Sustainable and protein rich ice cream and it’s all free – yum! (image: The Guardian)

Guest writer, Dr Garry Glazebrook, suggests the major parties should end their respective versions of “Ice cream economics”: (1)

Imagine you are driving along with two children in the back seat. You only have enough money to buy one ice cream. So you purchase one, and give it to one of the children. According to the “one ice cream” view of economics (the one taught in Economics 101 courses) the child who now has an ice cream is better off, while the child who misses out is no worse off, so the total welfare in the car increases.

As any parent (and even some economists) would know, this is far from the likely outcome. People are actually much more interested in relative income than total income. This is obvious when you consider that if the reverse were true, we should all be deliriously happy by now, given the rise in living standards over the last 100 years.

Unfortunately the Liberals still seem to believe in “one ice cream economics”, and are still wondering why the promise of “jobs and growth” flowing from their $50 billion bribe to business failed to win the election. They apparently haven’t realised the public can now see through “trickle down” economics, as evidenced by the rise of Donald Trump and the recent Brexit vote.

The Labor party, on the other hand, continues to believe in “two ice cream economics”. This is where you buy two ice creams to keep both kids happy even though you only have enough money for one. To their credit, they did make a serious effort at the last election to say where the money will come from, including brave policies on negative gearing.  But they still promised large deficits.

Both sides of politics also seem to suffer from other economic failings. The Liberals want to put a price on seeing the doctor but not on carbon pollution. They want to keep building urban freeways but not seriously fund public transport, despite Malcolm’s promises. Labor kept the economy going in the GFC but their various schemes left no lasting legacy, unlike their predecessors during the great depression who gave us the Harbour Bridge. Both sides squandered the resources boom.

Maybe its time we changed how society manages the economy. One way to do this would be to shift fiscal policy to the Reserve Bank, as we did very successfully with monetary policy. The Reserve would decide each year on the amount governments could spend above (or below) their tax raisings, based on the state of the local and world economies and the desire to balance the budget over the cycle. Governments would still decide on the mix of taxes and concessions they wanted, and also on which programs the money was spent. But this would be within the constraints of their tax raising and the surplus or deficit determined by the Reserve.

Another innovation would be to use special referenda, similar to those used in countries like Switzerland. Major changes to taxes or programs would require approval by the people. Full details of the proposed changes would be disclosed and debated before the referenda were put to the public, perhaps every six months or so. This would undoubtedly stop such flights of fancy as Tony Abbott’s paid parental leave scheme.

We also need a sovereign wealth fund like Norway’s, which could absorb excess mining profits when commodity prices recover, and provide a sustainable basis for investment in nation-building projects. Linking politicians’ future superannuation to the revenue stream for such a fund might be a good way to focus their minds on the longer-term future.

In the meantime, given our deficit situation there should be NO tax cuts of any description until the budget situation is brought under control. This would force our political leaders to focus instead on revenue measures, such as winding back over-generous superannuation tax concessions; extending the GST to on-line purchases; and closing down profit shifting by multinationals.

Perhaps the most important reform would be to end corporate and union funding for political parties, with a cap of say $200 per person per election for political donations. The AEC could collect donations, forward them to the relevant parties and monitor their expenditures.

The last election showed that our political parties are still peddling various forms of “ice cream economics”.  It seems the public understands this better than the politicians and have decided to “ground” both sides until they can truly act like adults and address the needs of all Australians, both current and future generations.


  1. Dr Garry Glazebrook is a transport consultant and urban planning academic, who has a particular focus on ways to improve public transport.