per capita

The following information was released by the office of the Minister for Finance and Administration of Australia:

It is a pleasure to be speaking here today for Per Capita, an organisation that makes an invaluable, although occasionally lonely, progressive contribution to public policy and discourse.
In the descriptor of the Per Capita story, the rationale for its establishment includes the presentation of the “economic and moral cases for progressive policy reform in Australia”; a focus on the long term and the avoidance of both old and false debates.
Today I want to speak to you about the values underpinning the Budget and the economic circumstances in which it has been put together.
In this context I want to focus on the progressive case for returning the Budget to surplus, why it is in our collective long term interests; and why some of the avowedly left arguments for not doing so are part of a debate which is both old and false.
Budgets are not just an exercise in accounting; budgets reflect the values and beliefs of governments.
They are not an end in and of themselves.
They are the means by which governments deliver on their priorities.
For a Labor Government, a Budget is not just about numbers, it’s about people.
The coming Budget is framed by the need to deliver strong and progressive outcomes for this generation, and the next.
It will deliver on Labor’s tradition of fairness and our recognition that equality demands opportunity.
It will reflect our belief that a strong economy is the foundation of prosperity and fairness. That prosperity must be created to be shared.
It will enhance opportunities for those in work and remove barriers to those who are not.
It will ensure that the right supports are in place for the transition from education to employment.
The Budget will also confirm the Government’s fiscal strategy, and the pathway for returning the Budget to surplus in 2012-13.
This strategy is driven by an understanding of the consequences of failing to take responsibility on fiscal matters, both for the next few years, but also beyond.
It’s driven by an understanding of the challenges that come with the mining boom and the importance of spreading its benefits as far and wide as possible.
And it’s driven by an understanding that we must look not only to our own interests but also to the next generation’s.
We know that unsustainable spending is neither responsible nor progressive – and we know that it imposes very real consequences on our children.
The Challenge
The current economic environment presents a unique set of challenges.
It can be easy to forget the economic destruction Australia avoided due to the Government’s swift response to the global financial crisis (GFC).
The current situation in most OECD nations shows what happens when countries feel the full brunt of a financial crisis.
A recession was averted by the actions of this Labor Government.
But the effects of the GFC can still be seen in the Commonwealth Budget – although stimulus spending has wound down, revenues are lagging as companies carry forward losses and consumer sentiment is still hesitant.
The GFC was a shock to the Australian economy, and to Australians.
Consumers have responded to that shock by being cautious - paying off credit cards rather than shopping, paying down their mortgages rather than going on holidays.
In addition, the impact of the Queensland and Victorian floods and Cyclone Yasi are having a significant impact on the economy in the short term, and therefore Government revenues.
Yet these short term factors will not knock Australia off its growth trajectory.
The coming record investments in the mining and resource sectors, the best terms of trade in living memory and low unemployment will see surging growth in some sectors of the economy.
As this boom gathers pace, it will exacerbate capacity constraints and further the pressures on the patchwork economy.
Without the right policy response, this wave of investment risks increasing price pressures across the economy.
Different approach?
In facing these challenges some have called on the Government to put aside its commitment to return the Budget to surplus and allow one, two, three years or more years of deficits.
We see this call particularly from some on the left, who characterise the Government’s budget strategy as an unnecessary discipline.
But consider the consequences of this course of action.
What would be the impact of not returning to surplus in 2012-13?
In the year we will return to surplus:
the mineral sector will be booming as today’s round of investments come online, exacerbating capacity constraints and pressures on the patchwork economy;
growth will be strong and above trend; and with
an unemployment rate with four in front of it.
To not have the Budget in surplus in 2012-13 would see the Government competing with the private sector for the same resources.
Restraining spending and building surpluses means we’re not compounding inflation and cost of living pressures in the years ahead.
To do otherwise would disproportionately hit those least able to adapt, those in low paying jobs, and those on fixed incomes including students and the elderly.
It would erode incomes, putting pressure on the cost of living and additional stress on household budgets.
It would aggravate the challenges of the patchwork economy, as the cost of inputs rise, putting job creation in some sectors at risk.
