Gillard's beautiful, unaffordable vision

He not busy being born is busy dying

– Bob Dylan

In 1979 – the year my family migrated to Australia – the nation was on the cusp of what Paul Kelly famously identified as 'the Australian settlement'. Kelly's powerful thesis, though controversial among historians, was that a new set of rules came to the fore around that time to replace an older set that had shaped the country for the eight decades since federation.

Out went the White Australia policy. Out went protectionism. Wage arbitration was well past its use-by date and even our love of Queen and country was transferred to Kylie and Jason.

The story of Labor's reforms in the 1980s and early 1990s is the story of the birth of modern Australia. The deregulation of the finance industry, the floating of the dollar, the cutting of tariffs and the establishment of enterprise bargaining allowed Australia to take its place in a globalising, free-market economy.

The Howard years continued in a similar vein. Hawke and Keating had stolen much of the thunder, but further reforms were needed – the GST and first wave of IR reforms (not the later, infamous WorkChoices), and substantial personal income tax cuts. Okay, both Labor and a prospective Coalition government will come to rue that last one, but it seemed like a good idea at the time.

And now, all these years into the Australian settlement, we're in a seven-month election campaign which has all the appearances of being another turning point.

In a stirring speech to the AWU conference last night, Prime Minister Gillard made it quite clear that Labor thinks the settings are about right, and Opposition Leader Tony Abbott's vision for our future is all wrong.

Despite Australia being uncompetitive in so many sectors of the economy, Gillard told the union audience that Australia's future lay in "being strong, being smarter" and "getting work pumping through the workshops, the factories and the offices now."

Crucially, Gillard argued that Labor's key differentiator from the Coalition was that "we cannot embrace an agenda of cost cutting and wage reduction as our future".

Labor's pitch to voters will be that there's no need to slash the budget and allow industries such as food processing and steel production to fall apart under the resources-boom-induced high dollar.

All we need do is seize the moment, give innovation a shot in the arm via the new Plan for Australian Jobs policy, boost education and training, and start doing things more efficiently via the high-speed data channels of the NBN.

It is a coherent, attractive vision, but the real question is whether such a plan could take effect before the last factory and office have boarded up the windows and the workers have pushed their barrows north to dig iron ore for China.

Certainly our fiscal resources cannot sustain the pattern of subsidies and interventions Labor is planning without racking up a much larger federal debt. Government bonds still enjoy a AAA rating, with net debt hovering around 10 per cent of GDP. But can we afford to shuffle further out along this limb to 15 or 20 per cent of GDP? And where exactly do we stop?

The Greens will today call for a full Senate Inquiry into the bungling of the mining tax formula that allowed attractive investment depreciation terms to scotch any prospect of raising revenue from miners when the federal budget needed it most. Yes, Treasure Swan is right to argue that in the long term revenues will flow from any future booms. But we needed that money now, and the super-profit phase the MRRT was supposed to skim the cream off is already over. Spreading the wealth of the mining boom has been a failure.

Meanwhile, the Abbott vision, while not as extreme as Labor will attempt to paint it, carries a heavy subtext of the two things Gillard identified – cost cutting and wage reduction.

The Abbott team will be extremely careful between now and September 14 to minimise any talk of IR 'flexibility' leading to lower wage outcomes, or the fact that public service cost cutting does, in fact, involving throwing Mum, Dad, cousin Jim and Aunt Ethel out of work. That just sounds bad.

And yet any business-minded person who spends time in China, or any south east Asian economy, comes home with a visceral understanding of the fact that there are literally billions of people ready to make what we can make, with costs cut to the bone and wages just above subsidence level.

Labor's vision – in which we don't try to compete on labour costs, but rather in better management, IP and smarter use of capital and technology – is far preferable to watching real wages fall in the decades ahead. But then how will we afford to do this?

Based on all the policy indicators so far released or discussed by the Coalition, a Abbott government wouldn't get a chapter in a forthcoming Kelly book for establishing a 'new Australian settlement'. However, if Abbott is elected, his government is likely to be the beginning of a quite unpleasant process – learning to live within our means.

