I'll vouch for vouchers to keep aid on track

Current legal aid funding arrangements are responsible for an industry that fails to provide quality legal services to clients.

Instead, taxpayer funds that should be spent on service provision are used to lobby government on issues that help feather the nests of those working in the legal aid industry.

Voucherised legal aid is one reform that could resolve these issues and bring competition to the legal aid sector.

Last week the Productivity Commission released an issues paper on access to justice.  Among the issues raised was funding models.  Specifically, the use of vouchers has been highlighted as an alternative way of funding legal aid services.

The proposal is certainly worthy of consideration.  Legal aid vouchers would solve a host of problems associated with the current flawed funding model.

Most obviously, vouchers would bring much-needed competition to the legal aid sector.  Currently, large pools of funds are created by the commonwealth and state governments in accordance with the national partnership agreement on legal assistance services and various other exclusive funding agreements and grants at each level of government.  These funds are doled out to a number of bodies that either provide services directly or fund other service provision agencies.

Many in the legal aid industry believe the goal of increasing quality can only be achieved with dramatic funding increases.  They're wrong.  It's not more government funding that will increase access to legal services — it's competition.

Competition puts pressure on service providers to think creatively about ways they can save money for their clients.

Encouraging the provision of more efficient legal services will decrease legal costs and increase access to the courts.  In 1936, the English economist William Harold Hutt coined the term ''consumer sovereignty'' in his famous book Economists and the Public.  This is the idea that goods and services in a market economy will only be produced where they satisfy consumer preferences.  This concept forms the basis for voucherised funding models in other areas, such as education.

Consumer sovereignty should also be given effect in the provision of legal aid.  The current funding model is not based on the preferences of those who actually use legal services, but on bureaucratic whim.  Rather than asking public servants to guess what consumers want, a voucherised funding model allows individuals to purchase legal services in accordance with their own preferences.  The current funding model is responsible for the creation of a cartel.  By funding particular legal service providers over others, current arrangements entrench a cartel backed by the state.

Choice for consumers would go some way to breaking the legal aid cartel, creating a more diverse industry consisting of hundreds of law firms and sole practitioners, all duking it in a battle for business.

This isn't just a matter of impoverished clients getting value for money.  It's also about state and commonwealth governments avoiding budgets in the red.

Over the last five years, funding to Victoria Legal Aid has increased annually at a rate of just under 7 per cent.  The average annual rate of inflation over the same period was 2.7 per cent.  That translates to a real spending increase of over 4 per cent a year.

And this isn't the only way that governments fund legal aid.  Both state and commonwealth governments also provide smaller grants to fund specific programs.

And there's a further benefit from voucherised legal aid.  Such a system would dramatically reduce the undemocratic efforts of particular organisations in the legal aid industry that use taxpayer money to lobby for policy change.

Here's a simple idea:  legal aid bodies should be providing legal aid services.  In reality, the provision of legal services is just one aspect of the work undertaken by organisations that get legal aid funding from the government.

Such work is usually described as ''advocacy'' work.  But that expression has been used to justify legal aid industry lobbying of government.  It's an appalling example of the government petitioning itself — government provides money to legal aid bodies that use those funds to lobby government.

Earlier this year, a number of community legal centres took it upon themselves to stridently argue in favour of former attorney-general Nicola Roxon's illiberal anti-discrimination laws.

It's not up to community legal centres and legal aid providers to drive a left wing agenda using taxpayer funds.  If lawyers at community legal centres want to lobby government over their pet issues they're free to set up private organisations that raise money through voluntary donations.

Under a legal aid funding model based on vouchers, consumers of legal aid would be completely free to choose their own legal services so long as those services met certain criteria.  Placing restrictions on the use of vouchers so they can only be used for legal assistance would be a big step in the right direction.

A voucher-based legal aid funding model would inject competition into the sector and improve the way that legal assistance is provided, while also making it less of a vehicle for leftist lawyers to lobby government.  The Productivity Commission should recommend such a model.

Energy costs continue to dog industry

Mysteriously, once the election was over, an OECD report with a Treasury official's input emerged indicating the carbon tax would need to be 10 times the EU rate and twice the $38-per-tonne level posited by Treasury to allow Australia to meet its 5 per cent carbon reduction goal.

Less mysteriously, the new government has abolished the ALP-friendly Climate Commission and started to dismantle the Bernie Fraser-headed Climate Change Authority and the Clean Energy Finance Corporation with its $2 billion a year in subsidies.

The OECD report indicates that unless the developing world also implemented a carbon tax, Australia would see considerable de-industrialisation, moderated only by a retreat into an illegal protectionist regime.  And the competitive pressures would further intensify if, as appears likely, Japan, the US and other OECD countries also reject a carbon tax.

This is contrary to the official Treasury line that we need a price on carbon now, that the longer we wait the more painful the transition and that the costs will be trivial.  Treasury secretary Martin Parkinson would have known of the report's findings months ago.

A different dimension is offered by Environment Minister Greg Hunt, who maintains that it will be easier than he thought for Australia to meet its carbon reduction goals because we are seeing lower demand for electricity.  Last year, electricity supply from generating plants (other than subsidised small-scale supplies, mainly rooftop photovoltaics) was down 1.5 per cent, and is now about the levels of 2009.  But this lower demand is a result of penalties on carbon emissions.

The carbon tax alone raises wholesale electricity cost by about two-thirds, increasing final household customer cost by about 15 per cent.  The demand response (elasticity) to a price increase is about 0.3 so the price rise from the carbon tax means a direct demand reduction of 5 per cent at the household level.

The price-induced reduction in demand from energy-using firms is greater.  Smelters and other high-energy-using production migrated to Australia after the 1970s oil shocks made these activities prohibitively expensive in Japan.  The electricity industry reforms and privatisations 20 years ago further enhanced Australia's relatively low-cost structure.  But risks of carbon taxes and the progressive tightening of the renewable requirements noose have gradually reversed the competitive edge Australia once enjoyed.

The carbon tax was a factor in Ford's decision to close, but the sharpest effect is on industries where energy looms large as an input cost.  Energy comprises over 30 per cent of aluminium smelting's costs, and the industry uses 13 per cent of electricity production.  Energy taxes are causing the industry to pull out of Australia.  Kurri Kurri in NSW was closed last year, while owners of two of five remaining smelters have announced production cuts and the commercial viability of a third one is under review.

In this respect, even if the carbon tax legislation is repealed, the subsidies to wind and photovoltaics remain through the 20 per cent Renewable Energy Target.

Aside from undermining the commerciality of lower-cost fossil fuel-based generators, by 2019 these subsidies will raise the average wholesale cost of electricity by 40 per cent.  Although less onerous than the carbon tax, the RET still undermines Australia's competitiveness in energy-intensive industries where our energy resources should make us world leaders.

