Inside Story

What if Labor wins?

With the major parties level-pegging, a defeat for the Coalition isn’t out of the question, writes Tim Colebatch. So what would a Labor government look like?

Tim Colebatch 28 May 2016 2650 words

Ready for action? Labor leader Bill Shorten with his deputy, Tanya Plibersek. Sam Mooy/AAP Image

The conventional wisdom is that there won’t be a Shorten Labor government. The opinion polls say it, the commentators say it, and the bookies are saying it. In the past fortnight, Labor’s odds have slipped backwards, despite its campaign having been the less troubled.

Indeed, the odds quoted on Sportsbet late this week suggest the bookies think Donald Trump has a better chance of becoming US president than Bill Shorten has of becoming prime minister. The seat-by-seat odds imply that Labor would pick up only five to eight seats in net terms, far short of the nineteen it needs for a majority.

And yet the polls are still 50–50, plus or minus 1 per cent in either direction. On Friday a ReachTEL–7 News poll even reported Labor with a 52–48 lead. In two-thirds of the state and federal elections held here since 2010, the government of the day has been thrown out. The conventional wisdom could be right, but it could also be wrong.

Suppose it is. What would a Shorten Labor government be like? What characteristics would define it?

“Courage, imagination and honesty,” promised shadow treasurer Chris Bowen, setting the bar very high in a surprisingly good treasurers’ debate with Scott Morrison at the National Press Club on Friday. If he’s right, it would be such a culture shock in our politics that nothing would be the same again. But it’s more complex than that.

One of the interesting developments of the campaign so far has been the fleshing out of Labor’s priorities, giving us a better sense of what it wants to be like in government. (What it would actually be like, of course, would depend on the scenarios facing it, and we can’t predict them now.)

By and large, I get the sense that it looks back to the Hawke government as a model. It wants to be bold, but responsible. Tackling social issues, but not at the cost of the budget bottom line. It wants to be seen as caring, but definitely not soft-headed.

Shorten is no radical. He has spent twenty years as a leader of the right-wing faction of Labor’s Victorian branch. His people are single-minded about winning power and keeping it. They see themselves as pragmatists and realists, not idealists. Before he became leader, his opponents on the left depicted him as an opportunist without principles.

But Shorten has had to move up from being a mere “Faction Man,” as David Marr dubbed him, to being the leader of a party that covers a vast ideological gamut on almost every issue. Many of them are idealists, and every party needs to stand for ideals to attract supporters. The ideal his team has adopted is “fairness,” and by and large its policies have been shaped to try to give that credibility and resonance.

In the Press Club debate, for example, Bowen cited Labor’s commitment to lift spending on poorer schools as something on which he would be “focused like a laser,” in the interests of both social justice and good economic policy:

The education funding model makes inequities worse in Australia… That drives me as a matter of social justice… Even if it didn't, it would drive me as a matter of economic policy. We are missing out on talent in Australia. Young people who have committed no crime other than to go to a school which is under-resourced and have parents who are not wealthy are not getting the educational outcomes they deserve. The nation deserves them to.

Like the issue of hospital funding, funding for poorer schools is where idealism and populism walk the same path. That’s the path Labor is walking. And while it’s being lambasted by the Australian and the Financial Review for not focusing on economics and the budget, that’s like water off a duck’s back.

The polls and the focus groups tell us that Australians have turned off the economic debates, the foreign policy debates, even the environmental debates. They have broad expectations of their leaders – they should deliver economic growth and jobs, run budget surpluses, finance first-world schools, hospitals, roads, public transport and the rest, give generous welfare payments and tackle global warming – but the fine points of the arguments are of no interest.

As I noted last week, post-budget polling found virtually no public support for spending cuts or higher taxes to reduce the deficit. The public supported every new spending initiative in the budget, and opposed most of the savings initiatives. That’s why Labor feels free to campaign on fairness – which the public does care about – and ignore the agendas of the Australian and the Financial Review.

(The papers themselves, in any case, change their agendas at whim. When Wayne Swan as treasurer made some well-targeted cuts to benefits in the 2011 budget, the Australian screamed its outrage across page 1: “War on middle-class welfare.” It was bizarre, then, to see it this week criticising Swan and his colleagues in an editorial for not having cut more in that 2011 budget. Dear old humbug Oz.)

