Introduction

CONTENTS

Introduction

Section 1:  Wealth Creation as a National Priority

Section 2:  The Nature and Extent of Poverty

Section 3:  The Nature of Justice

Section 4:   Ethical Criteria

Summary and Conclusions

Footnotes

Supporting Documents

The Church, "Social Justice" and "Rights"
John Williams

The Nature of Wealth
Michael Porter

Poverty in Australia
Richard J. Wood

Australia's Heavy Capital Gains and Wealth Taxes
Terry McCrann

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INTRODUCTION

THE 1988 Inquiry by the Catholic Bishops' Committee for Justice, Development and Peace into the distribution of wealth attracted widespread public interest and a large number of submissions.  Wood & Associates presented its submission on 11 August at hearings which were part of consultations held in every capital city.  This Policy Issues is based on that submission and has been reprinted to inform others on the proposals Wood & Associates placed before the bishops.

Debate on the distribution of wealth has an extremely long history. ⁽¹⁾  It is not between those who wish to maintain poverty and those who do not.  It is a debate over the public policies best suited to the common goal of reducing poverty (to the extent, that this is achievable), while retaining a social consensus and respecting individual rights.  An important part of this debate relates to the fact that measures to alleviate poverty in the short term may have longer term consequences which would be counter-productive, both economically and for the total well-being of individuals in lower as well as higher income groups.

In addition, consideration of wealth and poverty should recognise that significant differences exist in the physical and intellectual capacities of individuals, leading inevitably to differences in wealth and income.  Any attempt to achieve absolute equality would thus be doomed to failure, even if it could be justified morally that, to achieve this ideal, individuals should be denied the fruits of their mental and physical labours:  the objective should be not equality of outcome but, rather, equality of opportunity.  Equal liberty for all is, we believe, likely to produce greater equality in the distribution of property and income than is to be found in economies based on centralised power and privilege.

It is relevant that, over the past two decades, there has been a major change in opinion among professional economists, ⁽²⁾ the majority of whom now reject the "big government" approach to solving economic and social problems.  They give greater recognition also to the enhanced role of competitive markets, and to allowing individuals greater freedom to work and contract to fulfil their natural abilities in the creation and wide distribution of wealth.  The role of competitive markets is gaining recognition even in communist countries.

Accordingly, in our view the central issue is not the redistribution of existing wealth;  it is how best to create additional wealth and a society which employs its prosperity wisely and charitably, thereby minimising poverty.  There is a need to reduce dependency and to concentrate government assistance much more on those in real need.

The submission argues that, in the longer term, one of the most effective ways of reducing levels of poverty and dependence, and thereby improving the circumstances of all Australians, would be the return of a "full employment" economy:  as Federal Treasurer Paul Keating has said, "The greatest cause of poverty in this country is undoubtedly unemployment". ⁽³⁾  It further argues that, while there is no moral or economic basis for determining that some particular end distribution of income or wealth is more "just" than another, there is widespread acceptance of the view that Australians genuinely unable to help themselves should have access to a minimum acceptable living standard.

The issue of poverty does raise, however, questions of the moral responsibilities of individuals.  There is a particular issue in regard to the increased poverty (as measured) arising from the considerable diminution of the mutual responsibility of members of families, one for the other, and the role which government has played, through the expansion of the welfare State, in fostering the attitude that government assistance is a right that carries with it little or no countervailing responsibility.

We have welcomed the advice of the Reverend Dr. John Williams, Professor Michael Porter, Professor H W Arndt, John Nurick, Peter McGregor and Hugh Henry.

Richard J.  Wood

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SECTION 1
Wealth Creation as a National Priority

The production of more wealth in Australia will reduce the incidence of real poverty.

1.1 Economic growth is a key requirement for a nation seeking to improve the material welfare of its own people and to assist its neighbours.  Policies which diminish the capacity or potential of the nation to create greater material abundance can only reduce the availability of services and material succour that are part of our Christian heritage.

1.2 This does not mean that wealth should be seen as an end in itself.  The creation of wealth makes possible an increase in the supply of material and intangible goods which may be consumed or enjoyed:  but it also allows the natural initiative, energies and ingenuity of men and women to be expressed in productive work in the arts of nation-building, in the formation of families as the basic units of civilisation, and in the creative pursuits of leisure.

1.3 The creation of wealth by some sections of a society does not involve the diminution of the wealth of other sections.  Indeed, the effect is to benefit all sections of the community quite apart from government-inspired redistributive mechanisms.  The obvious factors are the creation of additional employment and income opportunities, greater capacity for private philanthropy and increased government revenues for provision of welfare.  The very large increase in average living standards, which has spread across all income groups in Western industrialised nations since World War II, bears this out.  In Australia's case, between 1950-51 and 1986-87 the gross domestic product per head about doubled in real terms.  Unless there has been a marked change in the distribution of income -- for which there is no evidence ⁽⁴⁾ -- this indicates a very substantial improvement in the standard of living of all income groups in Australia.

1.4 Living standards rose also in Third World countries during this period.  "In the quarter century from 1950 to 1975 average real income levels in the Third World as a whole more than doubled.  This rate of increase was about the same as that experienced in developed countries, and represented a sustained rise of a magnitude never before experienced in human history within such a period." ⁽⁵⁾  Although since the mid 1970s the overall rate of increase has slowed and average real incomes have actually fallen in a few countries, average real income levels in developing countries have increased further ⁽⁶⁾ -- indeed on average more rapidly in developing than in developed countries.

Wealth creation flourishes best in a private enterprise, free market system where private property rights are protected.

1.5 Humanity's existence on this planet has been a history of desperate and often seemingly fruitless attempts to secure the goods and services needed for survival.  While that struggle continues in many parts of the world, the Western industrialised nations have largely overcome it.  A vital factor in breaking out of this poverty trap has surely been the establishment of a system of equal liberty under law based on government giving substantial protection to private property from the arbitrary intervention of the state, from foreign invasion and from arbitrary intrusion by other individuals and groups.

1.6 The establishment of that system has been basic to the development of the free market economies, which have provided both the incentive to increase wealth and the competition which prevents domination by a particular individual or group.  For example, a free press could only have developed in the context of private property rights, and freedom of religion would be severely restricted in the absence of property rights of religious bodies.

1.7 Legally secure and politically supported property rights have also provided the basis for the massive build-up in the capital stock of Western industrialised nations, and for the development and application of new technology.  These have been the key factors in providing employment and growing living standards for the much increased populations of these nations.  Through international trade and investment they have also made an important contribution to the large increase in living standards in less developed countries.

1.8 It is sometimes said that a free market system promotes self-interest and greed.  But self-interest and greed exist whatever the economic system.  In unfree systems, self interest and greed produce concentrations of privilege and power which would not be acceptable in a system such as ours.  It can indeed reasonably be argued that free enterprise systems based on equal laws are more successful than any other in harnessing self-interest for the collective good.

1.9 None of this is to overlook the role of government in providing the legal framework for the market system, and in providing services (such as welfare) which might otherwise be "under-supplied" by the market.  There is now widespread acceptance, however, that this latter role has been carried too far and that it is government policies, rather than the operation of market forces, that have entrenched, if not created, a dependent class of people with a relatively low standard of living.

It is not sufficiently appreciated that the institutional/legal environment is vital not only for determining a nation's wealth but for determining the capacities of human resources. ⁽⁷⁾

1.10 This is illustrated by considering, say, a given set of factories otherwise identical in Tanzania and the United States.  They may generate massive income streams in the United States but little in Tanzania because of the "human capital" with which they work (which will reflect, inter alia, the history, culture and attitudes of the people) and the political and economic environment.  In other words, equipment used by an effective labour force and operating under conditions conducive to investment may generate prosperity for workers and investors alike but may be virtually worthless in other circumstances.

1.11 The human capacities of Americans to produce wealth did not develop independently of the political and economic system they have established.  These capacities have indeed been stimulated and developed in response to the competitive environment of the USA.

We therefore believe the bishops should conclude that the material condition of all sections of the community is most effectively enhanced by encouraging economic growth through a private enterprise, market-oriented economic system, involving vigorous private enterprise, minimal government interference and protection of private property rights.

The existence of substantial differences in the distribution of existing private assets should not be taken to indicate that the private enterprise system is operating to increase such differences or to constrain increases in the standard of living of lower income groups.

1.12 There are no comprehensive measures of the distribution of private assets in Australia and considerable guesswork is required to achieve even an approximation.  One recent study ⁽⁸⁾ concluded that there is considerable concentration of such assets, with the top 1 per cent of adult individuals holding  around 25 per cent, the top 5 per cent about 50 per cent, and the top 10 per cent more than 60 per cent.  The study also concluded, however, that there appears to have been some reduction in the degree of concentration of personal wealth, with the bottom 90 per cent increasing their share of wealth from 22 per cent in 1915 to between 35 and 40 per cent in the late 1960s.  The author noted that "the idea that over the period since World War I there has been a secular decline in the inequality of wealth distribution is one on which there is fairly general agreement across developed countries."  Given the wider spread of education and the associated increase in opportunities for individuals to improve and exploit their capacities, together with the measures taken by governments to redistribute income, this conclusion is scarcely surprising.

1.13 It is, however, quite misleading simply to look at the distribution of estimated private assets.  In fact, as Michael Porter points out in his paper, The Nature of Wealth (p.46), the value of private assets essentially depends on the human capital and the institutional environment in which those assets exist.  As Porter says "there always exists a set of economic policies which can grind the value of such a measured capital stock to zero."

1.14 Porter points out that if we restrict ourselves to looking at assets in personal or group balance sheets, we miss many other components of wealth which determine spending power or command over resources -- the ultimate purpose of wealth.  Consider a person who has, say, $200,000 in cash, who owns a house and a boat, but who for some medical or other reason has an incapacity to generate future income flows.  This person could invest his cash resources and earn, say, around average weekly earnings.  His command over future resources is, thus, just average, though his present measured financial assets may be relatively large.

1.15 On the other hand, his neighbour may have ideas and knowledge likely to generate considerable future income.  Such a person may be a millionaire or a billionaire in prospect, but could be totally excluded from any accounting for wealth -- and would clearly avoid any taxation of observable wealth.  There are many current examples in Australia of wealthy people who started from nothing.

1.16 Against this background, Porter argues that national wealth is best defined by estimating the future flows of income and discounting those by a discount rate to take account of the fact that the present value of a dollar to be received in, say, ten years time is worth much less than a dollar received today.  He points out that any attempted redistribution of measured private assets would necessarily fail to take account of a substantial part of future income streams.  Indeed, attempted redistributions of existing private assets would very likely reduce those future income streams and, hence, national wealth.

1.17 Apart from this, it is particularly important to recognise that a substantial proportion of the wealth of Australia is government "owned".  ABS figures show that, excluding houses, governments "own" about 50 per cent of Australia's total capital stock. ⁽⁹⁾  Over 70 per cent of land and some 30 per cent of buildings, equipment and other construction is "owned" by government.  Some 20 of the top 100 business undertakings in Australia are government "owned".

1.18 The government "owned" capital stock thus supplements private wealth and is potentially available to benefit all sections of the community.  However, it is now acknowledged that narrow interest groups have the capacity to capture for themselves many benefits which flow from state involvement in economic activity.  Such groups use the power of governments to achieve a distribution of income and wealth which would not occur in a competitive market situation.  But that distribution does not necessarily favour the poor and may indeed have detrimental effects on them.

We suggest that any assessment of the present differences in the distribution of wealth in Australia should conclude that, over time, it is unlikely that differences have widened, that in assessing such differences much more needs to be taken into account than personal or group balance sheets at any particular time, and that even to the extent that the distribution of private wealth can be measured it cannot be taken as a reliable indicator of the capacity to command resources.

Distribution of income in Australia, after allowing for government redistribution, appears to be relatively egalitarian.

1.19 Economists tend to focus more on levels and trends in income distribution, mainly because income provides the basic purchasing power for maintaining living standards and, when income from property is included, it reflects holdings of wealth.  In addition, data on incomes are more reliable than data on wealth.  Even so, statistics of income distribution need careful interpretation.

1.20 The Taxation Review (Asprey) Committee 1975 observed that:  "were it possible to ascertain the distribution of Australian income in terms not of annual income but of the probable lifetime income of persons now alive, such a distribution would (after eliminating the effects of general economic progress) be considerably more bunched in the middle ranges than any annual figures.  The great majority of individuals in the low intervals of annual distribution (the sick, unemployed, aged) would move into higher income groups;  equally, many of those towards the top on the basis of annual statistics (persons at the temporary peak of their careers or old enough to have incomes from their own savings and from inheritances) would move into lower groups.  There would be far fewer very rich and far fewer very poor;  the bulk of the population would be even more concentrated in the middle ranges." ⁽¹⁰⁾

1.21 1n fact, if one were to define equality as equal incomes for all families at the same stage of their life cycle, inequality would be much less than the raw data might appear to suggest.  (Both older and younger families would naturally be expected to receive lower incomes than middle aged families with experienced productive workers.)  Partly for this reason, it can be argued that expenditure provides a better indication of average life time income.  Certainly there are less differences between the distribution of household expenditure and the distribution of household income -- and both show smaller differences than the distribution of private wealth.  The 1986 Household Expenditure Survey ⁽¹¹⁾ shows that in 1984 households in the highest 10 per cent income group received 25 per cent of total household income and accounted for 19 per cent of total expenditure.  Those households in the bottom 10 per cent income group received 2 per cent of total income but accounted for 4 per cent of expenditure.  It might be noted that those in the bottom 10 per cent income group allocated over 10 per cent of expenditure for recreation and over 4 per cent for tobacco and alcohol.

1.22 The Household Expenditure Survey also recognises that it is important to adjust income data to take account of the net effects of government redistribution, including indirect benefits derived from education, health, housing and social security benefits not provided directly.  Thus, in 1983-84 the average household income of the bottom 20 per cent was $6,044 per annum before taking account of net government benefits: ⁽¹²⁾  but $8,524 per annum after allowing for net government benefits.  This led economic journalist Ken Davidson to conclude that, when government grants are taken into account, along with the number of persons in each household, the spread of income is "a remarkably egalitarian one" (The Age, 11 March 1985).

