27 August 2010

A kinder, warmer Parliament?

With an apparently hung Parliament, calls have been made for a more ‘consensual’ Australian legislature.

One of the reasons that Australian politics is the most rigid in the world is the because of ‘the pledge’: the promise that ALP members make to uphold the party platform and to follow decisions made by Caucus.

It is this practice that has provided Australia with the most rigid party system in the Westminster world.

If there is to be a truly consensual brand new political world, this is a practice wel worth reviewing.

We discussed this issue in a post dated 14 September 2009. It is republished below:

Senator Judith Troeth recently crossed the floor to vote with the Government in support of their plan to stop charging asylum seekers and immigration detainees for their mandatory detention.

Immigration Minister Chris Evans lauded her for her decision.

On the same day, three ALP MPs
endorsed a petition calling on the government to retain the prohibition on parallel importation of books.It will be interesting to see if they cross the floor should the Government decide to remove the ban.

It is not often that ALP members cross the floor. This is because party rules prevent it.

In particular, Rule 5 says (in part):

d. The Federal Parliamentary Labor Party shall have authority in properly constituted Caucus meetings to make decisions directed towards establishing the collective attitude of the Parliamentary Party to any question or matter in the Federal Parliament, subject to:

i. at all times taking such action which may be possible to implement the Party's Platform and Conference decisions;

ii.on questions or matters which are not subject to National Platform or Conference or Executive decisions, the majority decision of Caucus being binding upon all members in the parliament; and

iii. no attitude being expressed which is contrary to the provisions of the Party Platform or any other decision of National Conference or National Executive

The existence of this rule in particular weakens the role of all Australian parliaments.

In Westminster, party whips divide votes into three categories.

In very trite terms:

a ‘one line whip' tells members what the party line is, however, there is a degree of discretion as to whether the line is followed;

a ‘two line whip’ is a debate in which a member is expected to vote in according to the party line, unless there is a strong conscientious objection; and

a ‘three line whip’ is a debate where the member should simply follow the party line.

However, all that said, there are many circumstances in which members of the House of Commons have 'rebelled' from the Whip and voted against party, notwithstanding the declaration of a three line whip.

Ask yourself: how often do you see an ALP member 'cross the floor' in Parliament?

The answer is 'seldom' - and when they do, they are usually disciplined.

In that case, it is hardly surprising that the alternative political grouping becomes as rigidly controlled - if they weren’t, common sense tells you they would never win a parliamentary vote.

There are many circumstances where party discipline means that MPs are voting for a proposal against their better judgement.

The best way to ensure that legislation is appropriate is to ensure that there is a properly functioning parliament with members making decisions according to their conscience and not their party whip.

Matters may very well be assisted if the ALP abolished its rule.

24 August 2010

End Game?

The election is over. The likely result is a hung parliament.

As we said previously:

The presence or absence of a national broadband network, an absence of a mining tax, temporary protection visas and the extension of unfair contract laws to small business are the only real areas of difference – most other things are differences in emphasis and timing.

(Although more on the NBN, anon.)

For all of that, both Abbott and Gillard are representatives of their respective strands of thought.

Gillard is very much, as Trevor Cook put it, one of Whitlam’s grandchildren:

Throughout his political career, Whitlam pursued a philosophy of “positive equality”, and he sought to change the national debate and the role of the national parliament. Positive equality is not about the old battles between capital and labour, it is about removing barriers to self‐improvement and overcoming disadvantage and deprivation through national approaches to policy areas like health, education and transport that emphasise universal access. For Whitlam, positive equality was also about community‐building and social cohesion. In many ways it is a middle‐class and gradualist reform agenda which envisages the use of government to ensure the benefits of economic prosperity are used to create better opportunities for individuals and communities.

Hence, however constitutionally iffy the proposals are in a post Pape world without a section 96 agreement with the States, Gillard was always at her strongest when she was ‘educational Julia’ promising improved teaching and schooling standards.

Conversely, Abbott is very much from the ‘Christian democrat’ (or Catholic Liberal) wing of the Liberals, with a focus on traditional social values and a respect for individual effort, whilst mindful for the need of social solidarity and more comfortable with a greater level of regulation of market forces than some of his colleagues – hence support for things like substantial tax rebates for education expenses and paid parental scheme paid for by big business whilst wanting to ‘stop the boats’ and remove ‘big new taxes’ (etc).

