EDITORIAL: by Peter WestmoreNews Weekly
The challenge facing John Howard
, March 24, 2001
Even before the downturn in the Australian economy was recorded in the National Accounts figures for the December 2000 quarter, the Federal Government was in deep trouble, following the Coalition's defeat in the WA and Queensland state elections, due to the disenchantment of voters in rural and regional Australia.
The economic downturn which took place at the end of last year should not have surprised anyone. A comment in this column last September pointed out that "the domestic economy is already seeing a slowdown in retail sales, an end of the Sydney building boom, linked with the Olympic Games, and an end of the home building boom, due to rising interest rates and the artificial surge which preceded the introduction of the GST".
To recapture the initiative, the Federal Government is now attempting to placate its alienated base of support by revoking the latest increase in the fuel excise, strengthening Australia's quarantine rules against Californian grapes and New Zealand apples, modifying the GST, postponing Mr Costello's plan to tax family trusts like corporations, and bringing forward major road construction projects for regional Australia.
It has also offered substantial incentives to first home builders, in an effort to restart the home building industry.
More is apparently to come, with tax cuts foreshadowed for the next Federal Budget. All this should eliminate the previously foreshadowed Budget surplus.
While all this activity amounts to a reversal of direction, it is not clear that it will be sufficient to save the Coalition Government.
It faces three challenges: one internal, the other two external.
History tells us that some governments reach a point at which nothing they do or say can rescue them from certain defeat. The McMahon Government reached that point in 1972, the Whitlam Government in 1975, as did Paul Keating's in 1996.
The dark mood which hangs over rural Australia has been caused by the Government's imposition of National Competition Policy, deregulation of primary industries such as dairying and sugar, Government acquiescence in the closure of bank branches, second-rate communication services, declining levels of health services, high fuel costs, and other factors which have accelerated the drift from the land.
Ministers and their officials responded with sympathetic words - just as they presided over the decline of Australia's manufacturing industry - saying that this was part of a global trend. (In fact, the motor vehicle industry thrives today only because of large-scale government commitments, originally by the Hawke and Keating governments, confirmed by Mr Howard, to maintain an Australian motor industry.)
While the Federal Government has undoubtedly removed some of the more abrasive elements of its policy package, its commitment to the economic theory of globalism - the view that universal prosperity will be maximised by the removal of all barriers to the movement of capital, goods and services - remains undiminished.
The latest idea floated by the Prime Minister, of a free trade pact between Australia and the United States, flies in the face of the massive subsidies which the United States offers its primary and secondary industries.
Such a pact would leave Australia even worse off than becoming the 51st State, where we would at least benefit from the massive subsidies that American governments give their industries.
Jonathan Tolman, an environmental policy analyst for the free-market Competitive Enterprise Institute in Washington, commented that the US Department of Agriculture's own figures show that "farm subsidies cost [American] consumers $US11.7 billion ($A23 billion) in taxes and higher food prices" every year.
Disenchanted Coalition voters know that while Australia has gone down the free trade road, comparable countries such as the United States, Japan and Western Europe, have done the opposite.
Despite the talk of trade liberalisation, agricultural subsidies in each of these countries have soared in recent years, and restrictions on the import of both primary produce and manufactured goods remain in place.
The other difficulties facing the Government arises from the threat of a global economic downturn, and the collapse in the value of the Australian dollar caused by Australia's ballooning foreign debt.
The US stockmarket boom appears to be over, and the disquieting signs that this decline will spread to the real economy - where things are actually produced - has led to a significant cut in official US interest rates.
At any rate, the collapse in the value of the Australian dollar will lead to higher import prices, which will affect prices paid for everything from fuel and food to motor vehicles and computers. This will spread the current disaffection from rural areas and small business right into the cities.
Until the Federal Government adopts a comprehensive policy to address the underlying causes of the foreign debt crisis, to assist the development of import-replacement industries, and to encourage the growth of small and medium businesses, as well as farming, band-aid policies will do little more than paper over the cracks.