If the carbon tax is repealed, Australia may well be jettisoning the insanity of going it alone with an extremely high impost in a world where few nations have any such measure.  But we still have the very costly RET and other subsidies to uncommercial power sources.  These and seven years of regulatory threats to the power industry have damaged our competitiveness and brought incalculable costs in terms of lowering business confidence.

Australia needs to reverse these threats to tap into the higher productivity that our energy assets provide.

Josh Frydenberg has special responsibilities reporting to the Prime Minister on regulatory reform and has outlined a skeletal deregulatory framework, based on rigorous review and incentives to bureaucrats.  This is designed to bring about lower costs, including energy costs, and higher productivity.  If successful this would boost electricity demand and reverse the decline following from regulatory-boosted prices.

Irrespective of its success, it is pointless and needlessly costly for Australia to meet emission reduction standards by watching production shift offshore.

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Freedom of speech means freedom to boycott

There's a saying you hear often in libertarian circles — a government big enough to give you everything you want is a government big enough to take everything away.

Consumer and environmental activists ought to start thinking about this too.

On Monday, the new federal parliamentary secretary for agriculture Richard Colbeck told The Australian that the government might ban consumer and environmental activists from launching secondary boycotts.

For example, in 2011 GetUp tried to organise a boycott of companies that were members of the Australian Food and Grocery Council because the council had said Julia Gillard's carbon tax would increase manufacturing costs.

The issue will be considered in the long-promised review of one of the most complex and problematic pieces of Commonwealth legislation — the Competition and Consumer Act 2010.

The Competition and Consumer Act is a 1,500-page behemoth of regulatory complexity.  It empowers Australia's most imperial regulatory agency, the Australian Competition and Consumer Commission.

First introduced as the Trade Practices Act in 1974, the act has been continuously expanded at the behest of consumer activists in and outside government.

Now it seems this labyrinth act is to be turned against those very same consumer activists.  And once again the Australian Government is threatening to drown free political debate in a sea of litigation and prosecution.

The Competition and Consumer Act currently exempts consumer and environment activists from its general ban on secondary boycotts.  Colbeck wants to remove that exemption.  The ACCC would then be able to take bodies like GetUp to court to stop their campaigns.

There's a technicality in here:  we're talking about secondary boycotts, not primary boycotts.

A primary boycott is targeted directly at a company which has done something offensive.  Don't like how a biscuit manufacturer operates, so you and your friends stop buying their biscuits?  That's a primary boycott.

By contrast, a secondary boycott targets the biscuit company's suppliers and consumers.  The aim is to punish the offending company by punishing those who the company relies upon.

The classic secondary boycott is the sympathy strike — where unions in other companies down tools in solidarity with aggrieved comrades.  Sympathy strikes were endemic in the old heavily-regulated Australian labour market.  Both major parties now largely agree that sympathy strikes ought not to be considered legally protected industrial relations action.

People get very agitated by secondary boycotts.  You can understand why.  They're indirect.  They're often pretty unfair — secondary boycotts, particularly in the age of social media, can be poorly thought-through, arbitrary, and capricious.

If you've spent more than a few minutes on Twitter, then you've seen the madness of crowds.

But, as uncontrollable and impulsive as consumer campaigns can be, it would be entirely illiberal to try to suppress them by force of law.

Consumer boycotts — primary or secondary — are a completely legitimate way to express political views.  Free markets aren't just a tool to bring about efficient exchange.  They are a dynamic ecosystem of individual preferences about what we want to buy and from whom.

And sometimes those preferences involve ethical judgments about corporate values.

Companies know this.  They know values sell.  That's why we're subjected to flashy social responsibility marketing campaigns.  That's why fair trade coffee exists.  That's why British Petroleum is now ''Beyond Petroleum'' and its logo is a pretty green sun.

It's only fair that consumers are lawfully allowed to respond in kind.  If that means unwelcome pressure on companies, well, such is capitalism.  Consumer preferences can be tough to navigate.  Messy as it is, political outrage is part of the push and pull of a free and open society.

I suggested above that consumer activists may have bought this partially on themselves.  To stop the Competition and Consumer Act from being absurd on its face, its drafters carved out exemptions for ''nice'' activists.  But doing so leaves the law vulnerable to the charge, made by the Tasmanian Liberal MP Eric Hutchinson here, that there isn't a level playing field between companies and their activist opponents.

Once we have accepted that the regulatory state ought to control and supervise everything we do in the market, it's no great leap for that state to control our political expression.

The Coalition's boycott proposal demonstrates again that the distinction between economic freedom and free speech is not always great.  Sometimes the way we spend our money is literally a form of speech.  (I've argued this before.  Take, for instance, the ban on David Hicks profiting from his memoir, or the O'Farrell government's crackdown on political donations.)

The Abbott Government says it wants to restore freedom of speech in Australia.  It has promised to partially repeal Section 18C of the Racial Discrimination Act.  This would be a good thing.

But if, at the same time, the new government imposes new restraints on how private civil society organisations can express their views, it will have done nothing to bring the cause of free speech forward.

Nothing to lose but your shibboleths

In the Book of Judges in the Bible there's the story of a battle between the Israelites from two different tribes, the Gileadites and the Ephraimites.  The Gileadites were victorious and captured the crossing points over the Jordan river to stop the retreat of the Ephraimites.  The Gileadites asked anyone trying to cross the river to pronounce the word ''Shibboleth'' (which is part of a plant).  Ephraimites couldn't pronounce the ''Sh'' sound.  Those who didn't say ''Shibboleth'' correctly were put to death by the Gileadites.

In the 3000 years since, ''shibboleth'' has taken on a broader meaning.  These days it is used to describe an opinion held by a group of people that distinguishes that group from any other group.

So, for example, until a fortnight ago it was a shibboleth of the left in Australia that Tony Abbott was ''unelectable''.

It used to be a shibboleth of big business in this country that an emissions trading scheme was a good idea.

And it's a shibboleth of the trade union movement that every boss is a bad boss and can't wait to either bully or unfairly dismiss employees.  The list could go on.

Abbott will have to overcome a few shibboleths as Prime Minister.  Probably the hardest will be those held by the bureaucracy he's inherited.  Here's five.

The Henry tax review should be the starting point for any tax reform.

The basic assumption of the Henry tax review was that taxes must increase to pay for more government spending, especially in health.  That might be the justification for tax reform when the Labor Party does it, but it shouldn't be a guiding principle for the Coalition.  Tony Abbott and Joe Hockey should start tax reform from scratch and they should use exactly the opposite assumption from that of the Henry review.  They should aim to cut tax, not increase it.

''Evidence-based policy'' should determine government decisions.

