The problem with democracy

STEPHEN MILLS
Last updated 07:06 27/11/2013

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OPINION: In 1947 Winston Churchill famously declared "it has been said that democracy is the worst form of government except all the others that have been tried''. It would take a brave person to disagree with him.

But then he had not seen how hard it is for elected Governments now to undertake even the most necessary reforms if those challenge major business interests or impose any significant cost or inconvenience on voters generally.

It is unlikely Winston Churchill  would have imagined that one day there would be a salary packaging industry.

Many Australians may not have known such an industry existed until 16 July when the newly restored Australian prime minister Kevin Rudd announced that the carbon tax would be replaced by an Emissions trading scheme (ETS) .

There was a cost to this and Labor was already in political trouble on a quixotic commitment to balance the budget. 

Rudd had to mute inevitable Opposition attacks and took the decision to meet part of the cost by requiring  users of company cars to keep a log to establish the use of the vehicle for business purposes. This only applied to new purchases, not to anyone currently driving a company car. The estimate was this would save A$1.8 billion over 4 years. Nobody seemed to contest the estimated saving.

Rudd was ending a generally acknowledged tax rort.

Paying for effectively softening the much disliked carbon tax by removing a tax rort on company cars seemed on the face of it a safe, if not popular political move.

But next day the highest selling New South Wales newspaper, the Sydney Telegraph, launched the counter attack with eight pages of big headlines attacking the change to the fringe benefits tax (FBT).  The scale of coverage was more appropriate for an outbreak of war.

Then the television advertising started up - millions of dollars  worth slamming the change not on behalf of business people misusing company cars but on a claimed 80,000 charity workers operating vehicles owned by charitable organisations.

There were certainly  valid arguments re the suddenness of the Rudd move and its impact on the fragile Australian car manufacturing industry. The critical point is that it was all but impossible for an elected political party to even begin to challenge a well-resourced business interest, even one hardly anyone had heard of.

That same lesson was clear enough for the ALP in 2010 when Kevin Rudd, first time around as Prime Minister, proposed  a mining tax.

On the face of it making mainly billionaire foreign owners pay more during a mining boom for the one off extraction of minerals from Australian soil seems to be the sort of move that would go well and polls did show at least a plurality in favour. But the  Government was soon deeply destabilised by  smashing  waves of industry advertising highlighting not the impact on the mining companies but the downstream consequences for Sydney waiters.

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There was a faint echo of this same playbook in New Zealand in March after Revenue Minister Peter Dunne proposed applying FBT to employer-provided car parks in the Auckland and Wellington CBDs. This was soon abandoned by the Government citing compliance costs likely to be larger than the revenue.  But a campaign from a combination of business, The UNITE union and advertising agencies threatening to run a pro bono campaign against the proposal would have concentrated minds.

In the standard practice for these campaigns attention was not drawn to inner city lawyers or accountants losing a perk but to more humble night shift workers. Matt McCarten, head of the UNITE union, claimed they would be forced to park outside workplaces and run the risk of assault and rape.  Peter Dunne never had a show.

Governments in democracies who want to be re-elected, especially with short electoral terms, have an even tougher job if voters are required to take on even small sacrifices.

Climate change attracts strong opinions but if those can be put aside and the political process dealing with the issue in Australasia examined, there can only be deep concern.

On this issue the stakes are clearly high.  An overwhelming majority of scientists with credentials on climate science warn of serious if not extreme consequences  if action is not taken to reduce human activity that leads to more carbon in the atmosphere. 

It is an issue where the time frame is, however,  all wrong for politicians seeking re-election. The politician is up against the double whammy of challenging business interests and imposing costs and inconvenience on voters generally. Today's politicians will not be around for any potential rewards from future generations of grateful voters.

Around 2007 public opinion seemed in favour of strong Government action in Australia and New Zealand. This was almost certainly a misjudgment by politicians but the Liberals promised an ETS in the 2007 Australian election. John Key's National party opposed the Labour-led Government's ETS but promised a watered down version. It is doubtful most in either party  really believed in what they were doing.

The opinion of scientists hasn't changed but as public opinion has ebbed politicians have moved. Australian Prime Minister, Tony Abbott,  who has described himself as a "weather vane " on the issue was soon pledging "in blood" to repeal the Gillard Government carbon tax. John Key's Government has taken every opportunity to back away from its own weaker ETS without any apparent political damage.

