Voters facing an incalculable choice between risk and the demons of uncertainty
IT is hard to avoid the impression that Julia Gillard is a prime minister in waiting – waiting to be dumped on September 14.
Though many may now regard her government as being in caretaker mode, Labor is still scrambling with whatever it has left to convince Australians it deserves a renewed term in Canberra.
With the voting public seemingly not listening to the Prime Minister any more, and the continuing malaise in opinion polls that has Labor wallowing around a 30 per cent primary vote, it suggests our citizenry gave up listening last year. Australians now have to weigh up the risk of placing the federal Labor government back in power.
As American author and statistician Nate Silver recently noted in his bestseller ‘The Signal and the Noise’: “Risk greases the wheels of a free-market economy; uncertainty grinds them to a halt.”
Silver made his name predicting election outcomes; he also made a lot of money playing professional poker. As he states: “Risk is something you can put a price on. In the long run, you’ll make a profit from your opponents making desperate draws with insufficient odds.
“Uncertainty is risk that is hard to measure. You might have some vague awareness of the demons lurking out there. You might be acutely concerned about them. But you have no real idea how many of them there are or when they might strike.”
This is the problem confronting Australia right now. Business and consumers are reluctant to put a price on risk, preferring to avoid making decisions. Yet the taking of risk and reaping the associated rewards lies at the heart of our modern economy.
While the nation’s economic outlook is still in a relatively favourable position, and the metrics are working well in the government’s favour, business and consumers are uncertain, preferring to save and not spend. This is a major component of Labor’s dilemma: Australians not taking calculated business and consumer risks because, instead of the federal government providing certainty and predictability, it has presented a series of broken promises and seemingly out-of-control, ad-hoc decision-making.
Try to name any recent major policy initiative that has not been sent down a path of most resistance, where stakeholders have been alienated, supporters confused and the ultimate outcome is political chaos. From a long list – including the mining tax, superannuation, supposed refugee solutions, media legislation, anti-discrimination laws, even the latest Gonski funding reform, cutbacks to higher education – the outcome is so often the same: inconclusive.
A highly revealing story that Joe Hockey told recently is that of an encounter with a highly successful Australian businessman, and $200 million he has and wants to invest. As the opposition’s Treasury spokesman tells it, this man’s business is multinational, the same operation either side of the Pacific.
In the US, his gross annual labour cost is $85,000 a worker. In Australia, it is $130,000. His US energy bills are about $25m a year. In Australia, they are $40m, even before a carbon tax component of $12m. Where does he place his $200m? While the outcome appears obvious, thankfully, for the sake of Australian infrastructure and employment, that decision has not yet been made.
Consider the politics. What our businessman is doing is calculating risk – or at least he wants to, but calculable risk is fast becoming incalculable uncertainty.
The financial reward for risk-taking has diminished with higher costs and higher taxes on profit and income, which penalise success. After all, our federal government has declared war on individuals because they are billionaires, and on miners because they are profitable.
There is another factor. The global bailout by governments of financial institutions, and of some corporates which were deemed too big or too important to fail, has effectively removed one of the disciplines of the system of risk-taking. It has undermined the risk calculus.
At present, Gillard cannot seem to understand why Australians do not give her government the credit she believes that it deserves.
Economic success is a finely balanced act. The government trumpets the example of the AAA rating our nation enjoys from the three acknowledged ratings companies. We are one of only eight nations in the world with that status.
But the decision to abandon a budget surplus this financial year, and the prospect that surpluses in the forward estimates will become deficits, places an enormous risk on the nation’s credit rating. At least one of the agencies has warned that a genuine return to a surplus path must be evident in next month’s budget to prevent a downgrade.
It is instructive to note that the last time Australia had a perfect AAA score was when there were only two ratings agencies, in June 1975. Anyone who remembers the chaotic latter days of the Whitlam government, then on to its third Treasurer, could scarcely suggest it reflects stable times.
Just like that era, if the federal government believes that increasing Australia’s gross debt to more than a quarter of a trillion dollars, increasing debt every single year they have been in office and delivering four successive deficits (with more to come) totalling $172 billion has helped us obtain a AAA trifecta, then it could be hard to be taken seriously by international investors.
The current situation points to highly uncertain economic and fiscal times ahead. A major political question is, are Australians ready to take the risk?
Emeritus professor of history and politics at Griffith University, Ross Fitzgerald is the author of 35 books, most recently ‘My Name is Ross: An Alcoholic’s Journey’ and the political satire ‘Fools’ Paradise’.
The Weekend Australian April 27-28, 2013, Inquirer p 16