Discussing the Australian federal
election on July 2
(
Saturday ), 2016
It is again time for
Australians to vote in a federal election. It has been a rather frequent affair
during the past 5 years. This reflects on the less than ideal political
situation in the Australian political scene without a clear majority governing
political party. To begin with there is no obvious better choice in terms of a
better governing political team on offer.
Nevertheless, voters have to
make a pick somehow.
To allow the reader to assess
whether or not my comments are biased in my own favour I must declare my
own background. I am a retiree with no political affiliation and mainly live on
interest income from my own savings and investment income from shares in public
companies. I am not on any kind of government subsidies or welfare except
Medicare benefits. Having said that we can move on to the main discussion.
(A) Principles relating to
public finance or government spending
“ ( 6 ) Basic working principles of public or government
finance
Governments spend a lot of taxpayers' money in
recurrent expenses as well as capital or infrastructure projects. The
government budget is of direct relevance to our financial position and that of
society as a whole. Citizens are very often asked to pay their share of these
spending through the increase of personal income tax or other indirect taxes
such as sales tax or GST ( goods & services tax ). Incorrect ways of spending
public funds will both do great damages to the economy and will result in great
injustice.
Just as in accounting there are some basic
philosophies involved in this specialized branch of economics. Let us have a
brief look a few more important ones. Before doing so, however, we need to
learn about some special characteristics of public finance. The concepts of
external economies and diseconomies very often come up in connection with
government spending because the government is responsible for many branches of
social services. Here the terms economies and diseconomies refer the conditions and
effects and not systems as such. A particular economic activity is said to
produce an external economy when it can create benefits for other people who
are not the intended target of that activity. Take the radio airwave for
example. If the government sets up a radio station for its military service
everyone else can also enjoy its programs without extra costs on the
government. Again, if the government constructs a freeway to make it more
convenient for citizens in the outlying areas to get into the city the freeway
will also benefit those living along its route. The improved convenience will
also lead to the increase in the value of properties in its vicinity. These are
extra benefits to be reaped by society. On the other hand, some economic
activities can create external diseconomies. For example, an electric power
station that runs on coal will give rise to air pollution and will adversely
affect the health of citizens living in its vicinity. Besides the moral issue
the costs of the resultant long-term health care problems will be ultimately
borne by society while the electric company simply makes the profit without
bearing the full social costs. Nowadays, social accounting is becoming popular
in some countries to find out the ultimate costs of to society. The fundamental
lessons to be learned on these special characteristics of public projects are
three fold. First, the decision to go ahead with such projects must be based
not just on immediate or direct costs and benefits but on all external
economies and diseconomies. Secondly, many projects with such special
characteristics are very often more suited to public sector management because
profit is not the sole consideration for the government. Thirdly, if it is
decided that it is more efficient for private corporations to handle such
projects strict control must be in place to ensure that costs of external
diseconomies if any must be paid for by the private enterprise undertaking the
project. Otherwise, corporate greed will again lead to some social costs being
passed on by the private enterprise to the taxpayer. However, it must also be
borne in mind that others things being equal first consideration should be given
to allowing the private sector to take up the project under a market oriented
economy to give priority to economic efficiency. The existing size of the
public sector must also be considered so as to keep down government's share in
the total economy to a reasonable proportion such as below 20 % of GDP ( gross
domestic product ).
Very often there is some dilemma facing government in
connection with the operation of many public services such as health care and
social welfare. How much should the government charge citizens for using such
services. If they are completely free
then such services may be abused by those who may not really need them. Thus,
it will lead to a waste of precious economic resources. On the other hand, if
the charges are too expensive it will be unfair to the underprivileged sector
of society who may not be able to afford them thus creating a burden on the
poor. Due to the special characteristics of such essential services the strict
rules of the price system ( or money vote and by supply and demand ) under
capitalism cannot work properly. Here again we encounter situations that cannot
be satisfactorily handled by a strict application of the price system ( price
to be determined freely by supply and demand ) which is considered to be a sacred
institution under capitalism. So, economists have come up with two useful
principles that are quite handy in such tricky situations. They are called the
ability to pay and benefits received principles in public finance. These two
principles are not mutually exclusive but can be used in a certain mix to
achieve the optimum balance on fairness and efficient use of economic
resources.
