Are people taking economic growth for granted?

As commenter Richard notes, Oznomics author Andrew Charlton has an op-ed in today’s SMH arguing that:

The most popular misconception in economics and politics is that if the economy is humming along, the government must be doing a good job – it must be a capable economic manager and its policies must be working. … The truth, however, is that politicians have much less control over the economy than they would have us believe.

But what does the public actually believe? Increasingly, it seems, they have become sceptical of claims that the government deserves credit for a strong economy. At each of the last six elections, the Australian Election Survey has asked:

[compared with 12 months ago], what effect do you think they [the government] have had on the general economic situation in Australia as a whole?

At each election, the proportion saying ‘not much difference’ has increased, starting at 39% in 1990 and reaching 57% in 2004. In the same time, the proportion of people thinking the goverment has a ‘bad’ effect has dropped from 52% to 8%, while the proportion thinking the government has a ‘good’ effect has increased from 9% to 35%. It seems we blame governments for recessions more than we give them the credit for booms.

Unlike most public opinion on economic subjects, this is an arguable case. As economist blogger Stephen Kirchner argues in the latest issue of Policy:

In Australia, the [early 1990s] recession and subsequent disinflation were partly a policy mistake, with costs that would never have been viewed as acceptable had they been known in advance.

This mistake was one in monetary policy, and as commenter Richard (and indeed Charlton, in his book) says not making mistakes – or at least not making big macro mistakes – is an important achievement. With its successive statements on the conduct of monetary policy, effectively giving monetary policy power to the Reserve Bank, the Howard government has helped avoid derailing the good economic conditions engineered by micro reform and some global good luck.

Interestingly, poll respondents seem to give goverment less credit for changes in their household financial situation. Those saying ‘not much difference’ has been above half in all six surveys, and except in 2004 more people think that such effects are bad rather than good. Perhaps this is because tax obviously reduces household income, while non-cash benefits are undervalued. Also people are perhaps inclined to put their income down to their own personal efforts, rather than seeing how good economic policy makes earning a good income possible. (Conversely, those doing badly will prefer to blame the government rather than their own shortcomings.)

Overall, though, we can perhaps start to see why although the Howard government is viewed as better on the economy than Labor, that isn’t the electoral asset it might have been in the past. As prosperity continues year after year it becomes easier to see it as a ‘natural’ state of affairs to which the government makes ‘not much difference’, as more than half of respondents thought in the 2004 AES, and on this theory more again will in the 2007 AES. Meanwhile, rising income is due – in their minds – to voters’ own ability and hard work.

By contrast, government is still thought capable of improving health and education – areas in which Labor, albeit with no greater grasp on reality than giving the Coalition credit for the economy, is seen as the stronger of the two major parties. In this context, a Labor vote has its own logic.

63 thoughts on “Are people taking economic growth for granted?

  1. Andrew

    It seems to me it has become a one way street.

    People seem to think that the government has less of a handle on the good times. However they are quick to blame them for the bad times too.

    Like

  2. Andrew

    slightly O/T – re your article in Policy about how Costello has not lowered spending as a % of GDP, i think you could have been even harsher on Costello than you were.

    if you take a look at these stats from the UK you will see that spending as a % GDP peaked at 48.8% in 1982 as Britain was coming out of a deep recession and then plummeted to 39.7% by 1989 during seven solid years of economic growth.

    That Costello has not lowered this ratio during ten strong economic years is a disgrace.

    The relevant spreadsheet is B2.

    Like

  3. Pommygranate – I don’t know enough about how the British do their sums to know if that is a fair comparison – writing that article certainly reinforced in my mind how hard it is to do these comparisons over time in ways that compare like with like (Robert Carling’s article that follows mine is an attempt to reconstruct the Australian accounts on a consistent basis).

    For example, there is a large drop in the British accounts for depreciation, which does not appear in the Australian accounts. Was this because privatised assets were no longer being included in public sector accounts? Of course I support privatisation, but such a drop would not indicate a decline in ‘core goverment’ spending, the health, education and social security items I was discussing in relation to Costello.

    To really do this properly, you can’t really on proxies like % of GDP. You have to go through the Budget program by program – a mammoth task.