It was therefore unsurprising when Abbott said in his last address to the National Press Club for the election that he wanted to ‘transform Australia from ‘welfare state to opportunity society’ by linking new workforce initiatives to his economic agenda:

My ambition is for us to make the journey from welfare state to opportunity society ... which preserves the comprehensive safety net but which eliminates the cancer of passive welfare.

(Why this wasn’t said by him more often when the Liberal campaign was criticised for having nothing to say in the middle weeks of the campaign is beyond us.)

However, that said, despite different starting points the practical end point is that the policies of the two parties constitute a welfarism that differs only in emphasis as to the manner of implementing outcomes in broadly agreed areas.

This absence of shade and light led to state issues (particularly relating to government competence in NSW and Queensland) having disproportionate influence in the election.

The net result: a draw in the number of seats.

It may well be that the ALP will form government.

However, the large Greens vote could mean that they become Labor’s ‘new Country Party’, pushing them leftwards and away from the ‘Sussex Street’ Labor model of representing the ALP as being solid, conservative managers of the economy, moving to the centre on traditionally weak areas such as law and order and encouraging development whilst evincing a general (but not overwhelming) concern for the environment.

This leftward push could be paradoxically assisted by having to deal with the ‘Old Country Party’ – the three independent country members holding (at time of writing) the balance of power, with views on issues such as transfer payments to ‘worthy’ recipients being surprisingly similar to city progressives.

It would be something if perhaps the only significant difference between the parties – the national broadband network – is the thing that will settle who will form government.

This Parliament could inadvertently mark the commencement of the political paradigm of the 21st Century, as the ‘labour/capital’ divide of the 20th century is replaced by one block representing a ‘secular humanism’ (typically found in voters in inner urban Australia), balanced by a block representing small ‘n’ nationalist and ‘aspirational’ values found more commonly in suburban and provincial Australia.

We live in interesting times.

10 August 2010

Election 2010 - the half way point

The Australian election is now half over.

Following the ‘leaders debate’ the major parties started the process of making, as they always do, targeted promises to win specific constituencies as the ‘momentum’ magically builds one way or another.

And so the ALP made promises in areas such as hospital staffing, suicide prevention, water harvesting from stormwater drains, a disability strategy….… and a rail link to Redcliffe (met and matched by the Opposition, to the surprise of the local candidate).

The Liberals made promises on slowing the growth of marine parks, a ring road for Cairns, an education card for disabled students and their version of hospital funding, with their largest promise being a promise to reduce company tax to the general level promised by the ALP…..a bit of a surprise given the Leader had previously said ‘no one much is going to notice a 2 per cent cut in company tax’.

However, the Kevin Rudd issue – how he was dumped and what he would do in the future – as well as strategic leaks about what Julia Gillard may or may not have thought about pension increases and paid maternity leave dominated the second week, leading to a dysfunctional looking ALP and polls showing the Liberals either tied with or just ahead of Labor at the end of week 2.

And so week 3 began with the ‘old’ Julia Gillard becoming ‘feisty Julia’, taunting Abbott to debate her on economics as well as doing wild and risky things like riding on the campaign media bus (!) whilst Tony Abbott continued to campaign in the restrained manner of the front runner, concluding with a policy launch long on contrasts with Labor but short of policy specifics.

The reason why cosmetic issues like the ‘old Julia’ has changed into the ‘new Julia’ is so newsworthy is because there are few massive differences between the parties.

The presence or absence of a national broadband network, an absence of a mining tax, temporary protection visas and the extension of unfair contract laws to small business are the only real areas of difference – most other things are differences in emphasis and timing.

This should be expected because of the way Australian politics is structured.

There are two main reasons for this.

Compulsory voting means that so called ‘rusted on’ voters can be overlooked.

This leads to a practical exercise of what is called Hotelling’s Law, which presumes that the optimal place for a business (or political party) to focus its attention is the perceived half way point of its target market.

Thus in this context everything is aimed at the ‘swinging voter’ in the middle of the political spectrum.

Moreover, it is our experience that many (if not the majority) of people involved in parliamentary politics could just as easily work for the other side.

This is because those who choose to participate in politics are generally middle class tertiary educated people who are vaguely socially progressive, and whilst not anti-market nevertheless possess a belief in an activist government that can intervene to improve the lot of society, usually through the continued creation of entitlements to ‘worthy’ recipients falling within targeted eligibility grounds.

It is also the case that they are overwhelmingly young and with little experience in small business (in particular) or in broader community life.

The result is that parliamentary government is in the hands of a narrow political class with an equally narrow world view.

Little wonder that this election is one of the most soulless ever conducted.

