The New Generation Gap – Why The Age Of Entitlement Is Over For Governments

NSW Finance Minister The Hon Dominic Perrottet MP has been described as “one of the rising talents in the NSW Liberal Party”. When Mike Baird took over the role of NSW Premier, in April 2014, Mr Perrottet was one of the biggest benefactors of the reshuffle that followed. The NSW Liberal/National government’s policy approach has been to seek opportunities for government to work with the private sector to improve government services. Along with “asset recycling” on a not insignificant scale as under-used state-owned properties are sold and the money reinvested into government services. Dominic Perrottet addressed The Sydney Institute on Thursday 5 February 2015 to discuss the government’s policy approach.

THE NEW GENERATION GAP – WHY THE AGE OF ENTITLEMENT IS OVER FOR GOVERNMENTS

DOMINIC PERROTTET

Thank you Gerard & Anne for that kind introduction. Can I firstly say that The Sydney Institute has long been one of my favorite sources of political knowledge. It was established way back in 1989 ­ when I was about 7 years old ­ and so many of my political idols have spoken here before ­ John Howard, Peter Costello, Matthias Corman, Peter Reith, Eric Abetz (who is here tonight) ­ and also my good friend the NSW Treasurer Andrew Constance quite recently. So I’m very humbled and I’m very happy to be here tonight.

I know that here among us are many distinguished leaders ­ from politics, business, media and academia. Someone once said to me ­ if you’re the smartest person in the room, then you’re in the wrong room. Well tonight ­ I’m definitely in the right room. In fact, it’s to the older and wiser heads who I would I like to address my remarks to tonight.

As we gather in this room tonight, the eyes of the world remain fixed on Greece. A radical left wing party has recently come to power with promises to reverse austerity, rehire public servants and raise pensions.

Some say they hold the fate of the entire Eurozone in their hands and in a globalised economy, the aftershocks will be felt even here. Greece has had a tough time recently, hit by a catastrophic cocktail of spiraling debt, savage spending cuts and widespread public unrest. But for me, the most telling statistic is that in Greece, youth unemployment currently sits at 49.8%. [i] Just think about that for a moment. Nearly half of all young people in Greece under 25 cannot get a job.

Incredibly, Greece is not the worst case. Youth unemployment is even higher in Spain at 53%. Croatia is at 45%, Italy at 43% and Portugal at 34%. You could say France is doing relatively well with only a quarter of its young people out of work.

As Finance Minister, I live in a world of numbers and statistics. But the problem with numbers is that they try to capture in one dimension issues that are not really numerical ­ but political, social, and often deeply personal. What metric can adequately capture the feelings of a young person who has studied hard for years in expectations of a career, but now has limited prospects for finding paid work? What equation can compute the toll on the human dignity of young people who continually apply for hundreds of jobs with no response?

How do we quantify the impact on individuals who have no hope, parents who cannot retire and entire communities in despair? That is the true cost of youth unemployment. And it can never be communicated by just a number.

That’s why I’d direct you to a very powerful video I watched recently on the Huffington Post website [ii] that interviews young Europeans struggling to find a job. “We can’t find our way in life,” says one. “Our parents are our personal welfare system,” says another. “We really are a whole generation of the unemployed,” says a third.

The twentieth century was meant to be a time of unheralded prosperity, brought about by benevolent big government. Instead, what we are creating is a lost generation. So what went wrong?

Over the past 60 years, we were sold the notion that big governments would be our saviour. We were told that that governments would end poverty ­ in fact, one of the things I remember clearly growing up was Bob Hawke’s promise that, by 1990, no Australian child would live in poverty.

We were told that governments would provide free healthcare, free education and jobs for all ­ with long holidays and fully funded retirements to follow. But, despite the good intentions behind many of these policies, a very different result has emerged. The toxic combination of big government, large public sector unions, unsustainable welfare programs, low birth rates, heavy labour market regulation and high taxes is a poison pill for economic growth, for innovation and ultimately, for employment.

The old ways of big spending combined with what sociologist Daniel Bell has termed “the revolution of rising entitlements” [iii] have created a new generation gap where the young will be paying for the excesses of the old. The legacy of these policies is a new generation that is disengaged, disenfranchised and disillusioned with our political system.

And that’s why I come here tonight with a warning ­ these same things can happen here ­ in our nation and in our state. I come before you tonight not just as a Finance Minister, but as a member of that younger generation just over 30 years of age. A father of three who is increasingly concerned about the future that I ­ and those younger than I ­ will soon inherit.

