WHAT’S TREASURER JIM CHALMERS ON ABOUT?

New Labor government Treasurer Jim Chalmers set off a debate in early 2023 with his essay in The Monthly, “Capitalism after The Crisis”.  Faced with growing debt and an inflationary global economy, Chalmers seems to be proposing greater regulation of the market and more involvement of private investment in public projects. Is this just another way of bringing back a more government controlled economy or is it an answer to a more robust and responsible development of national needs? On Wednesday 26 April 2023, The Sydney Institute heard from two of Australia’s respected economic voices on what the Treasurer is on about – Dimitri Burshtein, Head of Investory Relations at Eminence Advisory and a contributor to The Australian, and Sam Crosby, executive director of the St Vincent de Paul Society

WHAT’S TREASURER JIM CHALMERS ON ABOUT?

SAM CROSBY

I’d like to start by acknowledging the Gadigal people of the Eora nation, the traditional lands on which we meet, and pay my respects to Elders both past, present. I’d also like to acknowledge and thank Gerard for the invitation to have me here today.

At the end of the day, the world is run on little else other than ideas. For decades now, Gerard and Anne have been peerless in providing a platform for all manner of ideas; some good, some bad. But they do not distinguish, which I for one am very thankful for. So, thank you for having me.

Gerard Henderson called me a couple of weeks ago to ask if I’d come and defend Jim Chalmers’ essay in The Monthly. Now, since I left the McKell Institute and headed to a not-for-profit, headed to Vinnies, I don’t really do many speeches. And I don’t really do many political speeches at that. But I felt that I had to defend Jim. Not just because I consider him my friend – though I do, to be fair – and not just because I want to encourage public officials to articulate and enunciate and think through their ideas and put them out in long form. But I do.

I wanted to come here and defend the Chalmers article and essay because, very simply, I agree wholeheartedly with his proposition. His proposition is this, that governments have a role to intervene in markets and direct them towards social good. The proposition says that markets, if left to their own devices without government signals or government directions, are ill equipped to answer many of the challenges that our treasurer sets out in his essay. Challenges such as climate change, aged care, skills, training, women’s participation in the economy.

These challenges haven’t and won’t solve themselves. I arrive at this conclusion, despite being a leftist, not because of some fetish for busy body bureaucrats poking their noses in people’s business where they don’t belong. I support government intervention despite not knowing the words to Solidarity Forever; or even owning a single copy of Das Capital. In fact, the things I admire most about liberalism and the Liberal tradition is the idea that government should play as small a role in people’s lives as possible.

Now, there is a little caveat there for anyone wanting to watch and play this back at home. I arrive at the conclusion that supports government’s role in rounding off the harshest edges of the market, because I see daily what happens when they don’t. Working at Vinnies, I’m exposed to the market’s failure every single day in caring for its most vulnerable citizens.

This happens when I open up the Domain section of the Sydney Morning Herald, and read of houses that are selling for ten and twenty millions of dollars, when yI open up the Australian Financial Review and see examples of well-paid bureaucrats defending excessive compensation packages, and then I get a call from a mother who has been living in her car for over a year because she can’t afford a rent increase. When I see a government program providing prison retraining packages that have been wonderfully successful, cut because they did not have the money to continue, I agree with the treasurer. You can’t see these juxtapositions and think that everything in our society is going along well, and the market is operating as it should.

Thinking about today and today’s speech, I stumbled across one of Dimitri Burshtein’s op eds in The Australian. He told me there was another one, which if I had researched a little bit closer, I possibly would have found, but still. The title was “Jim’s Capitalism Will Leave the Nation Broke or Worse”. Sinister.

The central point of criticism – and I understand Dimitri’s going to be a bit lighter than he was in his article – is the treasurer’s articulation of values-based capitalism. In this opus, Dimitri hits the trifecta; he manages to link Chalmers’ relatively benign idea with MMT, neo-oligarchies and a threat to democracy itself. I can almost hear the tanks running down Northbourne Avenue with the soldiers’ carrying copies of The Monthly and The Saturday Paper in their breast pocket.

