Pearls and Irritations

The Labor Party is a long way from done but at the moment it is mired in mediocrity. We need a Labor Party agenda in which the big issues are confronted, writes Bill Kelty.

A repost from Oct, 05, 2024

It is a sad day for me in some ways. I remember coming back from Canberra and I told Lindsay Fox that Australia did not have much to worry about. I had seen both Bill Shorten and Josh Frydenberg. Two young men on opposite political sides, but with very similar values when it came to public service. I like them both and said to Lindsay that one day they will each have the opportunity to lead Australia. Bill almost got there. It would be foolish to write off Josh just yet.

They already have a legacy of which both can be proud. I happened to be in Bill’s office in Moonee Pond just a week or so after he became Parliamentary Secretary for persons with disability. Scores of good people from all sides had striven to do something of lasting substance for this group of Australians. The reality was that goodwill had been trounced by pragmatism. This was still a very marginal issue as was evidenced by the status the government had given it.

It was the first time I heard anybody talk about a national insurance scheme. This was a great and imaginative idea that only a Labor Government could deliver. It is true that others like Bruce Bonyhady and Jenny Macklin should share some credit but as I saw it, Bill Shorten was the father of the NDIS. If he did nothing more in public life, it is a remarkable achievement. The most significant social reform of this century. The only government in the world which was prepared to be so brave.

As for Josh, it is always worthwhile to recall the great uncertainty and fear that beset the nation in the face of COVID. Josh stepped up with a spirit of generosity that stopped Australia falling into the abyss. For that we should always be grateful.

My politics has never been taken as a whole, of the left or the right.

I have always been willing to be seen as a socialist, if that term is defined as never leaving people behind and providing greater opportunities for more people. I have always been in love with the idea of national healthcare, universal superannuation, education for everyone and a minimum wage that is the highest the nation can afford.

But on the other hand, I believe in the power of markets, the benefits of competition, entrepreneurship, corporate relevance, small business dynamism, rural industry resilience and political pluralism. I saw nothing inconsistent with privatisation and socialism if it meant that the beneficiaries were lower paid people. I said that when it came to deregulating the airlines and selling the Commonwealth Bank.

In my life, it has not been a theory. For thirty years, nearly every day of those thirty years I worked for trade unions. For the past 25 years, I have worked with Lindsay Fox.

It is true that I found Schumpeter’s Capitalism, Socialism and Democracy, more personally relevant than the birthday present my mother gave me when I was 14 – three volumes of Karl Marx’s Das Kapital.

The truth I thought was simple enough. It was not a matter of choice between left and right.

As evidence, I thought all you needed to do was point to the great political compromise, indeed almost the national covenant that is Australia. Giant safety nets on health, education, superannuation, the highest minimum rates in the world, and now the NDIS. But almost in every case there is a private dimension.

Private healthcare, private education, individual wage contracts and personal superannuation. The ALP has been the great promoter of the safety nets. The Liberal Party, the great advocates for personal insurance and private contributions subsidized by the State.

The national convention is this. When the Liberal Party attack the safety nets, they lose. When the Labor Party seeks to destroy the individual contribution, they do not win.

Of course, there is a great contest over the balance and for middle ground aspirations. Sometimes a Keating comes along and creates imputation credits, and reduces the top marginal tax rates from 60% to 46%. Then John Howard’s gun laws would be seen as a form of communism in the United States.

But let me turn to the current political position.

The Labor Party seems to have lost its way to safely secure three terms of Government. The polls show a primary vote of between 28% to 32%, the Northern Territory elections were devastating and threaten two seats, there is a strong chance for a Liberal Party rebound in Western Australia, there are great forebodings in the debt-ridden Victoria and great uncertainty in Queensland. There is a real chance that Federal Labor will go into minority Government. There is a reasonable chance that the Liberal and National Party could even win.

The Federal Labor Government under Albanese has done some very good things and the economy has seen increasing employment and falling inflation. So, what accounts for the malaise?

The most obvious is that the majority of working people have had a savage reduction in their living standards. Since the GFC the reduction in real average earnings is between 5% to 9% depending upon consumption patterns. Since COVID the reduction in living standards has been even greater for a vast bulk of working people. Real wages have fallen and real taxes have increased.

