Defence should pay price in Labor's first budget

For the best part of the last fortnight we've been obsessing about the possibility of government withdrawing a commitment to future reductions that will provide most benefit to those earning over $180,000 - a group including, completely incidentally, the politicians themselves. Ignore that these cuts are not even due to kick in until mid-2024. Dismiss the far more significant reality that abolishing them would fail to address the underlying fundamentals of inequality in Australia.

Those obsessing on the minutiae of domestic politics are pouring over the entrails of the debate in the hope of finding either (one) a dramatic split within Labor, or (two) a cross with which to beat a government "reneging on policy commitments"!

As if this matters.

It's like watching a sailing race. Yes, the captain (Anthony Albanese) has just ordered the tack to shut down debate and yes, the helmsman (Jim Chalmers) held to port a moment longer than needed; but really, who cares? When the boat's heading for the rocks what's needed is a complete change of course, not fiddling with cut of the jib.

The real task of our (still new) government is far greater than obsessing about little things such as marginal tax rates. The real questions facing the country run much deeper.

No matter how highly desirable increasing high tax brackets might initially appear to be, such measures ignore the reality of how such taxes work. They penalise work, not wealth and are increasingly unaligned with inter-generational transfer of prosperity (and inequality). What makes these stories so appealing to journalists is that people have a personal stake in tax cuts. It doesn't take much imagination to compute how much extra cash will be left in your pocket. This gives such issues a ready immediacy that ensures they dominate the news agenda.

In the meantime real questions, problems such as the increasing concentration of wealth (and ability to enjoy the benefits of low tax, more or less regardless of wealth) among aged members of society goes unnoticed and state governments continue to avoid actually imposing tax reforms they committed to with the introduction of the GST, such as property taxes. Talk of introducing any sort of inheritance tax remains the great prohibition of national politics, and yet people still seem to be surprised by the fact prosperity is increasingly concentrated. Education is another of these 'no go' areas, despite continuing evidence (in the form of trophy sporting fields, luxury art gallery's, and concentrated ATAR results) that such subsidies are overwhelmingly directed towards schools that don't need them.

People like Bob Breunig of the ANU's Tax and Transfer Policy Institute point this reality out in a refreshingly calm way, devoid of the sort of angst and emotion that so bedevils political argument. These are straightforward questions. Someone has to pay; the only question is where will the money be found?

Polling, such as last week's Resolve survey, simply tells us what we already know. Voters want government spending curbed. When asked to nominate where such restraint was needed more than one-third rushed to nominate budget savings in defence. Defence Minister Richard Marles was concurrently outlining a plethora of projects which are running nearly a combined century late and hugely over-budget. You do not need to be a political genius to discover a link here.

What's vital is trend lines.

At the same time as the tax cuts debate was spluttering along, Western Australia's governor (former Labor leader and former long-term defence minister) Kim Beazley was busy presenting the case for greater defence expenditure. He accurately pointed out that we'd need to boost defence spending to well over two percent of GDP simply in order to maintain our current force structure. That's without adding nuclear submarines. His case was watertight; as taut as a sailor as they ready their boat to come about and keep tacking downwind. Strategic theorists, uniformed services, manufacturers and equipment contractors applauded because they all agreed we needed to remain steady, keep to the current course, and just ignore the looming reefs ahead.

That's perfectly understandable because it's what we've done in the past; remained on track to find the narrow gap between the rocks and sail on through. Unfortunately this is not a strategy that we can hold to today. Simply hoping more money will turn up to bail out the spending requirements no longer provides a plausible, long-term solution to the problem of defending the country.

Growth is slowing. Expenditure on aged and disability care will be curbed, but it isn't susceptible to significant economies of scale or production efficiencies. Immigration can no longer be relied on to boost productivity, because the big gains have already been made. Although migrants do bring money and add diversity, the bonus value they bring today is not the same as it was in the past. Huge profits from mining and resources are veiling the reality of an economy that is becoming increasingly sluggish. Unless the current defence review recognises this, its prescriptions for the future will be out of date as soon as they arrive.

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Marles needs to continue the steps he made last week to take ownership of this issue. Pointing out the military's inability to keep its current budget demands within the funding envelope is the first step in achieving his political selling job. The electorate is ready to hear his message and his timing is right.

This country will need to discover a new way of finding its security. Either we continue with the current force structure - an army composed of three mechanised brigades; a navy built around amphibious forces and submarines; and piloted fast jets for the airforce - or we revitalise the structure for a new century.

The reality of the fiscal envelope requires a new strategy.