1.23 As mentioned, there is no evidence of any marked change in the distribution of before tax income in recent years.  While the latest ABS survey does show an increase in the share of those in the highest 10 per cent income group since 1978/79, that has not been at the expense of the lower income groups, whose shares have remained stable. ⁽¹³⁾  That stability, however, raises a question as to whether government attempts to improve the share of lower income groups have been unsuccessful.

Australia -- Income Distribution ⁽¹⁴⁾
Income Share (%)

Gross Annual Income Decile	1978/79	1981/82	1985/86
Lowest	1.7	1.7	1.8
2nd	2.9	2.9	2.9
3rd	4.2	4.2	4.1
4th	5.8	5.6	5.4
5th	7.6	7.4	7.0
6th	9.3	9.2	8.9
7th	11.3	11.2	11.0
8th	13.8	13.6	13.6
9th	17.0	17.2	17.0
Highest	26.4	27.0	28.4

Income is gross income before tax or any other deduction.  It includes government pensions and benefits (but not indirect benefits).

Data is not available to allow conclusions to be drawn about changes in income distribution over the longer term.  However, we would expect that, with widened educational opportunities and government redistribution, shares of lower income groups will have increased somewhat.

1.24 Internationally, Australia has the reputation for having one of the most egalitarian distributions of income, although the problems associated with international comparisons make it difficult to reach any firm conclusions in this area and provides ample scope for "experts" to vent their differences.

We suggest that the bishops should note that income is the more significant indicator of capacity to command resources, that it appears to be more evenly distributed than private wealth, that the share of lower income groups has been maintained in recent years and that income distribution in Australia appears to be relatively egalitarian.  For all these reasons, more attention should be paid to the distribution of income than that of wealth.  However, differences of income at a point of time are an inadequate refection of differences in life time income.  The latter may be more accurately reflected in differences in expenditure, which are significantly less among income groups than differences in income.

Wealth and power are not synonymous.

1.25 Some of the most powerful groups in society do not possess significant wealth.  We endorse the analysis of power set out in the submission by the Australian Institute of Public Policy on Wealth and Power.  The widespread assumption that power is synonymous with wealth is simply not sustainable.

1.26 Wealth is but one of the many ways of securing privileged access to the power of the state.  Some trade unions, lobby groups for sectional interests, and particular individuals (including politicians) have much greater access to power relative to others in the community.  Their power is not based on wealth.

1.27 For example, in a survey published in Australian Business on 22 June it was revealed that some 78 per cent of Australians felt that trade unions had too much power.  (The comparative response for business was 36 per cent.)  The exercise of such power has significant implications for the distribution of income.

1.28 Geoffrey Brennan ⁽¹⁵⁾ has noted that the more the state takes on the role of wealth-redistributor the more it concentrates power in the hands of those who have gained privileged access.  When a state attempts to redistribute wealth one of the first effects is inequality of access to state power.  It can be argued, indeed, that few societies are more unequal than that of the USSR, where there is little private wealth and relatively little inequality of cash income.

1.29 Attempts by the state to significantly redistribute wealth are likely to be only partly governed by the needs of the genuinely poor.  The main factor will be the specific concerns of whatever sections of society happen to have the greater access to power.  Enhancing the role of the state in the redistribution of wealth, moreover, spurs competition for access to power among special-interest groups, thereby creating envy, intolerance and social fragmentation.

1.30 Public choice theory argues that politicians naturally seek to develop strategies and policies which will gain them election by fostering sectional interest groups at the expense of the more diverse interests of the wider community and of groups with less capacity to push sectional interests.  The beneficiaries of state largesse then become the benefactors of politicians.  Any idealistic policy of redistribution is liable to succumb to this process.

1.31 As a result of such political processes, even in Australia there are significant inequalities in legal rights and liberties.  Porter demonstrates the consequences for wealth in Australia of policies which make it difficult for people to gain jobs and acquire skills.

1.32 Taxes on observable forms of wealth, even more than high marginal tax rates on income, are likely to suppress income streams, reduce employment opportunities and frustrate the training and education of individuals, all with the effect of lowering our real national and individual wealth.

Account needs to be taken of the fact that access to state power may influence the distribution of income in ways that are not necessarily helpful to lower income groups.

Attempts by governments to substantially redistribute income and property would have major adverse economic and social consequences, and would be unlikely to reduce the incidence of poverty.

1.33 Western democracies have accepted, as part of the political and social consensus, that governments have the right and the duty to ensure that those who are genuinely unable to help themselves should have access to a minimally acceptable standard of living.  This necessitates some income redistribution, although the extent of the government's direct role is a matter for consideration.

1.34 However, to carry government intervention beyond a certain point is likely to lead to a breakdown in political and social consensus and/or to major adverse economic consequences.  It is also likely to have adverse psychological and social consequences in encouraging a dependent, "no obligation to work" approach to life but without necessarily reducing the incidence of poverty as measured.

1.35 In the last two decades the Australian economy has been marked by relatively poor growth rates, high inflation and high unemployment.  The average real growth rate of the Australian economy went from over 5 per cent per annum in the 1960s to about 3 per cent in the 1980s (so far).  This is below the average for the major industrial countries and a long way below the performance of the high growth economies of Hong Kong, Singapore, South Korea and Taiwan.

1.36 It is probable that those who have suffered most from this are the poor and disadvantaged.  In the sixteen years 1970-71 to 1986-87 real GDP per head increased by 30 per cent compared to the increase of 50 per cent over the sixteen years 1953-54 to 1969-70, i.e. almost 1 per cent per annum slower in recent years.  Although we do not have comparable income distribution statistics covering the whole of this period, figures for the period 1978-79 to 1985-86 show no increase in shares of lower income groups i.e. people remaining in those groups would have had a constant share of a slower growing cake in recent years.

1.37 The attempt in the early 1970s by governments to "stimulate" economic growth by Keynesian pump-priming failed dismally and resulted in high inflation which, as the Henderson Poverty Inquiry of April 1975 pointed out, "favours the active and the powerful;  the position of poor people deteriorates.  Those who own real assets such as houses, land and some shares gain from inflation, as these assets rise in value.  The poor renters are faced either with increases in rents they cannot afford to pay or with eviction to make way for more profitable commercial development" (page 10).  Many so-called reform measures which purported to help the poor have been of little or no benefit to them.  For example, "free" tertiary education and "free" or subsidised health care for all have transferred resources to better-off sections of society.  Some of these policies are now being reversed.

1.38 The expansion of government outlays and taxation since the early 1970s has contributed to inadequate growth of capital stock and insufficient investment, and to disincentives to save and to work.  These factors, together with a highly regulated labour market, have been the major cause of the large increase in unemployment since the mid 1970s.  Overall, measured poverty has increased, as has social welfare dependency.  Charles Murray showed that the incidence of measured poverty in the United States was falling before the Great Society measures introduced by President Johnson.  Since then poverty has increased. ⁽¹⁶⁾

1.39 An important effect of the expansion in the role of government since the early 1970s has also been to encourage an excessive growth in national spending relative to income.  Australians have been living beyond their means, particularly since the early 1980s.  (Contrary to popular belief, average living standards have not been falling:  although real earnings fell by about 7 per cent between 1982-83 and 1986-87, real household disposable income per capita rose by over 7 per cent and total consumption expenditure per capita by over 5.5 per cent.  This reflects increased borrowing.)  As a consequence, Australia has accumulated a massive external debt without commensurately increasing the productive assets needed to service that debt.  This means that it will now be necessary, for a period, to strictly limit the growth in living standards while, at the same time, doing everything possible to encourage private sector creation of wealth. ⁽¹⁷⁾

We suggest that on the evidence of the 1970s the bishops should conclude that measured poverty is unlikely to be reduced through further government attempts to redistribute income.  And that any such attempts may well be counterproductive in helping the poor, as they appear to have been in recent years.

A lesser burden of taxation in Australia would help stimulate economic growth and creation of wealth.

1.40 It should be noted that, notwithstanding the "cuts" made in personal income taxation in recent years, the overall burden of taxation has continued to increase.  Indeed, even the burden of personal income taxation has increased because the "cuts" have been outweighed by the effects of inflation in shifting taxpayers into higher income brackets.  In 1987/88 the overall burden of taxation was almost certainly the highest on record -- about 32 per cent of GDP compared with 24 per cent in the early 1970s.

1.41 Notwithstanding this huge increase in taxation, governments have until very recently been running record deficits during most of the period since the early 1970s.  In other words, their spending propensities have far outstripped their fund-raising capacities.  The resultant borrowings have imposed a burden on future generations.

1.42 Increasing government deficits and the resultant growth of debt have both economic and moral dimensions, according to Nobel Laureate James Buchanan.  Economically they threaten an upsurge in inflation and economic crisis;  morally they constitute a totally unjustified passing of the cost to future generations.  In 1986 Buchanan noted that "the observed fiscal profligacy of the US federal government is only one symptom of a more inclusive and pervasive characteristic of our age which is reflected, also, in the large and growing private debt, in the low rate of domestic savings and in many, many other aspects of modern life." ⁽¹⁸⁾

1.43 We support the government's recent moves to reduce net borrowings by the public sector and to move the Commonwealth budget into surplus.  More needs to be done to reduce the burden of taxation by reducing government outlays.

1.44 We say this notwithstanding that, as is often pointed out, Australia has a relatively low proportion of tax to GDP by comparison with other OECD countries.  Australia's tax revenues total about 32 per cent of GDP which compares with an overall OECD average of about 37 per cent. ⁽¹⁹⁾

1.45 For one thing, such comparisons can be misleading.  For example, the centralised wage system in Australia is forcing the business sector to provide superannuation benefits which in some other countries would be financed from taxation.  Also, in Australia workers' compensation is funded on the basis of government legislation which requires compulsory payments similar to taxation whereas in many other countries such compensation is funded by tax receipts.

1.46 More importantly, it is increasingly recognised that the rising burden of taxation in many OECD countries has been a major contributing factor to the slow-down in economic growth in those countries since the 1960s (see also 2.24 below).  In short, the burden of taxation in OECD countries is almost certainly too high. ⁽²⁰⁾

1.47 This contrasts sharply with the situation in those countries in East Asia which have experienced very strong growth.  These countries have lower burdens of taxation than Australia.

1.48 Moreover, contrary to popular belief, Australia does have taxes on capital and property and, even before the introduction of the comprehensive capital gains tax, the burden of those taxes was at least equal to the average burden in OECD countries. ⁽²¹⁾  Indeed, economic journalist Terry McCrann has argued that certain forms of Australia's wealth taxes are among the most punitive in the world.  His article on this subject appeared in Review, Spring 1986, and is reprinted on page 55.

1.49 While introducing a capital gains tax, the Government itself has recognised the adverse effects of high marginal rates of tax and Prime Minister Hawke and Treasurer Keating have recently foreshadowed a reduction in the top marginal rate to 39 per cent.  We support such moves and would want to see such reductions carried further, to a single flat rate of tax, in order to increase incentives and to reduce poverty traps and tax avoidance.  It should be noted that such a flattening of the tax scales would still involve a substantial redistribution of income when account is also taken of government transfer payments.

1.50 It is pertinent in this context to emphasise that concern should not be directed at the gap between higher and lower income levels.  If real incomes can be raised at all levels of income there should be no sense of injustice or inequity that the absolute gap has widened, as it inevitably must if there is an equal proportional increase at all levels.

We believe that every effort should be made to reduce the overall burden of taxation and to flatten the tax scales so as to encourage enterprise and initiative, to stimulate the creation of wealth and to reduce tax avoidance.  A flatter taxation scale would still allow ample scope for redistribution.

A wealth creation "package" of policy changes could substantially increase national wealth.

1.51 If government policies were changed in the ways outlined above -- and in other ways -- there seems little doubt that the overall rate of economic growth could be increased substantially, with potential benefits for all income groups.  In his paper The Nature of Wealth, Michael Porter sets out a hypothetical '"package" of policy changes that could lift Australia's growth rate from 2.5 per cent per annum to 4 per cent per annum, thereby increasing national wealth (estimated by the discounted income flows method) from $7.7 billion to $9.7 billion -- an increase of over 25 per cent.  It is easy to see the potential such a package would have in reducing poverty.

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SECTION 2
The Nature and Extent of Poverty

Poverty is a relative concept and nowadays in the West relates more to a minimum acceptable living standard than to survival.

2.1 Welfare groups frequently suggest that a substantial proportion of the population is living in poverty.  One incredible 1982 study, for instance, suggested that 2,830,000 Australians (nearly 20 per cent of the population) were living in poverty. ⁽²²⁾  Such estimates, and the Henderson poverty line on which they are based, essentially involve a subjective judgement as to what constitutes "poverty".  The Institute of Applied Economic and Social Research at the University of Melbourne regularly updates the Henderson poverty line (which was derived from New York based studies of the consumption patterns of American poor persons living in cities).  The Institute's explanatory notes point out that "the poverty lines must be interpreted as allowing a standard of living defined relative to the average community standard rather than a fixed absolute standard." ⁽²³⁾  Moreover, as our research paper Poverty in Australia (p.62) points out in commenting on the Henderson poverty line, "a summary measure (particularly one based on experience in another country in an earlier decade) cannot accurately assess the widely differing financial and economic needs of individuals."

2.2 P.P. McGuinness in the Financial Review of 24 June 1988, pointed out that all this produces the paradoxical consequence that it is impossible to eliminate poverty since those at the bottom end of the income scale will always be deemed to be "poor".  McGuinness also points out that "when average household income is growing, unless the wages of the lowest-paid workers and the benefits to unemployed and others are rising as fast, they will by definition be getting poorer, even though in fact they might be in absolute terms enjoying a rising living standard."  McGuinness notes that "The real purchasing power of the poverty line increased by 16.6 per cent in the period 1973-74 to 1986-87."

2.3 The latest survey of income distribution by the ABS suggests that, over recent years, there have been increases in the real incomes of those in the bottom income groups.  In the following table income is gross income before tax or any other deductions.  It includes government pensions and benefits (but not indirect benefits).  Real increases have been calculated by deflating the nominal increases with the CPI.