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  4. Andrew, thanks.

    I happen to agree with Andrew Charlton that politicians deserve little credit or blame for economic performance. The key determinants of economic outcomes in any 5-10 year period are (a) the performance of the central bank (b) the lagged effect of earlier reforms (c) the strength of the global economy and (d) the terms of trade. All these external factors have had much more to do with Costello’s success than his own fiscal or microeconomic reforms. But I do not completely discount the latter. After all, politicians can foul the nest at times.

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  5. “then plummeted to 39.7%”. You may well agree with this pommygranate, but going from 48.8% to 39.7% might not be best described as plummeting, perhaps trickling down is better.
    Incidentally, whilst it might be extremely tricky to work out all of the real expenses, it seems pretty clear to me that many countries have exceptionally similar education and health care system across the world, yet have lower expenditures than Australia. In addition, given that Australia is not exactly swamped by unemployed people or pensioners (at least comparitively speaking) I wouldn’t buy the argument that Australia should be spending comparitively large amounts on social security, unless someone could show me how poor people are really better off than other places.
    I third think I’m not clear about is why public assets should be causing the government to spend more — many assets should costs the governement zero in spending. The government used to make a profit on things like Telstra and other public utilities.

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  6. Conrad – As the Treasurer points out, we still have fairly low expenditure as a % of GDP by OECD standards, reflecting targeting, large private education and health sectors, and some favourable demographics.

    If you are counting the spending of publicly-owned companies it will inflate ‘government’ spending, ie you would get increases on both the expenses and revenue sides. I am not sure whether this was the case in the UK, but the dates seem to match.

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  7. Fred

    How about tax policy? How about labor market reform? How about privatizations?

    Government sure does effect the economy.

    Stick the capital gains tax to the marginal rate. Close the labor market and renationalize a few industriies and then see what happens to our standard of living.

    Oh, i forgot, we may be finding out soon enough.

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  8. “Stick the capital gains tax to the marginal rate. Close the labor market and renationalize a few industriies and then see what happens to our standard of living.

    Oh, i forgot, we may be finding out soon enough.”

    I’m not so confident that Rudd will do these things, but one can hope.

    Like

  9. Kev may not, Spiros but there more than a few on that intellectually stimulating front bench who would try…. Kim Ill Carr and Julia Chavez to name just two.

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  10. I think there is definately a sentiment out there that if I lose my job, it is because of a government induced recession/workplace relations reform etc. When I get a wage increase, or when I get a new job after being unemployed? Well – that’s just down to my own hard work and brilliance.

    Politically this sentiment is very difficult to deal with, and we can see the effects of that currently. The Federal Government is getting little credit from the average punter for the benefits of Workchoices – namely over 300,000 new jobs in roughly one year – but copping the blame for the negative aspects – eg. loss of conditions when moving from an award or EBA to an AWA.

    If this sentiment is one that cannot ever be shifted, how on earth are we going to make the case for arguably more important and more painful reforms in the future – eg. reform of the minimum wage and the eradication of domestic subsidies?

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  11. “that intellectually stimulating front bench”

    As opposed to the giant intellects on the government side, like Alexander Downer, Joe Hockey, Kevin Andrews ….

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  12. True Spiros, they may not be much chop either.

    However I would much that group than one that thinks we need food prices police , that industry protection policy is optimal and a silly woman who doesn’t understand labor economics as the leading lights of a political party.

    Other than Gillard who worked for that law form of ambulance chasers for a short while can you name one of those people who has actually worked and secured a job in the private sector at a higher level than waiter or janitor while studying to gain entry into a government paid or union affilated job?

    I can’t?

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  13. JC
    “I would much that group than one that thinks we need food prices police”

    The government thinks we need a petrol prices police. They have the ACCC inquiring into it as I write.

    “that industry protection policy is optimal”

    It is the Labor Party that has traditionally been the party of free trade in Australia. John Howard has had umpteen opportunities to eliminate protection for the car and clothing industries and squibbed them all.

    “a silly woman”

    Compared to Bronwyn Bishop, Amanda Vanstone, Juile Bishop and Helen Coonan, Julia Gillard is anything but silly.

