No. 95

Good government requires more talk about much more action.

STONE the crows! What a policy week it wasn’t. The big news from the tax forum was that the tax-free threshold will rise from $18,000 to $21,000 when Treasurer Wayne Swan thinks “it is affordable”.[i]

And the ICAC inquiry into public sector corruption turned out to be about local government purchasing officers copping retail gift certificates. [ii]

The first might be a big deal; George Megalogenis thinks it signals a consensus for a return to reform, but “when it is affordable” leaves this and the next government less wiggle room than space for a chorus line of explanations of when it can’t occur.[iii]

And while ICAC is investigating parish-pump corruption evidence appeared that the absence of an equivalent agency encourages theft and fraud at a federal level. [iv]

So, by the weekend, tax reform was off the radar for all but the pointy-heads and ICAC’s inquiry into low rent greedy grubs was so cringe making it was all but ignored.

It was understandable but appalling, because when citizens have reason to dismiss or distrust the state we are on the Indian, or Athenian road.

With the GST a decade old, Saul Eslake and Marcus Walsh rightly point out that the appetite of Australian governments, and indeed the Australian people, for productivity-enhancing reform is not what it was in the glory days of the 1980s and 1990s [v]

Perhaps the sheer size of the transformation of those years exhausted and unsettled everybody. The Hansonite “terror” was largely due to fear created by the speed at which the economy was changing and there was an after-shock in the electorate’s adamant refusal to cop the last Howard Government’s industrial relations reform.

Whatever the reason, for over a decade while everybody talks up reform, nobody does anything about. For years now, COAG has promised to act on everything from state regulation through mental health and then actually accomplished sod all.

In 2006, COAG adopted a national mental health plan which “will significantly contribute to the wellbeing of people with mental illness, and their families and communities.” [vi] And in 2011 they announced it, or something that certainly sounds similar, again. [vii]

Thus Paul McClintock, chair of the COAG Reform Council warns, “sometimes there is an insufficient sense of urgency. A few of the reforms are very complicated. And then, most serious of all, there are reforms where the political will appears to have evaporated.” [viii]

This isn’t good enough. As Gary Banks politely pointed out, the great GFC spendathon first began to appear overblown: “Having grappled successfully with the major challenges of the past year, we now need to re-focus on a productivity agenda for prosperity into the future. ”[ix]

But the electorate is now inured to politicians promising and nothing happening. As the head of a new federal tax reform group said about last week’s forum, it “exceeded his expectations, even though he acknowledged it fell short of setting up a 10-year platform for change”. [x]

Governments that just administer on the one hand and leave rent seekers and outright thieves to get away with enriching themselves at the expense of everybody else lose legitimacy.

Look at Greece.

Greece resembles Australia in the 1960s and 1970s, (without minerals and energy) when protection all round, government trading enterprises across the economy and a tax evasion culture ensured the economy under-performed. Until the present crisis the Greek service sector was regulated to benefit people who worked in it rather than consumers, state enterprises were, and remain, inefficient.

For the organised and affluent, tax is only now starting to be all but optional. [xi] According to the OECD, Greek personal income tax revenues are 5 per cent of GDP lower than the average, although the rate is not especially low.

If the Greeks collected existing value added tax, social security contributions and corporate taxes with the average efficiency of other developed economies this would increase public revenues by another 5 per cent of GDP. [xii]

As Mitsopolous and Pelagidis predicted in 2009, not only was the Greek economy being ruined by rent seeking, government inertia was eroding the authority of the state:

Numerous rent-seeking groups curtail competition in the product and services markets, increase red tape and administrative burdens, and actively seek to establish opacity in all administrative and legal processes in order to form an environment in which they will be able to increase the rents they extract. At the same time, they actively strive to ensure that the rule of law fails to such an extent that the society will not be able to hold them accountable for their actions. [xiii]

And consider India. Obviously corruption is not the norm in Australia as it is there, where the police find it hard to prosecute offences great and small because the community accepts them as commonplace.[xiv]

But corruption is still sufficiently common and difficult to deal with in Australia that whistle blowing is seen as high-risk for public sector workers. [xv]

And when people get away with it the credibility of government erodes. And the less people take the state seriously the less legitimacy it has.

The purpose of governing is both to get things done as to be seen to be trying.

ICAC and its equivalents around the country need to do more to explain their achievements and why they matter.

And COAG plus Canberra needs to do more, a lot more to upset the rentiers and create competition.


[i] Phillip Coorey, “Swan eyes lifting tax threshold and shedding state levies,” Sydney Morning Herald, October 6

[ii] Malcolm Brown, “Council gifts to create indebtedness, ICAC hears,” Sydney Morning Herald, October 6

[iii] George Megalogenis, “Breaking the other drought,” Weekend Australian, October 8

[iv] Linton Besser, “Federal agencies lack firepower to deal with fraud,” Sydney Morning Herald, October 4

[v] Saul Eslake and Marcus Walsh, “Australia’s productivity challenge,” Grattan Institute, February 2011, 28 @ recovered on October 9

[vi] COAG, National action on mental health plan 2006-2011 @ recovered on October 9

[vii] Prime Minister’s Press Office, “COAG commits to delivery of mental health reform,” August 19 @ recovered on October 9

[viii] Paul McClintock, “Competition and regulation reform agenda: how are we tracking? March 11, @ recovered on October 9

[ix] Gary Banks, “Back to the future: restoring Australia’s productivity growth,” (in) Banks, An economy-wide view: Speeches on structural reform (March 29, 2010) 77-89,89 @ recovered on October 9

[x] Katie Walsh, “Not the moment for major reforms,” Australian Financial Review, October 8

[xi] International Monetary Fund, “Greek economy at a crossroads,” IMF Survey December 17 2010 @ recovered on October 9

[xii] Organisation for Economic Cooperation and Development, “Economic Surveys: Greece” August 2011 @ recovered on October 9

[xiii] Michael Mitsopolous and Theodore Pelagidis, “Vikings in Greece: Kleptocratic interest groups in a closed rent-seeking economy,” Cato Journal 2, 3 (Fall 2009) 1-18. 1 @ recovered on October 9

[xiv] S K Sharma, “India: prosecuting corrupt public officials,” @ recovered on October 9

[xv] Peter Roberts et al, Whistling while they work: towards best practise whistleblowing programs in public sector organisations,” 75, Griffith University, 2009,  @ recovered on October 9