Ian McAuley. Chris Bowen and ‘The Money Men’.

Feb 29, 2016

Political disunity comes in two forms. One, which we witnessed in the Rudd-Gillard years, is the subtle attack on the authority of the party leader. The other and more serious form is a conflict about policy.

Once Tony Abbott announced his intention to hang around it was clear that the Turnbull Government would suffer the disunity of the first form. Abbott’s ridiculous claim last week that he could have won the coming election is a pretty good indication of why he wants to hang around.

And it’s now evident that the Government is being torn apart over economic policy. The specific manifestation is about taxation of investment housing, but it’s much deeper than that issue. It’s about the conflict between attending to important shortcomings in our economic structure, namely the need to improve our public revenue and to remove unjustifiable and distorting tax rorts, and appeasing the petulant beneficiaries of those rorts.

John Howard has now weighed in, urging appeasement, no doubt having in mind the way the Coalition successfully used the issue of “negative gearing” against the Keating Government. Perhaps he should go back to 1982 when, as treasurer, he confronted the tax evasion mechanism known as “bottom of the harbour”, which saw people shifting their tax liabilities to companies that they would subsequently liquidate. Then, as now, there was a large rump in the Coalition parties ready to defend tax rorts – with many of them crossing the floor when Howard introduced legislation to stop the practice.

Shadow Treasurer Chris Bowen analyses these conflicts between economic and political demands in his recently-published book The Money Men: Australia’s twelve most notable treasurers (Melbourne University Press 2015).

Throughout our 115 year history, he points out, governments have succeeded in re-shaping economic policy when there is a reasonable degree of policy convergence between the main actors – not only the Treasurer and Prime Minister, but also the Treasury and, in recent years, the Reserve Bank.

He describes some of the most successful partnerships, such as that between Treasurer Ben Chifley and Prime Minister John Curtin. That partnership was based not only on a strong ideological alignment between the two men, but also on their willingness to seek independent economic advice, and to bring people like Nugget Coombs into advisory roles. (Bowen is too polite to draw the obvious contrast with the partisan groupthink that characterised Abbott’s and Howard’s “commissions of audit”.)

It’s hardly surprising, then, that he acknowledges Paul Keating’s effectiveness in economic reform: there was rivalry between Hawke and Keating for the top job, but they supported each other on economic policy. And his standout case study is the deft response of Wayne Swan and Kevin Rudd to the emerging global financial crisis – a situation where Treasury was well on side.

Bowen’s twelve biographies cover both Labor and non-Labor treasurers – including Country Party treasurers Earl Page (1923-1929) and Arthur Fadden (1949-1958). It’s revealing that in the 1950s Fadden had no great political difficulty in raising taxes to meet expenditure needs. Tough budgets were met with token protests – the tabloid headlines would scream “Beer up, cigs up” – but Australians got on with paying their taxes to contribute to the nation’s needs.

It’s also revealing that Menzies and Fadden saw a budget surplus as politically problematic, even though Keynesian management calls for surpluses when an economy is overheating. After all, a surplus means the government collects more in taxation than it spends on services and transfers. People understandably don’t like paying for more than they are receiving.

It was Peter Costello who re-defined a surplus as something intrinsically virtuous. Whether this stemmed from Costello’s economic ignorance or from political opportunism Bowen does not make clear. It was easy for Costello to make this connection, because over his ten years in the job the economy and therefore public revenue were thriving, thanks to the mining boom and the Hawke-Keating Government’s economic reforms.

The idea that a surplus was the hallmark of good economic management provided Abbott with a powerful weapon against the Rudd-Gillard administration. Had they not run a substantial deficit, however, the cost in terms of unemployment would have been staggering – a repetition of the idiocy of 1929. Similarly it would be irresponsible for the Turnbull Government go for a cash surplus in this year’s budget, but there is poetic justice in seeing the deficit fetish coming back to haunt them.

Bowen generously gives credit to Costello for his understanding of the 1997 Asian crisis (he was well ahead of the IMF), for granting independence to the Reserve Bank, and for implementing the recommendations of the Wallis Inquiry into the financial system (thus improving our capacity to cope with the Global Financial Crisis).

While he’s critical of Costello’s failure to understand the dynamics of monetary policy, and for yielding to Howard with unsustainable tax cuts and middle-class welfare, he lets Costello off lightly. He does not mention Costello’s hash of capital gains tax, when he abolished indexation and reduced the rate to 50 per cent – a “reform” that played into the hands of bankers and speculators and is largely responsible for our real-estate bubble and housing affordability crisis.

His coverage of Keating’s reforms is testament not only to Keating’s determination, but also to the political luck of the Hawke-Keating Government. There is a revisionist story that Keating had it easy because there was bipartisan consensus on the need for reform, and that a Liberal Opposition could hardly object to a Labor Government deregulating the finance sector, reforming business taxes, and reducing tariff protection – policies in many ways straight out of the Liberal Party platform.

Bowen dismisses this revisionist view – the Liberal Party, then as now, fought against every one of Labor’s significant reforms. It was its 13 year run in office that gave Labor a chance to take a steady path to economic reform, because they had the luck of an opposition in disarray. Perhaps Joh Bjelke-Petersen’s greatest contribution to public life was his “Joh-for-PM” push, which destabilised the Liberal Party long enough to allow the Hawke-Keating Government to embed its reforms.

The main value of this work is that it tells us something about the person who could well be Treasurer later this year. He’s obviously on top of his economics, and he clearly has an understanding of economic history. He establishes his conservative credentials, most notably in his dismissive treatment of Jim Cairns’s utopian socialist vision. He’s also realistic about the political processes of economic reform. It’s difficult, but it can be handled with patience – his cover of good ideas badly handled, such as the proposed minerals resource rent tax, shows that he understands the need for sound process. He’s certainly not a “crash or crash through” politician, but rather he comes across as one who would maintain the Labor tradition of responsible economic management.





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