The Mugging of Bruce Baird (and the Carbon Tax) Shows Why a Tax Summit is Needed Now

It is a shame that political reality has forced NSW Shadow Treasurer Mike Baird stop thinking about imposing a profits based tax on mining, rather than the current royalties system of taxing an amount for each tonne of mineral extracted.

It probably is a more efficient way to bring mining to taxation.

We hope Baird isn't forced to drop the other parts of his observations made to The Australian:

A NSW Coalition government would push for radical reform of federal-state relations at the looming tax summit by demanding the states directly receive a greater share of overall taxes. NSW opposition Treasury spokesman Mike Baird said that, if elected on March 26, he would use the federal government's promised summit to address the imbalance in state and federal taxation powers and spending needs.

States were responsible for 40 per cent of service delivery, but raised only 16 per cent of taxes, he said, adding that NSW would operate more efficiently if it had greater responsibility for raising revenue.

We have previously noted the recommendations contained in the Henry Review, and, like Baird hopes that the proposed summit will determine:

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, through an agreement made under section 96 of the Constitution; or

(b) through a reference of power by the states to the Commonwealth or directly by constitutional amendment.

The importance of getting the taxation mix right is now more important than ever should the the God Knows What It Will Look Like Carbon Tax ever get up, discussed in our previous post.

Efficient public administration deserves nothing less.

2010 - the year behind

2010 was one of the more interesting years in Australian politics as one prime minister was removed and the successor failed to seal her legitimacy in the subsequent general election.

The beginning of the end of the Kevin Rudd era was deciding not to create either a tax or market mechanism to regulate carbon emissions (or call a double dissolution election to create a ‘mandate’ to do so) to deal with the ‘greatest moral, economic and environmental challenge of our generation’ following the failure of international talks in Copenhagen the previous December.

Kicking the ‘greatest moral challenge’ into the long grass established a meme of a government that overpromised and underdelivered, something exacerbated by problems with rolling out the ‘Building the Education’ revolution school building programme and the ‘pink batts’ debacle.

The Government’s problems were heightened by the proposed imposition of a tax on mining profits without following the usual protocols of fully informing affected taxpayers of the proposed change prior to announcing the proposed change.

This led to a highly aggressive attack on the Government by the mining industry and a broad view of a government in panic mode adopting populist policies without a full assessment of outcomes.

When all this was coupled with increasing discontent about a dictatorial Prime Ministerial style and a dysfunctional office, ‘the faceless men’ of the ALP backrooms moved to replace Rudd with Julia Gillard to improve a government that had ‘lost its way’.

An early election intended to cash in on the ‘honeymoon’ of Australia’s first woman prime minister was called. But there was no honeymoon.

The legitimacy of Gillard’s ascension weighed heavily on the campaign.

Moreover, the ALP always had an ‘upside down’ coalition of inner urban progressives who were increasingly supporting the Australian Greens.

They were challenged by an Opposition who had reduced their campaign to bite size slogans, such as: ‘we’ll end the waste. Pay back the debt. Stop new taxes. Help families. Stop the boats. Do the right thing’.

This led to a string of two bob each way policies that appeared to be designed by focus group – yes to an ETS….but only after input from a ‘citizens assembly’; offshore processing of refugees……but in East Timor and not Nauru; immigration was not about numbers coming into the country………..but merely where they lived. And so on.

Labor were finally buffeted by unprecedented leaks about Gillard’s position on issues such as paid parental leave.

Ultimately, the ALP steadied but the damage was done. It became a minority government reliant on the support of country and regional independents as well as the first Australian Green elected to the House of Representatives.

Having got to Christmas, the Government has tried to frame the debate by nominating that 2011 is the year of delivery and decision.

Labor hopes to deliver on broadband and health reform and make decisions on issues such as fiscal consolidation (bringing the budget into balance) building capacity on the supply side with tax, superannuation, infrastructure and skills initiatives and extending market-based reforms to health and education, carbon (despite promising not to during the election) and water.

It will be the ALP’s burden to ensure that ‘moving forward’ with this agenda will lead to policy and electoral success.

The Liberals had a reasonably good 2010. Largely through implosion of the opponent, it was able to get within touching distance of government on the basis of stringent opposition of government proposals and making its own pitch at a (very) high level.

It will be interesting to see how much policy meat is added to the slogan like bones offered up in the election.