Unfortunately, here’s the truth. The tresurer’s idea of infusing capitalism with values isn’t new. As much as the terribly earnest undergrad in me, and the political-science student in me might like it to be some sort of brave new political philosophy, the truth is it’s just not new. Chalmers tell us as much when he quotes John Maynard-Keynes, saying that we are all slaves to some defunct economist. These ideas have been had before. If I can pre-empt Dimitri’s rejoinder – it’s not a throwback to the USSR or Venezuela or any other geopolitical buzzword that will no doubt elicit an emotional response and get this crowd’s heart racing. Values based capitalism is squarely heir to third wave progressivism, to the Hawke and Keating governments of the 1980s and 1990s.

Remember, it was Hawke and Keating that showed the world, and centre left parties around the world, that the rawest and most unbridled form of capitalism, as prosecuted by Ronald Reagan and Margaret Thatcher in the 1980s, is not the only way. They showed us that you can reform the economy whilst ensuring that your safety net is strong enough to capture those who fall victim to economic shocks and technological changes.

Superannuation, the price and income accords, enterprise bargaining, HECS and Medicare. The list is long and historic. In each of these instances, the government intervened in the market and directed it towards a better goal, informed by values of fairness and egalitarianism. It was the values-based capitalism of the 1980s. The idea that markets are imperfect and need government’s help to direct and harness them are straight out of Keating’s playbook.

So is the step that that’s one step away from communism. We’ve seen that before. Read through the speeches of the opposition leader of the day, at the time, decrying these ideas as socialism.

It is now terribly fashionable to decry the models of any modern Labor government as deviating from the path of Hawke and Keating. But trust me when I say that these are very fairly and squarely in the mould of Keating himself.

The question isn’t government versus markets. Those sorts of debates should be left to Fisher Library or, in my case, Manning Bar. But the question should be how and when should governments involve themselves in the economy? John Howard, Mike Baird, they answered these questions in much the same way. They answered, however, with public and private partnerships, in a similar way. They wanted to harness and use private capital and direct it in such a way as to answer the questions and the social needs of the day.

As I said, the treasurer is a friend. Moreover, his attempt to provide transparency to his thinking should be acknowledged and applauded.

Q+A session

Question: Sam, what do you see as the strength in Jim Chalmers’ article in The Monthly? Dimitri, what would you say the weaknesses are?

Sam Crosby: The strength of Chalmers’ article is that he’s had a crack at articulating how he and the government should make decisions. In my book, The Trust Deficit, I write that one of the keys to trust in politics is transparency in decision making, so that you can pre-empt a decision. You can pre-empt that government idea before it happens. I think Jim’s made a stab at that. I think Dimitri is right in articulating a lot of the problems. What I didn’t hear were many solutions, other than government needs to get out of the way. In some cases, I dare say that’s correct. But he highlighted the Global Financial Crisis. He highlighted the collapse of regulatory reform before going on to bemoan the complex regulatory system in Australia. So, what is it? Should we regulate more, or should we regulate less? Surely the answer is that we have to regulate properly. We have to regulate according to our values. I don’t think you can have a better way.

Dimitri Burshtein: I agree with much of what Sam says. As I said, I think it takes a lot of courage and effort for somebody to go out there on the stage and say these things and put these things in writing to be debated. My disappointment is that there hasn’t really been a debate. To some of the points that Sam made, no doubt there are people in this nation who are struggling. I would rather public resources be directed to them than people with half a million dollars getting childcare rebates and subsidies for electric cars and discounted pensions.

The problems are complex, but to the specific question about regulation, I’m not advocating for more or less. I’m talking about right regulation. The way our regulatory environment has evolved is a failure of the political system. If the NSW Police were to come out and write policy papers advocating for changes to the criminal law, they’d be laughed out of town, and told they were talking beyond their brief. Yet, every day, our regulators, who have no interest in the marginal cost of additional regulations, constantly advocate for new and more complicated regulation. There is no trade off in their minds, because the system is not working. The problems are clear, the solutions are more complex. But to get to the solutions, you have to start the conversation, and I don’t think those conversations have started.

Sam Crosby: Can I just take up one point about the welfare state, and where we bring in welfare, where we stop welfare? It’s easy to look at the half million-dollar example and say that’s too much. It’s easy to look at the person earning $5,000-$10,000/year and say they deserve some help. My charter is trying to figure out where is the middle. Is $50,000 enough? Is $100,000 enough? That’s a difficult point.