    “can you name one of those people who has actually worked and secured a job in the private sector ”

    Kevin Rudd worked for KPMG after he lost his seat in 1996. Nicola Roxon and Robert McClelland were lawyers in private practice. You can look up the rest on the parliament house web site.

    “a government paid job”

    Alexander Downer was a public servant before going into politics.

    Not that there’s anything wrong with public servants as such.

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  14. The government thinks we need a petrol prices police. They have the ACCC inquiring into it as I write.

    Which is totally stipid idea. Do you think it is too?
    ———————-

    It is the Labor Party that has traditionally been the party of free trade in Australia. John Howard has had umpteen opportunities to eliminate protection for the car and clothing industries and squibbed them all.

    So you think this lot on the front bench of the ALP are a bunch of free traders is disguise? Kim Carr is a free trader? That’s a good thing if it is true. Are you , Spiros?

    Stop looking backwards. Hawke was a special case. The history of the party is protectionist. It rose from the coffin of protectionism.

    ————————-

    Compared to Bronwyn Bishop, Amanda Vanstone, Juile Bishop and Helen Coonan, Julia Gillard is anything but silly.

    But also a distastful person to boot. Julia Chavez almost wrecked a couple’s lives in Goulburn to win some pathetic argument over AWA’s. She should have been thrown out of parliament for good over that.

    ——————————–

    Kevin Rudd worked for KPMG after he lost his seat in 1996.

    Please. Kev has been a tax eater for most of his entire adult life.

    ———————-

    Alexander Downer was a public servant before going into politics.

    Ok. I’ll raise you call with Downer and raise you that entire front bench of losers.

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  15. JC

    “Hawke was a special case”

    Wrong. Whitlam cut tariffs by 25% in 1973. The Fraser – Howard government put them back up again.

    “Kev has been a tax eater for most of his entire adult life.”

    You asked for one Labor frontbencher who has worked in the private sector. I gave you three.

    As for your prejoratives about tax eaters, you are insulting our host, who is employed by the publicly funded University of Melbourne. Shame on you.

    As for the whether Labor front bench are losers, the way things are looking now, they will be big winners at the end of the year. If so, Minister Carr, Minister Gillard and the rest of them will be making tax policy, IR policy, national security policy – the whole box and dice.

    Now there’s something to chew over as you do your tax return. Next year’s might be very different.

    And you never know, Hugo Chavez might be invited over for a friendly chit chat, in a spirit of Christian Socialist fraternity. The reception at Parliament House, with Alexander Downer raising his glass in a toast to Chavez – imagine what his good friend Condi will think! – should be a rip snorter.

    Have a nice day.

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  16. “you are insulting our host, who is employed by the publicly funded University of Melbourne.”

    Though our host would dispute that he is publicly-funded – 40% employed by CIS, which does not accept government money, and 60% employed by the U of M, which now relies on direct government grants for less than half its total income. As in my view the government receives what it pays for at the U of M below cost, all government money is fully expended on teaching and research activities, leaving no public money to employ people like me.

    Like

  17. “employed by CIS, which does not accept government money”

    Is it not the case that there is a special section of the Income Tax Assessment Act which makes donations specifically to the CIS tax deductible (along with donations to a particular left leaning think tank)?

    If the U of M gets “less than half” of its income from government grants then “less than half” of your salary comes from the government. It is an artifice to say that the government money pays for things other than you while your cost is met through pruvate means.

    So let’s say 1 of your 3 days per week at U of M is publicly funded.

    Nothing wrong with that. Some of the people making an immense contribution to our great nation — our soldiers, our policemen who protect us from terrorists, our wonderful Prime Minister, the bloke who picks up my garbage every week — are paid by the tax payer.

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  18. Spiros – I agree that tax deductibility for expenses not related to earning income creates distortions in the tax system, but I don’t think it increases public expenditure. It just means that higher marginal rates are needed to raise a given amount of tax revenue.

    On the U of M, this depends on how you conceptualise the relationship between unviersities and the federal government. I had a post on this earlier in the year. While the feds certainly want to treat them as departments, I think they are more like companies that supply federal departments.

    Like

  19. “And you never know, Hugo Chavez might be invited over for a friendly chit chat, in a spirit of Christian Socialist fraternity.”