Coalition sources report that their ground-level polling and feedback show that Labor’s message of fairness is resonating mostly in its own heartland, not in the marginal seats it needs to win. If that is true, and remains true on election day, then Labor will lose, and the conventional wisdom that fairness doesn’t sell will be vindicated.

Labor wants its message of fairness to resonate among unaligned voters, and has chosen its policy mix to convince them that it will govern from the political centre. Take refugees: many Labor supporters feel outraged by the policy of turning back boatloads of asylum seekers, but its leaders know that the mainstream of Australians endorse it. Those who feel passionately for the refugees might switch to the Greens, but in most cases, their preferences will come back to Labor anyway.

Some would say the real policy battleground should be over what we do for the hundreds of refugees we’ve shipped to Nauru or Papua New Guinea. They have no exit from these countries, except to Cambodia, or to go back to the homes they fled from. Many hoped Malcolm Turnbull would bring some humanity and end this cruelty by allowing those who already made it this far to settle here. Instead, he has publicly opposed even allowing them to settle in New Zealand – arguing in effect that if they were allowed a decent life, it would lead people smugglers to try to land more asylum seekers here.

Where is Labor in all this? Basically, hiding behind the Coalition. Its response to the plight of the refugees is to tell us that in government it will do all it can to get them resettled in third countries – the same policy adopted by the Abbott government in devising its failed “Cambodian solution.” Shorten dares not go further, lest he allow the Coalition to paint him as soft on an issue Australians at large no longer care to deal with humanely. Its sop to its own idealists is to pledge to end temporary protection visas and allow a gradual increase in the refugee quota to 27,000 a year, double the number allowed in until recently.

Would Labor in government dare to be more flexible, and allow those effectively imprisoned in Nauru or Papua New Guinea to come here if they are found to be genuine refugees? Would it try to engineer another New Zealand solution? Bowen’s credo – “courage, imagination and honesty” – doesn’t apply here. Fairness is a principle that creates problems when other people want it to apply to those being demonised as social outcasts.

Tax reform is a different matter. Labor senses that Australians have marked Turnbull down for his indecisiveness. That has opened the way for Shorten to come out with clear, bold policies that appeal to a broadly shared sense of social justice.

And so, after resisting calls for reform for twenty-five years, Labor has finally decided to tackle negative gearing. It could do so because massive inflation in house prices has made it impossible for many Australian families to buy their own home. Negative gearing is not the only reason, but it has been, with lower interest rates, one of the two driving forces.

Investors now buy almost half the homes sold in Australia. In twenty-five years, debt taken on for rental investments has soared from 3 per cent of household income to 39 per cent. The investors’ growing share has been taken from first home-buyers, and that is not the society Australians want. You have to give Shorten and shadow treasurer Chris Bowen points for courage, and leadership, in deciding to phase down a tax rort that has gone on too long. But their focus groups would have given them a green light to move.

Labor this time has been willing to bite the bullet on tax issues it ducked in the past. Shorten and Bowen have shown a steel their predecessors lacked. The Rudd–Gillard governments permanently raised government spending by significantly increasing age pensions, introducing the National Disability Insurance Scheme and committing to the Gonski reforms, yet they failed to provide any new revenue sources able to pay for them. You can argue that all these were important reforms, but they have to be paid for, and Labor’s failure to do that is a key reason why we still have deficits of $40 billion a year.

Even if the Coalition’s estimate that Labor’s plans would raise taxes by $100 billion over a decade proves correct, that would only mean a tax increase of 0.5 per cent of GDP a year. The economy could absorb that, and would benefit from it if the money were well spent. To put the figures in context, revenues are now 2 per cent of GDP below their average level between 2000 and 2006, before the Howard government began its big tax cuts.

But Labor’s approach to spending has been less bold, and more attuned to electoral pressures than to the need to get the budget back in the black. In the treasurers’ debate, Bowen again highlighted the importance of Australia’s keeping its AAA credit rating, criticised treasurer Scott Morrison for not doing enough to cut spending in his recent budget, and implied that Labor would be willing to do so. Uh-huh, but that’s not what we’ve seen so far.