The “ ability to pay “ principle requires that due
consideration must be given to any hardship that may affect the user's ability
to pay for the essential services while the “ benefits received “ principles
specifies that users have the basic obligation to pay for any services they
receive unless special circumstances warrant otherwise. Applying the above
principles to use of the emergency ward of public hospitals an appropriate way
to
strike a balance between fairness and efficient use of
the emergency facilities would be to charge a fee that will deter non-urgent
users ( benefits received principle ) but the charge can be waived by the
health authority or borne by the social welfare department in case of citizens
already on the welfare system ( ability to pay principle ).
The government's budget can be used very effectively
to achieve many economic goals such as creating employment ( through fiscal
spending ), redistribution of income on a more equitable basis ( through
taxation ), keeping down the inflation rate by a surplus budget ( withdrawing
more resources from the economy than putting back into it ) and stimulating consumption
in the private sector through a deficit budget ( injecting more into the
economy than withdrawing from it ). There is usually no serious problem with a
surplus budget except public criticism against the government for not taking
better care of the underprivileged sector. However, if a surplus budget is
called for to dampen an over heated economy by withdrawing resources from it
the foregoing criticism will not stand. On the other hand, there can be a lot
of controversy over a deficit budget
( spending more than the amount of
revenue raised during a financial year ). This is because a deficit must be
properly funded. There are basically three way of funding a budget deficit.
First, the government can simply print more money. This is the worst and most
irresponsible way because putting more money into the economy without a
corresponding increase in the production of goods and services will simply lead
to a higher price inflation which is will lead to hardship for the fixed income
earners and reduce the competitive edge of the country as compared to other
trading partners. Unfortunately, irresponsible and dictatorial governments such
as Zimbabwe are doing exactly that. It had led to a hyper-inflation rate of
over 231,000,000% in Zimbabwe in July 2008 as compared to the previous year.
The same tragic scenario also occurred in Germany after the First World War.
The second way is to raise more taxes which will be a direct burden on the
taxpayer and will be unpopular. The third way is to borrow from its citizens
and outsiders ( other countries and international corporations ) by issuing
government bonds ( national debt ).
There are some particularly tricky problems connected
with the question of national debts. First and foremost, borrowing too much
will subject the government to the influence of the creditors especially if
these are foreign countries or international financing giant corporations.
There is always the political consideration that these creditors can put undue
pressure on the government to carry out policies to the advantage of the
creditors. In extreme cases of excessive national debt the sovereignty of the
national may be threatened. In the case of excessive national debt owed to its
own citizens there will be a problem of adversely affecting a fair distribution
of income. Those citizens who are most likely to buy government bonds are the
rich people. Interest payment on bonds will ultimately be financed from
taxation. This means that the rich will become richer at the expense of the
poor. While only the rich receive interest payment on the government bonds they
hold as investment every citizen ( even the less well off ) must be bear the
tax burden in respect of that portion raised for the purpose of financing
government bond interest payments. The rich are getting richer while the poor
have less to spend due to a higher tax burden resulting from the need to pay
interest on government bonds.
Then there is the problem with the intergeneration
transfer of national debt burden. As many types of government bonds have very
long maturity periods this will imply that a substantial amount of money raised
by government bonds during the period of their issue will not be due for
repayment until decades into the future. As mentioned above in section (4) in
connection with the working of the financial market some US treasury bonds have
up to 99 years before they are due for repayment. This created the situation of
the national debt burden being transferred to future generations while the
borrowed funds have been used in the current generation. Therefore, to be fair
to future taxpayers long-term government bonds should only be issued to finance
long-term infrastructure capital projects such as roads and bridges which have
enduring benefits that will extend to future generations. This is the
accounting principle of matching capital expenditure ( capital assets ) with
long term loans ( or long term liability ) which is also applicable in social
accounting to ensure fairness to all citizens. This treatment also reflects the
benefits received principle in public finance. By the same token, short term
government bonds should be issued to cover a short fall in revenue in a deficit
budget for the increased current expenses of a revenue nature.
It will be recalled that there are four major economic
goals for the government to achieve. To refresh the readers' memory, these are
full employment, low inflation, healthy economic growth ( i.e. increase in
living standards over time ) and a fair distribution of national income ( a
major proportion of the population being in the average income and wealth
bracket ). There is now an urgent fifth goal of environmental protection. The
most ideal conditions for the the economy is full employment with an acceptably
low rate of inflation together with a healthy rate of growth, little disparity
between the rich and poor plus a good and sustainable environment.
Unfortunately, some of these economic objectives are not totally compatible.