The final point of interest was the Liberal Party (as part of a coalition with the National Party) winning its first state or territory election in 27 attempts when it won in Victoria.

The result appeared largely to be an ‘it’s time’ result. However, there were two federal lessons to be learnt.

The first was that in deciding not to provide the Greens any preferences, the Victorian Libs proved that you can take on the Greens without being seen as anti-environmentalist and suffer an electoral backlash.

The second lesson was that suburbia is feeling the pinch of high utility prices. This will be an increasing factor to take into account when ‘putting a price on carbon’ is ultimately unambiguously translated as being ‘increasing electricity costs’ as the carbon debate comes to a climax during 2011.

Something for the Feds to consider during the year of decision and delivery.

Feisty Overseas Advocacy - But Only If I Hafta

In an interesting 7.30 Report interview following her first overseas trip, Julia Gillard said:

KERRY O'BRIEN: This is your first overseas trip as Prime Minister. There must be something of a sharp learning curve in all this for you. All domestic portfolios until now; suddenly you're meeting 11 world leaders in a day. Have you found your comfort zone yet?

JULIA GILLARD: Oh, look, Kerry, I'm obviously working my way through. Kerry, I'm just going to be really upfront about this: foreign policy is not my passion. It's not what I've spent my life doing. You know, I came into politics predominantly to make a difference to opportunity questions, particularly make a difference in education. So, yes, if I had a choice I'd probably more be in a school watching kids learn to read in Australia than here in Brussels at international meetings. That's what took me into politics, that kind of education work. But obviously in this role I will serve as Prime Minister doing the full job, and the full job includes coming to places like Brussels to be a feisty advocate for Australia's national interest. And that's what I will do. It's what I'm doing here.

This is no surprise to us. As we said earlier:

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.

The interview followed a mini-spat as to whether Tony Abbott should have accompanied Gillard to a trip to Afghanistan on his way to the British Conservative Party conference.

In the event, he was going to visit on the way back - although his excuse that he didn’t accompany the Prime Minister because he would be ‘jetlagged’ for the Conference looked and sounded dopey.

This, together with Liberal allegations the government displayed ‘low bastardry’ in allegedly leaking the fact he knocked back accompanying the PM was a fascinating scandalette.

Only one thing was missing – a treatment of the appropriate role of Australian forces in Afghanistan as well as the standard of their kit.

Both leaders are clearly at home dealing with domestic issues.

The concern we have is that when you have leaders who think government is a glorified state government – a mere service provider – and who place their policy emphasis in areas like education (important as that is) and deal with other issues such as defence and foreign affairs only when they really, really ‘gotta’ means that these issues don’t get the attention they deserve.

All the benefits of a federal system are lost – and the Australian national interest suffers.

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.

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.

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

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.

Election 2010

Labor clearly won the first part of week 1 of the campaign for the 21 August federal election.

They commenced as frontrunners, with publicly available opinion polls suggesting they were ahead 55/45.

They were also aided by a slow start from the Liberals as well as confusion over the Opposition’s industrial relations policy.

The previous Workchoices policy was supposed to be ‘dead buried and cremated’ - however, Liberal spokesmen suggested the legislation could still be ‘tweaked’ (whatever that meant).

The great difference between Workchoices and the current legislation is the primacy of the industrial award as the basis of determining wages and conditions, as opposed Workchoice’s built in bias towards some form of individual contract.

Why they couldn’t say that in Government the coalition would retain the award system and not reintroduce the concept of unfair dismissals (if that’s what they wanted to do) without winding up into knots over whether or not they would touch any sort of legislative instrument related to the Fair Work Act currently in place over the next three years is beyond us.

As for Labor, however repetitious it was, the ‘moving forward’ mantra confirmed the idea that Kevin Rudd was no longer the leader. Noting infrastructure pressures was also a sound message to sell into Middle Australia.

However, things started to slow for them midweek.

Firstly, Kevin Rudd appeared, reminding people he wasn’t dead after all. Focussing on him soaked up around two days of the campaign week.

This took from view promises both sides made on what can be claimed under the education tax refund scheme as well as the Liberal’s re-announcement of its hit list of expenditure savings.

The remainder of the week underlined the difficulty Labor has keeping its bifurcated constituencies of inner urban progressives and outer suburbanites together.

