How Labor and the Coalition see social welfare, and debt

To know some history is to better understand current problems. Our Treasurer has unveiled the worst debt problem for the Commonwealth Government that anyone can remember. I’m sure there have been worse ones, and doubtless someone will do the arithmetic, allowing for inflation, GDP and all the rest. And there’s a lot of fuss about whose fault it is. I’m not much for fault-finding. We are where we are because of a series of actions and assumptions on the part, mostly, of the Labor Government after 2007. But it did not, at least in my judgment, act stupidly; rather, it looked too hopefully at what might happen to make everything it wanted to do possible. It was by no means the first Australian Government to do that.

What now? I think another bit of history is in order. Otto von Bismarck, Chancellor of Prussia and then Germany from 1862 to 1890, is the right person to credit for the creation of the welfare state, and he was a thorough conservative. He brought in old age pensions, accident insurance, medical care and unemployment insurance, aspects of our own society that we simply take for granted.

And he did it because he and his party feared the attractiveness of ‘Socialism’. If the working class did not see advantages in the status quo they might become rebellious. His measures were opposed by the Socialists because they feared that worker-grievances would be reduced, and thus their own representation. He gained support from the Right because too many people were leaving Germany for America, where wages were higher, but welfare almost non-existent.

The 3rd Marquess of Salisbury, British Prime Minister on three occasions, contemporary of Bismarck, and the last PM to have run Cabinet from the House of Lords, possessed much the same views. He was opposed to Radicalism  (= Socialism) but recognised that unless people had a stake in the society they would see no need to support it if a rebellion came. He too introduced free elementary education, and was at least sympathetic to social welfare considerations.

Our own welfare system has elements of both the German and the English, plus some home-grown ideas as well. Both sides of our politics support social welfare, but for different reasons. Labor sees an urgent need for redistribution, on the grounds of equity: some have too much and some have too little; our society is structurally unfair, and needs to be made fairer.

The Coalition, the Conservative side of our system, shares the belief that a fair society is a good one, but not the notion that the society is structurally unfair. Conservatives see the the distribution of wealth and income as essentially the outcome of effort. Those who are productive, employ people, generate wealth and jobs — they are entitled to what they earn. There is no obvious reason why some of that wealth should flow to those who have done very little. Conservatives support the social welfare system, as Bismarck did, and for much the same reason, though now habit is a strong reason: it is a long-established part of our social system.

How do they see the debt? Labor sees it as regrettable, but (now that it is in Opposition) that it should be reduced by taxes on the better-off, revenue-generating measures that aren’t taxes, but not at all by cutting benefits — because that would be ‘regressive’. When Treasurer Swan was in charge of the till, Labor may have sounded besotted with the need to balance the budget. But that was simply the window-dressing needed to keep the financial institutions happy, so that our credit rating did not decline. Any decline would have indicated that Labor was ‘unable to manage the economy’.

Treasurer Hockey does have a real problem, and he may well need to wait until the May Budget statement to announce how he proposes to deal with it. One or two on the Labor side may be quietly glad that it is not their problem. The first thing he has done is to make clear that things are so bad that there is no fixed date for the Budget to return to surplus (hence his constant reference to Labor’s mismanagement). The second is to say that things are so bad that ‘everything is on the table’. This gives him some time to work out what to do, and how fast to do it. The Audit Committee is yet to report, and that gives him another reason to wait.

I wrote a while ago about the cycle of actions that faces any new government, in which the first year is demonstrably the worst, the one where all the cuts come. But the Abbott Government would like to be re-elected in 2016, and it needs to show some successes well before then. Too many cuts, and too many unhappy people, and Labor could be on the edge of a return to power — not, in my opinion, that Labor would have any better capacity to deal with a large deficit.





Join the discussion 7 Comments

  • Peter Donnan says:

    You write that ‘Labor sees it as regrettable, but (now that it is in Opposition) that it should be reduced by taxes on the better-off, revenue-generating measures that aren’t taxes, but not at all by cutting benefits — because that would be ‘regressive’.

    ‘Not at all by cutting benefits’ is a critical area. One can be imbued with compassion, support for severely disabled people and in fact argue that benefits need to be uncapped. The following clip from an ABC clip makes the point:

    “Jenny Macklin says the Government must rule out changes like limiting the level of support or slowing the rollout.

    “There is no evidence whatsoever that it is ineffective of inefficient,” she said.

    “It has only just started and people with disability need additional care and support, they need the extra money to make sure that at last people with disability get the support that they deserve.”

    Once you start to argue for uncapped support where does it finish? Economic credibility is the first casualty; budget deficits accelerate unless tough decisions are made; we are going down the path that Greece followed – and is now addressing.

    Compassion and support are positive but unless accompanied by some tough love and economic common sense, result in the abject figure of Wayne Swan on the back benches with the lights out. Hopefully Chris Bowen might learn from this.

    • Don Aitkin says:

      What do you cut? There is a good reason for almost everything governments do in the welfare area, and that even includes middle-class welfare. But if you don’t have the money to pay for it, and you agree that you will not borrow to deal with a shortfall on the recurrent side, you have to cut something.

      OK, you decide to cut programs. But to do that you need to pass legislation, because all hand-outs via appropriation started with an Act of Parliament. It’s all very difficult — and I’ll say something about that in tomorrows’ post.

  • dlb says:

    I was not old enough to vote when the Whitlam government was in power, nor have I studied politics. However I get the impression that past Labor government and Whitlam’s were both in a hurry to instigate large social projects such as Medibank and the NDIS, but both governments were ultimately hamstrung by deteriorating economic conditions. Do you think there are similarities between both these governments?
    I wonder if the electoral cycle was longer would it give governments more time to fix the economy or alternatively stop the mad rush to push these expensive projects through in one term.

    • Don Aitkin says:

      Good question. The Rudd Government came in at a time when economic conditions were excellent, and soon got caught in the Global Financial Crisis. The Whitlam Government had excellent conditions likewise (indeed both were unusual in achieving office at a time of prosperity — governments tend not to lose office when things are going well). The OPEC oil crisis was its nemesis from 1974 onwards.

      Otherwise I think there were real differences, and I don’t myself think that a four-year term, or one of five years, as in the UK, would have much effect.

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