''Evidence-based policy'' is a theory sold to public servants by management consultants.  As with most things peddled by management consultants, it's a theory that's a statement of the blindingly obvious.  If you're going to pursue a policy, of course you should use evidence to determine the best way to implement that policy.  But before you implement policy you need to decide what policies should be implemented in the first place.  ''Evidence-based policy'' doesn't provide any guidance on how to balance two competing philosophical principles — for example how to balance the right to freedom of speech against a concern for those who might be offended by such speech.  Politicians and public servants like ''evidence-based policy'' because it allows them to avoid hard decisions.

The government can design markets

The prime example of the claim that governments can construct markets is the so-called ''market-based'' solution to climate change.  But the point about markets is that they come about organically via free exchange.  When a government sets the price of something or decides how much of it can be sold, that's not a market.  Politicians and public servants like describing government regulation as ''market-based'' solutions — it conceals what they're actually doing.

State governments don't matter in the modern Australian economy

This is a federal public service shibboleth that sadly both successive Coalition and ALP governments have encouraged.  Growing and vibrant national economies are characterised by a high degree of devolution and competition between jurisdictions.  Not so here where centralisation and uniformity have become the measures by which good policy is now measured.  Absent from the debate about productivity is any discussion of how competitive tension between the states can spur economic activity.

There's not a problem Canberra can't solve

There was one comment from the Prime Minister this week that was absolutely refreshing.  When Tony Abbott was asked about the allegations of match-fixing at soccer games in Victoria he said — ''I really don't think the Prime Minister of the day should be attempting to micro-manage sport and the conduct of sporting codes''.  One hopes Abbott will take that approach with all the other things the federal government currently micro-manages.

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Foreign investment is always a two-faced policy

Julia Gillard was right to say in the Guardian over the weekend that Kevin Rudd's last-minute criticism of foreign investment during the election was ''bizarre'' and cheaply populist.

But glass houses, meet stones.  Remember Gillard's attack on the 457 visa scheme?  It was announced on her Western Sydney safari as a way to put ''Aussie workers first''.  It was exactly the same cheap, populist economic nationalism she accuses Kevin Rudd of indulging.

Kevin Rudd's foreign investment stance was a policy burp expelled in the middle of the Rooty Hill debate.

It stunk.  It didn't fit very well with the wonky image that he had crafted over such a long period.  Kevin Rudd is supposed to be cosmopolitan, serious, worldly.  Not reactionary, populist, and parochial.

The politics of foreign investment in Australia has been rife with this sort of incongruity.

Australia has always been utterly dependent foreign capital to finance its development.

We're small, open, and desperate for other people's money.  We have more economic opportunities than capital to service them.

Luckily other countries have been eager to oblige.

But that luck usually goes unnoticed in the foreign investment debate.  The developing world would kill to have as much money knocking at its door as Australia does.  Poor countries obsess over how to attract foreign investment.

In the first half of the 20th century opposition to foreign investment within was a minority view held mostly by Labor's far-left base.  They were convinced that British financiers controlled the economy.

It was a fringe obsession.  Then in the mid-1960s, Arthur Calwell fatefully decided he could make political capital out of opposing foreign capital.

Robert Menzies and his treasurer Harold Holt did all they could to attract British and American money.

But Calwell had let the cat out of the bag.  On both sides of politics, the young blood that took over at the end of the 1960s reversed the foreign investment consensus.

In his important 2000 thesis, Christopher Pokarier points out there was a subtle terminological change in government documents around this time.  What had been described benignly as ''overseas investment'' became the faintly more sinister ''foreign investment''.  (Pokarier's thesis is available here.)

John Gorton was an economic nationalist.  Gorton's Coalition successor William McMahon introduced the first economy-wide foreign investment restrictions.

Labor's myth-making industry has cast Gough Whitlam as a cosmopolitan reformer open to the world.

But the central plank of his economic policy was opposition to foreign investment.

Where Labor supporters of the 1930s were angry about British financiers, Whitlam's intellectual backers were angry about American multinationals.  The story was the same — foreign money meant foreign influence — but Whitlam's supporters told it with a more scholarly and respectable veneer.

Whitlam ditched the outright xenophobia of his forebears and replaced it with the paranoid ''it's time to start buying Australia back''.

His government imposed the political control over foreign investment that we still have today.

When it returned to power in 1983, Labor did a partial reversal, jettisoning economic nationalism for market reform.  The big dramatic gesture was Paul Keating's 1984 decision to allow in foreign banks — those very same foreign banks Labor had railed so long and hard against.

The awkward contortions of today's Labor on foreign investment represents a clash between Gough Whitlam's economic nationalism — passionately held by the ALP for decades — and the shock modernisation of the Keating era.

The thing about market reform is that it leaves little room for politicians with bold nationalistic vision.  Nobody is going to win an election calling for more foreign ownership of Australian assets.  The Keating legacy is uncomfortable.  Labor has not removed Whitlam's foreign investment controls.  Nor has the Coalition.

Barnaby Joyce made headlines last week when he condemned an Indonesian government plan to invest in cattle farms in Australia.  As of today, Joyce is now federal Agriculture Minister.

He joins a long National/Country Party tradition of internal Coalition dissent on foreign investment dating back to John McEwen.

But like McEwen before him, Joyce is also a developmentalist — he wants state action to help build up rural areas.  As Christopher Pokarier points out, Australian development needs foreign capital.  You can't have one without the other.

The Liberal Party is trying to play both sides of the fence too.

Under Tony Abbott's new cabinet arrangements, the traditionally National Party-held Trade portfolio is now a Trade and Investment portfolio, and its minister is Andrew Robb, easily one of the most free market Liberals.  At his press conference announcement yesterday Tony Abbott made much of the Coalition's support for foreign investment.

But that support had some caveats — ''It's got to be the right foreign investment, it's got to be foreign investment which is in our national interest''.

The Coalition comes to office promising a crackdown on foreign investment, not a liberalisation.  The government intends to dramatically lower the review threshold for foreign purchases of farmland and to institute a register of foreign farm ownership.

Pro-investment rhetoric is no compensation for anti-investment reform.

The two-faced policy approach we've had since Arthur Calwell won't be gone any time soon.

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Report gives the truth about climate at last

The issue under public discussion is that human-related carbon dioxide emissions are causing, or will cause, dangerous global warming.

The issue is not ''is climate change happening'', for it always is and always has.  Nor is it about whether carbon dioxide is a greenhouse gas or not, because all scientists agree that it is.

Rather, the key question concerns the magnitude of warming caused by the rather small 7 billion tonnes of industrial carbon dioxide that enter the atmosphere each year, compared with the natural flows from land and sea of over 200 billion tonnes.