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Re-election in the west is easy. Be an Obama and pander to the 47% who pay no taxes, give citizenship to those who arrived illegally and make sure the powerful have tax cuts. Basically bread n circuses for all (Gillard's beautiful, unaffordable vision, February 19).
Gillard will offer the same. NDIS, billions on education when the last few billion of the same did nothing in terms of international rankings.
Fleece the middle class to prop up the army of spongers. They vote and there's more of them.
If you are not going to compete on labour unit costs, you need to fully or almost fully automate, in order to reduce the amount of labour required. That way the jobs get lost altogether (Gillard's beautiful, unaffordable vision, February 19).
When I studied undergraduate economics over 40 years ago it was clearly identified that international trade would lead to a normalisation of prices between two trading jurisdictions. Unfortunately that also means the price of labour.
The only way you can prevent normalisation of wage rates is through artificial economic barriers, but as water finds its way into a leaky ship, low wage rates will ultimately penetrate whatever barriers governments and societies try to provide. The only way to remain competitive in an international trading environment is to be smarter and faster. Labour inputs into blue-collar activity subject to international competition will ultimately be priced out of the market, a situation which is quite evident both here in Australia and the US when the manufacturing industries have been hollowed out by international competition.
Of course politicians will lie and cheat their way back into office by promising the unachievable. The only areas where blue-collar labour can compete is in the provision of direct inputs into trade exposed industries where the price charged is competitive with international competition. This includes mining agriculture and possibly research and development provided we maintain our levels of educational achievement.
Unfortunately this is being eroded by political correctness in the education system and Australia is slipping down the international ladder of educational achievement. Unfortunately the only solution that Labor can provide is buying short-term fixes through long-term borrowing shifting the burden of maintaining its current political stance of redistribution at any cost to future generations.
The message is loud and clear, the country must learn to live within its means. If the country cannot produce enough resources to maintain its current standard of living within its current productive capacity, we must learn to live with less.
And of course who would be left to clean up Labor's financial mess, yet again, and take the unpalatable and very unpopular decisions to keep us sustainable in the longer term? (Gillard's beautiful, unaffordable vision, February 19). A "mean spirited" Coalition - like Newman and O'Farrell have been left to do - and thank goodness for them, or we would be well and truly down the gurgler like NSW and QLD.
Peter Matters - "just stop the rot of ever increasing expectations". Can you please tell the middle class with their hands out, the ACCI etc with their demands and the next line of Liberal mates who simply want to make the rich richer (Gillard's beautiful, unaffordable vision, February 19).
Why is this constant murmur about cutting conditions and wages only seem to involve those at the bottom of the heap (Gillard's beautiful, unaffordable vision, February 19). When are we going to see the CEOs and middle management take a salary cut or would that be too radical leadership! Do I hear you complain about the $300000 plus all professionals seem to think is their worth, often while performing only the simplest of procedures, anything challenging being referred to Specialists earning literally millions of dollars a year
While the top echelon continue to demand outlandish pay the Financial planners , Lawyers, Pharmacists protected by their own Professional bodies (called Unions if they are run for blue-collared) workers) expect annual increases, but still the call goes out for a more competitive Australia by blaming those at the bottom
I don't think Australia can do it - but NZ already has.
And apart from Auckland, most people there seem to be living within their means.
After working for a major tower crane company that was bought out by Malaysian interests, Australia's strength is in its ability to build a good product, not cut corners. (Gillard's beautiful, unaffordable vision, February 19). No matter how often they tried to take the construction operation to Malaysia to cut costs the result was a dismal failure, the quality just wasn't acceptable.
A successful camper trailer business on the NSW south coast tried to compete on costs by getting the units built in China and becoming an imported, their reputation for a good product was destroyed and they lost a lot of money on warranty repairs. With their reputation in tatters, they closed the doors, the quality product was lost to the market.
When the comparison of a quality product to a product for a price is made, the Aust product wins every time, manufacturing just needs to understand what it is they are selling, cheap or good?
Find a product where a cheap throw away is not an option and the Aust product will win every time.
Is this the best Labor has to offer, "be strong, be smarter"? JG and the Labor party need to look in the mirror and tell me how they have demonstrated this (Gillard's beautiful, unaffordable vision, February 19). What a sad statement coming from a bunch of pocket liners who pretend to play Robin Hood. Perhaps someone should ask how much renumeration they are rewarded to come up with statements like that!
There are lots of voices here calling for living within means (Gillard's beautiful, unaffordable vision, February 19).
But that does not necessarily mean cutting expenditure. The same thing can be achieved by increasing revenue, such as taxes. Howard gave us lower income taxes. Is it living within means? Maybe it was then, but not now. There is nothing wrong with increasing income taxes to the previous rates, or increasing the GST.