For all of that, we are now in the second half of the campaign. The ‘new Julia’ appears to have steadied the ALP ship and is segueing towards her preferred battleground of eduction.

Conversely, the coalition campaign appears to have remained still for the better part of week 3, as Labor went through their woes.

However, they may have played it too safe.

Despite all the tremors within Labor, attacks on Abbott’s economic credentials and readiness for government and an absence of strong coalition positives may have had an effect - the ALP is now marginally in front.

Gillard’s incessant requests for a debate on economics may also have had some effect, as both she and Abbott are to front the same public meeting at the delightfully named Rooty Hill, in Western Sydney.

This will undoubtedly be the starting platform for the last stanza of election 2010.

03 August 2010

Election 2010 - Small Business Policies

One area of the 2010 election campaign that hasn’t been particularly discussed thus far has been election policies specifically addressing small business to be implemented over the next parliament.

This is a brief review.


The ALP is generally standing on what it has done for small business in the life of this parliament – things such as a superannuation clearance house within the ATO, the creation of a small business advisory committee and a handbook to assist independent contractors.

Prospectively, the ALP proposes giving small business the ability to instantly write off assets costing up to $5,000 and cut the corporate tax rate from 30 per cent to 29 per cent as from 1 July 2012 - one year earlier than larger companies.

However, this would appear to be subject to the passage of what is now called the Mineral Resource Rent Tax applicable to iron ore and coal projects.

Moreover, another part of the suite of measures to be funded by the MMRT is an increase in the superannuation guarantee from 9% to 12%.

The supporting documentation indicates the increase in superannuation will ‘affect… wage negotiations between employers and employees’, an observation implicitly recognising that employers are ultimately responsible for funding superannuation.

If it comes to pass, it will be interesting to see how much of the reduction in the tax rate will be retained in the business if during these negotiations the reduction is identified as a source supporting an increase in overall employee remuneration (including the rise in superannuation).

However, reductions in company tax rates will be of little interest if a business is caught up by a possible change to personal services income laws.

Personal services income

On 19 December 2009 the Assistant Treasurer (Senator Sherry) received a Board of Taxation review on the area.

Releasing the report, he said the Board had found:

‘a low level of compliance and a degree of uncertainty or ‘greyness’
around the rules, such that it has found the alienation of personal services income rules in their current form do not provide acceptable levels of integrity and equity…. This means that ordinary workers may be missing out on proper pay, proper super entitlements and a range of other employment conditions such as long-service and other leave entitlements.

It concluded:

The use of sham contractors is a threat to the integrity of the taxation system and a threat to working conditions of employees – and the Rudd Government is determined to see an end to its inappropriate use.

The Government decided it would wait for the final report of the Henry Review into taxation before deciding what to do.

Recommendation 10 of the Henry Review was:

Consideration should be given to a revised regime to prevent the alienation of personal services income that would extend to all entities earning a significant proportion of their business income from the personal services of their owner-managers, whether in employee-like or non-employee-like cases. This regime may also apply an arm’s length rule to deductions arising from payments to associates to ensure deductions reflect the value of services provided.

This would appear to require businesses to distinguish between income earned from capital as opposed to labour, adversely affecting all ‘knowledge professionals’ from consultants to barristers, and from accountants to computer consultants.

It would certainly appear capture most home based micro businesses – which many in the bureaucracy have never accepted as ever being ‘real’ businesses.

In our experience its view is if you can’t see stock or staff you are not in business but either (depending on your taste) a ‘true’ employee in an arrangement to rort the tax system or a simpleton ripe for exploitation.

The Coalition has said that it will not change the current personal service income laws as ‘no case has been made or evidence provided to justify changes to force independent contractors and self employed people into more ‘employee-like’ arrangements’.

This appears to be a solid commitment. However they are also considering how they are going to respond to the Henry Review.

It would therefore remove all doubt if the Coalition would expressly confirm that Recommendation 10 will not be considered as part of the response to Henry Review.

Otherwise be interesting to see if it will get new life once the Treasury starts providing them with advice, should they win.

Gotta protect the integrity of the tax base y’know. And so forth.

It will be interesting if the ALP will make any commitments about its treatment of PSI during the election.

The Coalition

The Coalition have countered Labor’s proposed company tax cut with a 1.5 per cent cut in the company tax rate from company tax from 30% to 28.5% on July 1 2013.

It is to be hoped that this commitment can be afforded, and is not a cynical ‘meet and beat’ commitment to retain the mantle of being ‘the party of small business’ during the election campaign, to be discarded in the name of fiscal responsibility once in government.