A careful examination by the Financial Review’s Phillip Coorey concluded that so far Labor has committed to $22.5 billion more spending than savings over the four years of the forward estimates. Sure, it was only week three of the election campaign, and the Coalition did exactly the same in both of its two campaigns from opposition. Only in the last two days of the campaign did it reveal how it was going to pay for it – and in 2013, even that proved an understatement.

Bowen toughened his fiscal stance in the debate, promising that Labor would reveal well before election day all its costings, both over the four years of the forward estimates and over the next ten years, and set out a “credible pathway back to balance and the year that balance would be achieved on current economic projections.”

But he has yet to pledge that Labor will make net budget savings over the forward estimates, and articles by Laura Tingle and David Uren have shone a spotlight on the problem. Labor’s moves to cut tax breaks for negative gearing and capital gains are grandfathered, so they apply only to new investments after 1 July 2017. That means they will raise only a small amount of revenue initially, though that will grow to substantial levels over time. By contrast, the Coalition’s company tax cuts start very small – over the next four years, its entire package amounts to only 0.1 per cent of GDP a year, a tiny engine for its big claims of “jobs and growth” – but become very costly once they are fully implemented in 2026–27.

So you can see why Labor is highlighting the ten-year costings – Bowen argued yesterday that the medium-term path is what the ratings agencies focus on – while the Coalition highlights the traditional four-year costings, where Labor’s numbers come up short. Frankly, if Australia’s AAA rating is under pressure, as Bowen asserts, then it surely has no room to fail on either measure. A set of costings that envisages adding to the deficit over the next four years would severely dent Labor’s economic credibility.

That may explain why Bowen and shadow finance minister Tony Burke this week got Shorten to overturn shadow welfare minister Jenny Macklin’s determination to restore both the schoolkids bonus (which expires in July under a deal the Coalition struck with Clive Palmer when he still had senators to command) and the pensions assets test (to where it was before last year’s deal between the Coalition and the Greens to tighten the rules).

The decision looked chaotic, and came after a very odd Sky TV interview with embattled Labor frontbencher David Feeney, in which David Speers for some reason asked Labor’s justice and veterans’ affairs spokesman whether Labor still planned to restore the schoolkids bonus. When Feeney not unreasonably suggested he ask the relevant spokesperson, this was depicted as Labor being in chaos. Hmm.

That embarrassment will pass, like the kaleidoscope of campaign stories we had last week and the week before, which we struggle to remember now. The lasting impact is that, within Labor, the economic ministers are asserting more control over party decisions, and the more the Coalition and the Murdoch media attack on that front, the more power Bowen and Burke will gain to rein back spending plans.

We saw that last weekend, with the release of an extremely modest foreign aid policy, promising just $800 million over four years towards repairing the Coalition’s cuts of roughly $18 billion over the same period. It is a depressing outcome for anyone who has seen the benefits our aid program brings to developing countries. Foreign minister Julie Bishop expressed surprise that Labor offered so little, and speculated that her shadow Tanya Plibersek had been “rolled” by Shorten. It is hard to draw any other conclusion. In a Shorten government, compassion will be filtered by populism.

That’s politics. We forget now that the Hawke government was just the same. In 1985, Hawke as prime minister declined to attend the official handover of Uluru, returning ownership to the local Anangu people, lest his popularity be tarnished by association with what the right depicted as a betrayal of white Australians. Shorten PM would be similarly careful about what causes he adopts.

A Shorten government would be a cautious, middle-of-the-road government, one that tries to keep the mainstream of Australians contented. It’s another reason why, in reality, those spending gaps won’t eventuate if they win power. Governments have lots of ways of making square pegs fit into round holes, mostly by quietly cutting funding for other programs to make room for their own priorities.

What we’re seeing now is that Labor has changed tack to make a pitch for fiscal responsibility. It still has a way to go. In an impressive performance in Friday’s debate, Morrison admitted the same was true for his own side. Whoever wins on 2 July, expect them to deliver spending cuts at the first opportunity.