Despite well over twenty years of study by thousands of scientists, and the expenditure of more than $100 billion in research money, an accurate quantitative answer to this question remains unknown.

Scientists who advise the United Nations (UN) Intergovernmental Panel on Climate Change (IPCC) worry that a doubling of carbon dioxide over pre-industrial levels will cause warming of between 3 and 6 deg. Celsius, whereas independent scientists calculate that the warming for a doubling will be much less — somewhere between about 0.3 and 1.2 deg. Celsius.

Meanwhile, the scientific evidence now overwhelmingly indicates that any human warming effect is deeply submerged within planet Earth's natural variations of temperature.

Importantly, no global warming has now occurred since 1997, despite an increase of atmospheric carbon dioxide of 8%, which in turn represents 34% of all the extra human-related carbon dioxide contributed since the industrial revolution.

Few of these facts are new, yet until recently the public have been relentlessly misinformed that human-caused global warming was causing polar bears to die out, more and more intense storms, droughts and floods to occur, the monsoons to fail, sea-level rise to accelerate, ice to melt at unnatural rates, that late 20th century temperature was warmer than ever before and that speculative computer models could predict the temperature accurately one hundred years into the future.

It now turns out that not one of these assertions is true.  So who has been telling us these scientific whoppers?

The United Nations, that's who;  which is not surprising given that global warming long ago gained a life of its own as a mainstream political issue, quite divorced from empirical science — politics, of course, being what the UN is all about.

The IPCC has been charged with providing advice about global warming since 1988, publishing four major summaries of the scientific literature in 1990, 1995, 2001 and 2007 and with a 5th Assessment Report due on September 27th.  Press coverage indicates that this report will concede that many of the environmental threats attributed to global warming by the IPCC have hitherto been exaggerated.

Meanwhile, and starting in 2003, a new independent team of scientists has been on the climate job, drawn from universities and institutes around the world and called the Non-governmental International Panel on Climate Change (NIPCC).

In classic Green Team:  Red Team tactical management style, the NIPCC has the role of providing an alternative Red Team view of the science of global warming, acting as a sort of ''defense counsel'' to verify and counter the arguments mounted for climate alarm by the IPCC's Green Team prosecution.

NIPCC's next report — entitled ''Climate Change Reconsidered.  II Physical Science'', will be released on September 18th.

The report summarises many of the thousands of scientific papers that contain evidence conflicting with the idea of dangerous human-caused warming.  Considered collectively, the research literature summarised by the NIPCC shows that modern climate is jogging along well within the bounds of previous natural variation.

Faced with this reality check, it is not surprising that the UN apparently intends to tone down some of its earlier over-alarmist rhetoric.

Nonetheless, it remains the case that extreme natural climate events can cause great damage to both human communities and the environment.  The task ahead, therefore, is to fashion a national climate policy that prepares for and adapts to all dangerous climate events, whenever they occur and of whatever origin.

Automatic Number Plate Recognition erodes civil liberties

Governments are pushing harder and harder in their abuse of our personal information.  From blanket coverage with CCTV, to the federal attempt last year to introduce mandatory data retention, the Government is obsessed with infringing on our civil liberties.

The increasing use of number plate recognition technology by police opens a Pandora's box for abuse of power, mistakes and illegal disclosure.  In a society that values civil liberties, this is absolutely unacceptable.

As reported recently in The Courier-Mail, Queensland police are trialling Automatic Number Plate Recognition, recording about 25,000 registration plates a week.

Under ANPR, police use a sophisticated camera system mounted on patrol cars and GPS to automatically record your number plate and the location of your car.

Read on its own, this may not seem like a major intrusion into your personal freedoms.  Read into it a little deeper and the situation dramatically changes.

By recording your number plate at a certain time and location, police compile an extraordinary amount of data about you.  This includes your name, address, contact details, driving history and licence status.

And that's just the beginning.  Storing data regarding when and where you were driving allows police to readily identify many key aspects of your life.

If an individual has a detailed understanding of your movements, they can know if you regularly go to a certain pub or gym, who you visit in your spare time, when you've gone to the doctor or hospital, or even which groups or organisations you associate with.

Innocent people are increasingly being treated with suspicion due to the tiny chance that some offence may be committed.  This in itself represents a dramatic reversal of the onus of proof, a central principle that the law is designed to protect.

Last year alone, various government agencies were accessing the personal information of individuals at a rate of 800 times a day.

Number plate recognition technology is not new.  The technology has been around for decades.  Anyone who has used a toll road has been exposed to it.

It is also useful in ensuring a vehicle's registration is valid — the precise point of number plates in the first place.

However, what is not valid is exploiting the technology for activities which curtail our basic rights.

In Britain, it is estimated that 50 million cars are scanned each day using the technology.  That's an extraordinary amount of surveillance.

Combine that with the British Government's obsession with CCTV cameras and privacy is unacceptably restricted.

While the ANPR trial runs for nine months, Queensland police will store all of the data collected for more than a year.

The public should be uncomfortable police could be storing a record of everyone's movements.

Given police are unlikely to abandon any technology that gives them extra information, the logical next step is to adopt it and put it on every patrol car in the state, or even the country.

Everyone who values their privacy is right to be concerned about the uptake of this technology.  Especially when Acting Privacy Commissioner Lemm Ex states:  ''There is no provision in the Information Privacy Act for agencies to dispose of personal information when they no longer have use for it.''

The spread of this technology raises serious questions about what the next tool for government intrusion could be.

If this technology becomes the norm, government agencies will only attempt to open the privacy barriers further and further.

Our civil liberties are too important to allow these invasions of our personal rights to continue.

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New Senate might reform

The changing political configuration of the Senate could provide a rare opportunity to undertake meaningful structural reform of our increasingly dysfunctional federal system.

The problems affecting Australian federalism are manifold by nature with significant long-term consequences, and are generally recognised as such by most elements of the political spectrum.

Perhaps the most visible manifestation of a failing federal system is the prevalence of administrative overlap and duplication across levels of government, affecting the quality of policies and services in areas such as education, health, transport and welfare services.

Large federal bureaucracies have emerged with little or no service-delivery role, charged with enforcing policy standards and administrative procedures in relation to grants funding to large state bureaucracies.

This trend has not only led to an excessive size of government, with two bureaucracies intervening across different areas of policy, but to the creation of perverse incentives in which federal and state politicians blame each other for poor policies and unsatisfactory service standards.

Greater commonwealth involvement in state areas of responsibility has also diminished state policy autonomy, since more prescriptive policy and service standards are attached to federal grants comprising a growing share of the states' revenue pool.

This phenomenon increasingly deprives regional communities of a means of ensuring their preferences for state public services — and the taxes to pay for them — are being delivered consistently and effectively by state government administrations.