For example, an increase in fiscal spending can create more employment but it
will also lead to a higher rate of inflation. Similarly, to achieve a higher
rate of growth in a shorter period of time involves higher levels of spending (
both in the public and private sectors ) that will lead to a higher rate of
inflation. Of course, the ideal way to achieve a higher rate of economic growth
without too much additional spending is to increase personal productivity (
working more efficiently ). Then, a more progressive rate of taxation will lead
to a more equitable distribution of national income but it may sometimes reduce
the incentive for more personal efforts. Political considerations will also
come into play. For example, the best way for the world as a whole to achieve
the most efficient use of resources is total free trade to promote competition
and higher productivity or efficiency. However, trade unions in many countries
where a democratic political system is at work will dictate minimum wage levels
and working conditions which can make the work force of that country less
competitive. The result is that trade unions in that country will call for more
protection ( such as quotas or import tariff ) against cheap labour producer
countries. The conflict arises because of different working and remuneration standards
between the advanced and developing countries. This is a major problem
confronting members of the WTO ( World Trade Organisation ) which was formed to
promote free trade on a global basis ( or more popularly known as Globalisation
). A skilful and fine balance must be struck by a capable government to achieve
reasonable progress in all five economic goals the latest one of which is
environmental protection. ( The 5 objectives for economic policies are (1)
Economic growth or betterment of living standards. (2) A fair and equitable
distribution of national income and resources. (3) Full employment to give a
fair go for everyone (4) Price stability with a tolerable rate of inflation to
protect against erosion of spending power for the majority working ( fixed
income ) class as well as retirees and the underprivileged class. (5)
Environmental protection to ensure the sustainability for our environment which
we must protect for our future generations. These economic goals very often
works against one another so that a healthy balance must be maintained in the
course of achieving them. )
Just one word of reminder regarding government
spending in relation to the capitalistic rationale of “ big economy, small
government “. In case it is necessary to support a declining economy this can
be done fiscally by either increasing public spending or a reduction in taxes.
Everything being equal the above capitalistic rationale warrants that cutting
taxes should be given priority because the private section is supposed to be
more efficient in deciding what to do with the extra money resulting from a tax
cut. The public sector, on the other hand, is usually more wasteful because the
government does not need to make a profit on its operations. Furthermore, a
freedom of choice for the citizens to spend the extra cash from the tax cut in
their own chosen way is consistent with the democratic principle.
Having acquainted themselves with the basic working
principles of public finance the readers will now be more confident in assessing
government policies proposed or taken to combat the E&F T 2008. Hopefully,
everyone will become an informed citizen to have a say in these public policies
through the vote which all citizens of a democratic country posses to make a
difference towards the recovery process. “
Armed with the above basic knowledge to assess the
proposals put forward by various candidates of the upcoming election let us try
to be an informed voter and hopefully, not to follow the chaotic path of the
Brexit referendum.
(B) General characteristics of the political parties
running for government in this election
(a)
The incumbent
Coalition government between the Liberal Party and the National Party
Their historical political philosophy is mainly market oriented or
capitalistic generally following the former UK iron lady Prime Minister -
Margaret Thatcher ( Thatcherism ) way of thinking. She was former Australian
PM, John Howard’s idol.
This philosophy is generally pro-business and pro middle class. It
holds a conservative attitude towards public spending and tries to shy away
from welfare as far as possible. The individual is supposed to work hard to
take care of his or her own problems as far as possible. Of course, they not as
yet dare to challenge the existing welfare arrangements though constant reviews
are in place to tighten them. For example, they have declared a new policy of
auditing pensioners’ assets to see if benefits have been over paid previously.
Their election campaign centres on :- (1) A viable economic plan to get
out of the huge budget deficit (2) A safe border against illegal immigrants (3)
A stable government (4) No changes to Medicare and education policy.
(b)
The Labour
Party
Traditionally, its policy is to protect rights and
welfare of the working class often willing to go into deficit spending to
achieve their goals. It is socialistic in political philosophy meaning that
resources should be fairly or evenly distributed even though the policies they
adopt to achieve this end may discourage investment in turn adversely affect
employment.
As the party needs the strong support from trade
unions ( organized working class ) the party very often give favourable
treatment to and sometimes even submit to questionable trade union demands. For
example, in the latest Victorian fire fighters trade dispute the Victorian
Labour government forced through pay and other reforms that favoured the trade
union. So much so that State government’s minister resigned in protest of the
manifestly unfair reforms. Although the unfair reforms had though passed
through State government but verbal and even physical threats are still being dished
out by various parties involved in the dispute.
Their election campaign centres on :- (1) Opposing tax
reduction for businesses and cuts to medical and family benefits and university
fees (2) protect workers’ right and benefits such as retaining weekend wage
rates (3) No privatisation of Medicare (4) No reduction in family benefits or
increases to university tuition fees.