Do we sit on our bums doing nothing? Blaming Labor and blue collars for the problems. Yes, it would be good to bring our cost and price structure down, to be more competitive, but start with prices, not wages.
How long will the Coalition be able to cut wages, public service and other spending before they choke this economy completely? I can imagine they would like the US minimum wage applied to everybody, but it's not going to happen, or if it does, it's not going to help. Others will adjust. We have to identify and develop our niche products.
Labor has lately made lots of blunders. Many of them because they trusted others - they should have known better. They are also pre-occupied by infighting. Pretty sad. But doing nothing is not a very brave option. But that is all what we can expect from Coalition.
Tonight Barnett-McGowan Debate on WA State TV will have a profound impact far far away, the Government change in WA in 1983 preceded the Hawke Keating bringing all the changes you mentioned, including super (Gillard's beautiful, unaffordable vision, February 19).
If Mark Mc Gowan gives more ground tonight, Julia could be even more in trouble looking over her shoulder, for someone with different policies less influenced by ultra socialist hoot nannies.
Gillard's vision could hardly be described as "beautiful". Like a dutiful puppet Gillard tries to say the right things about "innovation" and "technology" to fool gullible voters. But it is clear to many that Labor's policies are all written by union hacks who are trying to divert more and more public money towards a privileged few (Gillard's beautiful, unaffordable vision, February 19).
Labor are anathema to wealth creation and a successful economy.
Abbott is likely to be elected, and the process of learning to live within our means is not going to be pleasant. (Gillard's beautiful, unaffordable vision, February 19). Abbott will also have to determine just what those "our means" are.
In the short term, things do not look too good. As Rob says, both the current Labor government and the prospective Coalition government will come to rue past tax cuts.
That a minerals boom would be of advantage to Australia was never a sure thing. During the investment phase, much money came in and was spent– but even then, not all the investment was spent here. An Australian work force assembled imported equipment and materials.
The production phase requires less labour, automation being the way to go. Wages form less and less of the costs and, as most ownership of the big producers is in foreign hands, the profits are mostly repatriated.
Abbott found it convenient to side with the owners against the government's original mining profits tax proposal at the time, and the revised tax has not produced much cash up to now. The reduced revenue from the revised tax will be a problem for Abbott as much as it is for the current government, as he too has to find funds for some pork barrel promises.
We do live in interesting times.
The most dangerous people in australia are the stupid voters who believe the promises of the lunatics in canberra (Gillard's beautiful, unaffordable vision, February 19). It is guaranteed that sooner or later people will have to face up to the truth. Australia's unions and labor have damaged and distorted the economy so much that an reckoning is going to be a very unpleasant surprise for all of the idiots who think that any truth comes out of the mouths of labor politicians and that of the union bosses. As Rob Burgess has stated, there are billions of people who work basically for subsistance wages.Be prepared for armegaddon.
Australia under Howard was following the US path of low tax regime, Abbott will follow his master and the low tax receipt from the rich will be made up by grabbing more tax from the least able to afford them. (Gillard's beautiful, unaffordable vision, February 19).
The Carbon Tax allowed the tax threshold to be lifted and exempted the ‘working poor’ from paying taxes. By abolishing the Carbon Tax, Abbott will revert all the concessions linked to that tax without making a single cent difference to the electricity bill we all have to pay.
There seems to be a distaste, or should I say a lack of understanding, about investment in education. In my MBA studies I clearly demonstrated that investment in education, particularly in tertiary education, has a 7-fold (i.e. 700%) return on investment.
For a confirmation of this one needs to look at countries that have valued education over the long term. Northern European countries, South Korea, Singapore etc. are shining example of what a better educated population can achieve. By contrast, the Iron Lady did not invest in the UK education system and their graduate in the period between 1980 and 1990 dropped by a full 3% along with a decline in GDP.
Gillard has a beautiful vision for a prosperous Australia, and not one that depends on lowering our standard of living in order to compete with countries in our region. That is the view of Tony and Gina.
Investment in education is the cornerstone to our future. Do we want to became like the US with low services, high unemployment and a sizable proportion of population in poverty, or do we want a future where all of us can live a dignified life? A vote for Abbott is a vote for a Tea-Party, Australian style.
" ... any business-minded person who spends time in China, or any south east Asian economy, comes home with a visceral understanding of the fact that there are literally billions of people ready to make what we can make, with costs cut to the bone and wages just above subsidence level." (Gillard's beautiful, unaffordable vision, February 19).
It is fairly clear that within 5 years we will see massive closures of Australian businesses, and massive job losses, as savvy businesses in rising nations market directly to consumers, and companies are forced to outsource even the kitchen sink to survive.
All that will save us are two things:
1. Innovation/technological superiority which cannot be copied, and a commitment to maintaining a lead position.
2. Controlled and deliberate outsourcing of jobs (by choice rather than because we have no choice left), combined with retraining in emerging jobs/careers/businesses that can actually thrive.
I don't know that any government appreciates the crucial importance of innovation in our economic survival as a nation, otherwise they would not have neglected research for so long.