AUSTRALIA -- INCOME DISTRIBUTION ⁽²⁴⁾

Gross Annual Income Decile	Mean Income $ 1978/79 to 1985/86			% Real Income
	1978/79	1981/82	1985/86
Lowest	1970	2650	3930	11.35
2nd	3250	4510	6130	5.28
3rd	4780	6530	8790	2.65
4th	6570	8680	11460	-2.64
5th	8630	11510	15030	-2.79
6th	10530	14230	18950	0.45
7th	12740	17260	23500	2.96
8th	15560	21080	29050	4.21
9th	19270	26590	36410	5.47
Highest	29790	41730	60740	13.81

2.4 The reality is that poverty -- in the sense of being in a position where one's survival is consistently at risk -- scarcely exists in Australia.  The debate is now essentially about the extent of redistribution to those judged in need relative to the rest of the community -- a concept that is necessarily highly subjective.  At best, poverty lines are merely guides to estimating numbers of those judged to be in need because their incomes are below a level deemed at any given time by welfare groups and/or governments to be below a minimum acceptable standard of living.

The bishops should recognise that those in "poverty", as defined by some welfare groups and governments, include a high proportion of people who have a material standard of living that is well above subsistence, that continues to rise and that is indeed higher than average incomes in countries such as India or Indonesia.

The greatly increased proportion of Australians who have become dependent on government welfare for the bulk of their income since the mid 1970s has created economic and social problems.

2.5 The much higher proportion of Australians who became dependent on government assistance in the last decade and a half has added significantly to government outlays, taxation and borrowing, thus detracting from economic growth.  However, as pointed out in Poverty in Australia, this increase in dependency is importantly due to changes in government policies on eligibility for benefits and does not necessarily indicate a deterioration in the economic position of those in real need.  In fact, it can reasonably be argued that this extension of welfare assistance to a bigger proportion of the population has meant that those in real need have received less assistance than they otherwise would have.  The continuing pressure on non-government welfare agencies in recent years is certainly an indication that government welfare has not dealt with the problem of the genuinely needy.

2.6 By 1987 there were 3,282,096 people receiving social security and veterans' pensions, compared with 1,071,514 in 1969.  In 1987 income support recipients represented 42.5 per cent of the labour force compared with 20.3 per cent of the labour force in 1969.  Outlays on social security increased from 4 to 8 per cent of GDP between the early 1970s and 1986/87.  Between 1969 and 1987 the tax required from each member of the workforce to pay for increased welfare payments virtually doubled.

2.7 The demoralising effect on individuals of prolonged dependency needs to be stressed.  For young people in particular, work and the economic independence which results are the main paths to the sense of competence, responsibility and dignity which are integral to adulthood.

2.8 Many new dependants on welfare have come from those of work-force age, thereby detracting from the supply of labour and from potential output.  In 1969, 27 per cent of income-support recipients came from this working-age group.  By 1987 that figure had increased to 47 per cent.

2.9 A major factor in this increase has been the large rise in unemployment from around the mid 1970s to the present.  Important contributors to this rise have been the increased real value of the unemployment benefit and the exercise of monopoly power by trade unions, especially in 1974 and 1981/82.

2.10 The ageing of the population has not been a major factor in the growth of dependency.  Numbers of dependants increase as benefits extend.  A particularly large growth in numbers of sole parent and widow pensions followed the introduction of supporting parent benefits in 1973 -- a fourfold rise from 80,000 to 331,000 during a period when total population increased by only 22 per cent.

2.11 Poverty in Australia charts the general anatomy of welfare today, and concludes that "a social security system which provides a comprehensive safety net, as in Australia, presents major problems for ensuring that pensioners and beneficiaries are encouraged to seek employment and/or make best use of their available financial resources."

2.12 Other measures intended to help the poor often have the unintended consequence of hurting the poorest.  Typical of such measures are occupational licensing laws, minimum wage laws and rent control.  Two black, ghetto-born US economists, concerned for the well-being of their own and other oppressed minorities, Walter Williams and Thomas Sowell, in numerous books argue this point, which is now widely accepted. ⁽²⁵⁾  Undoubtedly the current system of welfare provision in Australia has similar problems.

2.13 In Australia the Miller Inquiry into Aboriginal employment, published in August 1985, took a significant step forward in recognising dependence on government as a problem rather than a solution for Aborigines.  It reported that a staggering 71 per cent of total national Aboriginal income derived from government, mainly in the form of social welfare.  Margaret Valadian, the co-director of the Aboriginal Training and Cultural Institute in Sydney, believes that dependence on welfare has contributed significantly to the destabilisation of Aboriginal communities.  "The policies of the 70s and 80s", she argues, "killed ... initiative and self-reliance." ⁽²⁶⁾

The bishops should recognise that the large increase in welfare dependency -- and hence in measured poverty -- since the early 1970s is importantly a reflection of changes in government policies on the eligibility for, and real value of, government benefits.  In examining ways to reduce poverty and to enhance human dignity, the bishops should give appropriate emphasis to policies for reducing dependency, particularly among working age individuals, and concentrating government assistance much more on those genuinely in need,

The destabilisation of the family and the weakening of family obligations are major causes of poverty as measured.

2.14 The fastest growing segment of the poor in the last two decades has been single parents and their children.  Poverty among the elderly and among unemployed teenagers is also closely bound up with the breakdown of family bonds.  The rise in the number of illegitimate children, inevitably over-represented among the poor, is also clearly related to changing attitudes to the moral basis of the family.

2.15 To some extent the enormous expansion of government welfare has been a response to this breakdown of the family and its moral basis:  the state has stepped in to provide benefits and support structures which families have increasingly failed to provide.

2.16 But, while some response along these lines may have been unavoidable, the extent of that response has created economic and moral problems.  Thus the state's absorption of functions and responsibilities once performed by the family -- including child care and support for the elderly, deserted wives, etc -- has itself contributed importantly to the preparedness of individuals to shed their family obligations, on the excuse that "the government will take care of it."  The modern welfare state has indeed fostered a carelessness about responsibilities to family and neighbours, even a carelessness about responsibility for oneself.  For example, as argued by Peter Swan and Mikhail Bernstam in their article, "Brides of the State", (Review, May-July 1987), single parents benefits have been provided on a basis that has made the option of single parenthood more inviting than is good for the long run interests of the child or the mother and that have implied that the general taxpayer should accept responsibility for the material welfare of the mother and child.

To encourage further growth in government welfare or even its maintenance at current levels may well result in the further erosion of the family and the perpetuation of poverty as measured.  The bishops should thus give strong emphasis to the family and its tradition of mutual responsibility both as a key institutional protection mechanism for individuals against poverty and as a more appropriate moral basis for society.

Poverty need not be a consequence of injustice.

2.17 It is important to distinguish between poverty which results from unjust actions and poverty which would remain even if there were no such actions.  Further, not all unjust actions result in poverty.

2.18 Unjust behaviour which may create poverty includes plunder and theft, deceit and fraud, aggression and tyranny, and monopolistic control over production or the supply of labour.  The solution to such poverty exists in creating a regime of just and equally applied laws.

2.19 Even if all act justly, poverty may arise as a result of misfortune related to health, age, opportunity or mental or physical impairment.  Such poverty does not indicate an unjust society.  But a just society will naturally exhibit compassionate efforts to alleviate poverty arising from disability or misfortune.

2.20 Government policies themselves can be a significant source of poverty.  For example, laws which prevent young people from obtaining work have, in our view, caused significant poverty.  Such laws may be regarded as unjust because they deliberately favour old and more experienced workers against younger less experienced ones.

2.21 Poverty may occur as a result of human failings -- moral or otherwise.  For example, greed, unwillingness to work or unwillingness to support one's family can result in poverty whatever the distribution of income may be.  The failure of some parents (often men) to support their offspring is a significant source of poverty.  Churches have a pre-eminent role in establishing morally acceptable norms of individual behaviour and in doing so can make a significant contribution to the avoidance of poverty.

We suggest that the bishops in their report give a strong emphasis to these moral issues, where their expertise is unchallenged.

The tax/welfare system and labour market arrangements are major impediments to reducing dependency and improving economic growth.

2.22 Universal agreement on the need to fully protect those members of society, genuinely unable to fend for themselves does not necessarily mean additional social welfare spending.  "Increasing taxes to finance additional social welfare outlays would certainly involve a large risk with our future" -- Poverty in Australia, page 50.

2.23 The disincentive effects from extended social welfare are twofold.  First, work is directly discouraged.  The combined impact of the pensions income test and the personal income tax, together with other welfare tests in the welfare system, creates major poverty traps. ⁽²⁷⁾  Second, the higher tax rates needed to fund the welfare provisions have negative impacts on work and saving.

2.24 The OECD Report "Structural Adjustment and Economic Performance" (1987) identified as a major factor in the deterioration of economic performance among OECD countries since the 1960s the growth of the public sector and, in particular, the effects on incentives to work or save arising from the direct effects of increased social services and the indirect effects arising from the concomitant rise in taxation.  The Report suggested that the tax effects alone may, at the margin, have reduced national income by at least 10 to 15 cents for every extra dollar raised in taxes.  Other academic studies put the cost of additional taxation even higher.

As it now operates, Australia's regulated labour market is a major cause of unemployment.

2.25 The Australian labour market is one of the "most highly regulated and institutionalised among those of the advanced economies", according to a government report prepared by the Bureau of Labour Market Research, "Youth Wages, Employment and the Labour Force" (1983).

2.26 This system, and the monopoly power accorded to unions, as it has operated over the last decade and a half, has been a major contributor to the increase in unemployment in Australia.  At the 1984 ALP National Conference, Treasurer Keating referred to the large rise in unemployment following the union inspired wages explosion in 1981-82 and accused the leaders of the unions and others of carrying the jobs of 100,000 "dead men around their necks in the manufacturing industry with the $39 a week increase in the metal trades agreement in 1981."  The net effect of Australia's industrial relations arrangements has been to push wage costs to levels that were too high to justify employers (or potential employers) from taking on additional labour.  Individuals have been prevented, either on their own or in association with others, from freely negotiating wage contracts with employers which differ from wage awards made under the centralised system, and which are legally binding even on those who are not parties to negotiations.

2.27 There is no doubt that levels of youth unemployment, in particular, are considerably higher than if a more deregulated labour market existed, or if the arbitration system had taken greater account of "market realities".  We believe that a wage system is needed under which wages and conditions of employment can be negotiated primarily between individual employers and employees, with unions being primarily enterprise based.  This would allow negotiations of measures to increase productivity, and to share in the benefits therefrom, between those most concerned.

Full employment has been dropped as a key objective of the main political parties.

2.28 In the immediate post World War II period, a central, indeed the over-riding, objective of the main political parties was the maintenance of full employment.

2.29 This objective has been effectively dropped.  In the last federal election, for instance, no party was campaigning to restore full employment.  Political parties seem content to accommodate the increase in dependency by providing appropriate unemployment and other relief.

2.30 We believe a major reason for this attitude on the part of political leaders is an unwillingness to tackle the privileged power groups which result from our centralised wage determination system.

2.31 An illustration of the unwillingness to tackle the real issues was the attitude taken to the 1983 report, "Youth Wages, Employment and the Labour Force" by the Bureau of Labour Market Research.  The report pointed out, among other things, that federal and state arbitration tribunals had not considered the effect of their decisions on youth employment.  This report and its findings were ignored by the Government and the Bureau was later abolished.

2.32 It is impossible to significantly reduce welfare dependency and make a real impact on poverty unless high unemployment levels are reduced.  We believe a major effort must be made to break down the barriers to full employment.  These barriers include labour market rigidities, welfare poverty traps, high taxation (reducing incentive) and excess government regulation.  Some of these aspects are touched on in this paper.

2.33 We believe there should be a national inquiry into the prospects of restoring Australia to a full employment economy.  This would help ensure that the full employment goal is restored as a key objective on the national agenda, help build community understanding of the impediments to full employment and encourage policy makers to take the steps this requires.

The bishops should recognise that increased government expenditure and taxation, and the government supported centralised wage system, have been major factors in the slowing economic rise and rising unemployment.  There should be a national inquiry into how best to return Australia to a full employment economy.

There is insufficient emphasis on individual self-reliance and on the adverse psychological and social consequences of prolonged dependence.

2.34 Dependency for some is unavoidable.  Increasing numbers, however, have been lured into the trap of dependency by disincentives to work, and the belief that they are entitled to "a living" as a natural consequence of society's affluence.

2.35 The need for changed attitudes to welfare has been emphasised by Princeton University Professor of Public and International Affairs, Richard P. Nathan.  He notes that "for too long we have been signalling, in the terms of Lyndon Johnson's Great Society programs, that the poor are victims, and that we pity them because they can't make it on their own.  The new signals are positive, but they are hard to send and harder still to convert into results.  We say to heads of families on welfare ... 'We believe in you;  you are as good as the next person;  you should be in the labour force'." ⁽²⁸⁾

2.36 Nathan's observation does not contradict the conviction that "work is a fundamental dimension of man's existence on earth." ⁽²⁹⁾  Nor does it fall into the trap of "materialistic and economistic thought" of which Laborem Exercens warns. ⁽³⁰⁾  Of special importance is the encyclical's discussion of work in relation to poverty. ⁽³¹⁾

2.37 In many cases, notes the Pope, the poor appear "as a result of the violation of the dignity of human work:  either because the opportunities for human work are limited as a result of the scourge of unemployment, or because a low value is put on work and the rights that flow from it ..."  These rights are related to human dignity.  "Work is a good thing for man ... because through work man not only transforms nature, adapting it to his own needs, but he also achieves fulfillment as a human being and indeed, in a sense, becomes "more a human". ⁽³²⁾

There is a need for a change in attitudes, both towards those who are welfare dependent and towards work by those who are in that situation.  The Church has an important role to play in this area.

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SECTION 3
The Nature of Justice

There are at least two distinct meanings of the concept of distributive justice.  The choice of the meaning leads to significantly different policy prescriptions.

3.1 Many church statements which address issues of economic and social concern make extensive use of the term "justice".

3.2 Church documents typically adopt an "end pattern" analysis of distributive justice:  a distribution of wealth or of income is "just" if it complies with a pre-determined ideal distribution.

3.3 But even if agreement could be reached on what constitutes an ideal distribution, an insoluble problem associated with all such "end pattern" "ideal" property distributions is that they imply a never-ending battle by the state, or the church, to achieve a particular distribution of property rights that will inevitably conflict with the operation of natural economic forces.  Further, serious attempts to achieve a permanent fixed "ideal" distribution could well mean that economic activity becomes so inhibited that society returns to a survival mode.

