Australia has elected “daggy dad” Tony Abbott (his daughter’s phrase). Here the Labour leader show is in its last week, an asset sales referendum has thrust democracy on John Key and a question is posed about Bill English.
Set aside the beguiling ovine image of Abbott being dagged. The issue for Australia is whether he will dag the economy — that is, fix the public sector (the budget) and prod private sector productivity with regulatory reform.
That is the main issue for this country: how much less uncompetitive will Australia’s products be against ours over there as a result of Abbott’s policies? And related to that: how much he will do to revive the all-but-stalled trans-Tasman single economic market process?
The short answer, judging by his rhetoric, the Liberals’ modest economic policy platform and his low interest in this country, is not a lot on either front. Don’t expect a quick fix on dividend imputation and our expats’ access to social assistance. Do expect a climate change policy shift.
The longer question is whether Abbott will emulate his mentor John Howard and build up reform over time. Howard was underestimated, Abbott, too. Meantime, while Australian business waits to be surprised, it would far rather have Key.
Key has been underestimating, too: understating the democratic place of the asset sales referendum. He said last Monday: “We have held a referendum. It is called a general election”. That is, in Key’s mind, voters approved selling assets because he said he would and that promise was a high-profile campaign issue.
Actually, Key got a mandate to govern, not specifically sell assets. Opinion polls consistently found big majorities against selling. Key’s mandate was despite asset sales, not for them.
Key’s impatience reflects a discomfort in the public sphere. Deals (in private) get things done. Democracy (by definition public) is messy: the referendum will be a “waste of money”. When Key’s party legislated citizens referendums in 1993 it made them non-binding.
Democracy does waste money and time. A byproduct, Key neglects to add, is liberty.
Key said asset sales opponents will be more likely to vote than supporters. Not necessarily, if he campaigned hard for his case. But he could validly argue that asset sales are no longer a “third-rail” issue, one that kills a government. People disagree with much a government does but still agree it should govern. Asset sales are in this class.
But are they good policy? Are they good business? Do they tell us English — idolised by Australian business even more than Key — has business and finance acumen?
When it came to the point this year the government had three arguments: that sales would deepen the sharemarket and entice some small investors in (yes, to a limited extent), that private ownership would toughen up the management (marginal at most because the electricity companies have been well run) and that raising money for capital projects by selling assets is better than borrowing on global markets (actually, so far global interest rates have been low and the electricity companies have been paying good dividends).
So far, not a pass mark for English.
How has he gone on investment? He suspended contributions (till 2020) to the Superannuation Fund, arguing it was silly to borrow to invest.
That’s not how it has turned out. In the past five years, which includes the global financial and Eurozone crises, the super fund earned an average 7.4 per cent a year, well above the 3.16 per cent average Treasury bill rate and above the 6 per cent coupon interest on 2021 10-year government bonds. In the past three years the fund averaged 16.8 per cent (Treasury bills 2.6 per cent) and in the 2012-13 year it earned a stunning 25.8 per cent.
Also, the fund paid English $1.6 billion tax over the past three years. Had he gone on investing $2.5 billion or so a year he would have got even more tax. And the fund would have added to the $1 billion it has so far put into the local sharemarket, providing capital for business.
In December aiCIO magazine called it the world’s most innovative sovereign wealth fund.
There is an irony here: English’s wrong investment call (so far) on the super fund fits the National adage that politicians (and bureaucrats) should not play at business.
Moreover, the fund is a public, not a private, entity. Its success challenges the “private good/public bad” theorem which underlines one of the asset sales rationales. In fact, the public and private spheres are inextricably mixed. Voters know that. And they want the electricity companies kept public.
But the opposite “public good/private bad” theorem is no more convincing. The super fund itself has warned that the 2012-13 result is no guarantee of future success.
What it has shown is that dogma is a poor basis for decision-making.
Labour’s leadership aspirants, rediscovering ideological roots to nourish, might take note. So might the Treasury. Time for some dagging?