It's going to be up to business leaders to accomplish the transition, as usual out of their own pocket.
I read these stories and quite frankly some writers need a good dose of caster oil to clean themselves out. (Gillard's beautiful, unaffordable vision, Feburary 19)
Daniel Gardiner (February 19, 12:26) spoke about the needy being 80% of the population. Check you stats before you make that assumption. I also hear the cry from these lefties that Abbott WILL cut wages. I haven't heard him say that, but I have heard unions make that claim. I would like to know how they came to that conclusion.
Dante Crisante (February 19, 2:31), haven't you been listening, Gillard has already lowered our standard of living, and plans to lower it further. We aren't competitive because it simply costs too much to produce in Australia. Also when you have collective bargaining in the workplace, there's no incentative to perform.
The same happens with our educated people. Because we are not competitive and other countries are, they attract our smartest to go and work for them. You will too Dante, if you get the opportunity, and why not.
Gillards vison is very hypothetical and unfortunately some of these opinions are hypothetical, or in other words assumptions.
Another point is this continued banter about the wealthy ($300k pa) and above. That's great, but did anyone have a look at what MP's get paid.
The fact is you can't give business money and expect them to be more innovative, if the way is not clear to succeed. Under Labor and the unions this will never be the case as our IR laws strangle business.
Labor doesn't have a vision - only unattainable fantasies. (Gillard's beautiful, unaffordable vision, February 19)
It seems that many are so blinded by their ideological bias that dashing toward a low-wage, low-security work environment seems to them preferable to having a well educated workforce working on the kind of hi-tech products and services that can't be easily outsourced to Asia. Unbelievable. (Gillard's beautiful, unaffordable vision, February 19)
There are many areas in which Asia does not excel that we could, if we just had the will and vision to do so.
Productivity is a term we need to openly and honestly discuss at every socio-economic level. Forget phoney class wars orchestrated by people with heavily conflicted personal survival agendas. One of the greatest gift past Governments gave us was an appreciation of the power of productivity gains. It doesn't have to mean slave labour, just some personal responsibility for one's destiny. (Gillard's beautiful, unaffordable vision, February 19)
It is with sad amusement that one reads some of the comments written to put australia back on the way to prosperity.Presently the smart people who graduate from uni go in to law,health services or become financial gurus,ceo's of companies,etc.. The labor government and the unions destroyed our manufacturing base and any competitiveness we may have once had against competition from an indifferent world.The politicians competed against one another bribing voters to get in to power,and so created the welfare state. The only innovation the australian's have so far been able to aspire to is chasing after balls of any kind(it's called sport), gambling and paying people not to work and to supply those with comfortable housing,pensions and medical services,etc. Prosperity has come from the selling off the australian land,mines plus anything foreign financiers deem worth investing in.With all political parties committed to the process of bribing the voters, there is no hope to reverse or halt the decline of australia's future. (Gillard's beautiful, unaffordable vision, February 19)
Mmmh Rob
They know that their goose is cooked (Gillard's beautiful, unaffordable vision, February 19)
"learning to live within our means."
No, no, no, no, no; again, again, again, 'You see, but you do not observe. The distinction is clear.'
Because Rob sees "… literally billions of people ready to make what we can make, with costs cut to the bone and wages just above subsidence level …" Rob presumes that such is the natural order, then foolishly assume that it is unnatural to have done better. (Gillard's beautiful, unaffordable vision, February 19)
Rob's "time in China, or any south east Asian economy" did not cause you to comprehend the impact of corruption. Tourism will certainly encourage corruption, which is already a very serious problem. Or, if corruption doesn't matter, why is it that rich Australians have been touristing to Bali for four decades without any visible social or economic benefit to the locals?
In Bali, it has been estimated that 2-10% of production costs is paid in wages, while 30% is paid in bribes. So if corruption was removed, not only could the workers' wages could be doubled but also the average enterprise would be more profitable.
Your time here has not caused you to comprehend that value of a centralised wage system. "... for a capitalist society the labour market is THE mechanism through which income is generated and distributed for most citizens …" Justice Henry Higgins in fact emphasised that point in his celebrated Harvester judgement.
Ruling class warfare against the 99% has been liberated from its post-war closet. Together, the moneybags and the media they own have neatly reversed the truth, to blame a Great Recession deliberately caused by their own greed onto the victims - the masses, now suddenly deemed to have a "Culture of Expectation".
No research money means diminished innovation (Gillard's beautiful, unaffordable vision, February 19).
The Lawyers and Union bosses of Canberra do not understand the vital need for Australian research. Thats why they keep cutting tax deductions for research.
Thats why good ideas invented in Australia go to America for funding, and ultimate production.
I just love it. The so called believers in free enterprise complaining about not getting enough of a tax rebate to do research and development, something any well run enterprise would do anyway (Gillard's beautiful, unaffordable vision, February 20). Equally if they actually come up with anything between complaining about not getting tax deductions and labor costs they won't want to pay any taxes on it either. Some free enterprise system hey!