The previous federal government, particularly under the leadership of Kevin Rudd, placed great stock on the need to reform federalism, with particular emphasis on greater co-operation to ameliorate intergovernmental ''blame games''.

However, the Rudd federalism agenda, like many other agendas pursued by the former government, largely floundered over a six-year period.

Initial federal threats to take over public hospital networks were significantly watered down by state resistance, while the Council of Australian Governments process was lumbered with an overly ambitious agenda of regulatory centralism that failed to meet critical milestones across key policy areas.

In his 2009 book, Battlelines, Tony Abbott recognised the extent of our federalism problem, writing that ''increasing commonwealth involvement in areas of governments that were once exclusively the realm of the states means that the federation is broken and does need to be fixed''.

The general solution proposed by Abbott at the time was ''to give the commonwealth legal authority commensurate with its political responsibility'', which could have been interpreted as a call for a further centralisation of power.

It appears Abbott has now considerably softened his stance about a greater federal role in service delivery.

For example, immediately prior to last weekend's election, he said, ''the last thing any sane national leader would want to do is interfere in an area where the states are doing a perfectly competent job''.

Another element of the Coalition's more conciliatory approach to the states came in the form of a commitment to release a white paper on federalism.

The emphasis of the paper would be upon reducing functional overlap and duplication, with recommendations to be taken to the voting public at the 2016 election.

The unexpected changes to the Senate could provide the catalyst for meaningful alignment when it comes to federalism reform.

The Liberal Democrats, with their newly elected NSW senator David Leyonhjelm, have long supported competitive federalism, advocating the assignment of expenditure responsibilities and taxing powers back to the states.

The new Family First senator from South Australia, Bob Day, has long played a role in the Samuel Griffith Society, which is primarily dedicated to restoring the constitutional integrity of Australian federalism.

While the Palmer United Party website is light on detail when it comes to specific policies, its ''national policy'' supports ''a federal system of government and the decentralisation of power, with local decisions being made at the local level''.

It would not be unreasonable to imagine that, for at least the LDP and Family First senators, a desire to reverse the century-long trend of fiscal and regulatory centralism would rate as a high reform priority.

If other crossbench senators are of like mind, the Coalition could secure legislative passage, as required, for any white-paper recommendations that encapsulate shifting responsibilities to lower levels of government.

Many possibilities abound as a result of a Senate composition that has surprised many observers.  Repairing our broken federal system could be one of these, in which a conservative government and some classical liberal crossbenchers work together to restore a more traditional, and rational, assignment of federal and state functions and responsibilities.

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Scrapping the green empires

Now the hurly-burly's done and the people have resoundingly elected the Coalition in what Tony Abbott declared to be a plebiscite about the carbon tax, where to from here?

As well as terminating the carbon tax, the annual costs of which rise to $13 billion by 2020, and the $2 billion a year subsidy to uncompetitive green energy schemes, the Coalition has already announced $1 billion a year in savings from other measures.  These include the Cleaner Environment Emissions Reduction Fund, Carbon Capture and Storage, a pared-back Murray Darling water buy-back and ensuring renewables pay their own connections to the electricity grid as is the case with other electricity supplies.  Including its own Direct Action measures, the Coalition is budgeted to remain spending at least $1-2 billion a year on green subsidies.

Labor and the Greens left institutional bulwarks intended to make it difficult for a Coalition government to implement the policies for which it now claims a mandate.  Among these is closing the Clean Energy Finance Corporation's $2 billion a year in subsidies to uncommercial green ventures.  The CEFC's chief executive, Oliver Yates, has indicated that a mere change of government would not stop him throwing public money at the value-deficient projects the CEFC finances.  His chairwoman, multiple recipient of ALP patronage Jillian Broadbent, has however indicated she would consult with the incoming minister before the CEFC disburses further funds.

CLIMATE CHANGE GRAVY TRAIN

Doubtless other bodies set up to pursue the carbon emission restraint agenda will also seek to stay on the gravy train.  Among these is the six-member (none of them climate scientists) Climate Commission under Tim Flannery.  The commission, its eight-member advisory panel and support within the public service, has made increasingly hysterical claims about dire consequences that follow if we do not take immediate steps to curb carbon emissions, and, in effect, start to de-industrialise Australia.

Then there is the ''independent'' Climate Change Authority chaired by Bernie Fraser, whose members, including left-wing luminaries such as Clive Hamilton and John Quiggin, were hand-picked for holding views reliably in accord with those of the previous government.  In establishing the CCA, the Labor-Greens alliance left a poison pill specifying that unless advice to make a change is provided by the authority, the current inflation-indexed $24.1 per tonne carbon tax stays in place.  And the CCA has set out a timetable that it hopes will guarantee it a future well into the life of the next Parliament but one.

A NOT SO TRIVIAL SOP TO WIND LOBBYISTS

The government is also hostage to the partisan CCA in addressing the remaining elephant in the carbon-policy room.  This concerns the Renewable Energy Target's (RET) requirement that electricity retailers incorporate green energy, which is 3-20 times the cost of conventional energy sources, into their supply mix.  Having originated under John Howard as a trivial sop to wind lobbyists and green idealists, this form of electricity is now on course to impose $5 billion a year in damage to the consumers and the economy by 2020.  Ostensibly planned in its current form to comprise 20 per cent of 2020 electricity supplies, the actual 45,000 gigawatt hour target is more likely to be 25 per cent.  The RET raises the wholesale cost of electricity by some 40 per cent and undermines the natural comparative advantage of Australian consumers and firms in low-cost energy.  At the very least, the government needs to terminate any additional expenditures but the Spanish government provides some precedent for actually clawing back funding previously committed — often for 15 years — to these high-cost projects.

ALL SURPLUS TO REQUIREMENTS

Managing the various commissions and departmental agencies addressing carbon emissions programs are several thousand people, whose work is surplus to the new government's requirements.  These include about 1000 public servants from the former climate change department now embedded within the industry department.  That department also houses other green program managers and the 2700 strong CSIRO, dependent on climate change for a large proportion of its work.  Other agencies like Resources Energy and Tourism, Agriculture, Sustainability, Treasury and Foreign Affairs also have tumescent climate-change fiefdoms within them.

The Coalition will seek ways to neutralise the poison pills bequeathed by the Labor-Greens alliance if the Senate refuses to pass amending legislation.  One approach would be for the government to cut off funding of the CCA and CEFC, including funding for salaries.  The Greens have received advice that this may leave the government subject to legal recourse.  It would, however, be difficult for investors to argue that subsidised dependent expenditures in this area were made unaware that a new government would seek to unravel their funding.

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Teaching the public service to obey its new masters

Earlier this year, Tony Abbott promised there would be no ''night of the long knives'' if he won the election.