At the same time and over the same period there has been a massive increase in wealth for home owners and superannuants, including environment protection, improving the industrial relations framework, repairing the NDIS and creating a building fund. These trends demonstrate the fundamental reason why renters and the non-inheritors are turning away from the Labor Party and for that matter the Liberal Party.

For a great number of people, they face a world of renting, not home ownership, total marginal tax rates of over 50% and jobs in which the real value of their wages have declined.

We are not alone in the world. The USA, Canada and the UK all face the same problems and the same discontent, cost of living, mortgage rates, rents and housing shortage.

In the United States the real value of work for a majority of working people in a majority of States has hardly moved in two generations.

Australia has done much better, but the 15-year period to 2026 shows that we are on the same track. This is a very long period of real wage stagnancy.

So, what explains this situation? The decline in productivity increases have not helped. The two great shocks of COVID and the GFC knocked the world around them. The decline in enterprise bargaining and the decline in real wages is highly correlated. Since the Gillard and Rudd Governments made it even harder to bargain, the number of enterprise bargains has collapsed. It was an unintended consequence of industrial incompetence. The Albanese Government and the ACTU deserve credit for their industrial changes. They will help reverse the trend but they may well prove to be insufficient. We simply need to be more supportive of the new model EBA’s that increase training, adaption and productivity. We need a fresh approach to a more dynamic world which addresses these issues.

What we do not need is a self-congratulatory Government telling people they have really cared and looked after them. People are not impressed by politicians telling them – or at least implying that a tax cut has fixed their problem paying bills, especially a tax cut that leaves them paying more tax than they were two years ago. The cost-of-living tax cut was welcome but it was a year too late and a thousand dollars too little.

We do not need the Government telling us that real reform is tinkering with Reserve Bank structures. It is a change that delights only about two dozen connoisseurs of minutiae. The real power is fixing the base interest. That is the A Grade Board. The Corporate Governance Board is the Z Grade board for petty power. The real issue is interest rates.

The former Governor of the Reserve Bank will go down in history as having made one of the most ill-advised statements in the history of the Bank. It was a mistake that helped contribute to the inflation created by a world that forced up oil prices and deficit funded on over- compensation of COVID relief. But we all make mistakes and at least it was motivated by good intent. The Reserve Bank has done the right thing to increase rates. It was tough and necessary. There is a case to say they are marginally too high. There is no case to say they should be increased. It is nonsense to suggest that there is a wage price spiral insight. We broadly know the wage outcomes for the next few years. They are manageable and not inflationary.

To reduce interest rates to record lows and then tell everybody they were here to stay for a long time was a mistake. To increase interest rates now would be to book-end stupidities. Rates too low for too long without reason. Interest rates too high for too long out of unjustified fear.

There should be interest rate cuts and if we are clever, they will be relatively small so that they can return to a long-term neutral position. They will only be substantial if we have fallen into recession.

Monetary policy counts not some indulgent elective surgery to the bank. It was Bernie Fraser, the best Reserve Bank Governor in our history, who convinced us that inflation targeting was a good idea. Inflation, camouflages reality, more often rewards mediocrity, caters for the strongest and luckiest, and can crush the least powerful. But the 2% to 3% was over the normal cycle and did not assume massive exogenous shocks.

The question is now, will inflation over the next 2 to 3 years return to a band between 2% to 3%. We broadly know the wage outcomes of between 3.5% to 3.8% per annum. So, allowing for only .7% productivity, the unit costs will rose 2.8% to 3.1%. Oil prices are uncertain, but the odds must be against these prices forever and oil prices may well fall. Accelerated depreciation offsets come to an end and the extra demand it created that forced up the prices of cars, trucks and other goods will come to an end. So too will the tax break and additional taxes will have to be paid. We are already seeing the rest of the world signalling a reduction in rates. Our economy is close to stagnant.

The issue about government expenditure is not its inflationary consequences but its waste.

Tunnel drilling machines are stuck, Commonwealth Games abandoned without having any events, roads being paid for that are not built, quarantine centres constructed that will unlikely be taken up, railways built without business cases. At the same time, I get calls every day telling me that the government is subsidising solar power, giving away door seals, LED lights and a myriad of other silly things. It makes me wonder when we don’t have enough money to pay our teacher properly.

