This is the second of two articles on tariff reform and a carbon price by Tom Conley. Read the first here.
Making a comparison between the tariff reform of the Hawke-Keating government and the carbon price reform needs to acknowledge the fundamentally different political situation facing the Rudd and Gillard governments: an opposition clearly opposed, a new government extremely uncertain about reform, a voting base with somewhere else to go, a media mainly opposed to acting before the rest of the world, and key business sectors willing to fight the government in the media.
In both cases, Labor has had to deal with a sceptical voting public. Especially important for Labor in 1991 were the blue-collar (and self-employed) voters many of whom were never convinced of tariff reform and perhaps still aren’t. These were opposed to another key section of Labor’s constituency, the flat white (or café latte, if you must) drinking, university educated voters who rightly saw an inevitability about the changes wrought by globalisation and developments in Asia and who no longer saw tariff protection as a panacea for dealing with economic vulnerabilities. These two groups continue to divide over a carbon price, the broader issue of climate change, and environmental protection generally.
It’s also important to remember that the eventual political outcome for Labor was John Howard’s long-term ascendancy, which was built upon garnering a large number of former Labor-aligned voters. John Howard’s pragmatism or opportunism (depending on your political outlook) was built on the understanding that he would have to maintain this traditional Labor vote. This meant he oscillated between hardcore reform rhetoric and softer reassuring words that aimed to make Australians feel relaxed and comfortable. One of my favourite Howard quotes is his comparison of reform to demolishing a broken down jetty:
"You’ve got a jetty or a pier protruding in the water, and if you want to get rid of it there are two ways. You can bring a bulldozer onto the beach and push it over; or you can wade in and get the most rotten plank in it and pull it out, and then the waves and everything will bring it down. Sometimes, if you bring the bulldozer on, people will lie down in the beach and stop the bulldozer altogether and it takes you ages … to get them out of the way. Meanwhile the pier just stands there and nothing happens."
This was Howard’s initial response to criticism that his first year of office signaled that he was a do-nothing Prime Minister who should be compared, heaven forbid, to Malcolm Fraser.
Howard had profoundly disappointed those on the right of the political spectrum who believed that he would quickly finish the job that Labor had started, but couldn’t complete because of Labor’s connections to the union movement. Such criticism stung Howard into staking his political future on getting a GST, a reform that Hawke and Keating had failed to get up because they feared the political backlash. The political climate for reform, therefore, was different for Howard as well. His government’s reform task was made more difficult by the fact that under Beazley and Crean, Labor acted as a true (even if mostly ineffective) opposition. Labor’s reforms were heavily dependent on Coalition support, but Howard didn’t have this luxury. Part of his strategy, like most governments, was to compensate key players who were negatively affected.
One of the comparisons that Bernard Keane makes in his discussion of this issue concerns business compensation. Comparing the ridiculous amounts of compensation for business in the negotiations for the Carbon Pollution Reduction Scheme (CPRS) with the minimal amount of compensation in the 1991 reform package, he argues that:
"What ‘industry adjustment’ assistance did our trade-exposed industries receive as part of the Building a Competitive Australia package? They got nothing. Hawke, Button and Keating put $90 million into a package for displaced workers to help retrain them and move them to other industries. There was also a rural adjustment package and increased services and loans for exporters. Otherwise, the big manufacturers got nothing."
While Keane might be right about the level of compensation in 1991, it’s incorrect to argue that there was no adjustment assistance in the transition to lower tariffs. Labor’s industry policies under Button were fundamentally about adjustment and compensation. We are still paying adjustment cash to two key industries, whose decline was managed by Labor in the 1980s and 1990s — cars and textiles, clothing and footwear. Big manufacturing in the form of the car majors got a lot and are still getting a lot!
I don’t disagree, however, that the whole carbon price negotiation has been one big exercise in rent-seeking. The level of associated compensation probably meant that not getting the CPRS up was a good thing. This outcome is also why I prefer a simple carbon tax, the proceeds of which could be hypothecated (the use of tax revenue for a particular spending purpose) into renewable energy research. And here I mean research, not the subsidisation of existing inefficient renewable technologies such as ridiculous schemes to pay people to put up solar panels.
The reform credentials of the Hawke and Keating governments are unquestionable. But also indisputable is that the political environment was profoundly more propitious for the sort of changes Labor introduced in the 1980s and 1990s. Gillard needs to think hard about how her government goes about the reform process and part of the solution will come from a correct reading of past structural reforms.
This is the second of two articles on tariff reform and a carbon price by Tom Conley. Read the first here.