As Bernard Salt said in an Australian article on 13 August 2009, a significant and growing cultural divergence has evolved in Australian cities between different social groups between those who live in the inner city and those who live on the city’s edge.

The traditional ALP voting coalition has generally consisted of self identifying members of the labour movement, people with English as a second language, welfare recipients, public sector workers, the arts sector and high income professionals who are secularist and internationalist in orientation.

On one analysis, Julia Gillard is well placed to keep this disparate coalition together.

In the Weekend Australian on 16 February 2002, Matt Price described Julia Gillard as someone with the cheese-grater voice of a Footscray fishwife and a the multi-shaded hairstyle of a Toorak trendoid.

At a memorial service held on 14 December 2007 after Price’s death, Gillard indicated she had corrected Price, claiming she had the cheese-grater voice of an Altona fishwife and the multi-shaded hair of a Fitzroy trendoid.

Altona fishwife and Fitzroy trendoid. This sums up the disparate nature of the ALP constituency.

The danger for Labor is that they have the problem that in trying to straddle both sides of the fence they will satisfy neither trendy nor burby.

A confusing message could mean they don’t stand for anything or anyone.

For example, during the week the Prime Minister claimed that the whilst she believed in global warming and the price of inaction about it was ‘too high a price to pay’, promising an emission trading scheme some day – something for Fitzroy.

However, the political process has to be tied to a ‘community consensus’.

The result a review of the proposed ETS during 2012 – but not before a ‘citizens’ assembly’ debates the issue over 12 months to assist in building community consensus (slowing the introduction of the ETS and thus a price on carbon, with its inherently higher consumer costs that it imposes) – something for Altona.

This idea (particularly the ‘citizens’ assembly’) was universally panned – in trying to please everyone they pleased nobody.

Promising offshore processing of asylum seekers arriving by boat (something for Altona) but not at Nauru (as it hadn’t signed the UN Refugees Convention – something for Fitzroy) similarly appeared to please no-one.

A final example was where the Prime Minister argued that the population debate she commenced was less about immigrant numbers but rather where skilled migrants were going to live.

However, as ex-leader Mark Latham said, it was a phoney debate. He went on to say:

If it's not an immigration debate, it's no debate…………and I'll tell you what it is, it's a fraud. It's an attempt to con people in western Sydney that she's going to do something about congestion.

Nevertheless, these problems ultimately didn’t alter Labor’s frontrunning position.

By weeks end, the Morgan poll still showed the ALP with a 54/46 margin (with a high number of women indicating they will vote Labor), although the last Newspoll had it 52/48.

The Liberals were aided by a ‘nothing to see here move along’ debate between the two leadership contenders (which really was a joint news conference) in which Abbott won by not losing to Gillard (the more accomplished public speaker) and Abbott getting through a 7.30 Report interview unscathed.

And so the second stanza commences with the challenge for the Liberals is whether an Abbott led party can be plausibility regarded as The Champion of Suburbia as well as getting over a perceived problem with women voters.

As frontrunners, it is Labor’s challenge to show that it is not trying to be too clever by half.

Are All These Leadership Changes Healthy?

Labor has replaced Kevin Rudd with Julia Gillard.

Others have commented on the machinations leading to the change, so we will leave it to others to comment on its political benefits to the ALP, whilst history can decide whether stories of temper outbursts and dysfunctional decision making will mean Rudd will be regarded as Labor’s Billy McMahon.

We will examine matters from another angle: the parliamentary parties of the 42nd Parliament have functioned as they should have - as representatives of the constituencies they represent.

The Liberals have seen four leaders (Costello (very nominally), Nelson, Turnbull and Rudd) and the ALP two (Rudd and Gillard).

For the Liberals, the retiring Costello was replaced by Nelson, who was the most attractive ‘not Malcolm Turnbull’ candidate standing as leader.

This was appropriate for a party room not totally sharing the inner urban policy priorities that Turnbull represented – from things like placing a greater weight on the environment as an abstract issue through support of policies such as the Emission Trading Scheme (ETS) to possessing less hawkish view on boat arrivals, and so forth.

Nelson was then removed for simply not cutting it. This is rational behaviour for a parliamentary party aiming for early return to government. The party turned to Turnbull – the only candidate making himself available.

Turnbull was replaced in turn by Abbott, largely over the ETS.