Edmund Burke famously said that “society is a partnership between those who are living, those who are dead and those who are yet to be born”. I say to you tonight that we are failing in that partnership. That’s why tonight I would like to talk to you about why I think the biggest threat to the future prospects of young people today are governments that

are too big, too greedy and stuck in the past. And why a new model of government is needed in the twenty-first century.

Let me begin with a story.

A few years ago, a Greek journalist called Despina Antypa was growing increasingly worried about her job prospects. So after working a full day at a newspaper, she would attend baking classes until 10pm and practise her pastry making skills at nights and on weekends.

After she and her husband both lost their jobs and went on benefits, Despina spent her days trying to master the perfect French dessert. She poured the rest of her savings into starting a new bakery ­ building a website, creating a brand and buying a shop. Things were finally looking up.

But the bureaucrats had other ideas.

Writing in the New York Times, [v] Despina relates the nightmare of trying to set up a business in the Greek state. She discovered that she was required to forecast her profits for the first two years and then pay a tax on that estimate of 50 per cent. If that wasn’t bad enough she was required to pay that tax regardless of whether she made that profit or not.

But it gets worse. Despite needing just 20 sqm for her bakery, she was told she had to purchase a minimum of 150 square metres. And, if this wasn’t bad enough, regulations also required her to build additional toilets, new fire exits and more walls.

There is no happy ending to this story. Her business was over before it began. And she and her husband with their dreams and aspirations ended up leaving Greece.

I’ve heard it said that if you train a man, you just train an individual. But if you train a woman, you train an entire family. Despina missed out on her dream of being an entrepreneur ­ her family and her country is all the poorer for it.

This story is instructive for me because it shows at a micro level what happens when governments get too big. Over­regulation is the calling card of big governments. Red tape strangles new businesses, smothers innovation and suffocates ideas. And since small businesses provide the majority of jobs, It’s the classic case of killing of the goose that lays the golden eggs.

This story is by no means unique to Greece. Every single year, in Australia, state and Federal governments pass over 25,000 pages[viii] of legislation to regulate our lives ­ more than double what it was just twenty years ago. The other defining hallmark of big government is that it crowds out the private sector ­ something I found out first hand when I become Finance Minister last year.

The NSW government runs a fleet of nearly 30,000 cars. So, as well as a government, we’re also fleet managers. We build and maintain our own computer systems, so we’re a technology company to boot. And we have our own portfolio of buildings and properties, so we’re also into the real estate game. This is not to mention storing our own paper records, running our own call centres, constructing our own buildings and even employing our own stone masons. It’s hard enough to run one business ­ let alone dozens.

In his book Good to Great [ix] Jim Collins says that companies who want to succeed should work out what they are the best in the world at, stick to that and do nothing else. Governments I believe, are no different. The core business of state governments is service delivery and being too involved in other activities is a distraction that will cause our core business to suffer.

That’s why here in NSW, under the leadership of Mike Baird, we’re making service delivery a priority. It’s why we have employed more frontline teachers, nurses and police and less back office bureaucrats. And it’s why, as Finance Minister, I’m trying to get us out of businesses that we shouldn’t be in ­ letting the private sector do what it does best, and returning those savings to the bottom line.

Greater involvement by the private sector is what the people want as well. A survey last year of millennials across 17 different countries found that 73 per cent of them felt that government couldn’t solve societal issues and 83 per cent wanted corporations more actively involved[xi] .

Trendwatching.com cite this research in their predictions for 2015[xii]. They say that one of the emerging trends of the next 12 months will be what they call “Branded Government” ­ where business identifies government shortcomings and then acting in partnerships gets more involved in service delivery.

It’s one of the enduring myths that smaller governments with private sector partnerships help fewer people. But just yesterday the Premier launched Australia’s first Social Impact Investment Policy ­ and this follows the Social Benefit Bonds he introduced in 2013.

Yet while pursuing a lean government focused on service delivery would seem to be a common sense approach, it’s worth pointing out that all this has been achieved in the face of heavy opposition from NSW Labor. I encourage you all to visit the NSW Labor website and read their statement of principles. It talks about the “struggle of the working class against capitalism”, the “redistribution of power” and the “socialisation of industry”. Labor might have their party principles published on a flashy website using modern, free market technology, but it’s clear they’re still partying like it’s 1969.

