Does Tony Abbott believe in markets? John Menadue

Dec 9, 2013

We are already seeing a division opening up in the Abbott Government between ‘wets’ and ‘dries’ and a lot of confusion.

The Liberal Party and conservatives generally espouse the value of markets – that governments should not interfere unless there is clear market failure or overwhelming reasons of public interest. This belief in markets is at the core of conservative philosophy The Liberal Party platform speaks expansively of “enterprise” and “consumer choice”. Ministers such as Joe Hockey, Andrew Robb and Malcolm Turnbull seem to hold to that belief.  But Tony Abbott, along with Barnaby Joyce and the National Party, seem opposed to markets when key decisions have to be made. Industry Minister Ian Macfarlane seems to be having an arm wrestle with Cabinet over support for Holdens. Then what about support for Qantas?

This division clearly showed itself over the government decision to refuse foreign investment in Graincorp. Tony Abbott apparently sided against Joe Hockey and those in the Liberal party who espouse markets. As I mentioned in an earlier blog, Peter Reith, a leading Liberal party member and former Howard defence minister said that the Graincorp decision “had Tony Abbott’s fingerprints all over it”. Barnaby Joyce and the National party successfully carried out a covert campaign against foreign investment in Graincorp. Interestingly, after being criticised for his protection of Graincorp, Tony Abbott now wants to be seen as hairy chested” on both Qantas and Holden

Peter Costello has also criticised the government for its Graincorp decision. Several years ago he reportedly told Michael Kroger that in the Howard Government, Tony Abbott had no interest in economics and that he was ‘economically illiterate’. Tony Abbott shows the same distributionist approach as one of his earlier heroes B.A. Santamaria.

But the most striking example of Tony Abbott’s scepticism about markets is his policy of Direct Action on carbon pollution rather than a market mechanism like a carbon tax or an Emissions Trading Scheme. Tony Abbott’s denial of a market approach has clearly paid political dividends with his attack on the carbon tax. But good policy is sacrificed.

In the latter days of the Howard Government, John Howard proposed a market mechanism to address carbon pollution. He proposed an Emissions Trading Scheme. He believed in a market approach. When the new Liberal party leader, Malcolm Turnbull supported an ETS, Tony Abbott and the climate sceptics in the Liberal party tore him down.

The result is a highly bureaucratic and interventionist approach in Direct Action to combat carbon pollution. Direct Action with its subsidies and interventions is the very antithesis of a market mechanism. Malcolm Turnbull has described Direct Action as a fig leaf when you don’t have an effective and efficient mechanism to reduce carbon pollution.

Almost every respectable economist in the world will side with the IMF and OECD that a market-based approach to carbon pollution reduction – such as a carbon tax or ETS – is the most efficient and effective mechanism. But Tony Abbott has sided with the ‘wets’ to give us Direct Action.

Another important test of Tony Abbott’s attitude to markets is likely to be his response to the States and particularly the retailers who want more protection from on- line imports.

I can understand the concern of the States about their loss of GST revenue but do the likes of Harvey Norman need protection The retailers keep bleating about unfair competition but an increase of 10% on imports is not likely to make much difference, given that the price on many imports is substantially below Australian retail prices.

The Productivity Commission reported in 2011 that the “intensified competition from imports is good for consumers but is challenging for the retail industry which as a whole does not compare favourably in terms of productivity with many overseas countries” The Productivity Report   further found  high occupancy costs of retailers in payments to landlords as a major problem for retailers.. The report also found that out of 17 industry sectors only the mining sector was more profitable than retailing in Australia. That does not suggest the need for more protection.

A survey by Choice said that the attraction of on line shopping was convenience rather than price. Yet retailers have been slow to develop on line shopping.

The Abbott Government has shown its screpticism about markets in both the environment and foreign investment. Will it now protect the retail sector at the expense of consumers?

The division between wets and dries will continue to play out in the Abbott Government. Tony Abbott is more at home with the vested interests that the Nationals and Barnaby Joyce side with. On the two critical issues to date, he has sided against the “dries”. What will its attitude be to on line shopping? Or Qantas? Or Holden?

Tony Abbott’s scepticism about markets could be the same impediment to economic reform that the Fraser Government experienced…a continuous disagreement between “wet” and “dries”.

In short the Abbott Government is showing that it lacks an ideological  and policy framework. Confusion is inevitable.


PS A remarkable feature about subsidies to industry is that there is no mention at all in the media about the $7.5b annual subsidy which the Australian taxpayer provides to the high cost private health insurance industry. No wonder BUPA can waste public money in television advertising at the cricket.

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