As the boom surges the pressures on manufacturing, services and non-mining sectors will increase, as it draws in resources and workers.
Delaying the return to surplus can also impact the longer term sustainability of the Budget – forcing us to make harder decisions in the future.
Because we need to remember that a decision today can close off a more worthy decision tomorrow.
The Government’s response
So the Government will do what is responsible.
The Government will make the difficult decisions needed to get us back in the black.
As the Treasurer has said – If we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again.
Central to framing a progressive response to these challenges is the belief that responsible fiscal policy is also responsible social policy.
With this background the Government’s budget position is clear:
returning the Budget to surplus in 2012-13;
boosting skills and participation;
addressing the pressures of a patchwork economy; and
spreading the opportunities of the mining boom.
These will be the hallmarks of this Government’s fourth Budget.
Just as there are imperatives in the near term to return to surplus, so too there is a longer term rationale.
The coming Budget will also reinforce the Government’s commitment to a fair and equitable society.
We know that a strong Budget is needed for a sustainable social safety net, and that failure to make tough calls today will require tougher calls for the next generation.
A Labor Budget – looking to the long term.
A sustainable safety net
In my time in politics I have been driven by the notion of intergenerational fairness – asking this generation to think about the next, and to act accordingly.
In Government, this idea has a particular resonance.
We expect Governments to represent the nation as a whole.
We expect them to act in the best interests of the nation.
But we also need Government to look after the next generation.
To ensure that the nation they leave for their children is better than the one they inherited from their parents.
This includes managing the budget, but it also is relevant to the broader delivery of Government services – particularly those for the most disadvantaged in society.
At the core of the Labor project is the belief that the role of Government includes helping those in need.
Those that are vulnerable.
And those that cannot provide for themselves.
Labor Governments have been central to creating our social safety net, driven by the belief that a progressive society is a just and fair society.
The idea that a strong community helps those in need and provides opportunity for those that can look after themselves.
If we focus only on meeting today’s demands we will, in the end, crowd out those in need from this generation and the next.
Creating opportunity is at the centre of Government.
But as a Labor Government we need to provide opportunities to those most in need of opportunity.
For today, and tomorrow.
From some on the Left we see the push to meet these demands – free tertiary education and increasing funding for public transport are just two examples.
On their own, these policies can be persuasive, on their own they have merit – however in aggregate they are unsustainable.
The Government providing funding for services to someone who can afford them, squeezes out funding for those who cannot.
Government’s budgets are finite, and always will be.
And in the end it is the most vulnerable that often lose out.
We know that without sustainable finances, progressive outcomes are not possible.
Labor values of fairness, equity and opportunity will not be realised.
We only have to look to the UK or the US to see the impact on social safety nets when budget positions deteriorate.
In the United Kingdom we are seeing this played out right now. You have a government faced with an economic crisis slashing spending on education and public services.
For example the UK Government has made deep and lasting cuts into the higher education sector, matched by increased university fees to a level that puts tertiary education beyond reach for thousands of Britons.
The circumstances in Greece and Ireland paint an even darker picture.
This is what can occur without sustainable and responsible budget practices.
Interestingly, when it comes to fiscal matters, arguments from some on the left can diverge from other significant policy positions.
For instance, you would struggle to find anyone associating with progressive politics who would not support action on climate change today so that tomorrow’s generation don’t have to carry an even heavier burden.
And yet this same rationale does not always apply to budgeting.
Locking in spending today is locking in a tax burden tomorrow.
With an ageing population and known structural pressures in the Commonwealth Budget, the burden on the next generation will already be heavy – and yet many on the left seem keen to add to it.
This is not the view of our Government.
For our Government, fiscal responsibility is ultimately social responsibility.
And our record is clear.
The Government has been repairing the long term structural position of budget, making family and age pensions and healthcare expenditure more sustainable.
By 2050 these saves are expected to have generated a cumulative save of $300 billion in real terms.
This is $300 billion that can be allocated to helping those most in need, investing in education or improving access to healthcare.
The Government’s position is clear – making budget cuts today will provide the foundations of a sustainable safety net and strong progressive programs.