There is simply just a very good case to reduce interest rates before the end of the year. When comes to the security of the banking system there is a strange coalition of concerned institutions. The Labor Governments, Treasury and Reserve Bank have all placed security well in advance of competition and fair access. It was for that reason the previous Labor Government substantially weakened competition by charging the regional banks a premium on risk. The share prices show the long-term impact of this anti-competitive stance. It was understandable but unfair. But it has been compounded by a Royal Commission which forced the major banks out of the market for lower paid and more vulnerable Australians. If Lindsay Fox was starting his business today, he would never have been able to buy his second truck. If my single sister had sought a bank loan today to buy her house she would have been rejected.

That is not to say we can make excuses for the bad behaviour of many of the leading banks that the Royal Commission found, but thousands of its customers knew about and experienced. A lack of competition always breeds arrogance, but bad behaviour of the banks should not be compounded by bad policy.

It is easy to suggest they are unintended consequences, but they are not. They are sad policies which see up to a quarter of the working population having no access to capital or relying on a secondary market of much higher interest rates. In this world of double and sometimes treble the interest rates, life is an exercise in tight rope walking at heights. It is economic cruelty and philosophical sophistry that prevents those with less risk subsidising those with more.

Yet, when it comes to the young, that is precisely what is being imposed to maintain private health insurance, HELP that their parents did not pay, and a GST that subsidises capital deficient taxes, you can understand they may be just a little cynical. Many young people are paying effective total marginal tax rates of over 50% when millions of wealthy Australians have effective total marginal tax rates not much higher than 25%.

Higher income Australians cannot complain about the Australian tax system not while they can negatively gear properties, have FBT expenses paid by the company, superannuation concessions, trust arrangements and have their capital income taxed at 50% of their marginal tax rate. They pay a lot less of their income on GST in relative terms. This is the tax system. It is not fine for most people who pay the 50% plus marginal tax rates without deductions or other arrangements. In particular, it is not fine for young people who are renters and non-inheritors. It is brutish.

It is not fine for those not able to access the tax breaks. We need a tax system which does not make industries out of tax breaks.

We need to say to Australians, we have a tax system for you and your future that does not require creative accounting or special privilege. We do know this – that taxing is a real political problem. People don’t like paying extra taxes despite what they may say in polling. But that does not mean we cannot have tax reform. The majority can continue to live in this tax world and they will not be worse off, but for many there should be a new tax system which is simpler and fairer – especially for younger people.

The Treasurer is trying to reform the tax system on superannuation. The truth is the Howard/Costello changes went too far for the privileged. But it is equally clear that the Government changes go too far. The failure to index the rates will over time reduce superannuation to a cap of $1-9m. A policy of taxing unrealised capital gains may cause panic.

There is nothing wrong in increasing the tax rates and even having a cap of $3m indexed. What is wrong is that it is an attack on the great national compromise that underpin this nation’s economic and social policies. There is a case for change, but non-indexation and taxing unrealised gains are both political poison.

The Australian Labor Party needs to address much more important reform. It needs to be able to plainly speak to a younger generation concerned about inequality, the environment, and security.

It can start with a job contract that provides training and jobs in every industry in which there is a shortage. A new contract that provides teachers with paid training and a job for four or five years. A new contract that provides tradespeople with the same paid training and a job for a few years. A new contract which provides health care, and aged care workers with a new training wage and a job for years. This is both doable and necessary. It will require employer support and encouragement.

With these new job and training contracts the role of HELP should be reviewed. It should at least be reconfigured so that the burden of debt repayment is no greater than it was when it was introduced. No HELP should be payable until incomes are over $60,000.

But for many young people it is the likelihood that they will be forever renters in a market of forever shortages that destroys ambition.

Abandon any idea of subsidies; they don’t work except to increase prices. What we need is a modified Singapore model in which government, banks and superannuation provide the capital to build generational houses for public and social needs. A modern national Housing Commission, with accredited builders underpinned by a modern national EBA which provides fair incomes and high-quality work. The nation has to stop the baloney and replace false promises with real buildings.

The superannuation funds have an important part to play. People forget that giving access to superannuation for home investors was the policy of the Labor Government and the ACTU in the 1993 election. We abandoned that policy after the election because we decided to address the structural issue of rapacious banking margins before we added to the demand. It was a good decision: banking margins fell, home ownership increased and superannuation returned close to 9% p.a. It was the source of the great wave of wealth that Australians who have both homes and superannuation have experienced.

