Proposals for policy reforms in this country are most often hamstrung by the lack of government revenue required to implement them. Unless this impediment is overcome, many very worthwhile proposals for reform will continue to be ignored.
This election, more than any previous campaign, has been marked by an absence of bold new initiatives.
Morrison has always been a policy-free zone, and we did not expect more. New promises by the Coalition are characterised by grants to sporting clubs and other community organisations, and a lot of dodgy infrastructure projects in marginal electorates, without any cost-benefit analysis.
There is no suggestion that the Coalition is even remotely interested in the sorts of fundamental reforms needed to tackle urgent issues, such as climate change, the struggling health system, housing affordability, access to childcare, the disparity in schools funding relative to their needs, and tertiary education and research.
Equally Labor, under Albanese has continued to present a small target. Labor does have some useful proposals, but they are typically inadequate relative to the size and scope of the problem. This can be seen by comparing Labor’s reforms with the new policy directions canvassed in the series, If I were the Minister, posted in various issues of Pearls & Irritations since the election campaign began. But why has our political debate between the major political parties, reached this disappointing stalemate?
A very substantial part of the answer is, I think, because many of the reforms proposed would require a substantial increase in government expenditures, and consequently more tax revenue. In this country, however, the political debate is constrained by a culture that low taxation is an over-riding end in itself.
In this election, taxation is unmentionable for Labor, while the Coalition only wants to boast about how it will always be the party of lower taxation. But neither Labor, nor anyone else, can support more ambitious reforms so long as any increase in taxation is off the agenda.
Indeed, in pursuit of lower taxation, both the major political parties are supporting implementation of the Government’s Stage 3 tax cuts, where more than half of the benefits accrue to the top 10 per cent of income earners.
The Parliamentary Budget Office has recently estimated that the annual cost of these tax cuts is $15.7 bn in the first year (2024-25) and rising to as much as $37 bn annually in ten years’ time. This is much more than either party has so far promised in this election campaign: namely, $12.75 bn for the Coalition and $7.36 bn for Labor, according to the running totals published daily in the Sydney Morning Herald.
This conclusion that lower taxation, even if it only benefits the rich, trumps all other spending priorities means that if we want genuine reforms to government programs we need to change present low-tax culture and the assumptions underpinning it. Without a widespread acceptance of the need to raise more taxation revenue, the very worthwhile reforms proposed in the If I were the Minister series will continue to be largely ignored.
My criticism of these articles is therefore that none of them addressed the issue of the cost of the policy reforms being proposed. But if the author were indeed the Minister after the election, they would be obliged to take a submission seeking Cabinet approval of their recommendations, and under Cabinet rules their submission would not even be considered unless it addressed the issue of budget costs.
Moreover, unless proponents are prepared to be frank about the cost of their proposals I doubt that we will get anywhere with the broader public. The public needs to understand that they get nothing more for nothing. And that leads me to discuss what I would do if I were Prime Minister to change the political debate and achieve the broader reform agenda that has been outlined in Pearls & Irritations.
My top priority would be to set up an expert Committee of Enquiry (not a Royal Commission comprised of lawyers) to conduct a fundamental public investigation of how much is needed to guarantee the funding of the major essential services that are considered to be presently underperforming and underfunded.
This would be a very significant change from the present top-down budget process, which sets a cap on total expenditure. Consequently, all funding proposals presently compete within this cap.
The Committee would instead develop a bottom-up estimate of how much in total is required to ensure the cost-effective provision of essential government services. In developing this bottom-up estimate the Committee would be supported by public servants in the relevant departments who could prepare the costings, including the costing of any reforms that the Committee or government were inclined to support.
The expectation is that the Committee’s enquiry process and its eventual report would provide a carefully considered and expert assessment of how much more expenditure is needed, and that would then be the basis for a new and different debate on why we need more taxation revenue. It should also be noted that even if that extra revenue required amounted to as much as 4-5 per cent of GDP, that would still leave Australia as a lower taxing country than almost all European democracies.
This new debate on why we need more government revenue should be led by the proponents of reforms of government services. They would then have plenty of material to prosecute their cause.
Following the initial public response to that first enquiry, but hopefully not long after, a second enquiry would establish how best to raise the additional revenue required. Again, the enquiry process, the evidence produced and the final report, would be instrumental in achieving public support for the types of tax reform.
I appreciate that these enquiries and subsequent action to implement their recommendations will take time – years not days. That could mean that the reforms of many essential services may have to wait, notwithstanding that many of the articles proposing these reforms argue for moving sooner rather than later.
But realistically is there any other better way to change the nature of the present debate? While I certainly don’t want to hold these reforms back, and especially not action to limit the existential threat posed by climate change, I am sceptical that much will happen until the need to raise more revenue is much more widely accepted.
Michael Keating is a former Secretary of the Departments of Prime Minister and Cabinet, Finance and Employment, and Industrial Relations. He is presently a visiting fellow at the Australian National University.
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