In politics, ideas matter. They animate governments, politicians and policies. The ideas of individual freedom and free markets have been part of the Liberal Party platform since its inception and have stood the test of time. In fact, back in 1942, Robert Menzies was warning of a future government that would “nurse us and rear us and maintain us and pension us and bury us”.[xiii]

In contrast, as Nick Cater has written, when Whitlam spoke of that style of government, he meant it as a promise, not as a threat.[xiv] Try as it might, Labor cannot easily escape from its roots as wealth takers, not wealth makers. But as well intentioned as their agenda may be, it’s a path that leads to ruin for the next generation.

Governments in the twenty-first century shouldn’t be too big. But they don’t necessarily need to be small either. What they need to be is lean ­ doing only what they have to do, and doing it very well.

It’s not just big governments that are the problem though, but governments that take too much. Many of you would have heard of the French 75 per cent super tax on earnings above 1 million Euros introduced a few years ago ­ a policy described as “Cuba, without the sun”.[xv]

What you may not know is that on the 1 January this year, that tax was quietly scrapped as many of the rich simply took their capital elsewhere at even greater cost to the economy.

Rather than trying to do the hard work of boosting wealth creation, many governments simply want to take wealth from their citizens and spread it around. When businesses go through tough times and capital is tight, they cut back, trim down, become more efficient ­ “do more with less” was the mantra during the GFC.

In contrast, many governments in tough times simply turn to their citizens and increase tax rates ­ often to fund entirely ineffective and unnecessary programs. In other words, “doing less with more” ­ other people’s more.

There is no doubt that we as citizens should be paying governments taxes for the provision of necessary services. The problem is governments do a lot of things they shouldn’t be doing, and what they are doing, they do very inefficiently. I think its fair for our citizens to ask if are they getting value for their tax dollar. Unfortunately, in many cases, the answer seems to be no.

For example, over the past 40 years, the US government has invested over $22 trillion dollars on the “war on poverty”.[xviii]’ And yet the poverty rate has remained pretty much exactly as it was when the entire program started.

In one of my favorite political speeches, “A time for choosing”, Ronald Reagan made the same point about the tendency for governments to throw ever larger sums of money at problems, despite not making any concrete progress on improving outcomes.

Each year the need grows greater; the program grows greater. No government ever voluntarily reduces itself in size. So governments’ programs, once launched, never disappear. Actually, a government agency is the nearest thing to eternal life we’ll ever see on this earth.

Reagan gave that speech back in 1964 and since then, things have only become worse.

Government spending as a percentage of GDP is already at record levels. In Australia, it’s 39 per cent of total GDP[xix], across all levels of government. The United Kingdom, is at 41.2 per cent while Greece is at 53.8 per cent.[xx] Debt levels too are increasing with ours at 41 per cent, the United Kingdom at 97 per cent and Greece at 163 per cent. What these numbers tell us is that governments are spending too much, borrowing too much and living well beyond their means. And to finance all this, they’re going to once again, tap their citizens on the shoulder.

It’s here that I have to partially disagree with someone I have a lot of respect for ­ Federal Treasurer Joe Hockey. A few years ago in a speech, he proclaimed the end of the “age of entitlement” for citizens and business.He was half right. It is not just citizens who need to realise the age of entitlement is over ­ it is governments as well. It’s become pretty clear that simply confiscating ever increasing amounts of money from citizens to prop up ineffective programs is not only unsustainable but a betrayal of social and generational justice.

That’s why to me the current calls by some Liberals to broaden the base of GST are misguided. Not because it’s necessarily the wrong move, but because it’s the wrong conversation. The GST is simply a mechanism of collecting tax ­ it is not a tax policy. As some commentators have noted, simply broadening or raising the GST in isolation is more of a “tax grab” than a “tax reform”[xxi].

The only question that Liberal governments should ever be asking is “How do we reduce the tax burden?”

Perhaps the GST can be expanded ­ but only as long as other taxes are reduced and we end up paying less tax overall. This is the argument John Howard and Peter Costello prosecuted when introducing the GST and removing other inefficient taxes.

But we all know that tax reform is difficult, and that tax reform can’t happen without significant changes to our Federation. The starting point as some have suggested is to clearly mark out the responsibilities of each level of level of government[xxiii]. This will reduce duplication and unnecessary cost.

In that context, the mismatch between Commonwealth and State taxes can then be addressed, along with the current distribution model which rewards mediocrity and offers states little incentive to undertake economic reform.

While the Federation debate takes place, it’s worth asking how governments can deliver services while not raising taxes.

One way is by making better use of the assets they have, like we are doing in NSW. Our program of asset recycling means we can lease existing assets to private buyers ­ and then reinvest those proceeds into other much needed infrastructure. For example we currently own two historic Sandstone buildings on Bridge St which house back office bureaucrats in prime CBD real estate and cost the taxpayer millions to maintain. This makes little economic sense, which is why we’re leasing them as high end hotels to create jobs, reduce costs and boost tourism.