I would like to pose one idea. Bob Hawke, in 1983, brought in Medicare. The idea that every single Australian would get access to a medical system regardless of whether you’re earning half a million dollars, a million dollars, a hundred million dollars or if you’re on the age pension. That idea, whilst I acknowledge was somewhat radical at the time, is one of the things I love about this country. Because it puts us all on the same playing field. It stops dividing us between north and south, or east and west, and it starts saying “No, we’re all the same. We all have a strong safety net that we’re eligible for.”

I respect the view that, perhaps, some subsidies are too generous to some income demographics. But I think we need to think through what that does by expanding that social welfare net, obviously to the point that we can pay for it. That goes without saying.

Dimitri Burshtein: Bob Hawke also introduced the Pension Assets Test, because he said that those who don’t need it shouldn’t get it. That seems to have been lost in the conversation. With regard to Medicare – and I know we’re going beyond the scope of the subject – there is a difference, to my mind, between government providing assistance to people to get access to healthcare and governments running healthcare. That conversation needs to be had. I referred to James Buchanan in my comments, the author of Public Choice Theory.  The academic Dr Margaret Fuax wrote recently that $8 billion of Medicare money is wasted. I don’t have a problem with government spending money, but I don’t want it poured down the toilet. And before they ask for more, they should fix what they’re spending first.

Question: Sam, how do you see the role of government with regard to an organisation such as a not-for-profit like yours?

Sam Crosby: I say this with a lot of love in my heart for Vinnies. I was a member before I worked there, I dedicated all my free time to it and now I work there. I want to do it professionally. There is a lack of dignity in having to come and ask for help. A lot of people are brave enough to do that. They can turn up to one of our centres and they can see our members and say, “I’m struggling, I need help.” That’s a wonderful thing. For everyone that comes and sees us, there are thousands that don’t. A government system of slightly more generous welfare payments, new start payments, means that doesn’t happen.

During Covid, when the welfare payments were increased, we saw our numbers plummet. The number of people that would knock on our doors, when the New Start payment was increased significantly, plummeted. That was the case for a number of different organisations such as ours. Fast forward onto the second lockdown in NSW, where New Start wasn’t increased, and we saw our numbers skyrocket. So, we know that there is a direct impact on that.

Question: The Labor government has proposed three new entities. I think the total of them all up is more than $30 billion. Something like housing for people needing government support should be in the budget. But, I believe the three as announced are going to be an unnecessary expense.

Dimitri Burshtein: The three funds you’re talking about is to turn the Future Fund into a leverage hedge fund. They’re basically borrowing money to give to the Future Fund to invest, and then recycle the proceeds of those investments into rewiring the nation. I think there was a manufacturing one as well, and the social housing one. We can debate whether they’re the correct policy pathways, but the thimble trick of borrowing to give to the future fund to expose Australian taxpayers to market risk is a very strange logic, to my mind.

Sam Crosby: I’m not going to comment on the economics of it; it’s far beyond my remit. What I will say is this. That woman that I spoke of, is an incredibly common story. They come through the door, and you think to yourself, “I’ve got to refer these on” or “It’s such a compelling case. They will get a house, they will absolutely get on the top of the social housing list and within a week they’ll be in a house. No problem.” And they’re not. A lot of the time, they go on the list and sit there, and they sit there and they sit there. And then you realise that the other people on the priority wait list have equally compelling cases. Equally as heartbreaking stories. The number of them is impenetrable. Maybe the future housing fund isn’t the right thing, but it’s something. I have to say, as someone in that sector who regularly makes calls to people to say, “Can we get this person on the priority wait list and can we get some action for them?” I’m crossing my fingers and hoping that it goes through. I really am.

Dimitri Burshtein: The Commonwealth government employs around 250,000 people. There are front line service providers – there’s the federal police, there’s home affairs. The vast majority of them are not front line service people. The payroll cost of these employees is about $25 billion. You wonder how much social housing and income support could be allocated at that expense. I note also that Gerard’s friends at the ABC got an 11 per cent pay bump and a $1,500 cash bonus.

Question: Could you elaborate on how you see the cooperation between business and unions could build economic and political capital to fulfill many of the elements of Dr Chalmers’ values-based capitalism?