This will require prioritisation. This will invariably require tough choices.
But it is the right approach.
The Gillard Government is acting today, to ensure higher living standards and better services for the next generation.
Jobs
Key to the framing of the 2011-12 Budget is the importance of employment.
This is not surprising.
The Labor Party was founded on the value of employment, on the principle of a fair day’s wage for a fair day’s work.
And our record stands proud following the GFC.
Where the Opposition would have faltered, the Government acted.
The stimulus program rolled out by the Government saved 200,000 jobs and stabilised the economy.
Compare these facts with other countries and you quickly see how effective the Government response was: approximately 30 million jobs were shed around the world, with around 7 million jobs lost in the US alone.
Each of these unemployed Americans has a family, each has aspirations, and each has to find another means to make ends meet.
This human side of the financial crisis was largely avoided in Australia.
And yet the imperative to work – the value of a good job – should never be taken lightly.
Against the back drop of the Mining Boom Mark II, the imperative is even greater.
And it is this imperative that will sit at the core of the Budget.
Indeed this is at the core of what it means to be a member of the Labor party – providing lifelong opportunity through improved education, training and employment.
We recognise the dignity that comes with having a job, and earning a decent wage.
This starts with job security.
We know people are doing it tough - but we also know how much tougher it would be for those without a job.
A good job provides more than your fortnightly pay cheque – it gives purpose and provides security for the future.
And in a growing economy, the Government needs do its part to realise the abilities of more Australians and invest so that they have the training and skills they need to participate.
In the current economy – in these historic economic circumstances - inclusion through participation must be our central focus.
With already low unemployment levels and high growth, the need for more workers is the catalyst needed to break persistent cycles of social and economic exclusion.
Drawing these two strands together – an economy in need of workers, and the many Australians that need work – is true to our Labor principles.
As the Treasurer outlined on Sunday, the Government will harness the boom to extend opportunity through the creation of 500,000 jobs in the next couple of years.
The Budget will provide other ways to extend greater opportunity in our society and to imbue more responsibility into the system.
This involves getting the incentives for work right.
It also requires investing in the skills and training necessary to unlock opportunity.
We want our workforce to be skilled and in jobs.
And this will be reflected in the coming Budget.
By putting in place the right incentives for work we will encourage more Australians than ever into the workforce, to enjoy the security and dignity of employment and break patterns of exclusion.
True to our Labor values we will be using the coming Budget to invest in skills and training to ensure that the economy’s thirst for labour is met, and workers are provided with the opportunity to enjoy the boom.
The return to surplus is also important in getting the settings right for the long term prosperity of Australia.
By stepping back and letting the private sector expand, the Government is making way for the creation of jobs, and putting in place the settings to see as many Australians benefit as possible.
Our participation reforms and investment in skills will not only nurture the boom, they will ensure the opportunities the boom creates are felt across our country and for years to come.
Concluding comments
In many ways the themes of the coming Budget echo my first speech to the Parliament.
In that speech I drew attention to the disadvantage in particular areas of Adelaide – the lack of post-school qualifications and high rates of youth unemployment.
I spoke of the need for an adequate safety net.
But I also expressed the view this could only be a baseline policy, that in Government we have to provide opportunities for people.
These ideas - of addressing inequities and ensuring a strong and lasting safety net and of providing opportunity through training and skills - have been close to my thinking as I’ve worked through this budget process with the Treasurer.
Together with the Prime Minister we will be delivering a Budget that is imbued with the values of the Labor tradition.
We all bring our own values to these debates, and to the Cabinet room.
For me, the belief that we should look beyond ourselves and beyond today has been central.
This drove me when I was Climate Change Minister.
Perhaps it was my father’s exhortation as I was growing up that “the next generation must be better than this one”.
After all, it is a universal human aspiration.
Yet not often enough does this common aspiration, so familiar to us in our personal lives, define our national politics.
Indeed, it is often a struggle even for well-intentioned politicians to keep that focus.
Because the politics of today focuses so much on today.
But a progressive vision demands we look ahead.
Because we know no prosperity can be secured and no social reform sustained unless we do.