On a bigger scale, leasing the 49 per cent of the electricity network, the poles and wires, will see us raise $13 billion dollars that will be used for major mass transit projects, light rail and a second harbour crossing. And it won’t cost citizens a cent in additional taxes.

A Deloitte report[xxiv] estimates that our infrastructure agenda will add over

$300 hundred billion dollars to our economy and create over 120,000 jobs. With the Brotherhood of St Laurence[xxv] putting the youth unemployment rate here in NSW at 11.8%, this is a much needed program of job creation with benefits for all.

Asset recycling and building infrastructure is one way governments can do more with less. In contrast, governments that are too greedy take capital away from individuals and businesses who need it, and funnel it ineffectively to places that don’t.

The final way that governments are letting down their citizens is by being firmly stuck in the past. I’ve often told the story that when I first became Finance Minister I opened the stationary cupboard and what I found were boxes and boxes of the old blue 3.5” floppy disks. I didn’t even know they still made them, but there they were, just in case we in government needed them.

Well today I have an update to this story because I am pleased to tell you that we are in fact not alone. Business Insider reported last month that some parts of the US government also still rely on the humble floppy disk[xxvi]. Apparently, not everyone has upgraded to email as of yet so some agencies still scan documents, save them on a floppy disk and send them to their destination via courier.[xxvii]

Nothing illustrates the disconnect between the youth of today and governments more than technology. While our young people are transacting on their phones, instant messaging their photos and video calling their friends, government technology remains firmly fixed in the past.

Entering many government departments is like stepping back in time ­ this is a world of paper forms, fax machines, lining up in queues and constant inconvenience. Many governments are designed and built around themselves, rather than the citizens they are meant to serve. For example, when we took power in NSW in 2011, we inherited a network of over 380 physical shop fronts, over 100 call centres, more than 1000 websites and over 8,000 phone numbers.

But by redesigning government around the customer, we instead have Service NSW ­ a single agency with one phone number, one website, one mobile app and over 800 transactions from multiple government departments. So far its served 10 million customers and has a satisfaction rate of 98 per cent.

I also believe governments are neglecting their citizens by not deriving full value from the data they hold. There is an increasing realisation in the business world that data is so much of an asset, it should be counted on the company balance sheet. Wired Magazine called it the “black gold of the 21st century”.[xxix]

In my opinion, the full value of this data won’t be realised by governments, but by the private sector, which is why an open data agenda is important. Some of you here tonight may have bus, train or ferry apps on your phone – these were created by the private sector using our data ­ and are a sign of what is to come.

Technology is not just changing government, it’s changing our very society. I’ve spoken before about the collaboration economy and the opportunities its presents. We now have a new generation of companies specialising in connecting people who own things with those who simply want to borrow them. In other words, doing more with what we have.

A few months ago we announced that instead of relying on our own fleet of cars, the government would conduct a trial using car sharing companies ­ so we get the benefit of using cars without the cost of owning them. More importantly for me though, the collaboration economy is creating a new generation of what has been called “microentrepreneurs”[xxx] . These are people who use these services as alternative income streams, such as people renting out spare rooms using AirbnB.

There is no doubt the emergence of the collaboration economy is creating challenges for regulators around the world as they challenge the status quo and disrupt traditional business models. Yet the new opportunities for business, collaboration and job creation should be highly encouraged by forward thinking governments.

In that vein, it was disappointing to see the Shadow Assistant Treasurer, Labor MP Andrew Leigh recently call on the government to start taxing not only these companies, but also the income that ordinary people were generating[xxxi]. It reminds me of Reagan’s quote of the government’s view of the economy ­ “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it.”

Yes, every company should pay their fair share of tax. But my view is apart from safety and security, the collaboration economy should be allowed to grow organically and not be squashed by the clumsy hand of big and greedy governments.

I can’t be too critical of Labor though without taking a good look at my own party as well. In a world when I can do just about anything online, the one thing I can’t do is join the NSW Liberal party. If you head over to their website and click the join button, you’re presented with a PDF ­ a paper form you have to print off, handwrite on, buy an envelope, affix a postage stamp to and then go to post box to send off.

In an age where political party membership is ageing, and youth are disconnected from politics, nothing says that you stuck in the past more than paper forms and postage stamps. The West Australian Liberals allow online membership of their party ­ and we should do it too.