3.4 Beside the "end pattern" concept is the notion of the "procedural" analysis of distributive justice:  the justice or otherwise of a given distribution of wealth or of income can be determined only by reference to the behaviour which gave rise to the distribution.  Specifically, if a person's original possessions and skills were not unjustly acquired, and if such exchanges as subsequently occurred did not involve actual or threatened violence, theft or fraud, or the operation of unequal laws, the resulting distribution of wealth may be considered to be just.

3.5 There is a continuing strain of argument in the history of Western societies which maintains that some existing property rights have been unjustly acquired, and that there is moral justification for reducing or eliminating such rights.  However, unless property can be seen to have been illegally acquired through theft or fraud, it is difficult to see any moral basis for impinging on those rights.  Impingements which do occur in modern society need to be contained through continuing community debate about the proper role of government.

3.6 The "end pattern" and "procedural" concepts of justice are analysed extensively in John Williams' paper, The Church, "Social Justice" and "Rights", page 36.  We agree with his conclusion that the only meaningful concept of distributive justice is one based on a procedural analysis.

3.7 This account of justice may appear to be niggardly and uncompassionate only if "justice" and "compassion" are treated as synonymous.  They are not and there is community acceptance that some redistribution is justified to help those genuinely unable to help themselves.  Keith Campbell ⁽³³⁾ has pointed out that "there are activities which should be practised, which it is a shortcoming for a person or a community to neglect, but for which the occasions, and frequency, and the direction of their exercise are matters of discretion.  The practice of generosity and helpfulness, of volunteering for unpleasant tasks, are classic cases of duties of imperfect obligation.  The beneficiaries of acts of these kinds have no special entitlement to the benefit, which is a piece of good fortune and not a right."

3.8 Campbell's argument concerns the duties of developed nations in relation to developing nations, but it applies with equal force to welfare within a nation.  He notes:  "It often seems to be claimed that the very fact of developing nations' poverty gives them a right to relief, in the same way that they have a right to payment of a debt ... that is the case only to the extent that the poverty is the product of wrongful acts from which prosperous communities are now still benefitting." ⁽³⁴⁾

The Bible endorses the notion of "procedural" distributive justice.

3.9 The US Catholic Bishops in the paper Economic Justice for All:  Catholic Teaching and the US Economy argue that an "end pattern" analysis of economic justice is demanded by the scriptures.

3.10 In his examination of biblical texts, Williams argues that the Bible contains no "single word appropriately translated by 'justice' and its cognates referring to any pattern of wealth or income distribution."

3.11 The biblical writers accept that if behaviour is in accord with general rules of just conduct equally applicable to all, the resulting distribution is just.  If the "rights" of the widows and orphans are trampled upon by the powerful, and different rules apply to the wealthiest and poorest, the distribution is unjust.

3.12 Within the development of Christian thought there are strong arguments for the "procedural" notion of distributive justice.  See Williams, especially footnote 10.

3.13 These propositions are argued in detail in Williams' paper.

We believe the concept of "procedural justice" is the only sustainable understanding of distributive justice for a liberal democratic society:  the best justice available to fallible human beings is the justice of known general rules, equally applicable to all and impartially applied to all.  At the same time, there is community acceptance of redistribution to help those genuinely unable to help themselves.

Some recent policies advocated by Church social justice commissions would have harmed the poor and disadvantaged.

3.14 H.W. Arndt points out that the notion of economic growth has had little place in Church thinking.  This has meant that the Church's concern for social justice naturally predisposed it to redistributive policies.  Alternatively, where economic development has been accepted, the Church's disapproval of many aspects of Western society and the professionally paternalistic viewpoint of many churchmen have inclined church commissions towards the socialist rather than the capitalist model. ⁽³⁵⁾

3.15 Arndt's analysis provides the historical context for the Church's apparent lack of concern about economic growth and for the numerous redistributive recommendations made in recent years by church "social justice" commissions.  If those recommendations had been carried through, the effect would in many cases have been detrimental to the nation and to the disadvantaged.

3.16 Geoffrey Brennan in a reply to the churches' 1983 document Changing Australia identified certain church proposals for wealth distribution as predicated on the fallacious equation between wealth and power.  (See section 1.25 to 1.32 above.)  He demonstrated that the outcome of such proposals would be precisely the opposite of what was intended.

3.17 John Williams in "A Fair Hearing for Justice" ⁽³⁶⁾ explored the consequences of the theory of justice uncritically adopted by the authors of Changing Australia.  He concluded with a warning:  "It would be tragic if Christians following church functionaries filled with the 'zeal of the Lord' but arguably 'not according to knowledge' involved themselves in social actions merely to prove the truth of Oscar Wilde's saddest utterance:  'Each man kills the thing he loves'."

3.18 In "An Excess of Equality" ⁽³⁷⁾ Lachlan Chipman argues that the ideal of equality espoused by church bodies is ultimately inconsistent with a commitment to diminish poverty.

3.19 Paul McGavin ("A Christian Perspective") ⁽³⁸⁾ adds that current policies on unemployment often supported in church circles have resulted in the emergence of a permanent sector of unemployed.

3.20 Thinking on this subject in some church circles has not shifted since 1983.  The Uniting Church National Social Responsibility and Justice Committee presented a report on Economic Justice -- the Equitable Distribution of Genuine Wealth to the church's May 1988 Assembly.  It recommends reform of the taxation system as "a means of redistributing income and wealth ..." and argues for an increase in power of government over the economy. ⁽³⁹⁾

3.21 A tragic consequence of the idealisms and profligate spending plans of the "social justice" lobby is that recipients of welfare are encouraged to believe in their right to a guaranteed access to the common national wealth. ⁽⁴⁰⁾

3.22 This consequence stands in stark contrast to the social vision of Sollicitudo Rei Socialis which says of economic initiative:  "It is a right which is important not only for the individual but also for the common good ... the denial of this right, or its limitation in the name of an alleged 'equality' of everyone in society, diminishes, or in practice absolutely destroys the spirit of initiative, that is to say the creative subjectivity of the citizen." ⁽⁴¹⁾  The fact that this passage in its context refers to economies elsewhere described as "inspired by Marxist collectivism" ⁽⁴²⁾ does not remove its relevance for Australia.  The main point is the Pope's emphasis on the individual's access to economic initiative.

A just society should make philanthropy a national priority.

3.23 While governments will remain the dominant source of welfare funds, church and community agencies will continue to have a critical role in providing innovative facilities and maintaining face-to-face services which it is neither appropriate nor possible for governments to offer.

3.24 A third area of humanitarian service often overlooked is private philanthropy:  the establishment of trusts or foundations by corporations and individuals with the express aim of supporting individuals or groups with special needs.

3.25 The Social Welfare Research Centre reported in December 1984 that in the early 1980s Australians gave voluntarily some $6 billion a year in money and free labour towards the operation of non-government agencies.  In its 1984 report titled Non-Government Welfare Organisations:  A National Classification the Centre notes that there are 37,000 non government welfare agencies in Australia employing 130,000 full-time staff and relying on the services of some 1.3 million volunteers. ⁽⁴³⁾  This is a very substantial effort and indicates clearly that government redistributive measures alone can not solve the problem.

3.26 In fact, three factors suggest there is a need for more emphasis on private philanthropy in Australia.  One:  the inability of trusts and foundations to satisfy the demands of applicants;  two:  lack of awareness among many community groups that such charitable bodies exist;  three:  private philanthropy is likely to be more effective in many cases.

3.27 Three problems face philanthropy in Australia.  One:  according to the Australian Association of Philanthropy confusion surrounding laws relating to tax deductibility discourages people from engaging in philanthropy;  two:  it is difficult to define "charity" or "charitable purposes" (the statute on which most law relating to charitable trusts is based derives from 1601 -- the reign of Elizabeth I);  three:  Australia lacks a vital tradition of philanthropy.

3.28 Government action -- which must always be inimical to the interests of some groups in society -- cannot be a complete substitute for charity, and its activity can weaken philanthropy through fostering the view that neighbourliness is the government's responsibility.

3.29 No law states that a healthy economy leads automatically to greater philanthropy.  But that has happened in the United Kingdom since the economy recovered in the 1980s.  Increases in real incomes and corporate profits, assisted by lower taxes, have raised voluntary donation levels.  In 1985 Britain's 250,000 registered charities received more than 12.5 billion pounds, equivalent to 4 per cent of GDP.  The general trend of philanthropy is indicated by donations to the nation's top 200 charities, which rose from 500 million pounds in 1980 to 1,300 million pounds in 1986. ⁽⁴⁴⁾  The lesson for those who wish to encourage greater charity is obvious.

The bishops should encourage governments and members of the public to place greater emphasis on private philanthropy in the interests of a more compassionate and caring society and because private philanthropy is likely in many cases to be more effective.

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SECTION 4
Ethical Criteria

Ethical criteria governing the use of wealth in Australia must be appropriate both to a pluralist society and a nation whose institutions are founded in the Christian faith.

4.1 The context of such ethics will be the call to neighbourliness.  For Christians, this call is found in the words of Jesus, for example in the parables of the sheep and goats (Mt 25:31-46) and the rich man and Lazarus (Luke 16:19-31).  These parables refer not only to the issue of charity but to the individual's relation to Christ, and for Christians are unequivocally valid.  They might not provide an acceptable ethical model for followers of other faiths or philosophies.  The parable of the Good Samaritan (Luke 10:25-37) however, does have universal application, since in putting the question of the individual's humanity it implies the ethical responsibility due from all men and women, in the spheres of both individual and social action.  This ethical responsibility does not necessarily imply "coerced compassion".

4.2 Appropriate ethical criteria for formulating and evaluating policy on wealth in Australia should meet certain minimal requirements.  The following policies should be excluded:

4.3 Those which fail to provide basic necessities to people in temporary or special need, or which neglect to guarantee long-term support to people who through disability are prevented from providing for themselves.

4.4 Those which remove from individuals the responsibility for their own welfare or the exercise of neighbourliness towards others.

4.5 Those which carry the risk of long-term harm to individuals or society, notwithstanding some immediate short-term benefits.

4.6 Those which tend to reward family dislocation or diminished responsibility of adults for the support of their families.

4.7 Those which, purporting to uphold the dignity of persons and the partnership of all in the "universal destination of goods", ⁽⁴⁵⁾ place the production of wealth under moral censure or the fruits of such production under coercive control.

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SUMMARY AND CONCLUSIONS

The main findings of our submission are set out below and we suggest that the bishops should base their final report on the following points:

1. In reducing poverty, the focus should be on how to create additional wealth through a competitive private enterprise system based on protection of private property rights from arbitrary intervention, rather than to redistribute existing wealth.  Successful economic policies will reduce poverty and provide additional funds to assist those in need.

2. Over the long haul, differences in the distribution of measured private wealth have probably narrowed.  But such differences do not, in any event, accurately reflect the capacity of individuals to command resources and more attention should be paid to differences in income.

3. Differences of income are significantly less than differences of private wealth;  further, relative shares of lower income groups have probably increased over the longer run.  However, differences of income at a point of time are an inadequate reflection of differences in life time income.  The latter may be more accurately reflected in differences in expenditure, which are significantly less among income groups than differences in income.

4. The relative stability of shares of lower income groups in recent years suggests that government attempts to redistribute income may not have been successful:  and those attempts have had adverse side effects (see 6).

5. Wealth and power are not synonymous and access to state power may influence income distribution in ways unhelpful to the poor.

6. The attempts by governments to increase the shares of lower income groups since the early 1970s have, through the disincentive effects of higher taxation and increased social welfare, had adverse effects on economic growth and employment.  The poor have probably suffered most as a result of this.

7. Poverty is unlikely to be reduced through further government attempts to redistribute income -- indeed, it would be better to reduce taxation and government outlays so as to encourage enterprise and the creation of additional wealth.  Implementation of these and other policy changes, as a "wealth creation" package, could add 25 per cent to National Wealth and make a substantial contribution to reducing poverty.

8. The "poverty line" as used by some welfare groups and governments is not a fixed absolute standard but a standard of living defined relative to the average community standard -- both of which have continued to increase.  Those below the "poverty line" include a high proportion with a standard well above subsistence.

9. The large increase in dependency and measured poverty since the early 1970s importantly reflects changes in government policies on the eligibility for, and real value of, government benefits.  To reduce dependency and to enhance human dignity, government policies should seek to concentrate government assistance much more on those in real need.

10. While some of the increase in government assistance was an unavoidable response to the breakdown of the family and its moral basis, the extent of that response has created moral and economic problems.  Strong emphasis needs to be given to restoring the family and its tradition of mutual responsibility both as a key institutional protection mechanism of individuals against poverty and as a more appropriate moral basis for society.

11. Poverty is caused by many things.  To the extent that it reflects individual human failings and attitudes, the church can play an important ameliorating role.  The Church can remind those who have wealth of the virtue of charity;  it can remind those in poverty through despondency or indolence of the virtues of work and self-reliance.

12. Increased government expenditure and taxation, and the government-supported centralised wage system, have been major factors in the slowing of economic growth and rising unemployment.  Given the major role which increased unemployment has had in adding to those in measured poverty, a national expert inquiry should be held how barriers to full employment can be removed.

13. While there may be unjust acquisitions of wealth and income, there is no end distribution of wealth or income that can be said to be "ideal" or "just", or to which individuals can claim some moral entitlement.  The concept of "procedural justice" is the only sustainable understanding of distributive justice for a liberal democratic society, together with the widespread community acceptance that some redistribution is appropriate on compassionate grounds to help those Australians genuinely unable to help themselves to have access to a minimum acceptable standard of living.

14. Governments and individuals should be encouraged to place greater emphasis on private philanthropy in the interests of a more caring society and because such philanthropy is likely to be more effective in many cases than increased government welfare.

15. Ethical standards relevant to the use of wealth should include not only the responsibility to help others but the responsibility to help oneself.  In view of the strong association between family breakdown and poverty, special emphasis should be given to bolstering the integrity and stability of the family and reinforcing its moral basis.  The Church, more than any other institution, has an important role here.

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ENDNOTES

1.  Professor R.M. Hartwell in "The Long Debate on Poverty", CIS Policy Report, June 1987, Centre for Independent Studies, Sydney.