    Why not? There were a few of the front benchers that signed the letter in support of having Julia’s brother, Hugo, invited over here on a speaking tour.

    I hope he swings the plane right and picks up his new found friend (Uncle A from Iran) to join him here. Both then could do a speech to a joint sitting of parliament. I’m sure Hugo’s sister, Julia would be over the moon. You can tell they’re related, can’t you. The resemblence is uncanny.

    Spiros,

    Is that Liberal ad correct? Are 70% of the labor front bench former union officials?

    Like

  20. OT and I’m not a tax expert, but if one volunteers for a non-profit organisation, that contribution is not taxed either in the hands or the organisation or in terms of psychic income to the volunteer. By making a donation, am I not effectively substituting volunteering my time with the value of the income I have earned by not volunteering? Hence, the donation ought not come from taxable income? Perhaps a bit convenient. Tax policy can never make complete theoretical sense anyway.

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  21. The interesting point in Spios comment is how he sees the interplay between income and taxation.

    A tax deduction is now an expense.

    In other words keeping some of your income is a cost to the government.

    That’s an interesting line of thought.

    Like

  22. “Is that Liberal ad correct? Are 70% of the labor front bench former union officials?”

    Beats me. You can always check their CVs. I don’t care one way or the other.

    By the way, other than Malcom Turnbull, are there any government front benchers who had serious jobs in the private sector before going into politics? I notice a senior Optus executive recently tried to get Liberal pre-selection for the seat of Cook, but they knocked him back; not right wing enough, apparently. Not surprising really, as successful business people are rarely ideologues.

    Like

  23. “the interplay between income and taxation. A tax deduction is now an expense.”

    The point, which I thought was obvious, was that Andrew’s CIS salary is paid for by tax deductions which are not available to pay for any salary in any other think tank, except the left-wing one that also gets a privileged status in our tax law.

    What’s so special about the CIS that donations to it attract a tax break whereas donations to the Institute of Public Affairs do not?

    Like

  24. Spiros

    Who was the last business guy that recently tried for preselection to the ALP. Note union officials dont’count.

    “The point, which I thought was obvious, was that Andrew’s CIS salary is paid for by tax deductions which are not available to pay for any salary in any other think tank,”

    No, it didn’t seem to be. You seem to be confused as to who actually owns the money in the first place. I merely tried to correct that obvious confusion swaying around in your mind. A tax deduction isn’t an expense.

    The Evatt Foundation also get special status.

    Like

  25. “I notice a senior Optus executive recently tried to get Liberal pre-selection for the seat of Cook, but they knocked him back; not right wing enough, apparently. Not surprising really, as successful business people are rarely ideologues”

    Spiros,if you know anything about NSW Lib politics, you’ll know that this Optus executive was probably as much of if not more of a ‘free marketeer’ (and hence in your book an ideologue) than the right-wing crazies who mobilised against him. The main difference between the supposed ‘left’ of the Libs and the now ascendant ‘right wing’ forces of David Clarke et al lies in irrelevant Culture War issues (fetuses, queers and Muslims) rather than economic ideological fronts. But you are right that it is a sad state of affairs.

    Like

  26. I knew that Optus exec, Paul Fletcher, slightly when we both worked for the government in the late 1990s. As Jason suggests, I think he was pretty sound on the important economic issues, and not much interested in the culture wars stuff that excites the conservative right and the left.

    Like

  27. “irrelevant Culture War issues (fetuses, queers and Muslims)”

    Irrelevant to you. The right wing crazies can scarcely think about anything else.

    Anyway, the point is that a senior business executive was overlooked for pre selection.

    “Who was the last business guy that recently tried for preselection to the ALP”

    Gary Gray, senior executive with Woodside, is a Labor candidate in WA.

    “The Evatt Foundation also get special status”

    Neither of them should get special status.

    Like

  28. “Neither of them should get special status.”

    Why not? You think ideas aren’t worth fostering with our money which we are sometimes allowed to spend how we see fit?

    Are you against charitable deductions for the needy as well?

    I think you have a distorted view of who owns the money.

