrew Charlton after his previous life as Kevin Rudd’s adviser through the global financial crisis. With the help of accounting software firm Zero, his firm looked at what 70,000 businesses with turnover just under $2 million a year had done with the money they saved from the first wave of company tax cuts in 2015.

Charlton found that 27 per cent of the firms that benefited used most of their gains to increase investment, 19 per cent used it to hire more workers, 3 per used gave their workers pay rises, and 51 per cent put it in the bank. (In time, of course, that money in the bank will probably be spent too.) He described the net impact as “a small effect on employment and investment and an insignificant effect on wages.”

That was a very small tax cut. A bigger tax cut, in itself, would have a bigger impact on stimulating investment, employment and wages. If you abolished all taxes completely, you could assume a bigger impact still.

But taxes are necessary. They finance all the things that government does: providing free education at schools, providing free care at doctors’ surgeries and hospitals, protecting us with defence forces and police, building and operating our roads and railways, providing pensioners, the poor, the sick and the unemployed with most of their income, and doing the thousand other things that governments do to relieve us of costs or provide us with things that make our lives better (such as the ABC).

And those things also have an economic impact. The higher taxes in the world, by and large, are imposed in the richest countries: especially in Western Europe, but also in the United States, Canada, New Zealand, Japan and here. It is the free public goods provided by our education, infrastructure, health care, defence and a trustworthy legal and regulatory system that make it possible for businesses to operate at high levels of productivity. Go visit the developing world if you want to see how low-tax countries operate.

The theory promoted by the Business Council and its media allies that company tax cuts are the only way we can stimulate the economy is bunk. Better transport infrastructure that saves us time and money stimulates growth. So does better education etcetera.

The core of the intellectual argument between the Coalition and Labor on company tax is where to draw the line between these two goals. The Coalition says its budget projections show that the revenues flowing from higher future growth in employment, investment, wages and profits means it can pay for its proposed company tax cuts, the income tax cuts passed by the Senate last week, and all the other spending we will need, and still run up small but consistent budget surpluses through the coming decade.

Labor — joined on this by some budget-watchers — disputes that, on several grounds. The government’s growth assumptions appear optimistic, especially on wage growth. Some of its spending assumptions are unrealistic, unfair or unaffordable: for example, Anthony Albanese argued last Friday night that the forward estimates would see Commonwealth investment in infrastructure halved over the next decade, to just 0.2 per cent of gross domestic product.

Some of us have watched with gritted teeth as first Labor, then the Coalition, have made phony promises to the voters that they will bring the budget back into surplus. Ten years after the global financial crisis (which we supposedly escaped), next year’s budget is still expected to run up a deficit of $14.5 billion. Yet the government is now demanding that parliament commit to income and company tax cuts some years away when it has still not got the government back into surplus!

There is also the argument, put most powerfully by Victoria University economist Janine Dixon, that Australia’s almost unique system of dividend imputation means Australian shareholders would receive little benefit from the tax cuts because lower company tax would mean lower imputation credits. Dr Dixon argues that the benefits of lower taxes would go overwhelmingly to foreign investors, whose share of the tax burden would fall, with Australian residents picking up the tab. The growth in jobs and wages generated by the tax cuts would not be enough to offset that.

There is little evidence that the company tax rate has any significant impact on business decisions on where to invest, unless the differences are very large. But there is no doubt that globally, governments are engaged in a tax “race to the bottom,” with the US corporate tax rate cut last year to 21 per cent and rates being progressively lowered in Britain, Singapore and other countries. There is a risk that Australia’s 30 per cent rate could become a disincentive to foreign investment in future.

That is why the International Monetary Fund and Reserve Bank governor Philip Lowe have suggested that Australia should lower corporate tax rates as part of a comprehensive tax reform package designed to be revenue-neutral, rather than as a standalone measure that could jeopardise fragile budget surpluses. For political reasons, the government has rejected their advice — and so has Labor. That’s a shame, because it was good advice. •

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