Sam Crosby: We saw it in the 1980s and the 1990s. We saw the modern system of Medicare grow as a result of that cooperation. Truth be told, I don’t know what this next iteration looks like. That was at a time when centralised wage fixing of union density was 48-49 per cent – we’re obviously not there anymore. I would say that, even with the unions’ declining share of the labour market, they still represent around two million working Australians. As Dimitri points out, if you’re going to listen to either upper bourgeoisie or regular working people, the Australian union movement provides a very good link to those very good regular rank and file policemen, nurses and workers of all shapes and varieties. I don’t think we’re going to see another accord as in the 1980s and 1990s. I don’t think the cooperation will take that shape. But we’ll see.

Question: Australia’s got the best terms of trade it’s ever had in its history. We have the lowest unemployment for about 50 years. But the budget looks like it’s going to have a deficit number. Isn’t all this discussion a distraction from the job of the Treasurer to fix the budget at a time when it should be delivering record surplus rather than more deficit?

Dimitri Burshtein: Yes. It was covered in both The Sydney Morning Herald and The Australian; and the Grattan Institute’s Back in Black report. Which offered a number of ideas – some of which would be described by Sir Humphrey as “courageous”. They were highly skewed to the revenue side. In their report, they put up a chart that showed taxes across the OECD. The clear implication was that Australia is a low tax jurisdiction. It’s just not so. I think the number they said was that the average tax rate across the OECD was 28 per cent and Australia was 25 per cent. But when you add in all the other state and territory taxes, and account for superannuation, which other European countries tax for but we take off budget, so to speak, our tax rate is over 40 per cent across the three tiers of government. That puts us in the Scandinavian territory. At least the Scandinavians have efficient and effective government. We have three tiers of confused, overlapped government. I’m not sure that Australia’s national competitiveness can withstand much more taxation.

Sam Crosby: I agree to an extent. We’ve got a trillion dollars in debt and deficit in this country. It’s crazy. How are we going to repair that? You can’t – as Joe Hockey famously said – do it one cycle. You remember when he was opposition shadow treasurer, and he said, “We’ll have a budget surplus year one, and every year thereafter”, and then proceeded to deliver none? It’s rubbish. I think we’re going to have it do it over time, and it’s going to be a generation job to get over this debt and deficit emergency. As Tony Abbott described it before the Liberal government doubled it before Covid and then doubled again during Covid. But it’s going to be a long run.

Question: What is an example of a when a government has designed a market well?

Sam Crosby: On the housing market, it’s important that government housing policy is fundamentally a feature of a democracy. To have house prices level off, to grow slowly but not to collapse or explode, you need, in Sydney, about 50,000 new homes built every year. Any time that government gets close to 50,000 homes each year, everyone freaks out, everyone complains to their local member and says, “This is crazy, you’re building properties in my backyard.” And whoever the government is, they’ll come along, and close that argument down. So, you’re right, it is a feature of various governments, multiple governments at multiple levels. But it is also a feature of – unfortunately in this case – the democratic will of those people.

A government intervention that works? Off the top of my head, superannuation. I look at the United States that tears themselves apart every time someone talks about privatising social security or anything in that general space. It’s the third rail of American politics. We cracked that in the 1980s. That area, that sector, that part of the economy has grown and grown, and in doing so provided fantastic retirement incomes for a generation of people. So, I’d say superannuation.

Question: How are we going to get rid of the “Yes, Minister” culture?

Dimitri Burshtein: I had a chat with the infamous John Stone once, and he dates it all back to the Dawkins reforms of the early 1980s. It is like “Yes, Minister”. There was a famous episode where Sir Humphrey and Sir Arnold were talking about civil service accountability. Sir Arnold says, “This is why we rotate people every 2-3 years to stop this accountability nonsense”. Well, for anyone who’s had any dealings with the Commonwealth government, that is literally what goes on in Canberra right now.

If you’re dealing with any complex public policy issue with the Commonwealth – these things take time to explain. It’s almost like a bell rings after 2-2 ½ years; then it’s “Rotate”, and they hand over to somebody new with no handover, and you have to start again. I’m talking about people who are doing work in social housing. They’ve had these issues. One person would go to Canberra and they’d sit in a giant room with 30-40 people taking notes. They have to start from scratch every time. Lo and behold. How do you fix that? I don’t know. But I referenced Buchanan and public choice theory; you have to change the incentives. You change the incentives; you change the outcomes. If you reward for outcomes, you might get the outcomes.