2.  See the survey of changes in economists' views by Steven E. Rhoades in The Economist's View of the World, Cambridge University Press, 1985.

3.  Four Corners, 24 March 1988, Parliamentary Library Transcript.

4.  See Sections 1.12 to 1.24.

5.  Australia and the Third World:  Report of the Committee on Australia's relations with the Third World, Australian Government Publishing Service, Canberra, 1979, page 6.

6.  See World Development Report 1986, published by the World Bank, page 45.

7.  This thesis is developed in works by Professor Peter Bauer, including his Dissent on Development, Weidenfeld and Nicholson 1971 and "Equality, the Third World, and Economic Delusion", Harvard University Press, 1981.

8.  "The Distribution of Wealth in Australia -- A Survey'' by Dr. John Piggott, ANU, published in The Economic Record September 1984.

9.  Australian National Accounts, Estimates of Capital Stock 1986-87, ABS No. 5221.0, May 1988.

10.  Taxation Review Committee, 1987:  28.

11.  1984 Household Expenditure Survey, Australia, ABS No. 6537.0 and No. 6530.0.

12.  Net government benefits are the net amounts transferred to individuals by governments after deducting taxation.  For this purpose they include both direct and indirect benefits such as education, health, housing and welfare allowances and rebates.  See 1984 Household Expenditure Survey, ABS No. 6537.0 and No. 6530.0.

13.  1986 Income Distribution Survey Preliminary Results, ABS No. 6540.0.  Of course, the composition of these income groups will have changed over time and it is possible that somebody in, say, the second or third lowest decile group in 1978-79 has moved down into the lowest decile group in 1985-86, thereby experiencing a decline in real income.  There will also, of course, be new people coming into income groups between the two surveys, as well as upward movements between income groups.

14.  Sources:  1978/79 ABS 4108.0 "Income Distribution, 1978/79" page 15, 1981/82 ABS 4101.0 "Social Indicators No. 4 1984" page 222, 1985/86 ABS 6540.0 "1986 Income Distribution Survey Preliminary Results" pp. 5-6.

15.  Brennan, Geoffrey and John K. Williams (eds) Chaining Australia:  Church Bureaucracies and Political Economy, Centre for Independent Studies, Sydney, 1983, pp. 25-26.

16.  Murray, Charles, Losing Ground, New York, Basic Books, 1984.

17.  These issues are explored in Australia in Hock:  the Way Out, published by Richard J. Wood in May, 1988.

18.  Professor James Buchanan is the 1988 Nobel Prize winner in economics, and is Professor of Economics at George Mason University, Virginia, USA.  An edited version of his speech in Washington D.C. in 1986 appeared in Review, May-July 1987.

19.  Revenue Statistics of OECD Member Countries, 1%5 to 1986

20.  It is relevant also that Australia's government enterprises, whose operations are not generally financed by taxation, employ a higher proportion of capital and labour than do public enterprises in most other countries;  and that these enterprises produce relatively low returns to the community.  See also Business Council Bulletin, No. 43, May 1988.

21.  See ''Taxation of Net Wealth, Capital Transfers and Capital Gains of Individuals", OECD 1988 especially pp. 27-28.

22.  "Living on the Edge" by Ms Philippa Smith, published by ACOSS in June 1982.

23.  See, for example, the Institute's "Poverty Lines:  Australia", December quarter 1987.  In a letter to the Australian Financial Review of 5 July 1988, Mr David Johnson of the Institute, elaborated on the Henderson poverty lines as follows:

"The principal use of the Henderson poverty lines is to set a minimum income standard.  It is assumed that society defines this standard in relation to its income.  Thus, the minimum income standard of the Henderson poverty line is a relative concept.

It recognises that a poor person in Australia in 1988 would be very rich in Ethiopia in 1988, or in Australia in 1888.  Accordingly, the Henderson poverty lines are useful minimum income standards for comparison with, say, social security payments.

The poverty lines should be clearly distinguished from measures of the extent of poverty.  In considering changes in the extent of poverty, over say a period of five years, an absolute concept of poverty is useful.  Poverty would then be measured using poverty lines updated by changes in the cost of living.  In this way, changes in welfare include changes in the general standard of living as well as distributional effects.

In the past, the extent of poverty has been measured by counting the number of families below the poverty line.  This measure is intuitively easy to understand, but has two major defects:  it takes no account of either the extent to which poor incomes fall short of the poverty line or of the distribution of incomes amongst the poor.  However, over the last decade other measures have been developed which can accommodate both of these problems.

The Institute of Applied Economic and Social Research is holding a conference on Poverty and Wealth at the Melbourne Town House on 28 July where I will discuss these matters.

In summary, the problem is not with the Henderson poverty lines, which are useful tools, but with the way they have been used.  The solution to this problem is first to promote an understanding of how the poverty lines are calculated and what their limitations are, and second to devise adequate ways of measuring poverty so that the temptation to use the poverty lines in the wrong context will be eliminated."

24.  Sources:  78/79 ABS 4108.0 "Income Distribution, 1978/79" page l5, 81/82 ABS No. 4101.0 "Social Indicators No. 4 1984 page 222, 85/86 ABS No. 6540.0" 1986 Income Distribution Survey Preliminary" pp 5-6.  See also footnote 13 above.

25.  Williams, W., The State Against Blacks, New York, McGraw-Hill, 1982 and America:  A Minority Viewpoint, Stanford, Hoover Institution Press, 1982;  Sowell, T., The Economics and Politics of Race, New York, William Morrow & Co, 1983 and Race and Economics, New York, Longman, 1975.

26.  Ken Baker, "Can Aborigines Escape the Dependency Trap?", Review, May-July 1987, page 19.

27.  The nature of these poverty traps is outlined in considerable detail in Spending and Taxing:  Australian Reform Options, sponsored by the National Priorities Project (in particular pp. 31 and 32).

28.  Nathan, Richard P., "Workfare in Britain and America:  A Personal View", Economic Affairs, April-May 1988, page 17.

29.  Pope John Paul II, Laborem Exercens, 1981, para 4.

30.  Ibid, 7.

31.  Ibid, 8.

32.  Ibid, 9.

33.  Keith Campbell is Associate Professor of Traditional and Modern Philosophy, University of Sydney.  His paper to the Committee on Australia's Relations with the Third World appears in the Committee's report, cited above.  Campbell contrasts duties of imperfect obligation with those of perfect obligation, which are "definite requirements on one party X to perform specific actions towards another definite party Y."  Debts are the classic example, as are reparations for wrong done provided that the obligation to make reparation rests on the wrongdoer, not anyone else, and that reparations are due to the injured party and no-one else."  Relative prosperity of one party compared with another is irrelevant to the exercise of this duty, "which arises from the wrong done, not from either the want of the victim or the superfluity of the villain."  Page 331.

34.  Ibid, page 333.

35.  "Economic Development:  The History of an Idea" by Professor H.W. Arndt, University of Chicago Press, 1987.

36.  Brennan and Williams, op. cit, page 14.

37.  Ibid, pp. 136 to 138.

38.  Ibid, pp. 55 to 59.

39.  Economic Justice:  The Equitable Distribution of Genuine Wealth, report to Uniting Church Assembly, May 1988, page 14.

40.  It's a Rocky Road:  Young People in Australia, Dove Communications, Blackburn, 1984.

41.  Pope John Paul II, Sollicitudo Rei Socialis 1988, para 15.

42.  Ibid, 20.

43.  Jacob Abrahami, "Are we Mean and Selfish?", Review, Autumn 1986.

44.  "Britain:  The Growth of Giving", The Economist, June 4, 1988, page 53.

45.  Sollicitudo, 42.

An Agenda for Defence Policy Reform

Vol. 5, No. 5

SUMMARY AND INTRODUCTION

It is six years since the last major policy statement on defence was issued.  Although the 1987 Defence White Paper provided a solid planning base for the Australian Defence Force (ADF), the intervening years have eroded the document's relevance -- to the point that it no longer accurately reflects Australian defence policy and interests.  The end of the Cold War and changes in regional security have outdated the paper's strategic assessment, while cuts to projected defence spending and changes in ADF structure mean that much of the document is simply no longer relevant.

Not before time, the Federal Government has committed itself to a new defence White Paper to be issued in 1994.  It is badly needed to give policy direction and momentum to a drifting ADF and Defence Department.  The extent of the drift may be gauged from the May 1991 Force Structure Review (FSR), a document designed mainly to cut costs.  Far from outlining policy as most ministerial statements do, the FSR was a curious hybrid, canvassing policies which may -- or may not -- be implemented depending on which of three options for defence spending was adopted.  These were for one per cent annual growth, or a cut of one per cent, or no growth at all.  The FSR gave the impression that Defence was trying to guess Government intentions (as indeed they were), rather than detailing initiatives.

The absence of an up-to-date statement about goals and priorities has hampered Defence's ability to respond to changes in international security, or to set funding priorities for equipment and operations.  How much emphasis, for example, should the ADF put on regional co-operation, on peacekeeping, and on maintaining alliance relationships?  How should these priorities be balanced against requirements for the direct defence of Australia?  All these issues involve making trade-offs in dividing up a limited (and shrinking) defence budget.

A defence force unclear about the roles it may be expected to perform and unsure about the resources it will have to meet them is not in a good position to decide how best to defend the country.  In this Backgrounder, I propose ten steps which must be taken to re-establish coherence and direction in defence policy by outlining the areas which should take planning and funding priority.  The first three priorities are essential.  These are the need to refocus the ADF's attention back on combat capability;  getting the balance right in dealing with Asia;  and last, surprisingly some will think, not increasing the defence budget.  The last seven steps flow from implementing the first three.

1 WE MUST EMPHASISE COMBAT CAPABILITY

It may seem ingenuous to begin by saying that the ADF must put more emphasis on combat capability.  Surely this is the very raison d'être of all defence forces?  This of course is true, but there is plenty of evidence to show that the ADF has expanded too far into support activities, which take up an ever-larger proportion of its budget without materially contributing to combat capability.  The ADF has an unacceptably high ratio of non-combat and combat support elements compared to its fighting forces -- the "teeth-to-tail" ratio as it is called.

In his 1990 report, The Defence Force and the Community, Alan Wrigley points out that the number of major combat units in the ADF remained largely static from the early 1960s to the early 1990s.  (The main exception has been the Navy's loss of an aircraft carrier and fixed-wing aviation.) Thus in 1960, the Army operated the equivalent of six battalions of regular infantry, with armour and artillery support arms;  the Air Force three to four squadrons of fighters, and two of maritime patrol aircraft;  and the Navy around a dozen major surface combatants.  In 1990, the ADF had similar numbers of major equipment types, albeit much more capable and technically sophisticated.  The most noticeable difference between the 1960s and 1990 was an approximately 45 per cent increase in the number of ADF personnel with no equivalent increase in the size of ADF combat elements. ⁽¹⁾

The table below shows the teeth-to-tail composition for the regular forces in 1991 and 1992.  It makes for unhappy reading.  In each of the Services, around half of all military personnel are in roles which would not involve them in direct support of military operations, even if Australia were at war.  In the Army, only around one soldier in four has a combat role.  For every soldier whose job might possibly involve being in combat in northern Australia, there are two others whose job will (in most cases) never take them out of Sydney, Melbourne or Canberra.

Australian Defence Force Teeth-to-Tall Composition

	1991		1992
	Number	(%)	Number	(%)
Army   Combat forces   Combat support   Non-combat support	8,165 4.634 15.923	28 16 55	8,066 4,501 15,663	29 16 55
Navy   Combat forces   Combat support   Non-combat support	4,695 2,587 6,633	34 19 46	4,759 2,567 6,665	34 13 43
Air Force   Combat forces   Combat support   Non-combat support	1,645 9,064 8,847	8 46 45	1,868 7.866 9,072	10 40 50

Sources:  1991 Data:  Army;  Hansard (Senate) 6 March 1991, p. 1352;  Navy and Air Force;  Hansard (Senate) 10 April 1991, p. 2259.  1992 Data:  Hansard (Senate) 28 April 1992, pp. 1738-9.  Due to rounding, percentage totals may not equal 100.

What do people actually do in non-combat support roles?  In any modern defence force, large numbers of people will be engaged in support tasks to maintain equipment;  feed troops;  order, control and distribute stocks;  provide medical services;  operate bases and manage equipment purchases.  The list of legitimate non-combat positions needed to sustain a modern fighting force is very long indeed.

In the ADF, however, there are obvious excesses.  In 1991, for example, almost 500 ADF officers and other ranks were full-time musicians.  This makes the Defence Force as big in the music business as Australian Broadcasting Corporation, which runs six State symphony orchestras involving 490 people. ⁽²⁾  The 1987 White Paper acknowledged the "inadequate" state of Navy mine countermeasures and the "high priority" that should be given to improving this.  Four years later, the Navy had fewer mine warfare personnel (86) than musicians (93).  Each Service maintains separate police, police investigation and base security units (the RAAF, for example, maintaining 242 police dog handlers), separate fire-fighting services and so on.  The numbers of Service people performing wholly civilian tasks are staggering.  Some examples:  From the 1 Army:  bricklayers, 17;  butchers, 11;  carpenters and joiners, 126;  plumbers, 49;  from the Air Force:  cinema operators, 11;  telephone operators 103;  carpenters, 73;  electricians, 44;  plumbers, 25.  In 1991, the largest single professional category for other ranks in the Air Force was clerks (2,462 people);  in the Army the largest category was riflemen (3,102), then clerks (2,487), then storemen (1,728).  Defence pays a significant premium to have uniformed personnel perform these civilian tasks -- comparing wages plus on-costs, the cost of defence labour is about 25 per cent greater than the civilian alternative.

What these figures show is that the Defence establishment has allowed support elements to grow unacceptably large relative to the size of the combat force.  Defence has slowly accepted the need to develop a commercial support program (CSP) to put out to the private sector a range of support tasks currently done in-house.  The major problem with the CSP is the slowness of implementation -- the program is not scheduled to be completed until the end of the decade.  In the meantime, the 1991 decision to scrap two regular Army infantry battalions in favour of the Ready Reserve scheme ensures that the Army's teeth-to-tail ratio will get worse before it gets better.

