Robert Carling: An economic rationalist's guide to the Australian election

Just as the truth is the first casualty of war, principled policy is the first casualty of election campaigns. Even in Australia's era of 'economic rationalism' that ended a long time ago, the economic dries took a back seat role during election campaigns (the Hewson-led Liberal campaign of 1993 being the exception). In the 2013 campaign, however, the dries are not just in the back seat but locked away in the boot, and it is not at all clear that they will be allowed out after the election regardless of who wins.

Economic rationalism cannot be tightly defined, but broadly speaking it is a set of beliefs in free markets and the price mechanism; a minimum of regulation; openness to trade and investment; raising government revenue through broad-based and neutral taxation; subjecting public investment proposals to rigorous cost-benefit analysis; and wrapping all of this in fiscal discipline.

Working from this definition, it is easy to demonstrate with examples that economic populism, not rationalism, has dominated the 2013 campaign.

In industry policy, while Labor upped the ante on subsidies to vehicle manufacturing and then pledged $25 million for the SPC fruit canning operation in Victoria, the Coalition came out with its own plan to 'co-invest' $16 million of taxpayers' money in an expansion of the Cadbury factory near Hobart. These are egregious departures from liberal economic principles.

Next we have both sides promising a plethora of small, local grants for things like sports fields and facilities, surf clubs and security cameras. These grants will not bust the budget, but they have nothing to do with the national government. The principle being violated here is that we have three tiers of government for a reason, and federalism works best if each tier sticks to its knitting.

'Think Big' projects have been constrained by fiscal realities in this campaign, but that has not stopped Prime Minister Kevin Rudd from offering up distant visions of northern development, super-fast trains and a brand spanking new navy base somewhere north of Tweed Heads. The problem is that none of it is supported by rigorous analysis that says it would be a wise use of resources (which the government doesn't have anyway).

Both sides have dipped their toes in the waters of foreign investment xenophobia, particularly when it involves agricultural land.

Taxation is always a fertile field for populism, and taxing 'big business' is an old favourite. Tony Abbott's scheme for funding his pet parental leave scheme springs to mind - a 'levy' (aka increase in company income tax) on big business. 

Not only does this attempt to side-step the reality that businesses one way or another pass taxes on to people, it also creates a messy two-tier company income tax system - something that was done away with decades ago. Into the bargain, double taxation of dividends makes a reappearance via the non-franking of 'levy' payments. This is nothing but opportunistic revenue-raising.

Many more examples of economic populism have come from the lips of the Queensland populists, Bob Katter and Clive Palmer, but at least they won't be sitting in the Cabinet room.

If the economic dries are allowed out of the boot, they had better hope that whoever wins the election didn't really mean a lot of what they said to win. 

Robert Carling is a Senior Fellow at The Centre for Independent Studies.