Back in 1996, John Howard dumped six departmental heads — one third of the total — immediately on taking his position as prime minister.  It was the biggest overhaul of the public service since federation.

Howard's one fell swoop is now legend.  With this act, he took absolute political control of the public service immediately — a public service that had worked for Labor for 13 years.

But his critics claimed the night of the long knives was destabilising.  Subsequent opposition leaders have rejected doing anything of the sort.  Mark Latham promised no public service upheaval on the eve of the 2004 election.  In 2007, Kevin Rudd left things as they were.

Abbott's promise no doubt was to reinforce that there would be nothing controversial about returning the Coalition to government.  Yet the new Prime Minister may end up regretting this promise more than any others.

Like it or not, the Westminster tradition — of a frank and fearless public service dispensing objective and politically neutral advice while unflinchingly obeying the elected government — has always been a self-serving fiction.

The tradition dates back to the British Northcote-Trevelyan Report in 1854.  Essentially, the idea is that public servants serve at the pleasure of the monarch, not the elected government.  Yet, at the same time, they are supposed to be nothing more than servants of their ministers.

No surprise then that there have been constant complaints throughout Australian history that the public service has pushed its own agenda.

The new government will be deluding itself if it thinks it can just seamlessly slot itself straight into the bureaucratic institutions of the previous government.

John Howard knew this better than any other new prime minister.  Howard had been treasurer in Malcolm Fraser's government two decades before he formed his own government.

Treasury has always been the most powerful department of state.  And Treasury has always been the most capable of wielding independent influence over politicians.

The new Treasurer Joe Hockey has been waging a Cold War against his now-department for the last year or so.  He is even going to bring in external auditors to scrutinise the methodology behind Treasury forecasts.

But once the political heat dies down, and the government gets on with the tedious job of governing, Hockey is going to come face to face with the ''Treasury view''.

The Treasury view is the institutional economic philosophy that governs Treasury advice.  For the first half of the twentieth century, the Treasury view consisted of unflinching support for balanced budgets and low inflation.

After World War II, Treasury was converted to Keynesianism, and the goal of preventing inflation was pushed aside for greater public spending.

The disastrous stagflation that resulted in the 1970s saw Treasury move towards free market economics, with an emphasis on privatisation and market reform.  In the 1980s and 1990s, academics were complaining that the public service had been captured by ''economic rationalists''.

But there were changes still to come.  In their book Shitstorm, Lenore Taylor and David Uren recount how at the end of the Howard years, senior Treasury figures secretly brainstormed a change in how the Australian government should deal with economic downturns.  Rather than relying on monetary policy to keep the economy above water, it would immediately enact massive Keynesian stimulus.

When Labor took over in 2007 just before the Global Financial Crisis, this policy revolution had its moment to shine.  Treasury's revived interest in Keynesian activism lined up with the interventionist instincts of Kevin Rudd and Wayne Swan.

Yet the interests of the bureaucracy and the interests of their political masters don't always line up so neatly.

David Kemp tells a dramatic story about Treasury's opposition to the decision to devalue the Australian dollar by 17.5 per cent in 1976.

Malcolm Fraser requested Treasury write an economic statement in support of devaluation that he could read in Parliament.  Yet the department sent back, churlishly, a bare, useless paragraph.  As Kemp says, this was extraordinary.  When asked to defend a policy it did not support, Treasury essentially went on strike.

So much for the Westminster ideal.

Still, such a public service strike could not happen today.  One reason is introduction of New Public Management — the reorganisation of the public service since the 1980s to make it more efficient, more corporate, and more responsive to its political masters.

Another reason is Howard's dramatic demonstration of political control in 1996.

The last reason is the rise of ministerial advisors.  This dates back from the Whitlam years.  Gough Whitlam wanted to avoid being controlled by conservative public sector mandarins, so he brought in his own people as an alternative source of advice.

Political advisors will be particularly important for the Coalition because new ministers — especially those without any previous experience — are vulnerable to capture by their departments.

Neil Brown's book On the Other Hand ought to be compulsory reading for new Coalition ministers.  Brown joined Malcolm Fraser's ministry at the tail end of the government, and in his book he amusingly documents the experience of being a ministerial trainee up against the permanent, experienced public service.

Brown says the public service divides ministers into good and bad categories.  The good ones act on behalf of their department, approve their proposals, and fight for their department to get more money at budget time.

The bad ones are those who believe they are there to control their department, to scrutinise and sometimes reject its policy recommendations, and to do their own reading and thinking.

As Brown wrote, ''If a minister is regarded by the public service as bad, he might just be coming close to being what ministers should be.''

Tony Abbott will probably not renovate the upper stories of the public service as his mentor John Howard did.  But the first few months of a new government are critical.

If ministers like Joe Hockey don't push back against the institutional orthodoxies of the public service early on, they may find themselves unable to do so when it counts.

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The triumph of Tony Abbott

According to the conventional wisdom of just a few years ago, Tony Abbott should never have become prime minister of Australia.  The doyens of the press gallery had marked him as a right-wing throwback to a bygone era.

After all, Mr. Abbott is skeptical about alarmist claims of man-made global warming.  He is a former Catholic seminarian who opposes abortion and same-sex marriage.  His gaffes — he recently said a female parliamentary candidate had ''sex appeal'' — have provided fodder for left-leaning satirists.  He is an Anglophile, a former Oxford boxing blue and an unashamed constitutional monarchist who sides with America in the world.

Yet for all his evident shortcomings, Mr. Abbott led his center-right Liberal-National coalition to a resounding victory at the weekend, handing the Australian Labor Party one of its biggest defeats.  How did this political outcast win power down under?  And is he a role model for conservatives around the world?

To understand the momentousness of this weekend's election outcome, let's recall how the Liberals wandered in the political wilderness after Kevin Rudd took power in 2007.  The consensus then was that he would consign conservatives to opposition for a generation, much as American pundits predicted Barack Obama's victory in 2008 would mark a liberal realignment of the U.S. political landscape.

In response, the Liberal leader Malcolm Turnbull and other so-called moderates within the party jettisoned policies of the conservative era of Prime Minister John Howard from 1996 to 2007, believing the way forward was to ape the Rudd agenda.  So they agreed to reverse pro-market labor laws that made it easier for business to hire and fire.  Apologies and feel-good pronouncements were offered to indigenous Australians for past western sins.  They grew more relaxed about illegal immigration and people-smuggling rackets that had virtually ended under Mr. Howard.

And crucially, the opposition's leaders embraced the global warming agenda.  As if to demonstrate the liberal Liberals' fitness for government, they endorsed Mr. Rudd's signature legislation, a cap-and-trade emissions trading scheme.  The result was that the governing Labor party held commanding double-digit leads over its conservative opponents.