The Coalition has made a number of other commitments.

Proposed coalition changes to government structure

There will be a cabinet level ‘small business’ minister. This is symbolically important although the more valuable component of this promise is the requirement for cabinet submissions to address how proposals impact small business.

The mere fact of having to write something requires those having to prepare ‘cab subs’ to at least think about the issue.

A proposed ‘small business’ representative on the Taxation Board of Review is also symbolically important, although it will be interesting to see how the impact of having this proxy representation can be measured in practice.

Government agencies will have to use procedures and practices to ‘that do not disadvantage small business participation and instead, actively encourage it.’
Governments of all persuasions promise this.

However, in many circumstances public servants involved in letting tenders have neither the information to make informed decisions in favour of selecting smaller businesses nor the time to gather it. And you can never be blamed for anything if you’ve ‘bought IBM’.

Public sector procurement and prudential rules, which are costly to comply with in their own way for both contract manager and service provider are also unlikely to be loosened.

So it will be interesting to see what will be different this time.

Businesses will also be able to charge interest if payments for any service provided are late - although whether the costs involved (particularly in time) in chasing up the interest amounts that can be charged may make this right somewhat problematic.

A Small Business and Family Enterprise Ombudsman is to be created to ‘provide an advocacy, dispute resolution and support role for the sector’ across the government.

Given that every small business in Australia could contingently be a ‘client’ of this proposed agency, the indicator of how committed the Opposition is to this initiative will be how well the Office will be funded.

It is noted that whilst the Victorian Small Business Commissioner is reasonably well funded, equivalent offices in the ACT and SA were early sacrifices to budget savings.

It will also publish with a series of ‘better practice guidelines’ to explain and encourage’ fair commercial conduct’.

‘Guidelines’ to become a ‘better corporate citizen’ are all well and good, but mere publication aren’t much practical help to a shopkeeper having a dispute with a supplier or landlord if they have little actual effect, particularly if the proposed Ombudsman is ill-equipped to provide much more than moral support.

It may be better if these proposed guidelines had some legal effect.

The proposed Australian Consumer Law to commence operation on 1 January 2011 will permit small businesses can take action where there has been ‘unconscionable conduct’ in trade or commerce.

The relevant provision sets out things to take into account when considering whether unconscionable conduct has taken place.

It would be better if any proposed guidelines must be taken into account when considering whether unconscionable conduct has been displayed.

This would increase the impact of any guidelines that might be issued.

Changes to trade practices law

The Coalition has promised it will to extend the unfair contracts protections available to consumers to small business.

This will mean that small business will be able to avoid ‘unfair’ standard form contracts in the same way ordinary consumers can under the proposed Australian Consumer Law to commence operation on 1 January 2011 – something the current government removed from legislation immediately prior to its introduction into Parliament.

Finally, the Coalition promises another review of the Trade Practices Act – soon to be called the Competition and Consumer Act - which is to be focussed on ‘giving small business a fair go’.

As The Australian noted on 21 July 2010 there have been 59 different reviews of the old Trade Practices Act in the past decade.

It is difficult to see what will be achieved here that wasn’t achieved by the Trade Practices Act review that gave rise to what was known as the Dawson Report which had terms of reference that included examining whether there was ‘an appropriate balance of power between competing businesses, and in particular businesses competing with or dealing with businesses that have larger market concentration or power’.

This is particularly the case, given that shadow Treasurer said of the review in his budget reply to the National Press Club:

There may not be a need to dramatically change our competition policy and regulatory frameworks, but there is a need to consider what changes could be made so that market efficiencies and productivity enhancements are maximised.

The Australian reports that Bruce Bilson, the relevant Shadow Minister, is ‘keen for it to go along the lines of a Productivity Commission review’.

If the matter goes to the Productivity Commission, there is unlikely to be any real change to the current legislation.

This is because it has consistently confirmed the importance of ensuring that allocative efficiency is maintained – any changes that it considers may affect innovation or market dynamism such as for instance, changing the test that allows a harsh contract to be reviewed from ‘unconscionable conduct’ to ‘unfair conduct’ (as is the test in the Independent Contractors Act) may not win favour.

The Coalition has always had to square the competing interests within its electoral coalition of the Big End of Town, with its eyes on ensuring they maintain the scale to compete internationally with the Small End of Town, which perceives the need for some protection against larger corporations because of inequality of bargaining power – hence the somewhat tortuous drafting of current trade practices law.

The Coalition therefore really needs to indicate whether they are being ‘fair dinkum’ in giving small business a ‘fair go’ in this context.