Published by Progressive Australia in Economics, Fairness
by David Hetherington

At the heart of a debate around the future of work and the economy is a presumed trade-off: prosperity versus fairness. Economists like to dress this up as efficiency versus equity, and this is where the problem starts. Equity is as a troublesome caveat which serves to detract from the efficient (and elegant) solution in a zero-sum game. The first issue with this is that it implies a necessary trade-off between the two. The second is that it dehumanizes the central problem, which is why I prefer prosperity and fairness.

The evidence suggests that the trade-off between prosperity and fairness is far from clear-cut. Countries with higher incomes per person tend to be more equal. This doesn’t mean high incomes causes greater equality or vice versa, only that high incomes do not necessitate inequality. The great exception to this trend is, of course, the United States which has high incomes and high inequality. Yet even there, an interesting picture emerges. As inequality has grown in the US since 1970, average weekly earnings have fallen in real terms. Again, it’s not clear that prosperity and fairness are a necessary trade-off.

What is clear is that presenting prosperity and fairness as a trade-off makes people behave as though it is. The public debate takes the trade-off as a given and the public responds in kind. Ross Gittins writes of how participants in economic experiments behave less selfishly and more in the common interest when the experiment is titled Social Exchange Study rather than Business Transaction Study, or Community Game rather than Wall Street Game.

Over the last decade, the Australian public debate has embraced the false trade-off between prosperity and fairness, and the public mood has moved significantly in favour of prosperity over fairness. The reasons are varied, but the key point is that as a community, we are less willing to embrace solutions which deliver long-term prosperity and fairness if they involve any short-term sacrifice or cost. Deferred gratification ain’t our thing.

Companies fight tooth and nail against any proposal that remotely threatens their quarterly earnings, even where it’s clearly in the public interest – we now expect this. The orchestrated campaign against pokies reform is a case in point. What’s more curious is that they resist these proposals even where they may provide profitable opportunities down the track. The resistance of corporate Australia to a carbon price shows a lack of imagination about the opportunities presented by the transition to a low-carbon economy.

Individuals have also become less willing to sacrifice short-term prosperity in the pursuit of long-term outcomes which combine fairness and prosperity. Responses to Per Capita’s annual tax survey show that Australians want higher spending on public services and infrastructure, but believe their taxes are too high. They believe higher income earners are taxed too little, even when they are themselves high income earners who describe themselves as overtaxed.

This community sentiment has got politicians scared. The Rudd Government retreated from the CPRS in the face of focus group pressure, and Labor has been surprisingly reluctant to trumpet the success of its Keynesian response to the global financial crisis, presumably for fear of being painted as antiquated Lefties addicted to debt. While Julia Gillard’s (re-)embrace of a carbon price is welcome, progressive political leaders should do more to decouple the false link between prosperity and fairness by advancing solutions which instead reinforce a virtuous circle between the two.

The virtuous circle involves a recognition that markets provide powerful forces that can be harnessed to promote prosperity and fairness, but remain a means rather than an end. Market design has already been used successfully in areas as diverse as employment services and water management, and a well-designed carbon market is a logical next step.

The virtuous circle requires a further recognition that, contrary to the claims of classical economics, much human behaviour is predictably irrational. Policy should be developed with this insight in mind, rather than the assumption that individuals are perfectly rational, utility-maximising calculating machines. Initiatives which put pre-commitment limits on gambling losses, or provide opt-out default superannuation accounts explicitly recognize the limits of human rationality. And they demand small short-term costs, often by producers, in the pursuit of long-term social and economic gain.

The list of policy ideas that builds on these insights is long. We can capture the dividends of the mining boom by channeling super-profits tax into a sovereign wealth fund. We can increase housing supply by restricting negative gearing to new-build dwellings only. We can finance infrastructure by tapping the nation’s superannuation pool. We can stimulate R&D, not only through extra public spending, but also by promoting competition so that our large oligopolists are forced to compete on innovation as well as price.

Each of these initiatives will attract resistance from privileged incumbents threatened by change. Yet each advances fairness as well as long-term prosperity. As we’ve seen in the carbon tax debate, the battle will be fierce. Progressive leaders face no more important fight.

—

David Hetherington is the Executive Director of the progressive think tank Per Capita.

Monday, May 9, 2011

David Hetherington to appear on ABC24 The Drum 09/05/11 6:05pm

Wednesday, May 4, 2011

Marcus Priest writes about PerCapita Forum in today's Australian Financial Review

PER CAPITA PUBLIC FORUM MELBOURNE TOWN HALL MELBOURNE THE 2011 BUDGET AND THE RETURN TO SURPLUS

Saturday, April 30, 2011

Progressive Australia

Progressive Australia

Public forum with Senator Penny Wong, George Megalogenis and John Freebairn, Melbourne, 3 May 2011

Friday, April 29, 2011

The False Trade-Off of Prosperity and Fairness