    Like

  29. Spiros says:
    “By the way, other than Malcom Turnbull, are there any government front benchers who had serious jobs in the private sector before going into politics? ”

    Are yea:

    abbot- Rhodes Scholar/ journalist for the Bulletin
    Julie Bishop -partner clayton Utz
    Mal Brough – helen coonan barrister priv prac
    warren Truss- solicitor Private practice
    Ian macfarlane- farmer president of Queensland grain growers.
    Jope Hockey – Banking and law
    Peter mcgrauren Barrister private practice
    Chris Ellsion Barrister Priv prac.
    Kevin Andrews- Barrister priv prac
    Costello – Barrister private prac
    Brendan Nelson. Doctor private Prac
    Nick Minchin- Solicitor prive prac.
    Mark vaile – farm amachinery salesmen and stock and station agent.

    Everyone one of them has come from the private business world, Spiro.

    Have you checked to see if that ad was correct. Do 70% of the Alp Front bench come from the union movement?

    Like

  30. JC I’d still prefer it if we got rid of all deductions in return for a substantial cut in the rate of tax

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  31. You’re missing the point again JC.

    Why should contributions to only those 2 think tanks be tax deductible? Why not all think tanks?

    That’s an interesting list of what those cabinet ministers used to do. An awful lot of barristers, but no QCs I notice. Maybe they weren’t getting many briefs and thought they’d do better financially as politicians.

    Unlike Mark Dreyfus QC who is standing for the Labor Party in a Melbourne seat, and will get elected, and take a substantial pay cut.

    As for the whether 70% of Labor’s front bench are former union officials, as I said at 26, I don’t know and I don’t care. If you care that much, look up the parliament house web site, and do your own research.

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  32. Spiros – It’s more than two (list here). I agree it is better to list general categories than specific institutions, but many research institutions have deductibility as do many advocacy groups, directly in the case of political parties and indirectly in the charities that have political arms, an area of some controversy. As Jason says, better to get rid of the lot and have lower taxes. But if we are going to have them, there should be consistentcy.

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  33. Tax breaks or not, Australian think tanks are mere support ships to the imperial starships like Demos. Which is a UK left wing thinktank that actively support the destruction of the natural environment through patronage from Rio Tinto. Yes that’s democratic left=enivro pillage, once and for all overarching. If you support current mining practices and the flooding of Iceland for Hydro you are a leftist democrat by way of thought.

    Demos’ founder Tom Bentley is currently the head of policy for the Victorian government. This is after not having been born here, lived here or studied here in Australia. What on earth does a fat bloke from Oxford who sucked up to his professor to get a first know about a small patch of land on the other side of the world that a local does not know better?

    Yes you are under the thumb still, that union jack in the corner means you will do what the ignorant will recommend. By ignorant, I dont mean as ignorant as anyone on Catall…

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  34. Andrew

    Foundations etc. are very difficult to set up in OZ compared to the US. I don’t know why but it is extremely difficult here ; almost impossible. If we’re not going to lower taxes then like Jason said, it should be made a lot easier to set them up.

    ————————————————————-
    Spiro:

    You asked, or rather provoked me, into looking up the bio of the 15 odd people on the current front bench to answer you question. All of them came from or had experience in the private market selling services etc. That’s good enough for me. I didn’t check if any were senior counsel, but maybe you ought.

    I did check the ALP front bench. Personally I wouldn’t have them sitting on the back bench, however that’s another story for a different time. But yes nearly all of them showed their entreprenteurial talents as government workers , teachers and dreaded Union Officals. One, i was suprised to learn , ran a small business before he ran off to become a union official which must be an interesting bio in its own right.

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  35. If you support current mining practices and the flooding of Iceland for Hydro you are a leftist democrat by way of thought.

    You’re right parkos. Flooding Iceland is a monsterous act of inhuman proportions. How are they melting the ice by the way? There’s lot’s of it I’m told espeicailly in the winter months.

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  36. see savingiceland.org
    or go there yourself JC
    and help out with the blocking of roads or buy veg pizza
    for the mob or something. Many of the arguments against the development are fairly right wing authoritarian on inspection but in a Bjork tone of voice to confuse people.
    They are reputed to have the highest living standards in the world, but they want to go higher with hydro powered aluminium smelters that destory the habit of rare animals and the the site of the first democracy on the plains of Thingvellir 1000 years ago, where my ancestors the Lawmandir (Lawspeaker) gave women a vote or equal say for the first time.
    so check out how they save their cash and report back to us, would you JC?