We did not get to the great housing shortage by chance. The GST on new homes increased the price on all homes, the great migration probably added to demand greater than supply, the shortage of labour forced up wage costs, regulations were increased, and big infrastructure builds forced up the price of materials.

We should note that for all our great safety nets, per capita homelessness in Australia is much worse than the USA. The national disgrace is owned by nearly every government at every level.

We need to do what FDR did when faced with building up that nation’s defence. He enlisted Raymond F Knudsen, the CEO of GMH, and gave him both legal and moral responsibility to do the job. On a smaller scale, this is what Paul Keating did when he made Lindsay Fox the Chairperson of Nettforce to fix up traineeships.

Childcare is a vital reform; the most important of the Government’s plans for the future. But it cannot be left to the younger and single generation. It must come from the dividends of increased economic growth. Reform would probably be more effective if a price had to be paid and it was not a subsidy for private child care operators.

The commitment to young people must go beyond economic calculus. The environment, climate change and indigenous rights are big issues for the future. The overwhelming majority of world scientific opinion has endorsed a view of climate change that is both frightening and threatening. In a sense it is more important than party politics and Parliament should elevate it to that level. For my part I am always a little confused when there is a specific target for a specific year. I would prefer to adopt an energy policy based on both continuity of supply and a renewal strategy.

I know that good people like Jennie George have strong ideas about nuclear. Bob Hawke was always open to the idea. My concern is not just about the waste and insecurity. Rather, it is about distraction and cost. We run the great danger of pushing trillions down two related dreams. The first is AUKUS and the second is nuclear energy. A nation pays a high price for extravagant expenditure fantasies. While we do this, we can easily lose focus on implementing an energy policy which has the support of the majority of Australians. In any event an open debate and process within Parliament would be a good place to debate all the main issues aided by the best scientific minds.

There might never be general agreement, but we need to remove climate change policy as far as we can from politics. Let’s have a participatory inquiry – quickly – and on the basis of evidence decide on the way forward. If there’s a sound case for putting nuclear in the mix, put it in the mix. If there’s not, drop it.

The Voice was a noble idea but fundamentally a naïve one which placed bureaucracy in front of principle. I found myself broadly in agreement with two of the great antagonists; Lidia Thorpe in advocating for a Treaty and Jacinta Nampijinpa Price seeking greater tribal and local relevance. One of the very last things Bob Hawke told me was that to never give up on the idea of a Treaty. Australia should never give up on the need for a Treaty – a formal undertaking that the peoples who were here for 65,000 years deserve recognition, recompense and representation.

There is just one final point, and that is national security. I was at the St Kilda Town Hall when Gough Whitlam announced the withdrawal of troops from the war in Vietnam. It received the loudest ovation that I can ever recall at a political meeting.

But Whitlam went on to delineate the ALP policy on defence. Recognition of China, greater understanding with Indonesia and the Pacific, greater reliance on Australia’s own defensive capacity whilst maintaining its relationship with the USA. It did not seem extremist then and resounded well with an audience, many of which could still recall Curtin and Evatt. The ALP approach to the world was tested over the war in Vietnam. When Hawke developed APEC and Keating gave it an unparalleled political strength, it seemed in keeping with the strategy. When Beazley wanted to build up Australia’s own capacity and Gareth Evans embraced every Asian nation as independently worthy and to be respected, we had finally escaped the White Australia policy, which offended our neighbours and inhibited our thinking. When Keating embraced the Pacific and entered into a pact with Indonesia, we knew what we were defending.

I must confess that I always found the Chinese Communist Party a very unattractive political organisation. I always thought Maoists were on the edge of political lunacy.

China has been the threat and the promise for a very long time. White Australia was in part a rejection of Chinese immigration. The Korean War in, part a war against China and the Vietnam war was always explained as a war against Chinese aggression.

Over the past generations no group of people in the history of the world have taken so many people out of poverty as have the Chinese. China has been one of the great catalysts in increasing our living standards.

