IAN McAULEY. The difference in the economic policies of the major parties.

In the din of distractions about political trivia, many in the media have lost sight of, or fail to understand, fundamental differences in the economic policies of the two main parties.

That is their approach to distribution, or redistribution.

Although politicians may accuse one another of heartlessness or of ignoring the poor, almost all politicians believe that the benefits of economic activity should be distributed fairly (even though what they see as constituting “fairness” may differ).

But there are fundamental differences in the means they propose.

The Coalition, or more precisely Liberal Treasurer Morrison, seems to endorse the idea that with strong economic growth, some of the benefits of that growth can be directed to distributive welfare in the form of social security transfers.  That’s been fairly standard neoliberal thinking, not just here in Australia, but also in other prosperous countries, at least since the 1980s.  (For a full description see Miriam Lyons’ and my 2015 book Governomics.)

Labor, although it has been less clear, seems to have re-endorsed the traditional Labor policy of achieving distribution in part through what is known as the “social wage” – an economic philosophy that endured from the Curtin to the Hawke Governments, and that was also taken up by some conservative governments, most notably the Playford Government in South Australia. It is about access to education, health care and housing, not only to provide a safety net, but also to support community solidarity, or “social inclusion”.  (Labor, correctly in my view, classifies health care, education and other services as economic benefits, while many on the other side of government tend to use the term “social expenditure”, as if social benefits are not economic benefits.)

This difference between the parties is not picked up in media arguments about who is going to be better off under Labor or Coalition policies – “a single mother in part time employment will be better off/worse off by $3.81 a week under a Coalition/Labor Government”. Quite apart from the false precision of such arguments, they ignore the very fundamental differences in the ways the two main parties see how economic distribution is to be achieved.

As I describe in a recent New Matilda article, that misunderstanding was most clearly displayed last Friday in a regular chat session between Fran Kelly and Michelle Grattan.  (That’s only one example of many.) That same New Matilda article briefly describes the different philosophies between the two approaches, and for a fuller description see Chapters 7 and 12 of Governomics.


Ian McAuley is a retired lecturer in public finance at the University of Canberra and a Fellow of the Centre for Policy Development.

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1 Response to IAN McAULEY. The difference in the economic policies of the major parties.

  1. Avatar Geoff Friedman says:

    Moronic mantras of both major political parties are significantly to blame for our current economic malaise. Changes in parliamentary majorities tend to even out the weakness of choosing Keynesian or Monetarist policies. What is not addressed is the appropriateness of the timing of that choice. The electorate is probably below average at selecting the right side of politics to make the correct and difficult choices within a broad selection of options. Being bound to unaffordable electoral ‘promises’, or simply buying votes, does not assist selecting appropriate options. There is no choice in the forthcoming election. The coalitions gift to small corporations will assist the profitability of mostly Australian entities. The issue is whether it will substantially increase investment and thus employment opportunities. I am sceptical in this low interest rate, high debt and stagflation environment. It is the fallacy of trickle down mantra resurfacing.The fear campaign of these initial tax cuts going to overseas investors and banks is logically unsustainable. The PM stated clearly that you would need to return the coalition for at least two further elections before the large corporations, including the banks, could cash in. The likelihood of that happening is remote. Australians appropriately vote governments out when they fail the majority. I submit that neither of the main parties have the policies to fix our economic malaise. The feel good factor in electing a government that recognises social inequities is significant. This may evaporate when Government debt approaches the unsustainable levels of Australians personal debt. The trajectory towards a Greek Tragedy is obvious. Any ‘centrist’ acknowledges that the wealthy are better able to tolerate, say a 10% drop in savings, than social security beneficiaries taking a similar cut. The proponents of accepting a larger deficit to maintain, or extend, current welfare payments are using the comparison that Australia’s debt to GDP ratio is lowish in international rankings. The same analysis is not made regarding the comparative international level of our current welfare setup. A flushing toilet is the realm of the rich in the majority of the world. What Australia can afford must be viewed in the context of real economic productivity. There must be something worthwhile to invest in that satisfies risk averse banking practices. Currently banks prefer to lend to investors in the housing sector. Growth in house pricing to prop up GDP values has little longer term value and does little to provide employment. Productivity gains in production from robotics, 3-D printing and connectivity must reduce employment numbers in the less skilled job market. The appropriate social contract may be reducing the hours of any individual in that category to ameliorate under educated youth unemployment. The bubble in the housing sector is insignificant to the ‘Ponsy’ scheme created by the lending multiples encouraged by bank CEOs. Neither side of politics appear to have any solution to that elephant in the room.

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