from Crikey …..

Hockey goes off the reservation on handouts -- at long last

Crikey Canberra correspondent Bernard Keane writes:

FISCAL POLICY, JOE HOCKEY, MIDDLE CLASS WELFARE, TRANSFER PAYMENTS

The slow but intriguing transformation of Joe Hockey into the Coalition frontbench's economic conscience continues. Earlier this week, we flagged in The Power Index how Hockey's recent policy battles had been within the party, over issues such as industry assistance. His comments about "the age of entitlement" overnight, however, take him right off the reservation.

Have no doubt that Hockey's condemnation of Australians' entitlement mentality is well-supported within the Liberal Party, and at senior levels. But under Tony Abbott, such criticism has hitherto been muted, partly because Abbott himself is a fervent believer in middle-class welfare and partly because attacking the government's mild attempts to rein it in proved a potent political weapon, especially when closely co-ordinated with News Ltd newspapers. In Battlelines, Abbott's inconveniently hard-copy collection of policy ideas, he went so far as to say middle-class welfare was necessary to retain widespread electoral support for income assistance for low-income earners.

Indeed, Hockey himself has previously been on the record as saying that middle-class welfare was necessary to "grease the wheels of structural change" in the face of a mining boom. This was a key part of the "nostalgianomics" approach of Abbott and Hockey, in which they insisted they could transport the Australian economy back in time to a pre-GFC point where the mining boom would drive big revenue increases that could be delivered to voters via endless rounds of tax cuts.

It's hard to overestimate how central the "entitlement mentality" was to the Howard model of electoral success (Howard himself passionately hared the term "middle-class welfare"). Providing endless handouts and tax cuts to key constituencies -- particularly middle income voters getting Family Tax Benefit A -- was a core Howard strategy, and by the final term of his government the mining boom was delivering the revenue to fund it, fuelling inflation and the interest rate rises that so anguished Howard in his last desperate days. Howard's strategy then was simply to shovel the money ever more furiously until Public Service departments literally didn't have enough public servants to staff the cash fire hoses.

I asked Hockey in 2009 whether he was comfortable about the Howard government's approach to fiscal policy. "No one was demanding that we have bigger surpluses," was his response.

Now Hockey appears to have significantly reversed himself on entitlements, and not before time. At long last, someone in the Liberals is publicly prepared to address the disconnect between the Liberals' embrace of middle-class welfare during the Howard years and its ceaseless small-government rhetoric. Although, Hockey's attempt to compare us to the approach of Asian economies to welfare is spurious and a little bizarre.

Noteworthy, too, is his apparently deliberate identification of compulsory superannuation as a key mechanism for avoiding European-style problems in entitlements. The Coalition are profoundly ambivalent about compulsory super and would, in their heart of hearts, like to do away with it, or at least with the direction of income into industry super funds, which they regard as union-run pigs' troughs.

Hockey's comments flag that, at the very least, he'll be pushing within the Coalition's policy process to wind back transfer payments. He must do so now, having deliberately created expectations of action rather than words.

Which payments gets targeted, of course, is the issue: the Republican approach in the US has been to wind back transfer payment and support programs for those most in need of them, low-income earners and the working poor, while delivering tax breaks and handouts to the super-rich.

Labor will attempt to paint the Coalition's support for a mining tax while putting transfer payments under the microscope as evidence of the same Dooh Nibor approach. The tweets write themselves. Indeed, they've already done so.

But Hockey, like every politician in Canberra, knows the budget is padded with billions of dollars in handouts to taxpayers and companies, and there's real potential to move the budget into structural balance or even surplus with some political will.

The question for Hockey is, how long his courage will remain once he returns to Australia and has to deal with cranky colleagues. And perhaps even a cranky leader.

Is Joe Hockey starting his run for the Liberal Party leadership and, therefore, the Lodge? Or maybe the run just became more obvious as he goes where Tony Abbott hasn't: into the realm of Liberal economic responsibility.

The politico-economic highlight of the week might have been Smokin' Joe's attack on entitlement mentality, rather than Julia Gillard's attempt to justify the government's surplus-or-bust commitment.

Don't forget that Tony Abbott is only the Leader of the Opposition and an election from the Lodge because Hockey refused to put up his hand against his then leader, Malcolm Turnbull. Loyalty and all that.

Abbott has been extremely successful at the business of attacking Labor, but paradoxically he also remains about the only thing still going for the government - which isn't much. With the anti-Labor momentum having rolled through New South Wales and Queensland and just awaiting its chance federally, somewhere in the Liberal Party is the knowledge that they no longer need an attack dog at all costs, that maybe it's time to consider the occasional sustainable policy instead of relying on the negative (albeit very successful) slogans and Ju-liar chants.

Enter the Member for North Sydney, daring to offend and challenge while his leader prefers to promise everything to everyone: scrapping the new taxes, cutting the old taxes, increasing the handouts while miraculously cutting the spending - quick, give the man loaves and fish.

The excuse for Hockeynomics has long been Abbott's policy on the run, the shadow treasurer having to make what he can of what's tossed down to him. The government's surplus fixation effectively makes that harder - if Swan's budget next month cuts and trims as much as it must to reach the political target, knocking 2.5 per cent off GDP in the process, it becomes harder for Hockey to make with the Magic Pudding.

It's Big Joe who doesn't mind pointing out the inanity of Barry O'Farrell's opposition to a second Sydney Airport, who isn't all the way with General Motors, who can see the cost of maternity leave payments that are the opposite of means tested (better payments for the better off), who is happy to have a slap at the welfare system instead of gilding it. Slugger Abbott is still out telling every interest group whatever it wants to hear, along with the threat that everyone will be jobless as soon as the carbon tax starts.

Joe Hockey can't make a speech about entitlement mentality without implicitly attacking Abbott's grandiose maternity leave policy. And he can't look remotely credible proposing a budget that includes Abbott's promises of lower revenue, lower debt, lower taxes and increased spending on pet projects after Swan trims much of the available fat ahead of him - particularly if Abbott predictably attacks whatever Swan does that offends any existing "entitlements". The rampant middle class welfare of the John Howard past and the promised Tony Abbott future don't fit with Canberra's bi-partisan surplus mantra.

Increasingly the shadow treasurer is challenging his leader's vibe as much as Wayne Swan's. Somewhere along the line, there's a choice for the Liberal Party about what sort of government it wants to form - something with the chance of economic credibility, or the Magic Pudding thus far proposed. Instead of trusting politicians to lie to them, the electorate more recently has made obvious it has little time for those who can't keep their promises.

Run, Joe, Run