EDITORIAL : THE AUSTRALIAN, AUSTRALIA

 

Gillard's welfare depends on clear budget strategy

THE Gillard government's first budget is an opportunity to put substance behind Julia Gillard's recent claims about her economic credentials and the direction in which she aspires to lead the nation.

Her task is to ensure her government delivers on her good instincts and puts an uncertain administration back on course. The Prime Minister set out the likely motif of next month's budget in her "Dignity of Work" speech this week. That's not a bad place to start. Our mining boom economy is crying out for workers, yet 1.4 million people remain unemployed or on disability support and there are 250,000 families where no adult has worked for at least one year.

Today's strong demand for skills and labour provides the best possible time to break the curse of long-term welfare dependency, too often handed down from generation to generation. Chronic unemployment and a benefits culture is a breeding ground for social exclusion. As Ms Gillard says, it is simply "not fair" for taxpayers to pay for those who can "support themselves". Next month's budget is her chance to demonstrate that Labor is truly the "party of work not welfare, the party of opportunity not exclusion, the party of responsibility not idleness". These are old Labor values that can be traced to her predecessors such as the Whitlam government's Clyde Cameron. Yet since then, Labor has been ambivalent about the tough love that is needed to break the welfare stranglehold. Ms Gillard must ignore the special pleading of the welfare lobby, which has been on 24-hour rotation on the ABC since her speech.

Welfare-to-work reform will not deliver short-term savings, and to be effective will require parallel reform to our incentive-sapping tax system. That's where the worries start. Under both Kevin Rudd and Ms Gillard, Labor's tax reform record has been weak. Wayne Swan bungled the potentially worthwhile resources rent tax proposed by Ken Henry and ruled out the GST from the "root and branch" tax review because it was politically inconvenient. The Treasurer has dismissed the Henry review's proposal to reform the tax and benefits system by lifting the tax-free threshold to $25,000 because it might put a mild burden on middle-income voters. And he has been dragged into a delayed October tax "forum" as the political price of forming a minority government. Meanwhile, Labor is struggling to sell a carbon tax that appears to be more focused on redistributing income than sharpening incentives. When you add the proposed means-testing of the private health insurance rebate, hitting the wealth generators starts to look like a habit.

Ms Gillard needs to junk her rejection of a "big Australia", recalibrate immigration levels and fix urban infrastructure bottlenecks. Australians will benefit by welcoming more migrants. Fixing the rorts in the student migration program is one thing: restricting the supply of willing foreign workers to a labour market marked by excess demand is counter-productive. Mr Rudd's Infrastructure Australia was a good idea for casting a national focus on our lagging infrastructure, but Labor has too often broken its promise to commit infrastructure spending to proper cost-benefit scrutiny: witness broadband and Ms Gillard's $2bn railway election bribe to western Sydney. The most pressing budget task will be to get the bottom line back into the black in a way that sharpens incentives rather than simply slugs those with the deepest pockets.

While we would not presume to tell the Treasurer how he should spend his leisure moments, his recent essay on John Maynard Keynes for the Australian Fabian Society makes us nervous. The Fabian penchant for comandeering the apparatus of the state for the purposes of democratic socialism is hardly the ideal foundation for the "tough" budget Mr Swan has promised to turn this year's $40 billion-plus deficit into surplus by 2012-13.

Labor must break the habit of frittering away the proceeds of the China boom. A once-in-a-century mining and energy bonanza offers the promise of extending this prosperity over decades. Yet Labor's policy failures in budget stimulus spending, tax, infrastructure and labour market reregulation have compounded the structural adjustment pressures from the multi-speed economy and the strong dollar. True, the Howard government splurged too much of the bounty from the boom's first phase, including on family tax benefits designed to woo the swinging mortgage-belt voters. The then treasurer, Peter Costello, managed to quarantine some of the boom for enterprise-promoting tax cuts, but this late-period Howard government failed to deliver matching spending discipline. Masked by record high commodity boom revenues, the result has been a structural weakening of the budget's underlying position, which has been compounded by Labor's excessive and inefficient stimulus spending. Now Treasury says the post-crisis mining boom is generating less tax revenue than before. That leaves us highly exposed to any significant break in our China luck.

Mr Swan is dealing with this in the oddest of ways, portraying the needed tightening as part of a grand Australian Keynesian tradition. It is true that after splurging on a large-scale stimulus response to the global financial crisis, the budget now must make way for a massive mining development boom. But it is foolish to portray this as a new era of Keynesian policy that will seek to actively manage the business cycle.

Mr Swan's task is to return the budget's underlying structure into balance. When the economy and the terms of trade are booming, such as now, the budget should naturally swing into bigger surpluses than we've been used to running. This money should be quarantined as a reserve for when the economy and the commodity price cycle turn down, when the budget would naturally swing into deficit.

Getting fiscal policy into such a medium-term mining boom framework requires a more disciplined approach to the $320bn (or one-quarter of the economy) that Canberra is budgeted to extract this year and the $360bn it has planned to spend. The Treasurer might think about how being "Keynesian on the upside" to make room for a mining boom squares with $40bn or so of broadband infrastructure that has not been through a proper cost-benefit analysis. The National Broadband Network should be rethought to get value for money and relieve inflationary pressures it will inevitably exacerbate.

No need to rush pokies reform

GAMBLING is often joked about as a national obsession that is capable of seeing us bet on two flies crawling up a wall or turning an official blind eye to Diggers playing two-up on Anzac Day.

While we must not let the wowsers destroy this sense of fun, The Weekend Australian believes the nation cannot ignore the terrible toll that problem gambling exacts.

When the fun turns to addiction and people punt beyond their means, families are torn apart, lives are ruined and sometimes it even ends in suicide. The evidence suggests gaming machines are particularly addictive; they are certainly all-pervasive. The Productivity Commission has found 40 per cent of gaming machine revenue comes from problem gamblers.

Against this background, it makes sense for a federal parliamentary joint select committee to inquire into gambling. But as Chris Kenny writes in today's Inquirer, the difficulty is that the committee is following a pre-ordained path under an artificial 2012 deadline, imposed by independent MP Andrew Wilkie as a pre-condition for supporting the Gillard government.

Mr Wilkie and South Australian senator Nick Xenophon are to be applauded for their dedication to the cause, but the hospitality industry is right to be concerned about the way this agenda is being pursued. And the states, which control gambling, are not surprisingly defending their authority (and their revenue). Rushed, costly and heavy-handed implementation of a compulsory pre-commitment scheme could infringe the individual rights of many Australians. It could also damage the viability of the pubs and clubs that provide extensive social networks, entertainment, employment and services for their communities.

Central to this debate is the comprehensive report delivered by the commission last year. It maps out a range of measures, including trial pre-commitment schemes, initially on a voluntary basis. This newspaper believes proper consultation and trials, conducted over a sensible period, can eventually lead to a national strategy, as the commission suggests, by 2016.

Clearly, when Mr Wilkie found that the government desperately needed his support after the election, he and Senator Xenophon thought they had hit the jackpot. They should now pause, take a step back and pursue their gambling reform agenda at a more sensible pace and in a more consultative manner.