Governments do not need to be world leaders when it comes to technology, chasing after every fad ­ but we should be fast followers, emulating what works.

Rather than lag behind the times with outdated ideas, governments need to be mobile, social and connected ­ meeting our citizens where they are and not dragging them back to where we want them to be.

In conclusion, my contention is that many of the economic and social policies put in place over the last 50 years by our political leaders have been well intentioned, but tragically short sighted.

They have pursued instant gratification rather than long term success. They have been more about winning elections than winning the future. And they have benefitted those in the present at the expense of those who are to come.

It is one of the enduring laws of nature that no one has ever run up a tab they didn’t have to pay. The current political class is running up a huge debt. And it is the next generation ­ those who are to yet come that will have to pay the price.

C.S. Lewis once said ­ “We all want progress, but if you’re on the wrong road, progress means doing an about­turn and walking back to the right road; in that case, the man who turns back soonest is the most progressive”. It’s time for new progressive thinking. The era of big, greedy and backward governments has to come to an end.

What is needed now is a new model of lean, efficient and connected government that can better fulfill its original purpose ­ to serve the citizens that elect us, both those that are here and those who are to come.

[i] http://ec.europa.eu/eurostat/documents/2995521/6454659/3­07012015­AP­EN.pdf/f4d2866e­0562­49f5­8f29­67e1be16f50a

[ii] http://www.huffingtonpost.com/2015/01/27/youth­unemployment­europe_n_6554804.html

[iii] http://www.amazon.com/America­necessary­Conservative­perspectives­institutions/dp/082990090X

[iv] http://www.amazon.com/America­necessary­Conservative­perspectives­institutions/dp/082990090X

[v] http://www.nytimes.com/2014/07/03/opinion/greek­recipes­for­survival.html

[vi] http://www.nytimes.com/2014/07/03/opinion/greek­recipes­for­survival.html

[vii] https://ipa.org.au/publications/2175/australia’s­big­government­reaches­record­highs

[viii] https://ipa.org.au/publications/2175/australia’s­big­government­reaches­record­highs

[ix] http://www.jimcollins.com/article_topics/articles/good­to­great.html

[x] http://mslgroup.com/news/2014/20140916­future­of­biz­citizenship

[xi] http://mslgroup.com/news/2014/20140916­future­of­biz­citizenship

[xii] http://trendwatching.com/trends/10­trends­for­2015/

[xiii] http://www.menziesvirtualmuseum.org.au/transcripts/ForgottenPeople/Forgotten1.html

[xiv] http://www.theaustralian.com.au/opinion/columnists/glory­days­of­big­government/story­fnhulhjj­1227104052 001

[xv] http://www.theguardian.com/world/2014/dec/31/france­drops­75percent­supertax

[xvi] https://ipa.org.au/publications/2175/australia’s­big­government­reaches­record­highs

[xvii] http://data.worldbank.org/indicator/GC.XPN.TOTL.GD.ZS

[xviii] http://www.heritage.org/research/reports/2014/09/the­war­on­poverty­after­50­years

[xix] https://ipa.org.au/publications/2175/australia’s­big­government­reaches­record­highs

[xx] http://data.worldbank.org/indicator/GC.XPN.TOTL.GD.ZS

[xxi] http://www.smh.com.au/national/the­end­of­the­age­of­entitlement­20120419­1x8vj.html

[xxii] http://www.abc.net.au/news/2015­01­20/berg­when­is­tax­reform­actually­just­a­tax­grab/6026750

[xxiii] http://www.abc.net.au/news/2015­01­20/berg­when­is­tax­reform­actually­just­a­tax­grab/6026750

[xxiv] http://www.cis.org.au/media­information/opinion­pieces/article/5445­federal­state­reform­should­not­meanmore­tax

[xxv] http://www.nsw.gov.au/sites/default/files/miscellaneous/economic­impact­of­state­infrastructure­strategy.pdf

[xxvi] http://www.bsl.org.au/pdfs/MyChanceOurFuture_AppendixA_maps_Feb2014.pdf

[xxvii] http://www.businessinsider.com.au/the­us­government­is­still­using­floppy­disks­2015­1

[xxviii] http://www.businessinsider.com.au/the­us­government­is­still­using­floppy­disks­2015­1

[xxix] http://www.businessinsider.com.au/the­us­government­is­still­using­floppy­disks­2015­1

[xxx] http://www.wired.com/2013/02/is­big­data­the­new­black­gold/

[xxxi] http://www.telegraph.co.uk/technology/news/11253016/Sharing­economy­to­create­a­nation­of­microentre preneurs.html