But Labor's Indian summer came to an end, and what changed the political climate was climate change.

For two years, the global warming debate had been conducted in a heretic-hunting and illiberal environment.  It was deemed blasphemy for anyone to dare question not only the climate science but the policy consensus to decarbonize the economy.  Mr. Rudd even claimed that climate change was the ''great moral challenge'' of our time and even denounced critics of cap and trade as ''deniers'' and ''conspiracy theorists''.  The hapless Liberals led by Mr. Turnbull — an Oz version of Mitt Romney — were in the deepest political valley.

Mr. Abbott, then widely written off as a remnant of the Howard era, decided to challenge the media-political zeitgeist.  Cap and trade, he argued, merely amounted to economic pain for no environmental gain, especially for a nation that accounted for only 1.4% of greenhouse gas emissions.  He contested the Liberal party leadership, winning by a single vote.

Like Margaret Thatcher's victory in the U.K. Conservative party leadership ballot and Ronald Reagan's nomination as the Republican presidential candidate in 1980, this delighted the left.  They considered him too divisive and — gasp! — conservative to be electable.  According to one distinguished intellectual, under Mr. Abbott's leadership the Liberals would become ''a down-market protest party of angry old men and the outer suburbs.''

Then along came the failed 2009 Copenhagen summit, which exposed the Rudd agenda as a sham.  When the rest of the world refused to endorse the climate enthusiasts' fanciful notions for slashing carbon emissions, Mr. Rudd imploded.  Mr. Abbott seized the moment and highlighted the higher energy costs created by Labor's emissions trading scheme.

Almost overnight, Mr. Rudd's stratospheric poll figures cratered.  Facing a changing (political) climate, he ditched the emissions trading scheme, his government's key-note legislation.

Labor factional warlords panicked, knifed Mr. Rudd in an internal party coup and installed Julia Gillard as prime minister.  Undeterred, Mr. Abbott continued his relentless attacks on other key issues of principle and policy.

He opposed Canberra's big-spending and interventionist agenda, which had turned a $20 billion surplus under the previous conservative government to skyrocketing debt and deficits;  while he supported tough border protection, which had traditionally helped boost public confidence in large-scale and legal immigration.  By refusing to buckle in his opposition to Labor's increasingly antibusiness agenda, he set the scene for his electoral success at the weekend.

To be sure, despite his vaunted commitment to reducing the size and scope of government, Mr. Abbott is hardly the second coming of Milton Friedman.  His plan for an expensive paid paternal leave program, for instance, suggests a social-engineering streak.  But the point here is that he is cut from an entirely different cloth than his opponents both inside and outside his own party.

One reason Mr. Abbott scored an emphatic victory is that he convinced voters that conservatives would not be profligate with tax dollars.  It remains to be seen what Mr Abbott does in office, but the formula worked at a time when the conventional wisdom said he was unelectable.

The upshot here is that Mr. Abbott did the very thing so many U.S. Republicans and British Tories have shied away from in recent years:  He had the courage to broaden the appeal of a conservative agenda rather than copy the policies of his opponents.  As a result, Australians enjoyed a real choice at the polls this weekend.  Mr. Abbott's resounding victory shows that they relished this opportunity to chart a more free-market course.

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Abbott will win support for reform

On Saturday night it will be obvious by how much the country's media and political class have underestimated Tony Abbott.  It will also be obvious how much that class underestimated the electorate.  The claim that Abbott was unelectable is just as much a statement about the electorate as it is about Abbott himself.  It won't be the first time that the keepers of elite opinion in this country have been wrong about the Australian people.  The Australian electorate is by and large conservative.  John Howard was a self-confessed conservative.  To get elected in 2007 Kevin Rudd pretended to be a conservative.  Tony Abbott is a conservative.  Maybe that's a pattern.  Julia Gillard was not a conservative and she failed to win a majority.  Howard's introduction of Work Choices was not the act of a conservative and it was a key factor in his defeat.  The same applies to Gillard's carbon tax.

Economics is going to be a key challenge for Abbott as prime minister, but not because of the reasons that are usually given.  It's simply not true that Abbott has no interest in economics.  In his book, Battlelines, for example, there's an extensive discussion not just of economics, but also of Australia's tax and welfare system.  If there's a reason Abbott sometimes comes across as not being interested in economics, it's because he's interested in so much more than just economics.  One of the few people in the federal parliament who comes close to being as well-read as Abbott is another Rhodes Scholar, Malcolm Turnbull.

''ABBOTT IS NO HAYEKIAN FREE-MARKETER''

Nor does Abbott's background with the Democratic Labor Party disqualify him from being an economic reformer.

It's true that Abbott is no Hayekian free-marketer.  But then again few of his colleagues are either (unfortunately).  Abbott's economic principles sit firmly in the middle of the spectrum of opinion across the Liberal Party.  The DLP's concerns were not primarily economic ones.  They were political.  The DLP was established in the 1950s as part of the fight against communism in the Australian trade union movement.  The DLP's economic policies were not very different from those of Menzies' Coalition.  A highly regulated mixed economy with a private sector supported by a substantial government sector was the mainstream economic orthodoxy.  Australian politicians and policymakers from the 1950s through to the 1970s knew of no other alternative.

Several decades on, we now know there is an alternative.  The alternative is a reform program of the size and scope of the 1980s.  Abbott is very aware of this.  But he's also seen the fate the Howard government suffered when it tried to reform industrial relations without adequately explaining to the electorate why reform was necessary.  That's one of the reasons why, as Abbott has said, he argued against Work Choices.

TENSION BETWEEN NEED FOR REFORM AND POPULAR WILL

In an interview earlier this week, Abbott referred to the tension between the need for reform and the need to respect the popular will:  ''The challenge for every government is to keep faith with the people and one of the reasons why I have not, and will not, satisfied the harder-line people in the business world is because whatever the 'economic merits' of certain policies might be, any national leader worth his salt has got to be conscious of the importance of bringing the vast majority of people with you''.  Abbott understands that reform requires more than well-remunerated chief executives making speeches about the ''economic merits'' of a policy.  Business leaders can push for a harder line as much as they want but at the moment their credibility with the public and the likely next government isn't great.  The vast majority of CEOs supported the carbon tax and stood silent while the ALP re-regulated the labour market.

Abbott knows that if he is to be successful he will have to bring the majority of the people with him.  The problem is that years of economic prosperity have made the vast majority of people complacent about the need for change.  And that's the core of Tony Abbott's economic challenge — can Australia afford to delay the policy changes that need to made to ensure our future prosperity while he spends his first term preparing the public for what he's going to do in his second term.

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Voters like to spend other people's money

Taxation, spending and regulation are the key functions of government.

