EDITORIAL : THE AUSTRALIAN, AUSTRALIA

Government doesn't need to be centre of everything

LABOR sees the problems but only its half of solutions.

The good news from Tuesday's budget is that the Gillard government recognises the challenges it faces. The bad news is that it only goes halfway to meeting them. Wayne Swan knows returning the budget to surplus is imperative, and his rhetoric about a tough budget and spending restraint shows that he knows that curtailing government expenditure must be part of the solution. Yet his budget savings are almost matched by new spending and he continues with the expensive and expansive NBN project. Instead of delivering real cuts, the Treasurer takes the easy but risky option of banking on a revenue bonanza.

Mr Swan's budget centrepiece of "jobs, jobs, jobs" suggests he is well aware of the labour market pressures building in the economy. He explicitly outlines how mounting investment and falling unemployment will "inevitably see capacity and price pressures in our economy". Filling the demand for skilled workers to fuel our economic growth without creating a wages break-out is central to the budget strategy. And the government has unveiled a range of commendable initiatives that fall into two broad categories: skills programs that provide additional training and apprenticeships, largely in partnership with industry; and participation initiatives to encourage and nudge more people into the workforce, such as tighter assessments for the disability pension and incentives to employ the long-term jobless. This is a sensible policy agenda bolstered by increasing the number of skilled migrants recruited into regional areas.

But once again the government dodges the more difficult half of the equation -- the need to make the labour market more flexible. It demonstrates that the Gillard government favours bureaucratic, process-driven solutions requiring public sector intervention. It fails to understand that the best response is often the opposite: withdrawing the dead hand of government. Increased workplace flexibility would help workers negotiate suitable employment arrangements, allowing for more jobs and increased productivity without adding to cost pressures. This is particularly important given the government is already forecasting wages growth to outstrip inflation in coming years. As Dennis Shanahan reveals in our pages today, the government's reregulation of the labour market under the Fair Work Act is already reducing productivity and increasing costs in the economy. This represents a significant risk to the budget over time.

Unfair dismissal laws should also be revisited because for relevant companies (any firm employing 15 people or more) they discourage job offers to people who have been unemployed for long periods. The long-term unemployed are just the people we need companies to take a chance on but the unfair dismissal laws can make the risk unacceptable for employers.

Political expedience suggests Julia Gillard will be unwilling to risk a barney with the union movement over workplace reform. This is disappointing and worrying because the political inactivity will increase the economic risk. For these reasons, the opposition should show some policy character and lead this debate. Tony Abbott has already promised a new industrial relations policy before the next election so he should not waste any more time. There could be no better time for the economy, or for the Opposition Leader's prime ministerial aspirations, to show some policy courage. He should open the batting in tonight's budget reply.

Mr Swan gets full marks, however, for starting to scale back middle-class welfare, a cause The Australian has been fighting since the 1980s. It is a measure of the prosperity we now enjoy that some newspapers yesterday portrayed families on incomes of $150,000 a year as the new poor mired in "mortgage poverty" in Sydney's western suburbs. While cost of living pressures are real, and are felt disproportionately in the outer suburbs, there is no justification for doling out welfare to those on this level of income. Even in Sydney, this is an income most families only aspire towards. If the government wishes to support families, it should do so by lowering taxes. It is far preferable for income taxes to be kept low and for thresholds to be regularly adjusted upwards so that individuals can keep more of their own wages and make their own decisions about how to spend their hard-earned money.

Once again, however, Mr Swan stops half way. He has curtailed access to payments such as the Family Tax Benefits A and B, the baby bonus and paid parental leave to 40,000 families with household incomes above $150,000, but there are no commensurate tax adjustments to entrench incentive and self-reliance in the system. In fact, the opposite is the case, with the Treasurer relying on his tax thresholds being left rigid so that as family incomes increase over time, they will be pushed into higher tax brackets and pay a higher percentage of income tax. The tax take is increased and the churn continues.

For too long, governments on both sides of politics have encouraged the entitlement mentality and discouraged people from looking after themselves. The lost benefits should be offset with lower, flatter tax rates that provide added incentive for taxpayers to increase their personal wealth by becoming more productive. Much greater administrative savings and a higher efficiency dividend would come from eventually eliminating family payments altogether, keeping marginal tax rates low and compensating low-income earners through the tax system rather than the welfare system.

Rather than leaving more money in Australians' pockets as an incentive for people to work harder, be more enterprising and grow the economy, goals that Paul Keating and Peter Costello consistently strove to achieve, much of Mr Swan's fourth budget was an exercise in top-down distribution. It paid little heed to the efficiency of market mechanisms and was riddled with "central government knows best" paternalism.

The Treasurer talks up the limited growth in spending over the next three years but conveniently ignores the extremely high starting point after 22 per cent growth in Labor's spending over its first three years. The evidence suggests the most successful aspect of the Rudd government's stimulus to ward off the global financial crisis was the $900 cheques that allowed families to determine their own spending or saving priorities. Unfortunately, Mr Swan's budget showed little inclination to respect individuals' and families' market choices.

After the pink batts debacle, it is almost incomprehensible that the Treasurer has allowed government to encroach into people's living rooms with the unwelcome decision to hand out free set-top boxes to eligible pensioners. Busybody social workers might applaud, but however many photo opportunities are created in independent MP Rob Oakeshott's Lyne electorate on the NSW north coast, the decision is government stupidity writ large. It remains to be seen whether opposition estimates of $400 to supply and install the boxes, which can cost as little as $30 each, prove accurate, but with brand new mid-sized flat screen televisions available for $399, with an optional $60 to $90 delivery fee, it's a dud deal. The limited take-up rate in Victoria, where the program has been rolled out, suggests that pensioners know it. If something must be done for the digital switchover, and we doubt that, vouchers would work better.

Mr Swan, whose interest in redistributing wealth underpinned his 2005 book Postcode: the splintering of a nation, underestimates the ability of people to generate their own wealth. Many people, especially in small business, just want the government to stay out of the way as they seek to achieve better lives for themselves.

Unfortunately, Ms Gillard's first budget as Prime Minister provides conclusive evidence her government is showing the same weaknesses and making many of the same mistakes as the Rudd government. Both have seemed hopelessly addicted to big-government solutions to every dilemma they confront. This means their aims are often correct but their methods for achieving them are mistaken. Faster broadband becomes an expensive government monopoly, the response to climate change is a comprehensive new tax, health reform leads to an additional layer of bureaucracy, and yes, even upgrading our televisions becomes a matter for state intervention. It is all of a piece with Mr Swan's jobs plan providing major government training programs but ignoring the need to free up the private sector. The Prime Minister and Treasurer need to understand that sometimes government is the problem, not the solution.