The decision to scrap two battalions now means that the Army, with a total strength of over 28,000, can field only four regular infantry battalions at relatively short notice.  New Zealand, with an Army of 4,700 in 1992, can field the equivalent of two regular battalions. ⁽³⁾  Being a larger force with a larger country to defend the ADF has a genuine requirement for more substantial logistic support.  Even making allowances for that, the contrast is not flattering to Australia.

The conclusion is obvious:  the ADF badly needs to redirect its focus back to developing and maintaining stronger combat forces.  This is the only acceptable basis on which one can justify the enormous annual investment of taxpayers' money.  Achieving this will require a reallocation of resources within Defence, and a drastic cutting of non-essential areas such as bands.  This may raise some community and internal defence opposition.  But governments should be courageous.  In the long term, the community will be more inclined to support an ADF focused on combat capabilities than one regarded as just a source of free music nights and safe clerical jobs.

2 GET THE BALANCE RIGHT IN APPROACHING ASIA

The ADF can play a very important role in establishing closer relations between Australia and Asia.  The military has a long history of substantial co-operation with the countries of South East Asia.  During the recent slight chill in relations between Australia and Malaysia, for example, relations between the defence forces remained unharmed.  Defence contacts have tended to remain insulated from the ebb and flow of political ties.

Australia's defence approach to the region, however, must be refined.  The 1987 White Paper emphasises the defence of the mainland against potential attackers who, to use Paul Dibb's language, can only come "from or through" the island archipelago to our north.  It has not escaped our Asian neighbours that much of Australia's existing policy amounts to a defence "from" the region rather than a defence "in" or "of" the region.  The White Paper is remarkable, too, for the comparative lack of attention it pays to defence co-operation with the region.  Existing links -- such as the Five Power Defence Arrangements -- are supported.  But the Paper did not propose a widening of these ties.

Against this must be set the current enthusiasm in Defence, as well as other areas of public life, to develop closer relations with Asia.  There is no indication that the Government intends to increase its limited spending on defence co-operation (at $76.6 million this financial year, around the size of Defence's annual phone bill), but efforts are being made to increase consultation, training and exercise opportunities.  These initiatives are to be applauded and have received bipartisan political support.  In the currently approved language, such contact helps to build confidence and enhance security between countries, and to develop a sense of regional cohesion in which countries reinforce each other's security rather than just their own.

There are signs, however, that in its enthusiasm the ADF is beginning to get carried away with the push into Asia.  In April this year, for example, the Army announced a new requirement that all officers at the rank of Lieutenant-Colonel and above must speak one of eight Asian languages by the year 2002. ⁽⁴⁾  All officers?  Well, actually Defence admits that fifteen per cent may not have the aptitude, so the goal is for 85 per cent of officers to be fluent.  Putting aside the enormous training cost involved, one must ask if this is a necessary or even desirable goal.  In 1992, the Department of Foreign Affairs and Trade (DFAT), with a total staff of 2,352, claimed to have 427 people with either "minimum or advanced" proficiency in foreign languages;  that is, 18 per cent of the total.  These figures count all languages:  only 6.8 per cent of DFAT officers could speak one of the eight Asian languages specified by the Army. ⁽⁵⁾

The comparison speaks for itself.  It is absurd that the Army should aspire to such high levels of language proficiency when, for the vast majority of officers, only a small part of their careers will involve contact with Asian countries.  The issue is about the emphasis in intellectual and financial resources which Defence should place on co-operation with Asia.  Developing closer relations with the region is important.  But no less important is maintaining the health of existing alliance relationships and of ensuring that at least some officers maintain professional interests in countries and issues outside Asia.  Most fundamental of all, the ADF's first professional obligation is to maintain the skills needed to operate in the defence of Australia, training for which will still occupy the bulk of an officer's career.

Setting the right defence priorities for Asia would be easier if the Government rectified the current imbalance between the "declaratory" policy (the 1987 White Paper), which downplays regional co-operation, and a de facto policy which actively pursues it.  Countries in the region would find this useful as well.

3 DON'T SPEND MORE MONEY ON DEFENCE (YET)

The argument that Defence would benefit by not having more money spent on it will be regarded as heresy in some circles, particularly lobby groups like the Returned and Services League which has habitually argued that defence spending should be pegged at around 3 percent of Gross Domestic Product.  At $9.88 billion in 1992-93, spending was 2.4 per cent of GDP.  In rough terms, this is $2.5 billion lower than if spending were pegged at the 3 per cent mark.

Why 3 per cent of GDP?  Like all other such figures, this is an arbitrary one, elevated to benchmark status by the 1987 White Paper, which said that spending in the order of 2.6 to 3 per cent of GDP would be needed to implement its proposals.  The requirement to maintain spending at this level has never been met.  Despite optimistic projections for substantial growth, since 1986-87 spending has been kept at around zero real growth and has declined as a percentage of GDP.  This has certainly slowed down the implementation of the 1987 reforms.  The Force Structure Review noted that with no real growth in spending only "about three quarters of the White Paper program could be funded" by the end of the decade.

The shortfall has been taken by some as "proving" that there is an urgent need to increase defence spending.  But this is not the case.  The White Paper's spending projections were unrealistic, and have proved unsustainable given the state of the economy since that time.  Equally, there is no iron necessity that the whole program be completed by 2000.  Defence equipment modernisation and structural reform are continuous processes, subject to delays and slippages.  In view of Australia's largely benign strategic environment, it will not matter if the White Paper goals (or some variant of them) take a little longer to implement than previously planned.

Far more important is the need to ensure that the present ten billion dollar annual defence outlay is spent to maximum effect.  As the preceding section on combat forces shows, this is not happening.  For too many years, defence spending was not subject to the same rigorous scrutiny -- both publicly and within government itself -- as other Commonwealth departments.  As the then Minister for Defence Science and Personnel, Gordon Bilney, explained it:

One area where Defence is truly unique is the treatment it receives from the Government in relation to the budget.  Other departments have their budget gone through line by line in the budget process, with Cabinet's expenditure review committee looking for savings.  When they find them, they are taken.  In Defence we get a global allocation.  It might go up or down by one half, or one per cent in real terms in any year but as a portfolio we are able to determine how we spend it. ⁽⁶⁾

This absence of fiscal oversight undoubtedly permitted unwise spending in areas which made little or no contribution to maintaining highly capable combat forces.

It should be said that Defence has gone some way to improving the situation by cutting costs and reviewing its own activities.  The Force Structure Review, and programs to commercialise a range of Defence support activities, identified areas where significant savings could be made without damaging (indeed, by freeing up resources, actually improving) combat capability.  This process can and should be taken much further.  There is no doubt that further substantial savings and efficiencies can be made from within the existing budget.

Until all avenues for greater savings have been explored, there is no realistic case to be argued for increasing the budget.  This is not just a matter of chasing savings for their own sake.  The overriding aim should be to re-establish in defence a clear-cut sense of purpose and direction by cutting away those superfluous activities that do not directly contribute to maintaining a highly capable military force.

No matter how cleverly one cuts it, however, the cake will not grow any larger.  In the medium term there will be a need to increase defence spending to cover the costs of essential equipment projects, and what should be higher levels of training and operational activity.  Exactly when this should happen is difficult to say.  Perhaps about financial year 1996-97, when the present commercialisation program has been substantially implemented.

Setting the right priorities -- by emphasising combat capability, getting the right balance in approaching Asia and accepting the need for continued spending restraint -- would put Defence on the right track to developing a coherent policy.  Of course, many other policy areas need rethinking too.  The following seven areas show where important policy revisions must be made once the "big three" issues are settled.

4 WE NEED MORE "JOINTERY"

"Jointery" is the word used to describe co-operation between the three separate services.  Since 1975, when the services were brought together to form a single department with the civilian Defence establishment, the history of Australian defence policy has been the history of mandating closer co-operation between the military arms.

The logic of jointery is unassailable.  The three services will fight together in support of common objectives.  It is only reasonable that they should train and be structured with that end in mind.  In the early 1980s, Headquarters ADF was formed to give a stronger joint emphasis in defence force policy, and in the late 1980s functional commands for Land, Air and Maritime warfare were created.  A functional commander would command elements from all three services used to fight in that particular theatre.  The Land Commander, for example, would command not only Army units, but also those Navy and Air Force assets required to support the troops.  The roles of the professional heads of each service, the Chiefs, have been limited to raising, training and maintaining their forces.  Thus Chiefs play no formal command role in war-fighting.

Not surprisingly, these achievements have been bought at the price of some major bureaucratic "turf" battles.  Even more jointery, however, should be pursued;  for two reasons.  The first is that we should organise our forces as we intend to use them in combat.  When notions of single service exclusivity get in the way of this goal, it is the single service notions which should be dumped.  Over time, the functional commanders (now a two-star or Major-General-equivalent position) are likely to have more authority and responsibility devolved to them.  With this will come a greater need for these commanders to be able to influence equipment acquisition and other policy development areas.

The second reason for more jointery is that it saves money.  Where non-combat support activities cannot be contracted out to the private sector, running them along tri-service lines (rather than maintaining three separate service institutions) will reduce administration and duplication (or, really, triplication).  Candidates for reduction in these areas include the Service music, clerical, legal, medical, dental, military police, base security, fire-brigades and chaplaincy establishments.

This is not to suggest that Australia should follow the Canadian pattern of abolishing the services as separate entities.  But keeping the services distinct does not mean that they should be given a blank cheque to build up their own establishments at the cost of more logical joint structures in the support areas.  The point of such rationalisations, it must be remembered, is to free resources from within the budget to be spent on the combat end.

5 DEVELOP PLANS FOR A CREDIBLE STRIKE REPLACEMENT

The ADF is structured to defend Australia and has only a limited capability to project power far beyond its shores.  Maintaining forces capable of long-distance strike operations, however, is an essential part of any credible defence policy.  Strike forces give Australia a flexible capacity to respond to attacks against our interests by threatening enemy forces at their source.  The prime strike component in the ADF inventory today is 21 ageing F-111 fighter-bombers which have a long range and a capacity to deliver precision-guided munitions.  Apart from its age (it was designed in the 1960s), the main problem with the F-111 is that it is being phased out of service in the United States.  In a few years, Australia could be the last country flying the aircraft.  Support and maintenance costs for the F-111 are already very high, and will get higher still towards the end of the decade.

In an attempt to keep the aircraft flying longer, the Government announced in October 1992 its intention to purchase up to 18 additional F-111s from the US.  These would be used as "attrition" aircraft to spread the number of flying hours over more airframes, and in this way keep the aircraft operational to 2020.  The Government has not specified what the full cost of the purchase will be, other than to say that the airframe price will be low. ⁽⁷⁾  The full price will have to take into account modernisation costs (which Senator Ray said "... would cost a couple of hundred million to bring the 18 up to scratch at least"), ⁽⁸⁾ and maintenance costs.  The latter is likely to be enormous because it has recently been revealed that the F-111s under purchase are a slightly different model -- the "G" rather than the "C" in RAAF service.  Many parts will not be interchangeable.  So two maintenance programs will have to be put in place. ⁽⁹⁾

There is a distinct possibility that the ADF is about to embark on a very costly project which may (but then again may not) squeeze a few more years of effective life out of the F-111.  At best the proposal is nothing more than a stop-gap measure before the more important work of defining an F-111 strike replacement is begun.  There is nothing to suggest that Defence has started this difficult task to date.  One problem is that there is no strike aircraft available now, or under design, likely to fit Australia's budget.  There are, however, other options such as stand-off strike missiles like the cruise missile or its variants.  What is needed is for Defence to initiate a joint study looking at all the potential options for strike replacements and the different ways in which such weapons can be deployed.  Acquisition would not take place until well into the next decade.

Regional sensitivities must be taken into account in discussing strike replacements.  But it is absurd to suggest, as some do, that Australia should forgo a strike replacement altogether because of these sensitivities:  it is doubtful that other countries in our region would accept that Canberra had a right of veto over their acquisition plans.  Clearly, though, these are matters which call for dialogue and explanation with our neighbours.  Ideally, a future strike replacement will not be announced as the F-111 augmentation was;  the casual answer to a Dorothy-Dix question in the Senate.  That sort of pre-empting the region can do without.

6 SCRAP THE READY RESERVE

The Ready Reserve was introduced as a cost-saving exercise.  Two regular Army battalions were scrapped at 6 Brigade in Brisbane, to be replaced by the supposedly lower-cost Ready Reserve scheme, whereby people receive full-time training for a year and then serve fifty days a year for the next five years.  The best that can be said about the Ready Reserve is that it represents the level of effort which should have been put into the existing ADF reserve, now known as the General Reserve.  The Ready Reserve, however, is not an adequate replacement for two regular battalions.

A force which operates together for only fifty days a year will not be as cohesive or well-trained as one which works together all year round.  Yet the claim is that the Ready Reserve does not diminish our defence capability in the slightest.  This might be true in a situation where many regular battalions were available for military operations before the Ready Reserve was called up.  As we have seen this is not the case.  With only four regular Army battalions remaining, the Ready Reserve will be one of the first formations committed to a military operation.  This reverses the more usual practice of initially using regular forces to meet defence emergencies.  More importantly, it raises as yet unresolved questions about the flexibility of reserve forces in low-level contingencies.  Governments must decide when Ready Reserve personnel will be called away from their civilian occupations and how long they will stay on alert.  In the context of what would be a highly-charged international political environment, a call-out could well be taken to be a hostile and provocative act, thus making the business of mobilising forces a difficult political matter in its own right.  Low-level contingencies tend to involve small clashes drawn out over a lengthy period -- regular forces are better suited to this type of warfare.

In sum, the Ready Reserve is not the solution to Australia's defence problems.  Even as a cost-saver, the scheme is turning out to be less than successful.  In May 1991, the cost of a Ready Reservist over a year was estimated to be around 42 per cent of a regular.  More recently, the cost appears to be closer to 70 per cent or even higher. ⁽¹⁰⁾  Seventy per cent of the cost of a regular for less than one-sixth of a regular's time is not good value for money.  The scheme should be scrapped and the two regular battalions re-formed in Brisbane where they were originally based.

7 DON'T GET CARRIED AWAY WITH PEACEKEEPING

In 1992 and early 1993, Australia was in the curious position of having more than a thousand troops deployed in north Africa.  This at a time when the Government was telling us on a daily basis how our destiny, indeed our very identity, was in Asia.  Why?  The answer is that the ADF had become over-extended in support of peacekeeping missions.

