Why Labor should have made equality a key budget figure.

The Budget comes out on 13 May, and when it does, one thing is for sure. Everyone will get in a flap and a lather over the wrong things.

The Budget is a whopping lump of documentation, and many of the people sent to cover it are inexpert in matters fiscal.

So at the end of the day, an inordinate number of stories will be simply about “the deficit.”

It’s one of only a few simple numbers in the whole Budget. Earnings minus Spending, delivering a binary result: Surplus/Deficit. Good vs Bad. It’s quite graspable.

But it is very hard to find experts that care about each year’s budget deficit. (1, 2, 3, 4.)

Forecast deficits are more important, but the actions that need to be taken to get the ship in order long-term are often counter-productive if you want a surplus ASAP.

Stressing over one year’s budget deficit is akin to stressing about the score in a five minute period of a game of football. Sure, the end result is made up of periods just like this one. But experts understand that the game turns over a longer period than just five minutes.

Sometimes you are kicking into the wind, and a deficit score can be okay. Sometimes you run a deficit on purpose, to prop up the economy or grease the wheels of reform.

Raising funds to cover a deficit is easy and cheap at the moment.

Headlines that scream Deficit! and Surplus! – complete with a cartoon of a treasurer either pulling out his pockets to show they are empty, or otherwise evilly grinning and hoarding cash – would be better spent focusing on what matters.

The way to train people’s focus onto certain matters is to measure and report them.

“If you can’t measure it, you can’t (media) manage it,” as they say.

Labor had the opportunity to remake the focus of the Budget, but lacked the foresight.

They could have put the budget balance in size eight font and tucked it away down the back. Obviously you can’t take away the food bowl and expect the media to sit there wagging their tail. You’d need to give them something else.

When in power, Labor could have chosen any number of other measures to make the focus. Productivity, the need for tax reform to fund the NDIS and Gonski, composition of revenue, efficiency of government service delivery broken down by department, or even equality.

Politically speaking, this last one might have been quite useful.

The Australian economy has been characterised by a fall in the compensation of employees (COE), relative to profits.

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The National Accounts, from where these graphs come, note: “The profits shares recorded since the late 1980s are at a distinctly higher level than those reported at any time since 1959–60.”

I do not suggest that at the moment there is a crisis in equality in Australia, but I suspect many people think Australia could do better. And there is a choice to be made as Australia equips itself with policies for the next decade. Do we want to be Sweden or America?

People realise policies that promote freedom and small government can lead to inequality of outcomes. Mostly they accept that, until the inequality is bad enough to undermine the society expected to enjoy that freedom.

In the US, inequality is so bad that Walmart now is forced to declare as a material risk to its earnings, any changes to  Government welfare cheques that would further impoverish its customers. (from the Wall Street Journal).

It’s hard to have a mass market business if the mass market is so poor. And in America, the focus of inequality is no longer on the 1 per cent but the 0.01 per cent.

The evidence is not finalised but much of it is pointing in one direction – rules that promote equality inside a market economy are correlated with happier people. The Labor party has as its assistant Treasurer a man who authored a lot of the research on inequality in Australia, Andrew Leigh.

The Budget is the best time to try to introduce a new concept or issue into the economic debate, because that is when the greatest number of Australians are paying attention. Using the budget to shape the environment in which economic policy is played is going to yield better long-run outcomes than playing another round of The Deficit/Surplus Game.

Even if the other side gets back in and removes that statistic from the Budget, the public – by then attuned to expect this data – gets the sense the new team is hiding something.

If the Coalition wants to be smart, they can pick a concept (assuredly not inequality, but perhaps labour productivity, days lost to industrial action, rising health spending or a measure of how free Australian markets are) and use that as a central theme.

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

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