Sam Crosby: There’s no question that there’s a reform piece that you spoke of that would be of great benefit to Australia. That said, I do want to defend the back of this public servant. I remember the Carr government introduced into police stations non-police admin workers. They worked in a whole series of police stations. I was only in the police portfolio as a staffer very briefly. But at that stage there was about 1,500 of them across NSW. They were a fantastic addition to the police force because they took over a lot of the basic administration’s laborious work, and they put the police officers back out on the street so they could be increasingly productive. And at a much-reduced rate. They weren’t getting paid the same wages that police officers were.

It’s easy to knock public servants. You go through their titles and you think “What does this guy do? This bloke’s doing nothing.” Then you think to yourself: well, hold on, the Pharmaceutical Benefits Advisory Committee (PBAC). That’s filled with public servants, health economists. What do they do? They’re delivering one of the best value for money pieces of purchasing anywhere in the world. Our pharmaceuticals are 30-40 per cent cheaper than anywhere in the world. That’s done largely by back-office bureaucrats. In every instance, it’s easy to attack them as a strawman and to attack them as an anomaly. But when you go through the lists, they have purpose, they have reason. I’m not defending all of them. But on the whole, I’m happy to defend what they do.

Dimitri Burshtein: I’m happy to defend what they do too. But the Commonwealth Department of Health and Aged Care has 6,000 employees. They don’t run one hospital, don’t run one aged care facility. How many of those 6,000 are necessary for the Pharmaceutical Benefits Scheme? Before Covid, the Department of Health’s annual report had a number of targeted outcomes. I’ll highlight two. One of them was pandemic management, one of them sports diplomacy in conjunction with the Department of Foreign Affairs and Trade. There were more people and resources allocated to sports diplomacy.

Sam Crosby: I’ll take the bait. Sports diplomacy; how imbecilic, how silly. I mean, what sort of a silly person comes up with that idea? Until you think, well, what do sports diplomats do? They get kids playing sport. Why do we want kids playing sport? So that we’re not paying for their hip reconstructions, obesity surgeries, fatty liver transplants. Why do you want kids playing sport? For the public health benefits that they will accrue over a lifetime. That’s why you want a sports diplomat.

Dimitri Burshtein: It wasn’t domestic sports diplomacy; it was international sports diplomacy. Again, it’s all a question of priorities and relative allocation. As we have seen the cost to the Australian economy of a mismanaged pandemic, I would have rather they had spent their money on that than sport in the South Pacific.

Sam Crosby: But here’s the thing. For years I played basketball because I watched Michael Jordan in the NBA. I guarantee you that my son wants to be a soccer star because he saw the World Cup. These ideas are ridiculous in the specific until you start examining why we have that position. Generally speaking, every government, Labor or Liberal, there is generally a reason why you might want something like that floating around the Health Department.

Question: What would you attribute as value if we’re looking at success in government? What does value look like? Is this the traditional type of measure that we’ve done on this as we always have? Or is there something different?

Dimitri Burshtein: I’ll start with a parallel universe. Imagine at the annual general meeting of BHP, the chairman gets up and says, next year we’re going to spend $40 billion, the year after we’re going to spend $50 billion and the year after that we’re going to spend $60 billion. And somebody puts up their hand and says, “What are we going to get from that?” And the response is, “It doesn’t matter. We’re going to spend $40 billion, more, more, more…” Imagine the reaction from the community; or shareholders.

We’re all shareholders. I completely agree with you. We measure government success the wrong way. We measure by how much we spend, not the outcomes or the outputs. Treasuries talk about outcome and output budget. It’s hard. It’s really hard, but if you don’t want to do the work, this is the problem. Which is why it’s easy for a media grab, for a prime minister or politician to get up and say, “I announce an extra $X million for this.” What are we going to get from it? It’s not relevant, we’re just going to spend more.

Sam Crosby: There’s that Bobby Kennedy quote about GDP that says we measure everything but the things that matter most. We can measure the value of childcare, but we can’t measure a mother caring for their child. We measure napalm in his instance, but not the externalities that bring peace. It is a great question, but I don’t have a good answer. Jim Chalmers is trying with his wellness budget. We need to experiment, and that’s why I like his Monthly article, because it’s experimenting with these big ideas. And we need people to do that big thinking.