The ALP’s National Policy Forum (NPF) is responsible for producing the draft platform for the Party which goes for consideration by Labor’s National Conference. The NPF, in consultation with the relevant shadow ministers, has released a consultation draft of the National Platform for input from ALP constituent units.
It is, on the whole, a very progressive document. Everybody will have their won favorite bits. I like the commitment to making “Australia a global energy superpower to tackle the challenge of dangerous climate change, reduce Australia’s carbon emissions, modernise Australia’s energy production, lower the cost of energy and create more well-paid, secure jobs.”
And then, later in the document, the commitment to bringing dental care into Medicare. This will need to be phased in. But the commitment is there, not only in the platform. But I believe also with the relevant shadow minister and the leader.
Nevertheless, there are some remnants in the draft that persist with a neoliberal flavour. These will hopefully see amendments.
For example, “Markets allocate goods and services efficiently, but not always equitably.” Really?
Markets allocate goods and services according to the price of those goods and services and who can afford to pay those prices. This is determined partly by the distribution of wealth and income and partly by the operation of the market, the extent of competition or monopoly, information asymmetry, etc. But neither is market allocation necessarily efficient. Inefficiency in the operation of the market, such as pollution and waste is only abated (whether adequately or inadequately) by regulation.
The consultation draft does implicitly recognise the need for market regulation by stating “Labor will ensure that markets are functioning, fair and work for the benefit of the Australian people”.
It has become popular to describe capitalism as a “free market system”. But there are very few, if any, completely unregulated markets even under capitalism. Moreover, markets, free or regulated, are not a defining feature of capitalism. Every society, at least since the advent of agriculture, has had markets- Slave owning societies, feudal societies, socialist societies. Markets are nothing more than a place where goods and services are traded. The reason it is has become popular to describe capitalism as a ‘market system’ is because markets denote choice. And it is true that consumers can choose what they want to buy.
But the defining feature of capitalism is not the way it distributes goods and services but the way it produces them. Participation in the system of production usually provides people with far less choice than in decisions they make about what to buy.
Apart from those employed by the government, basically, you either run a business or you are employed by one. If you run one then, subject to any relevant regulations, you decide what, how, and when the goods and services are produced. If you are an employee then the extent of your input on what and how things, are produced, as well as what you are paid, will depend on the decisions of your boss, relevant regulations, and/or the influence of a union. There is only a tiny co-operative sector in Australia. The draft platform aspires to change this by stating:
“Labor will put cooperatives and social enterprises on a level playing field with other small businesses, including greater access to capital and government grants”.
Perhaps the section on the role of the market could be amended along the following lines:
“Markets sometimes allocate goods and services efficiently, but not always equitably. Markets can also fail, or create negative externalities, such as pollution and climate change. Labor will ensure that markets are functioning, fair, environmentally sustainable, and work for the benefit of the Australian people.”
More importantly, later in the draft platform, in paragraph 12, there is this:
“Labor will deliver sound public finances by adhering to a fiscal strategy that achieves a balanced budget on average over the economic cycle. Labor will take a responsible approach that supports growth, jobs, and invests in future prosperity while strengthening public finances.”
The first sentence has its genesis in Peter Costello’s charter of budget honesty. This required the government to publish its fiscal strategy- that is not a bad thing. But similar phrases about the need to balance the budget over the business cycle have appeared in the budget publications ever since. However, as the economist Stephen Hail wrote in ‘The Age’ recently, even pre-Covid, the idea that there should be a balanced budget on average over the business cycle has been honored in the breach.
The whole idea of balancing the budget on average over the business cycle is based on the neoliberal idea that economies operate near full potential and therefore that public spending largely “crowds out” private spending. This is fallacious at the best of times. Interest rates have now been at historically low levels since the GFC but still, private investment and economic growth have been unsatisfactory.
The Coalition strategy in the latest budget is heavily focused on government spending on subsidies to businesses to try and get them to invest. Implicitly then it has been accepted that low-interest rates are clearly are not enough to spur investment. The focus is wage subsidies which bake age and sex discrimination into the system, a $27.6 billion instant asset write off to encourage businesses to immediately acquire any new asset that depreciates in value and a $4.9 billion ‘loss carryback’ scheme which will allow tax paid on earlier profits to be refunded based on current losses.
The Coalition estimates that the instant asset write off will result in $200 billion worth of new investment. Time will tell whether this prediction is fulfilled. There is still an issue as to whether businesses will be willing to invest sufficiently for capacity expansion in such a weak economy or whether the government should have had a greater focus on government investment in projects that will themselves directly spur demand, job creation, and longer-term benefits. Like making Australia a renewable energy superpower, or like the Rudd government investments in social housing, school buildings, and home insulation, for example.
But either way, the question of whether the Coalition government is still adhering to the view that government spending somehow crowds out, rather than encourages, private sector spending and investment, has been answered. The Thatcher/Reaganite view that government just gets in the way and should just stand to one side and leave businesses to their own devices is dead and gone.
A fiscal strategy of balancing the budget on average over the business cycle is completely unrealistic in the current circumstances and it is quite clear that the stated budget strategy of both the Coalition and Labor is for fiscal stimulus and job creation through massive borrowing. It is just misleading to suggest otherwise. So paragraph 12 in the draft platform needs to go. What should replace is perhaps a more open question.
Maybe something along the lines of the following:
“Labor recognises that the current extraordinary economic circumstances call for extraordinary fiscal policy measures with an immediate priority on job creation and improved productivity. Labor will take a responsible approach that seeks to eliminate wasteful expenditure, supports growth, jobs, and invests in future prosperity while strengthening public finances in the longer term”.
And perhaps even this:
“Since the global financial crisis central banks overseas have increased the supply of money in the economy through buying up government bonds on the secondary bond market thereby increasing the financial liquidity of banks and lowering interest rates (quantitative easing). The hope has been that this would facilitate private investment and spur economic growth. However, too much of the increase in the money in the economy has inflated asset and share prices and has not sufficiently benefited the real economy. Economic growth has generally remained unsatisfactory.
Labor will examine methods by which increases in overall money supplied by the Reserve Bank might be redirected to assist government strategic fiscal policy investments into the economy without requiring that spending to be offset by taxation or borrowing and without increasing the risk that the Reserve Bank’s medium-term inflation target will be exceeded.
In determining appropriate fiscal policy and economic stimulus Labor will adhere to the following general principles:
- Put purchasing power with households who are most likely to spend it
- Target domestic production
- Target activities with high direct employment intensities
- Target those most impacted by the crisis, especially including women’s employment;
- Target useful projects that deliver co-benefits
- Target regional disadvantage
- Establish federal state government arrangements that result in more collaborative fiscal policy and economic stimulus responses and that acknowledge the superior fiscal position of the federal government as a currency issuer and revenue raiser.”
This approach might be more controversial. Though the measures suggested in the second paragraph above have already been suggested by two respected Labor economic spokesmen, Paul Keating and Craig Emerson.