    ————

    Quite a few are claiming to have founded Demos, on closer inspection, including Martin Jacques. Bentley was a director, and is a big Thornley type of a fatheed. Thornley probably had something to do with his transfer in time for dinner.
    I hope they have good deodorant because there are a lot of them in that stink/think tank and there is no much soap or regular bathing down there in London. Wait for the floods I guess, it wont be long now. I love reading about what they are going to do if it floods, they identify a number of options but there is never enough clear detail to make think they know what they are doing..

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  37. Flooding is definitely a problem, parkos. I can see fully where you’re coming from on this one.

    I thought you Indian , not Icelandic. How many linear ancestors do you have?

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  38. RE: Cook preselection. Fletcher was beaten by Michael Towke, a small businessman.

    So I guess its not all bad for businessmen in the Liberal Party eh Spiros?

    FYI George Brandis (Minister for Arts and Sport) is an SC.

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  39. Towke (or Touak) or whatever his name is, is being outed as a fairly shady character as we speak – his place of small business is the run-down shop front where his father lives, and he’s been accused of stacking the preselection. Something very strange is happening in the NSW Liberal party.

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  40. Here’s what the Australian discovered about Mr Towke

    “On his official nomination form, and in material that was distributed to preselectors, Mr Towke said that he had owned and operated Apollo Security Pty Ltd, a corporate security company, since 1997.

    However, the company does not have a listed telephone number, a website or a functioning email address.

    It has not held a security licence since last year.

    When The Australian visited the premises in inner-city Redfern listed as Apollo’s registered address in Australian Securities & Investments Commission records, it discovered a crumbling Victorian terrace occupied by Mr Towke’s father.

    Mr Taouk – Mr Towke changed the spelling of his name earlier this year – said that his son was at work, but could not say where.

    The building displayed the remnants of a shopfront and awning, but neighbours said no business had operated there for 40 years.”

    Yes, no doubt about it, Michael Towke is a real captain of industry.

    (And why did he change his name from Taouk? Taouk is an excellent Lebanese name. Surely it couldn’t be because the Liberal Party preselectors in Cook, which includes Cronulla, would look askance at a Lebanese? He’s probably a Lebanese Maronite Christian in any case.)

    “George Brandis (Minister for Arts and Sport) is an SC.”

    Brandis got himself made an SC quite recently. He didn’t earn it the way SCs normally earn it. Since getting it, he hasn’t exactly fronted courts of appeal in critical cases with junior barristers in tow.

    We’ll see how many SC briefs Brandis gets when he leaves politics.

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  41. Oh – I’m no fan of Towke either – but that just highlights the point even more: he is a businessman, and probably a sub-optimal candidate. Selecting candidates on the basis of whether they have been a businessman or not is an artificial and unhelpful litmus test. Candidates should be selected on their merit and merit alone.

    BTW I can’t really see your point anyway: only two ALP members of parliament have ever run a small business, compared to 30 from the Coalition. And 43 Coalition MPs have a general business background. Nearly half of all ALP MPs were in paid employment with either a union or a member of parliament immediately prior to their entry to parliament, compared to less than 10% of Coalition members. And of course, 70% of ALP frontbenchers are former union officials.

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  42. JamesP wrote:
    BTW I can’t really see your point anyway: only two ALP members of parliament have ever run a small business, compared to 30 from the Coalition. And 43 Coalition MPs have a general business background.
    Bosses Vs Workers, round 147. It’s the Labor party after all, not the misnamed Liberal party. Truth in advertising is sorely missing when it comes to political party names.

    Like

  43. Just a question… Wasn’t it the unions who made the 40 hour week, minimum wage, annual holidays, sick pay, bereavement leave, maternity leave et al all possible…? If so it would be good that 70% of Kev’s frontbench would be ex union officials or members, at least we know we would retain those hard fought for conditions as against John Howards team slowly and insidiously removing them…

    Like

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