Buying our resources, providing cheaper goods to Australia, attending our universities, buying houses and homes and living in Australia. Yet, China remains the greatest threat and by our pact with the USA brings us closer to war with them over Taiwan than at any time since the war in Vietnam. The truth was that Vietnam was never the enemy of Australia and China was never the friend of Vietnam. Taiwan is not Vietnam. The world has lived with the reality of Taiwan for a long time. Australia has just one role to play and that is to become a peacemaker. After all, it was of all people Richard Nixon whose tombstone reads “The greatest honour history can bestow is the title of peacemaker”.

The easiest criticism of Paul Keating is that he a person of the past, the times have overtaken him, and it is, therefore, pointless to engage him in debate. On AUKUS for instance. But this government has not engaged any of the AUKUS critics and sceptics: not Keating, not Hugh White, not Malcolm Turnbull, not Sam Roggeveen, James Curran, or any of their once trusted former advisors who opposed it. They have listened to no one, old or young. But even restricting it to the old, I know which side I would back in a debate – Albanese, Marles, Morrison and Hartcher (the new) against Keating, Evans, White, Turnbull, etc (the old).

The debate will never happen. No serious inquiry will ever be conducted. Only history will judge. My guess is that there will never be any submarines. But then the AUKUS advocates say it’s about more than submarines – as if this special knowledge makes all resistance futile. Well, of course, it’s about more than submarines. It’s about our unceasing fealty to the United States, whatever their follies abroad, and at home; our posture in Asia and the Pacific; our ability to think for ourselves and conduct mature debate. And it’s about – conservatively – a trillion dollars, and where that might be better spent, not only on the nation’s defences, but its infrastructure and schools.

It is most likely that China and Taiwan will find their own resolution. If there is a war then there will be no victors.

There is just one other issue that I want to comment on and that is the war on Gaza. All my life I have been a friend of Israel. All my life I have been a supporter of the speech of Dr. Evatt that helped establish Israel. A speech that declared for an independent Israel and an independent Palestine. The truth is that in the two-state solution, my greatest passion has been for the state of Israel. It is also true that the Labor controlled state under Ben Gurion was for me a mixture of compassion and toughness that we admired, loved even. It was not a religious state – Ben Gurion was an atheist. However, there is another side which also believes in a two-state solution but in this case the passion is for Palestine. It is understandable and is a basis for peace. Nobody can or should excuse the atrocities of Hamas. But nobody can really believe that killing of thousands of innocent people is a long-term solution to terrorism. It will create its own terrorists. It is true that Hamas is the enemy of the two-state solution, and their terrorism should be forever abhorred.

The Labor Party is a long way from done but at the moment it is mired in mediocrity that is not much different from the past generation.

We need a Labor Party agenda in which the big issues are confronted. An energy policy that is practicable and principled. A bargaining framework that is about training, productivity and fairness. A tax policy for the future that is fair and effective. A manifesto for the young that offers hope. A fair finance policy that is accessible for those in need. A monetary policy that is not distracted by silliness. An interest rate cut now by .25% and a further cut in early New Year by at least .25%. But the message should be clear; the days of almost free money are over. A return to the Labor defence policy of Whitlam, Hawke, Keating and Evans.

A new National Housing Commission that in conjunction with the States actually builds houses.

Paul Keating is right. The Labor Party needs a dose of imagination mixed with compassion.

Let me say this in conclusion.

When I look at the world today, I do ask myself, “Would the world be different if the USA had the economic framework of higher minimum wages, national health care and national superannuation?”

If the USA had three times their GDP in superannuation compared to the .7% they currently have, they would dwarf China as an economic power. If the proportion of GDP spent on health care was the same as Australia and their defence expenditure was even double the 2% target of most European countries, they would have the capacity to have living standards, including minimum wages, that far exceed that of any nation on earth.

They would then have an economy that matched their imagination. I think the world would be a far better and safer place. I know it is a fantasy and not as simple as all that for them.

But it is not for us. We have always had the opportunity to have policies that reflect our imagination.

What we need now is for the Prime Minister and the Labor team to take a break and give their creative capacities a reasonable chance. The PM can do that now that he has put off his impending marriage until after the election.

 

 

William John Kelty, AC is an Australian trade unionist and a well-known figure in the Australian labour movement, who served as Secretary of the Australian Council of Trade Unions from 1983 to 2000. Born in Brunswick, Melbourne, Kelty was educated at La Trobe University where he studied economics.

Transcript of a speech delivered at Newmark Stakeholder Luncheon, 5 September, 2024.