Policy outcomes from the Federal election

The shifting political landscape

Although the media message is about a Labor landslide and an assured six more years in office, the outcome is more complex. The large parliamentary majority masks an 80-year slow decline in support for the two old established parties (and even the more recently-established party, the Greens). Labor’s vote was up two percent, but the Coalition’s was down by four percent.This shift in voter behaviour is neatly illustrated in this ABC infographic. Also the metropolitan/rest of Australia division, which correlates strongly with a schooled/unschooled division, is stronger than in any recent period.

That’s what the numbers show. The drivers of voters’ behaviour – association of the Coalition’s agenda with Trump’s MAGA, Dutton’s personal unpopularity, the absence of a coherent set of policies from the opposition, people’s fear of change in uncertain times – are all subject to speculation, until post-election studies are published.

The low primary vote for the old parties (Labor 35 percent, Coalition 32 percent) and the post-election tensions between the Liberal and National parties confirm the proposition that Australia in a slow transition from a “Westminster” two-party system to a multi-party democracy. Such democracies tend to be unstable in terms of representation, but comparatively stable and conservative in terms of fundamental policy directions.

The comparatively stable policy landscape

At this stage it appears that Australians have elected a government whose risk aversion has paid off politically. Although the government acknowledges the need to boost productivity, the probability of a Keatingesque reform agenda is slim.

The government is therefore likely to continue to prioritize reducing income inequality (manifest as the so-called “cost-of-living crisis”) and increasing housing supply, with incremental measures, rather than addressing structural weaknesses in the economy that have given rise to these problems.

Although structural reform should be on all policy fronts, the strongest opportunities are in tax reform. Economists across the spectrum acknowledge the need for tax reform to improve allocative efficiency, but are in less agreement about the need to collect more revenue.

The case for higher revenue rests partly on the fiscal requirement to balance revenue and recurrent outlays over the business cycle (oddly referred to as “budget repair”) and more strongly on the need to fund public services. Many government services in personal care and education are intrinsically labour-intensive, and do not share improvements in labour productivity seen in the market sector. Drives to privatize these functions have generally failed because of misaligned incentives and underlying market failures.

Within Parliament there is pressure for tax reform from independents (notably Allegra Spender), the Greens, and probably from some backbenchers. It would be unfortunate if differences in their views were to override the need to get reform on to the agenda. Similarly it would be unfortunate if lobbies were to push the government into ruling out specific measures. Such constraints thwarted the Henry reforms 17 years ago. There needs to be pressure on the government from all those with voice.

Although many on the left are critical of its slow progress. the Albanese government is dealing with problems in income inequality, both in terms of cash incomes and the social wage (particularly health care and child care). There is only so much governments can and should do about income inequality, however. The more serious problem, manifest in most prosperous countries, is wealth inequality.

Whereas a certain level of income inequality tends to drive markets towards increased national prosperity, wealth inequality can be self-perpetuating as Thomas Piketty demonstrated, denying young people equality of opportunity and sapping capitalism of its competitive vigour. It is hard to bring wealth inequality to the agenda because it’s not just about oligarchs: it’s also about taxation measures that reach into the middle classes.

While the re-elected Albanese government is likely to carry on the post-Keating, post-Hewson tradition of risk aversion, many impediments to its ambitious energy transition have been removed, particularly the possibility, even the high probability, of the election of a Coalition government dedicated to capping the expansion of renewable energy.

It’s not all plain sailing on energy, however. Changes in technologies and therefore in the relative costs of generation and storage are ongoing causes of investor uncertainty. The AEMO Integrated System Plan probably needs re-writing because the system that’s emerging is more distributed (and therefore lower-cost) than previously foreseen. That raises challenges of market design. Our energy transition will require a judicious balance of policies, stable enough to encourage investors, and flexible enough to deal with changing technologies and relative costs.

This is a condensation of my post-election roundup of May 10.