(c) Green Party
The main party goal is to protect the environment. It
also emphasises Australia’s moral obligation towards refugees and champions the basic rights of the LGBT
community. For example, it supports same sex marriage. They are also against
globalisation which inevitably harms the environment.
Their campaign centres on :- (1) Protecting the
environment such as conservation of the Great Barrier Reef (2) Supports same
sex marriage (3) Abolition of all off-shore refugee detention camps.
(d) The independents
These cannot form a government in their own right but
are very important because of the very close election resulting in a hung
parliament ( no clear majority votes won by any single political party ). The
independents and once the Green Party were invited to form a coalition
government after a hung parliament was in place due to a very close election.
These independents have their own political calls
particular to their constituents. Sometimes, they were able to trade their
unique power balancing position to bargain for the realisation of their
political goals. They were dubbed the “ king makers “ because of their unique
power balancing position. This is clearly unhealthy but it happens at a close
election.
(C) What influences my choice in this election
(a)
To start with I
do not like the way the LiberaL/National Party Coalition forced this election
by a double dissolution motion ( the double rejection by the Senate of
their proposed legislation for the
establishment of the ABCC – Australian Building & Construction Commission
which is not even in their election campaign anymore ). This is a dirty trip
meant to force the law makers into accepting the Coalition’s proposal. The
Coalition worked within the law in using the Double Dissolution mechanism but
this cannot disguise the blackmail nature of the move. Blackmailing the
people’s representatives is an insult to the people and democracy. It is too
high handed and so causing the Coalition to lose their moral foothold. Having
said that the reality of the huge budget deficit leaves me no choice but to opt
for a more prudent fiscal management approach of the ruling Coalition. I will
definitely settle the score with Liberal not only on the Double Dissolution but
other issues such as the refugee policy as well in the next election. As
regards the choice of the Coalition’s cut in spending I do agree that it reflects
on the fact that Malcolm Turnbull and his team is slightly out of touch with
the common people.
(b)
Under the current
adverse world economic climate of China’s recession and now the Brexit turmoil
the economy is of top priority. I am not saying that the Coalition is proposing
a brilliant economic plan. It is nevertheless a more prudent or conservative
one though at the expense of some slight socially undesirable measures on
welfare. Labour on the other hand is running 4 years of higher deficits
followed by the return to budget balance in the fifth year. To me, this will
not be possible unless with increase in taxation or borrowing. We must not
forget that the huge black hole in our budget deficit is mainly due to Labour’s
imprudent spending. In particular, Kevin Rudd ‘s crazy spending spree set a
very bad example on fiscal prudence. I can still vividly remember Rudd’s failed
national heating insulation scheme of insulating one million homes in a year
which could never be achieved. That led to the death of 4 apprentices who were
not well trained enough to handle the job plus billions of dollars down the
drain. The scheme was just a wild shot by an ambitious Rudd to become the only
government in the free world to be saved from economic recession. To me, some
slight recession is not intolerable during the 2008 GFC and there was no need
to spend money for spending’s own sake).
(c)
With the Green
Party which is on moral high ground most of the time their goals are not really
that practical for Australia as a whole especially under the current economic
climate. However, they could be decisive
should there be a hung parliament. In my humble opinion they may serve the
country better while in opposition as a safe guard against excesses in the
incumbent government with regard to the government’s policies.
(d)
The most
important external issues that will influence my vote in this election are :-
(1) China’s recession leading to another possible world economic down turn (2)
Brexit leading to another world financial turmoil (3) General world movement of
political opinions to the far right leading to anti-establishment protest votes in many
countries.
(D) My predictions of the election results
Originally, I predicted a hung parliament with either
the ruling Coalition with some independent forming a government. Less likely, a
hung parliament with Labour and the Greens forming a ruling government but now
with the Brexit, the Victorian fire fights dispute and the more recently
conviction of the former NSW Labour member of parliament Obeid in his
corruption case the Ruling Coalition may win out right though with a narrow
majority. This is my bold prediction with all the available facts and my own
gut feeling. We will get our answer in 3 to 4 days.
Please make your own informed choice in your voting.
You must exercise your democratic right to vote and do your duty as an
Australian citizen. If you hesitate to exercise your voting right just think of
the thousands of freedom loving citizens worldwide who have suffered and even
died to try to get the right to vote. Do not waste your precious vote. Just
stand up and be counted as a proud Australian citizen.
JKHC
June 29 ( Wednesday ), 2016.