The frameworks of law, defence and policing, accounting for around 10 per cent of national income, are crucial to wellbeing.

But government absorbs another 25 per cent of national income in social spending on health, education and welfare, plus more on industry subsidies, foreign aid and the like.

Election campaigns are mainly about politicians responding to voter preferences.

Over the past 100 years, we have seen the government's share within national income tripling and the number of regulations increasing twelvefold.

Hence, rather than diminishing the taxation and regulatory load, judged by outcomes, voters prefer spending other people's money and regulating other citizens' activities.

Government spending has to be financed by taxes or debt (which is taxation of future incomes).

Although increased spending on some social initiatives — especially education — has offsetting productivity benefits, for the most part, additional social expenditures impose costs by displacing the production of other goods and services.

Regulations also impose costs because they prevent the lowest cost production and cause delays.

Hence, beyond some basic level that has long since been exceeded, taxes and spending, and also regulations, reduce national output.

This is first, because of administrative costs, and secondly because people change their behaviour both to avoid taxes and regulations and to benefit from them.

If living standards are not to suffer, raising the government footprint therefore requires compensatory gains in private sector productivity output.

Julia Gillard took pride in the new regulations her government introduced.  But recent surveys demonstrate delays in new resource developments from tougher regulations, especially those covering environmental requirements and the need to engage in protracted negotiations with unions.

In spite of a growing taxation and regulatory burden, Australian productivity and real incomes doubled over the past 30 years.

But progress has slowed.

In fact, adjusted for investment increases and hours worked, productivity has gone backwards during the past decade.

Several countries have attempted to arrest the continuous march of new regulations.

One approach, which has had limited success, requires a regulation be removed for every new one introduced.

Another, followed in Australia and elsewhere, again with limited success, is to ''sunset'' regulations, requiring them to be re-enacted.

If elected, the Coalition proposes to devote two Parliamentary sitting days a year to repealing regulations.  This is grossly inadequate as it still means 70 sitting days when additional regulations can be introduced.

But it could be useful combined with proposals to link public servants' bonuses to deregulation.

Some disciplines on government spending are in place through credit agencies' monitoring and with voters' permanent dislike of taxation.  But these have been insufficient to roll back the size of government because of the infinite calls on government for greater spending.

More spending on education and disabilities have been promised in the present campaign.

To combat the bloated size of government politicians should recognise, as a rule of thumb, that every new spend and new regulation, no matter how attractive superficially, diminishes productivity and average living standards.

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''On track'' for a surplus? Not good enough

Tony Abbott promised the Liberal Party faithful last week that ''By the end of a Coalition government's first term, the budget will be on track to a believable surplus.''

Got that?  Not in surplus.  On track to surplus.

Given the Coalition's near-certain victory, Abbott's surplus expectations management may be the most significant promise of the whole campaign.

Significant not just for this government or the next, but for Australian governments far into the future.

First, the obvious.  This is quite a backtrack.  As recently as January, Joe Hockey was promising a budget surplus in the first year of government.  By April, the promise had been downgraded into a surplus in the first term.

Here's the new promise:  ''Within a decade, the budget surplus will be 1 per cent of GDP''.  The Coalition is only willing to guarantee a budget surplus by 2023.

Abbott fudged it a few days later by saying ''the Government is proposing to bring us back to surplus in 2016/17 and we will do at least as well as the Government''.  But there's a catch.  Abbott doesn't think the government is able to achieve a surplus in 2016-17.

OK, sometimes public finances change.  Tax receipts are unpredictable.  (Just ask Treasury.)  And promises are easy to regret.  (Just ask Julia Gillard.)

But the upshot of the revised promise is the Commonwealth budget will have been in deficit for 15 years — more than half of that time under a Coalition government.

This would be the longest stretch of deficits in Australian history.  It would be twice the previous record of seven years, incurred after the Recession We Had To Have.

In their classic 1977 book, Democracy in Deficit:  the Political Legacy of Lord Keynes, the Nobel laureate James Buchanan and his co-author Richard Wagner argued that democracy systemically favours deficits.

Politicians want to be loved.  And voters love services and infrastructure and big bold plans for the future.

But all these things are costly.  Politicians have just three unpleasant ways to increase expenditure.  They can increase taxes, they can print more money, or they can borrow.

The first is unpopular.  The second increases inflation, also unpopular, and hard to do now our central bank is independent.  That leaves borrowing.

The great advantage of borrowing is that by the time debt has to be repaid, the government will have changed.  The year 2023 would be the Coalition's fourth consecutive term of government.  Even if the Coalition holds power, odds are Prime Minister Abbott and Treasurer Hockey will be on the book tour circuit by then.

Of course, temporary deficits are natural.  In any economic downturn, the government's budget will go into the red.  On one side, taxation revenues fall.  On the other side, calls on the public dollar increase as workers drop onto unemployment rolls.  It would take hasty, herculean cuts to avoid a deficit in those circumstances.

The Keynesian revolution convinced politicians that they should use the government's budget as a tool to manage the broader economy;  that they ought to spend their way out of a recession by propping up aggregate demand.

Hence Kevin Rudd's stimulus packages of 2008 and 2009.

The adoption of Keynes' doctrine, Buchanan and Wagner argue, blew a hole through the classical belief that deficits are something to be ashamed of, and ought to be avoided.

To be fair, John Maynard Keynes himself believed that deficits, once incurred, must be quickly repaid.  Preparing the British government's 1944 policy on full employment, Keynes wrote that ''the ordinary budget should be balanced at all times''.

Yet enticed by Keynes' spending recommendations, the norm that budgets need to be quickly returned to balance was thrown away.

In a way, we should be thankful the Coalition made such a song and dance about the deficit over the last few years.  Budgets are only balanced when there is political pressure for them to do so.

That's what makes Tony Abbott's backtrack so concerning.

Demoralised and in opposition, Labor will hardly be able to criticise the Coalition for the deficit.  And economics commentators have spent the last few years trying to convince us that debt is nothing to worry about.  The surplus pressure will be off.

If the global economy stays slow for the next few years, as most indicators suggest it will, Joe Hockey won't be able to rely on growth alone to rebalance the budget.

And if the global economy takes a turn for the worse, a Coalition government is just as likely to try to spend its way out.  It's often forgotten that the Coalition supported the first tranche of Kevin Rudd's stimulus package.  It still supports Keynesian countercyclical spending.

If deficits are not flushed out early, they fester.  When George W Bush dropped his government into deficit with tax cuts in 2001, his defenders said it was a temporary measure to simulate the economy.  The US would be back into the black once the crisis was over.

Twelve years later and there's still no light at the end of the tunnel for the United States.

If the Coalition doesn't return to surplus soon, these may be the economic consequences of Mr Abbott.

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