Peacekeeping is a good thing.  It gives Australia the means to make useful contributions to stability in world trouble-spots, thus promoting our image as a good international citizen.  It offers the ADF training opportunities in certain types of defence roles.  The downside is that peacekeeping is costly, diverting troops and resources away from their primary task:  training and exercising for the defence of Australia.  Sending a battalion to Somalia, for example, severely compromised our capacity to respond to a national or regional defence contingency, because it was one of only two regular battalions kept at a high state of readiness to respond at short notice to such crises.  Under normal circumstances the two battalions (part of the Operational Deployment Force based at Townsville) take turns being the designated force for immediate call-out.  With the absence of the battalion in Somalia, Australia's capacity to respond to a crisis and sustain forces in the field was limited to one battalion of troops.

The Defence Minister has acknowledged for a long time the need to set limits on when, where and in what strength the ADF will undertake peacekeeping. ⁽¹¹⁾  An obvious start would be to make commitments proportional to Australian and regional security interests.  That would preclude deployments of the size of the Somalia force (one or two companies of troops would have been more appropriate) and of the duration of the 45-person contingent in the Western Sahara.  The latter is a prime example of the type of peacekeeping operation which Australia should avoid.  Since April 1991, the ADF has run the communications component of the United Nations Mission for the Referendum in Western Sahara (MINURSO).  Very few Australians would know what the referendum was about, fewer still that the likelihood of its ever being held is growing increasingly remote.  It doesn't matter either way in terms of Australia's security interests.  The troops should be brought home.

Australia should concentrate its peacekeeping efforts in the Asia-Pacific region.  This would link peacekeeping with the broader policy of developing regional co-operation, making it more relevant to Australia's direct security interests.  Some have argued that peacekeeping should be given such a high level of priority that the ADF should be specifically structured to perform these missions.  Such demands should be strenuously resisted because they forget the reason for having a defence force in the first place, which is not to act as an international charity relief organisation.

8 SPEND MORE ON OPERATIONAL TRAINING

Operational training includes aircraft flying hours, ship steaming days at sea and Army exercise and training times.  The amount of spending on operational activities will in large part determine the competence and battle-readiness of a military formation.  Equally, the operational area can become a huge sink-hole for resources.  The problem is finding a balance between training needs and spending limits which satisfies the ADF.  At the moment this balance has tipped too far in favour of spending restrictions.  Unlike long-term equipment programs, operational activities are planned only a few years ahead at most.  They are easier to cut when demands are made of Defence to trim spending.

The cutting has gone too far, particularly in the area of available aircraft flying hours and use of ammunition in training.  In the case of the former, Air Force officers have been warning for years that fighter pilots have reached the absolute minimum number of flying hours needed to maintain acceptable safety standards -- around 175 hours a year.  In the case of ammunition, particularly some of the more expensive and complex types, usage is very limited.  In 1991, for example, only six RBS-70 air defence missiles were allocated to the 111 Air Defence Battery for training -- insufficient to ensure the equipment actually works, let alone meet training requirements. ⁽¹²⁾  Shortages of this kind undermine the professional competence of ADF personnel, who need to train in as realistic a manner as possible.

9 DEVELOP A STOCKHOLDING POLICY

One problem related to inadequate funding for operational training is that the ADF lacks adequate stocks of spare parts and ammunition to sustain itself for very long during a conflict.  A Parliamentary study found two main reasons for this problem.  First, a lack of resources to pay for increased stockholdings and, second, a failure on the part of Defence going back to the 1960s to develop a policy on the quantity of stocks needed to meet likely defence contingencies. ⁽¹³⁾  The study details the failure of more than a generation of officials (military and civilian) to arrive at what should be a fundamental element of Defence planning.  It is not clear why there has been such a persistent failure to address this issue.  In part it is the outcome of changing strategic perceptions, in part the result of service determination to go their separate stockholding ways, in part the product of an over-comfortable reliance on ready access to US stockpiles.  None of these factors has supported the development of a clearly articulated policy.

Yet the need for such a policy is obvious.  At present there is no clear guidance on the amount of ammunition and stores needed to deal with a low-level contingency in Australia's north, no policy detailing how the civilian transport infrastructure could be called on to meet Defence needs, no attempt to see what Australia could do were US supply options not available, and nothing addressing stockholding and sustainability needs during periods of more intense conflict.  The Parliamentary report presents a picture of the ADF's having less than acceptable minimum levels of stock on hand and no clear idea about how to rectify the situation.

It is not difficult to see how this problem relates to a lack of resources.  But of the two difficulties -- money and policy -- the lack of money can be solved as a result of the reforms I have proposed here.  The lack of useful policy presents a more fundamental difficulty.  In this regard a useful starting point would be to accept that it is impossible to make a definitive assessment of likely ammunition and stockholding usage.  Any halfway realistic assessment, however, will surely call for more stocks than the small amounts presently held.  If ADF stocks are not sufficient to meet our peacekeeping requirements (as the Parliamentary report shows), then these stocks are insufficient to handle even a very small-scale conflict in the north.

In August 1993, the Government tabled its response to the Parliamentary Committee's report.  Although agreeing in principle with many of the Committee's recommendations, it is doubtful that the Government will make any changes in stockholding policy.  The response itself was marred by the same level of obfuscation that prevented the development of an adequate stockholding policy over the last generation.  The following four statements are drawn from the first page of the response:

Defence policy is to maintain sufficient stock levels for all appropriate force elements to meet credible contingencies -- low and escalated low level conflict which remain our focus in accordance with approved strategic guidance.  (Paragraph one.)

Defence preparedness to meet any possible threat in the shorter term needs to be balanced against the need for continuing development of the force structure, specialist skills and infrastructure to meet the uncertainties of the medium to longer term.  (Paragraph two.)

The nature, scope and duration of a possible contingency for the defence of Australia are unclear and there is no simple means of determining the stocks of ammunition ... which the ADF might require in these circumstances.  (Paragraph three.)

Given the unlikely requirement for the ADF to have to mount operations for the defence of Australia in the shorter term, larger Government outlays on reserve stocks are inappropriate.  (Paragraph six.) ⁽¹⁴⁾

When read together, it is difficult to escape the conclusion that current stockholding policy is little more than gibberish.  The "approved strategic guidance" is to focus on low-level contingencies and requires the ADF to maintain sufficient stocks to be able to deal with them.  But the "nature, scope and duration" of these conflicts are unclear to Defence.  Despite the stated policy, Defence argues it would be wrong to spend more money on immediate stockholding requirements because there is no presently credible threat.  Rather, Defence wants to spend money building up resources for the "uncertainties of the medium to longer term".

In short, the policy is flexible enough to justify any level of stockholding or any variation in those levels.  Until some clear thinking is done, Defence is likely to continue chasing its stockholding tail for the foreseeable future.

10 REASSESS ADF OFFICER TRAINING

The ADF's future, its ability to meet and successfully to resolve the challenges it faces, depends in large part on the quality of its future officers.  One cannot, therefore, underestimate the importance of officer education and training.  Although the services continue to operate separate officer training institutions, the Australian Defence Force Academy (ADFA) is the most important because of its joint focus and because of the tertiary training function provided by the University College of the University of New South Wales.

There are strong arguments in favour of the University College's maintaining its complete autonomy in curriculum development, because the first and most useful aim of the College is to provide a balanced, liberal university education.  This does not allow room for faddish courses with "flavour of the month" status.  Equally important, that training must be relevant to the ADF's long-term interests and needs.  There are two areas where academic instruction needs to be expanded to support defence interests.  The first is strategic studies.  Although some ADFA courses touch on this field and there is some (very limited) service instruction, it is possible for an ADFA officer cadet to graduate after three or four years of study without having any rigorous instruction in strategic and defence matters.  There is an obvious flaw here, but one which can be overcome by adding to ADFA's teaching strength in areas such as international relations, country studies, and defence and strategic studies proper.  A department of strategic studies should be established for undergraduate instruction.

The second area is Asian studies.  Again, some ADFA departments offer courses in this area but not enough to make it possible for officer cadets to develop a detailed knowledge of Asia or specific countries in the region.  Thought should be given to collocating Defence language training facilities at ADFA and to augmenting these with more courses dealing with the history and politics of the region.  The failure to make these areas a very substantial part of officer training is quite remarkable.  It is like training would-be surgeons in all aspects of hospital procedure but leaving anatomy out of the course.  Expertise in Asian affairs or in strategic and defence issues cannot be picked up casually as some mid-career afterthought.  Rather, it requires systematic and detailed training of a type best begun when people are starting their careers.

SUMMING UP:  AN AGENDA FOR REFORM

Many fundamental elements of Australian defence policy are long overdue for reform.  The 1987 White Paper passed its use-by date some years ago, but until the announcement in late 1992 of an intention to produce a 1994 White Paper, the Government showed no serious intent of reforming the system.  Instead of a coherent, focused plan, Defence has been subjected to piecemeal reviews none of which addressed the fundamental need to set clear priorities for ADF activities.  It is to be hoped that the new White Paper will put these matters to right.  At the outset, one point is clear:  there will be no massive spending boost for Defence in the near future.  This is actually a good thing.  For too long the defence debate in Australia has amounted to not much more than saying that our security problems could be solved by throwing more money at them.  That never has been true.  More important than money is the need to establish clear goals for the ADF, and then to make the difficult structural changes outlined here so that the forces can better fulfil their primary objective of defending the country.

* * *

1993 BUDGET POSTSCRIPT

As expected, the Budget for 1993-94 cut real defence spending by 0.75 per cent, and projects annual real cuts of 0.5 per cent for the next three years. ⁽¹⁵⁾  Two things can be said about this outcome.  First, the Budget shows the absurdity of saying that the 1987 Defence White Paper still underlies current policy.  Second, nothing in the Budget suggests that Defence has developed a realistic response to its changed financial circumstances.  Both these points need to be explained in greater detail.

THE BUDGET AND THE 1987 WHITE PAPER

Defence policy since 1987 has been a story of declining expectations.  The year the White Paper was released, defence spending was projected to grow in real terms by three per cent annually between 1987 and 1992.  This growth never eventuated.  From 1987 to now, spending has been at or slightly below zero real growth.  The disparity created between the expectation and the reality of defence spending became too great, and in May 1991, the Force Structure Review repackaged the White Paper policy.  The FSR acknowledged that Defence would be doing well to maintain spending at zero real growth.  It laid out the Government's options in remarkably blunt terms:

Over a ten year period at current Government financial guidance of +l per cent real growth, expenditure on the defence program would total some $98 billion.  Such funding levels would enable the White Paper program to be largely completed by the end of the decade.  At a lower funding level, where no growth was provided, about three quarters of the White paper program could be funded.  If there were real reductions of -1 per cent per year continued through the decade, less than half the White paper program could be funded. ⁽¹⁶⁾

The Government picked the middle course.  Defence Minister Senator Ray told his Departmental senior managers:

Over the last few years we have had growth put into the Forward Estimates.  One and two per cent.  And even though I suppose CDF [the Chief of Defence Force] and others always knew that it would get cut out, I am sure that in the deep recesses of defence minds there was always the hope that you would get it.  I take the attitude, and it is not probably shared by my predecessor [Mr Kim Beazley], that it was best to knock all that guff out of the Forward Estimates now and face the realistic world. ⁽¹⁷⁾

Ray was sanguine about achieving only three-quarters of the White Paper goals:  "I think that is not a bad achievement overall", he told the same gathering.

In reducing defence spending from zero growth to real decreases, the crucial question is how close does the 1993-94 Budget go to the FSR's description of achieving "less than half" of the White Paper goals by the end of the decade?  The answer is, very close indeed.  Not only are there real spending cuts, but the consequences of other policy decisions also reduce the pool of funds available to be devoted to White Paper goals.  The most significant of these decisions include the costs of redundancy payments and the requirement to pay for wage rises from within budget resources rather than supplementation.  Defence is using redundancy payments to maintain the schedule of personnel cuts planned in the FSR.  In 1991, it was thought that these reductions would be achieved through natural attrition;  the recession, however, has almost halved the number of people annually leaving the Defence establishment.

It is difficult to determine the precise cost to Defence of redundancies and pay rises, but in a very candid assessment, the Vice-Chief of Defence Force, Lieutenant-General John Baker, said this in November 1992:

The effect over the FYDP [Five Year Defence Program] of productivity pay is a cost to the department of the remuneration outcomes of about $750 million a year, for which we had portfolio provisions for about $250 million, consistent with the $35 million a year put aside plus the gains from superannuation, leaving a net shortfall of about $585 million to be gained somehow over the FYDP.  That's too large a sum to absorb without any significant loss of capability. ⁽¹⁸⁾

General Baker is, of course, referring to military capability.

On top of the costs of productivity pay, Defence plans to shed a further 3,300 military and civilian personnel this year, at an average redundancy cost of $42,000.  Redundancies in 1993-94 will therefore cost something in the vicinity of $138 million. ⁽¹⁹⁾  At the Senate Estimates Committee hearings into the Budget, Defence Minister Ray agreed that "... there will be some hurt, I suspect, come onto the department over the five year period.  Estimating that is not easy, but it is nowhere near the quantum of $750 million [mentioned by General Baker]". ⁽²⁰⁾

Whatever the exact figure, it is abundantly clear that planned reductions in spending, and additional pay and redundancy costs, reduce the amount of funds available to be spent on White Paper projects.  Two years after the FSR, defence funding must be very close to the point where "less than half" of the White Paper's plan can be implemented by the end of the decade.  These financial realities have so clearly undermined the 1987 White Paper, that there seems little point in maintaining the fiction that it is the basis of current policy.

RESPONDING TO CHANGED FINANCIAL CIRCUMSTANCES

The second feature of the Budget was its failure to show how Defence will develop a new policy responding to changed financial circumstances.  It is disappointing that the Government did not take the enforced opportunity to look more thoroughly at reducing support areas which do not contribute to the combat capabilities of the Defence Force.  The piecemeal savings measures put in place mostly involve deferring projects to later years.  This just delays the more difficult task of revising spending priorities and reducing non-combat elements.  Post Budget, the Minister recognises that the effect of reduced spending will be "... that some projects in the pink book may be delayed by one or two years". ⁽²¹⁾  The "pink book" is Defence's rolling five-year plan for investment in new equipment.  We simply do not know what any of these projects will be because they were not designated in the Budget.