It will be remembered that Turnbull staked his leadership on the policy.

He didn’t make the argument well enough to persuade the majority of the party room to abandon the views of core supporters – those who were genuinely climate sceptics or believed in the low taxation and limited government participation in the economy, as well as those for whom the fear of increased costs and possible loss of employment opportunities as a result of the introduction of the ETS trumped general concerns about ‘the environment’.

The net result is an Opposition Leader running a traditional platform for a centre right party, with its emphasis on opposing ‘great big new taxes’ on everything, preserving national security and so forth.

The Rudd/Gillard change illustrates the same dynamic.

Rudd announced so many policy initiatives to solve The Greatest Moral Threat of our Time (or similar rhetoric) in so many areas the view was formed that he overpromised and underdelivered.


The ALP (particularly the NSW Right) see themselves as the guardian of the various programmes incrementally introduced by Labor over the course of time, doing (to coin a phrase) whatever it takes – to the point of appearing nihilistic – to ensure electoral success.

Rudd’s lack of programmatic specificity in speech left this at risk.

The ALP also remains part of the overall union movement.

As Paul Howes said on Lateline on 23 June 2010:

TONY JONES, PRESENTER: One of the key moments of tonight's extraordinary developments was the announcement that the Australian Workers Union had lost
confidence in Kevin Rudd and was backing a move to Julia Gillard. Well the national secretary of the AWU is Paul Howes. He joins us in the studio. Why did you do that?

PAUL HOWES, NATIONAL SECRETARY, AUSTRALIAN WORKERS' UNION: Well we've been looking at what's in the best interests of the members of our union. We know that if Tony Abbott is elected as a prime minister of Australia, Work Choices will be back, the legislation which ripped away fairness from our workplaces will be reinstituted on our members, reimposed on our members, and we know that Labor's message had been lost for the last few weeks, and in fact months, under the Prime Minister's leadership. We have to look at what's in the best interests of our members of our union to ensure fairness remains in our member workplaces and we think that Julia Gillard is the best option to lead Labor to victory at the upcoming election.

Given the relative influence of the factions and unions over the parliamentary ALP, Caucus elected a new Prime Minister who said in her first public statement after taking the job:

And….I believe fundamentally that the basic education and health services that Australians rely on and their decent treatment at work is at risk at the next election.

I love this country and I was not going to sit idly by and watch an incoming Opposition cut education, cut health and smash rights at work.

A very traditional Labor platform.

So, there it is.

After some policy deviations the two major parties have come up with leaders reflecting their traditional values – all as a result of the parliamentary parties acting more proactively against decisions made by the executives of the parties than Australians have become accustomed.

It is now up to the electorate to decide who will form the new government.

Fifield vs. Abbott: the confused state of the Liberal Party on federalism

In a recent article for The Punch, Mitch Fifield wrote a copperplate defence of Australia’s federal model.

The principles of Federalism are timeless. Liberals believe in the principle of subsidiarity: that power, where possible, should be located as close as possible to the people so that it is responsive to their demands. Liberals are wary of concentrating power in the hands of a small number of people. Liberals also believe in checks and balances – abolishing or rendering state governments impotent would leave a federal administration’s power virtually unchallenged.

Liberals also believe in competition. States competing for jobs, investment and talent should lead to lower taxes, lighter regulations and more attractive communities to live in.

He had better have a chat with Tony Abbott, who has different views about the issue:

My proposal is not to abolish the states but a referendum to give the national parliament the same authority over them that it's long had over the territories. It's not a bid for more power to Canberra. Rather, it's an attempt to establish clear lines of accountability and responsibility.

The Liberal Party is the erstwhile party of federalism: it certainly is no longer the ‘states rights’ party, as the Howard Government’s use of the corporations power to federalise Australia’s industrial relations laws illustrates.

The Fifield/Abbott discussion is a healthy one to have whilst a party is in opposition.

However, as we have previously discussed the Henry Review will raise the issue of whether Australia should be viewed as a federation or a single market, whilst in our previous article we noted the idea of whether state parliaments have a role in setting standards will be challenged as interested stakeholders challenge one size fits all legislation designed to bring about a ‘seamless economy’.

Both these developments and the fact that Australia is slowly lurching towards a federal election means that the Liberal Party will need to have some view as to how they see the federation operating – perhaps far sooner than they imagine.