Date created: 28 November 1996

Last modified: 18 November 1997

Maintained by: John Quiggin

Kennett capitalises on guilt-edged insecurities

March 25, 1996

By calling the election so soon after the massive defeat of the Keating government, Jeff Kennett is obviously hoping to capitalise on the unpopularity of Federal Labor. However, Kennett is running primarily against the Cain and Kirner governments, the 'Guilty Party' whose spendthrift socialism and interventionist schemes emptied the State Treasury and ruined the State Bank. In reality, Cain and Kirner were little more than confused and passive bystanders. The real damage was done by the Howard-Keating deregulation coalition, of which Kennett is an active supporter.

The failure of the State Bank was due to too little intervention, not too much. The Cain government swallowed whole the orthodoxy of financial deregulation, as advocated by Howard and implemented by Keating. Cain was told to leave the banks alone, to let them participate in the glorious new world of competition, and he did so, not reflecting that the taxpayers of Victoria would pick up the tab if the billion dollar loans went wrong. Exactly the same thing was done at the national level, and even bigger bad loans were made by the major national banks, all of which were guaranteed by Australian taxpayers. The only difference was that the major national banks had a large and well-established retail base, which could be made to absorb the losses, while the rapidly growing State banks did not, and therefore had to call on their guarantors. Few of the people who now criticise Cain and Kirner had anything bad to say about Tricontinental in the days when it was flying high.

The spendthrift image is also exaggerated. As a percentage of GDP, Victorian state government spending was virtually constant under Cain and Kirner. The central budgetary problem facing the Cain-Kirner government was the remorseless cut in Federal government grants to the States under both Howard and Keating. The savings from reduced payments to the States were used to finance cuts in top marginal tax rates and a relatively openhanded attitude to the Federal government's own-purpose spending, notably in Defence. The States were expected to make up the loss by cutting spending in areas like health and education, or to replace the revenue from income taxes with regressive and inefficient taxes such as payroll tax.

Cain and Kirner were unwilling to implement the Howard-Keating agenda, but they were also unwilling to do anything to resist it. In fact, judging by their subsequent statements they still do not know what hit them. The only politically feasible option for a State government in their position was to attack Canberra as hard as possible, but Cain and Kirner were restrained by misguided party loyalty. Instead, they juggled their finances until they ran out of money and political credibility.

Jeff Kennett was eager to implement the Howard-Keating agenda, slashing spending across the board and raising taxes and charges. Occasionally Kennett and Keating have engaged in some public pointscoring at each other's expenses. But behind the posturing, there has been plenty of evidence of mutual admiration between the two leaders and even more between the State and Federal Treasuries.

At the microeconomic level, Kennett's record has been mixed. There are certainly some positive elements. The Kennett government's record in using the proceeds of privatisation solely to pay off debt can be favourably contrasted with the behaviour of Federal governments of both parties. Casemix funding is, at least in principle, an improvement on traditional systems of hospital funding. On the other hand, the sale, to private interests closely associated with the government, of a monopoly on gambling is a revival of abuses that went out with the Stuart kings of the 16th century. Private toll road deals such as CityLink, condemned in the recent EPAC Task Force Report on Private Infrastructure, are little better. However, the microeconomic agenda is of little importance in comparison to the basic issue facing voters; whether or not to accept a continuing decline in the quality of community services at the State level in order to fund Federal tax cuts. When faced with this choice in opinion polls, the majority of people have indicated that they prefer higher taxes and better services.

The incoming Federal government has signalled that it intends to carry on the policy of its predecessor, cutting payments to the States in order to deliver its pork-barrel election commitments and preserve Federal own-purpose spending. A re-elected Kennett government would undoubtedly assist in the implementation of this agenda. Voters rejected Keating at the recent Federal election because his policies failed to deliver any improvement in living standards for ordinary people. The same judgement can be made on Keating's Victorian ally.

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