On complex issues such as climate change the policy responses should be decided by responsible assessment of evidence. Instead Government responses have been determined by assessment of voter opinion and campaigns that have undermined the science, created doubt and exaggerated adverse impacts.

Another example is meeting the costs of our rapidly ageing population. Unlike climate change this is much more easily understood by voters. The scenario of the proportion of the population over 65 growing rapidly and the numbers of under 65 year olds working to generate the tax revenue to pay for retirees shrinking and the consequent unsustainable impact on Government revenue is uncontested.

It should be a lot easier for Governments to act but little has been done.

Payments to the Cullen fund which was providing some pre-funding  for national superannuation was suspended by the current Government until the fiscal position improves. Labour went into the 2011 election promising to gradually lift the age of entitlement for national superannuation to 67 and to make Kiwisaver compulsory. Labour has now stepped back from a specific plan on the age of entitlement and National is completely hogtied by John Key's promise to resign  if his government changed the age of entitlement.

There are plenty of other Australasian examples where almost universal expert advice runs smack against the high political risks of reform - introducing a capital gains tax in New Zealand, saving the Murray-Darling river system in Australia, pulling back even a little on the middle class or even upper middle class welfare that emerged in both countries in the boom years before the global financial crisis. Any tax reform which has even a small number of losers is hard going.

There have been some moves to tackle the problems democracies have to deal with difficult political issues.

One proposal is for longer electoral terms. The logic here that governments can take necessary but unpopular measures early in terms and voters then forget by the next election is though not edifying.
Another solution is to pass political power to experts. The most obvious case of this is monetary policy with control passed to Reserve banks in many western countries. Governments have surrendered the power to print money to get the economy humming in election years.

More of this may happen in future in complex areas such as energy policy and maybe this will happen with climate change.

There is a possibility that an outcome of Coalition negotiations in Germany is that setting a minimum wage may be assigned to a commission of union and business representatives.

A bipartisan approach where the main parties agree to protect each other's back on difficult issues is another possible answer.  This is much harder in a multi-party system when more parties have to agree to give up potential political advantage.

Even if National and Labour now agree to a joint approach on a difficult reform what would stop New Zealand First or the Greens taking full advantage of the political opportunity.

There was a brief possibility of tackling climate change on a bipartisan basis in Australia in 2010 when Malcolm Turnbull led the Liberals before he was replaced by Tony Abbott.

Former Australian Prime Minister Bob Hawke has been advocating effectively extending the concept of a free vote for MPs to a wider range of issues (than conscience issues) with the result of the parliamentary debate accepted by the Government of the day.

Even in a two-party system it is difficult  for both parties to resist the political advantage. It is rare that the political gains and losses from bipartisanship on difficult issues are balanced.

There have been  tentative steps to take the politics out of superannuation policy in New Zealand after both main parties had been badly burnt in the 1980s and early 1990s.  The politics of superannuation in New Zealand in the last 30 years, however, also spell out how the temptations of political advantage get in the way of necessary reform.

The now well-established pattern is for Governments on the way out and desperate for a last-minute game changer to charge Oppositions with secret plans to change superannuation.

While certain to win, Oppositions desperate to avoid a last minute derailment, emphatically deny the charges. Sir Robert Muldoon panicked Labour in 1984 on superannuation provoking Geoffrey Palmer to magisterially and, as it turned out, wrongly respond that  he was spreading "rumours with malice".  Jim Bolger fell into the same trap when absolutely certain to win in 1990 . "No ifs, no buts, no maybes" he declared and then had to wear the consequences when his Government did change superannuation payments. John Key made a similar unnecessary pledge in 2008 to resign if he lifted the age of entitlement.

Here is how Bob Hawke's suggestion could work.

It is almost certain that a decisive majority of New Zealand MPs accept the need to change superannuation provisions to reflect the increasing ageing of the population.

It is less certain but a fair guess that there would be a majority of MPs in favour of a capital gains tax. There have been suggestions Bill English is a closet supporter.

Both these issues could be put to Parliament. The initial legislation on superannuation could, for instance,  be provided by the Retirement Commission. A full and open debate on these issues would almost certainly attract more attention than the usual running of pre-packaged party lines  Debate it fully and accept the result.  We would all be better off.

- Stephen Mills is the executive director of UMR Research Ltd.

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