As such, some of the Budget's proposed savings measures are short-sighted and logically inconsistent, while other areas which should be cut have actually been allowed to grow.  For example, it has been decided to defer the acquisition of light armoured vehicles intended to give greater mobility to forces based in Darwin.  This undercuts the whole rationale of the $700 million program to relocate one battalion of regular troops to Darwin by 1997.  More than 2,000 troops from the Army's First Division will be moved to the Northern Territory by the year 2000.  This decision leaves unbuilt the vehicles essential for their mobility in the north.  While this cut has been made, the Budget proposes to continue providing mechanised transport for Army Ready Reserve forces in Brisbane.  According to this decision then, our reserve forces will have greater mobility than the first-to-fight troops they are designed to relieve.

The "general administration" budget is set to rise by a nominal seven per cent to take account of "price increases for a broad range of general administrative items" including "office requisites, postage and telephones, fuel (but not for Service operational activities)".  Excluding additional funds rightly set aside for compensating victims of the Voyager disaster, spending in this area will increase by around $56 million for a total general administration budget of $1.2 billion.  At this level, administration accounts for almost 12.5 per cent of total defence spending.  Yet the Budget makes no proposals to cut or defer spending in this area.  This contrasts with a nominal increase of 1.4 per cent in operational costs, the area which supports Defence training and exercise activities.  In real terms, this translates into a net cut in operational spending, which means that there will be an even greater squeeze on the available aircraft flying hours, Navy days at sea and Army exercises.  Training of this sort is at the core of maintaining the military's professional capabilities.  It seems likely that the operations budget will again bear a disproportionate burden of the cuts.

It is surprising that the Government is continuing to relocate the Navy Hydrographic Office to Wollongong, at a cost this year of $6.9 million and over $19 million in total.  The move should have been postponed at least until after a decision had been taken on the $150 million plan to build three new hydrographic vessels.  It is highly likely that this project will never go ahead.  There is no room in the Budget for the ships and there are more attractive options involving the private sector.  In short, the Budget offers the worst possible outcome:  a $19 million hydrographic headquarters along with the near certainty that there will be no money for hydrographic ships.

Collectively, the absence of detailed proposals to cut rather than simply defer programs shows that this Budget just delays the task of reconciling Defence plans to financial reality.  This only reinforces the need for the projected 1994 Defence White Paper to map out a financially realistic strategy.  The Budget does not generate much confidence that this redefinition will take place quickly or even that it will be a feature of the new White Paper's thinking.

---

ENDNOTES

1.  Alan Wrigley, The Defence Force and the Community:  A Partnership in Australia's Defence (Report to the Minister for Defence, AGPS, Canberra, June 1990) pp. 65 ff, 488.

2.  Figures on defence professions come from Hansard (Senate), 7 May 1991, pp. 2586-2860.  ABC figures from the ABC, Annual Report 1986-87.

3.  New Zealand Defence Force, Annual Report for Year Ended 30 June 1992, (Government Printer, Wellington, 1992).

4.  "Multilingual Army for 2002", Defence, Industry and Aerospace Report, 23 April 1993, p. 15.  Officers without language aptitude will be encouraged to study courses in "Asian culture".

5.  Department of Foreign Affairs and Trade, Annual Report 1991-1992, pp. 363, 392.

6.  Gordon Bilney, The Wrigley IDC ["Text of a speech given recently to a number of groups of military officers."] (Typescript, March 1991).

7.  On 29 June 1993, Senator Ray announced that Cabinet had agreed to the purchase of 15 F111G aircraft for $146 million, of which the cost of the aircraft was $78 million and spares $68 million.  The aircraft cost will reportedly be covered by a supplement to the defence budget, but not the spares which will be paid for by cutting other defence programs.  The Government's announcement will hardly be the last word on the issue given what can only be very conservative assumptions about maintenance and operating costs.  "Ray under attack on F-111 funding", The Australian, 30 June 1993.

8.  Senator Ray speaking on the SBS television program "Dateline", 15 October 1992.  (Transcript).

9.  For details, see Hansard (Senate) Estimates Committee B, 10 May 1993, pp. B53-B55.

10.  The 42 per cent figure was presented in Department of Defence, Force Structure Review:  Report to the Minister for Defence, (AGPS, Canberra, May 1991), p. 46.  For reports of the 70 per cent figure, see "Costs soar on reserve force plan" Sunday Age, 12 July 1992, p. 5.

11.  Most recently in, Senator R. Ray, "Self-reliance a guiding light to the future", The Australian, 28 May 1993, pp. 15, 18.

12.  Parliament of the Commonwealth of Australia Joint Committee on Foreign Affairs, Defence and Trade, Stockholding and Sustainability in the Australian Defence Force, (AGPS, Canberra, December 1992), p. 74.

13.  Ibid., p. 65.

14.  "Response by the Minister for Defence to the Parliamentary Joint Committee report on Stockholding and Sustainability in the Australian Defence Force" (Transcript, p. 1.  The response was tabled in the Senate on 19 August 1993.)

15.  Budget data is taken from:  Commonwealth of Australia, Budget Statements 1993-94;  Budget Paper Number One, pp. 3.30-3.45;  and Minister for Defence, "Defence Investment Plans and Efficiency Initiatives Remain on Track", News Release No. 92/93, 17 August 1993.

16.  Department of Defence, Force Structure Review ... op. cit. p. 3.

17.  Senator Robert Ray, "Speech by Senator the Hon Robert Ray, Minister for Defence", Compendium of SES [Senior Executive Service] Recall Day Speeches, (Department of Defence, Training and Development Branch, Canberra, September 1991), pp. 3-4.

18.  Speech by Lieutenant-General John Baker, Vice-Chief of Defence Force, Compendium of Division Heads' Forum 2/92 Speeches, (Department of Defence, Canberra, 27 November 1992), pp. 9-10.

19.  Parliament of Australia, Hansard (Senate) Estimates Committee B, 31 August 1993, p. B 7.

20.  Senator Ray, ibid., p. B 18.

21.  Ibid.

Unnatural Science

The Unnatural Nature of Science
Lewis Wolpert
Penguin Books Australia

WE must all hope that the light on the hill will some day shine down on a "clever country" -- a country where science flourishes alongside a busy economy.  But the imbecilities of the educational swamps at the foot of the hill (imbecilities which now reach far up its lower slopes and seem at times in danger of putting out the light) do make one wonder.

What progress is likely when at ministerial levels in Canberra a National Statement on Science implies that "there are no facts", and that if a child's delusions conflict with science then they should be treated with reverent pedagogical concern.  How is one to obtain a political leadership capable of informed decisions about the environment, or genetic engineering, or nuclear research, when the graduates of our Faculties of Arts (the usual background of politicians) so often display a deep ignorance of science along with a malevolent hostility to all it represents?

Yet this hostility is probably inevitable -- as inevitable as the universal resentment of power, status, privilege and success.  The very prestige and indispensability of modern science make it the target of three kinds of people.  First there are those who admire it, but feel excluded, and long to join the club.  Examples of this are the old-time Marxists for whom Marxism was "the science of society";  "scientologists" desperate to raise the standing of their cult;  and promoters of "Aboriginal science" who claim, in effect, that anything you can do we did already.  All of these people want the prestige of science without earning it.

Then there are those who envy science, and whose effort to denigrate its success and undermine its achievement derives from a resentful longing to destroy what they cannot match.  Examples of this are the "there are no facts" school of radical sociology, the "all cultures are equal" school of "sociology of knowledges" (sic) people who seek to explain away the whole marvellous edifice of the last 200 years in terms of the career needs of individuals, or class interest, or favourable cultural conditions -- anything at all excepting science itself.

Finally, there are those who genuinely hate science because it is the opposite of all they stand for.  Here we find the romantic admirers of unspoiled nature and everything natural, a group including large numbers of bohemianised academics.  However blind and ignorant they may be, one cannot say their instincts are wholly wrong.  For as Lewis Wolpert points out in this sane, reasonable and good-humoured defence of science (he is Professor of Biology as Applied to Medicine at University College, London, and as well as being the author of the book here under discussion, The Unnatural Nature of Science, has written a number of other books) science is unnatural through and through.

Commonsense will not lead you to discover the chemical properties of DNA, and carving boomerangs will not help you design supersonic wings.

"Natural thinking", writes Wolpert, "ordinary day-to-day common sense, will never give an understanding about the nature of science.  Scientific ideas are, with rare exceptions, counter-intuitive ... (Furthermore) common sense is prone to error when applied to problems requiring rigorous and quantitative thinking;  lay theories are highly unreliable".

But there is really no reason to feel ashamed about this.  Evolution developed our perceptions and our brains for more immediately sensible things -- for the sight of falling leaves, for the smell of smoke on the wind, for the sound of a footstep in the night.  "Scientific understanding, however, is not only unnatural", writes Wolpert.  "For most of human evolution it was also unnecessary, since, as will be seen, technology was not dependent on science".

TECHNOLOGY IS NOT SCIENCE

Here the author is pointing to the common misunderstanding which equates science and technology -- a misunderstanding found even in journals like New Scientist.  Last May an article from the Northern Territory reported with pride the publication of "a magnificent booklet entitled From Ochres to Eel Traps which illustrates, through a number of simple experiments, how Aboriginal science can be transferred to a Western classroom".  It is good to know the experiments are simple.  I am sure that children will discover useful things about Aboriginal crafts and have lots of fun.  But what they are learning is how to make fish traps -- technology -- not science.

The ingenuity of palaeolithic hunters and gatherers in devising snares and traps and spears and harpoons (something all our ancestors did all over the world) is something we can sincerely admire.  But science is something else.  Science embodies coherent and universally applicable theories about matter, process and cause, not just a craftsman's experience of what heating and bending will do.  Moreover, in Wolpert's Chapter 2, "Technology is not Science", various civilisations are mentioned with technologies far in advance of anything the Aborigines achieved -- Ancient Mesopotamia, China, the Incas of Peru -- none of which had science.

"The technological achievement of the ancient cultures was enormous", Wolpert writes.  "But whatever process was involved it was not based on science.  There is no evidence of any theorising about the processes involved in the technology nor about the reasons why it worked".

Despite the glories of both Romanesque and Gothic, the nearest the builders of those mighty cathedrals ever came to a scientific grasp of what they were doing was contained in "The Five Minutes Theorem":  if a structure was built and remained standing for five minutes after the supports had been removed, it was assumed it would stand forever.

In a refreshingly brisk manner, Wolpert declares that unnatural thinking began with Thales in Greece.  It was he who first systematically "tried to explain the world not in terms of myths but in more concrete terms, terms that might be subject to verification".  Before Thales, typically, there was the kind of Babylonian hodgepodge in which "Marduk split the primeval water goddess Tiamat to make the sky ..."  After Thales, in the West, that sort of thing steadily declined.  Replacing it "came a critical appreciation of the nature of explanation itself, and the requirement for logical consistency".  The stage for science was set.

Now this is, of course, a dreadful heresy in the eyes of the "all cultures are equal" crowd, who fiercely resist the notion that there is "little chemistry and less calculus in Tikopia or Timbuctoo".  (Behold, ye doubters, the palaeolithic fish-trap!)  According to them all knowledge is "socially constructed" and the whole body of modern science might have been quite otherwise if different historical and social conditions had prevailed.  Or if affirmative action had given some other culture a chance.  Much of this seems to me self-serving nonsense, a "debilitating befuddlement" not worth the paper it's printed on.  Is it seriously suggested, as Wolpert rightly asks, that "a biology not based on cells and DNA would have been possible?  Would the periodic table or carbon chemistry never have emerged?"  It is not enough for relativists to defiantly answer "Yes".  As the author says, major counter-examples must be provided if their argument is to be taken seriously.

Is science beleaguered today?  Perhaps it is wrong to be too alarmed about the situation overall.  If movies habitually portray scientists as "unstable, anti-social Professor Branestawms avidly pursuing their theories but ignorant or careless of the consequences", there are also creditable television science and technology programs such as Quantum, Beyond 2000, and an Open Learning chemistry course is planned.  If last June's National Statement on Science represents the Higher Lunacy of the Left in Canberra, I hope I am not being unduly complacent in feeling that wiser counsels are bound to prevail.

THE ATTACK FROM THE HUMANITIES

Yet the situation in the Arts faculties of the universities does give cause for concern.  The leftism which failed in its long assault on our political institutions has had much more success with the soft targets available on campus.  And its anti-scientific stance is just as destructive as ever.  What we have is a radicalism which no longer believes in progress, fears that it no longer has any reason to exist, and in the name of "post-modernism" is nihilistically destroying whole areas of study.  In the course of this the humanities are being fatally weakened as a positive influence in our life.

In sharp contrast to this reactionary radicalism, science has no option but to interpret the past in terms of progress:

"It is precisely in this respect that science, once again, is special:  for the history of science is one of progress, of increased understanding ... In the last 50 years the progress in, for example, understanding biology at the molecular level has been astonishing.  Science is progressive in that the truth is being approached, closer and closer, but perhaps never attained with certainty.  But very close approximation can be a great achievement and is infinitely better than error or ignorance".

Moreover, in this situation science represents one of the last places on the campus where the distinction between truth and falsehood still matters, where rationality, order and discipline still count, and where personal conduct broadly conforms to a moral code which both liberals and conservatives can approve.  Liberals have always been more or less at home with science's innovation and entrepreneurial inclinations.  But this is a time when conservatives, too, must face up to the ruinous condition of many Arts Departments, and throw their weight behind the best bet for a civilised future we have.  Science needs and deserves their support.

Perhaps Wolpert should be allowed the last word.  He is here rebuking the sociologists for their activities, but there is a message for others too.

"By ignoring the achievements of science, by ignoring whether a theory is right or wrong, by denying progress, the sociologists have missed the core of the scientific enterprise.  Science has been extraordinarily successful in describing the world and in understanding it.  There is real need for sociologists to try to illuminate this unnatural process.  What is required is an analysis of, for example, what institutional structures most favour scientific advance, what determines choice of science as a career, how science should best be funded, how inter-disciplinary studies can be encouraged".

Perhaps the next National Statement on Science could explore these questions.  When they are answered, and appropriate policies are adopted, we might move closer to that still undiscovered bourne -- the "clever country" the politicians talk about.