The oligopoly that is Australian politics

Dr Kim Sawyer discusses Australia's political duopoly and why our first voting preferences matter.

WE ARE TRAPPED in an oligopoly — not the supermarkets, banks, the media or social media platforms but the duopoly of two political parties where our last preference is often more important than our first.

For many, the last preference on May 3 is a choice between an "F" and an "F-minus".

In 1929, mathematical statistician Harold Hotelling identified a fundamental principle of oligopoly: the principle of minimum differentiation, or Hotelling's Law. There is an incentive to make new products like the old ones and make small changes, which seem like improvements but not too much change so as to frighten the horses.

Hotelling observed what we can all observe. Oligopolists behave like monopolists; not only Coles and Woolworths with their weekly specials, not only petrol stations located at the same intersection but also, political parties in their platforms.

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Hotelling wrote his essay nearly a century ago, but his observations are relevant today. Politicians compete for the marginal voter who is often indifferent to significant reform.

Over the past 50 years, we have observed a shift in Australian politics away from the two major parties that is best measured by the combined two-party primary vote at the Federal elections.

In 1972, Labor won the election with 49.59% of the primary vote, the Coalition got 41.48% — the two-party primary vote was more than 90%. The two-party vote still exceeded 85% in the 1996 Election of the Howard Government and in the 2007 Election of the Rudd Government.

However, the two-party vote began to erode soon after as Greens and independents emerged. In 2022, Labor’s vote was 32.58%, the Coalition’s 35.7%, a combined vote of less than 70%, more than 20% below that in 1972.

Opinion polls suggest that it will be the same on May 3. Australians are moving away from the two main parties… at least with their first preference. They recognise that the minor parties, not the major parties, are the agents of reform.

The two main parties have become as risk-averse as the marginal voters for whom they compete. They have lost the appetite for the reforms of the Whitlam and Hawke-Keating governments. Labor and the Coalition now share too much of the same DNA to reform what should be reformed. Labor, the party of reform, has been burnt by history.

There is no better example than taxation. We need a simpler, fairer, more efficient tax system with fewer deductions that addresses the problem of income and wealth inequality, and addresses anomalies. But there are too many lobbyists and vested interests for this to happen.

A tax summit would be a start, but Labor has learned the lesson that taxation reform is risky. In 1985, the Hawke Government abolished negative gearing for future rental property investors. By 1987 it was reversed after lobbying from realtors. At the 2019 Election, Labor promised to halve the 50% capital gains tax deduction and limit negative gearing to new properties only. Labor was burnt at the election. Labor has reversed this policy.

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Independents are gaining ground in rural Australia, posing a serious challenge to the traditional two-party stronghold.

There is no better example of an opportunity lost than the failure to adopt the Henry tax reforms. The Henry tax review commissioned by the Rudd Government made 138 recommendations, a simpler, fairer tax system that included a higher tax-free threshold with only two tax brackets, increases in rent assistance, uniform land tax and removal of stamp duty.

Of the 138 recommendations, the Rudd Government went with only four, the most contentious of which was the resource rent tax, the mining tax, levied at a rate of 40%. It was the mining tax that brought out the vested interests. It was the mining tax that brought the tax review undone. If only the Government had adopted the whole blueprint.

There is a sclerosis in our politics that I have observed over many years of political activism. The sclerosis is attributable to the indifference of the two major parties to meaningful reform.

In 1994, I appeared before the first Senate Committee on Public Interest Whistleblowing. There were 39 recommendations including the establishment of a public interest disclosure agency. It was never enabled, and it took 20 years before whistleblowing legislation was enacted. Whistleblowers have paid the price. The prosecution of David McBride and the failure to prosecute those who have retaliated against whistleblowers is the price of tokenism.

The 1994 Senate Committee also recommended the establishment of a banking ombudsman. It was never enabled; instead, Australians who have complaints about banks must complain to the Financial Complaints Authority (AFCA), which is funded by the very banks that it judges. Unsurprisingly, according to its own data, AFCA has ordered banks to fully reimburse scam victims in only 4.8% of cases — and only small cases. AFCA is not a traditional ombudsman.

And it is the same in higher education. The 2001 Senate Inquiry into Higher Education recommended establishing a university ombudsman. The ombudsman was never established. The imperative was not strong enough.

Nonetheless, the imperative is strong enough when the major parties want. The 2024 Senate inquiry into Lobbying found that the major parties did not want to restrict lobbying, despite there being 15 paid lobbyists for each parliamentarian on any day in Parliament House.

Independent Senator David Pocock dissented. He recommended that the lobbying code be legislated to include interactions between lobbyists and all parliamentarians with penalties for breaches, and for an independent regulator to be appointed. Pocock was representing the interest of the unpaid lobbyists who the paid lobbyists subvert. Pocock was representing the public interest.

While last preferences of voters may matter more in determining the government after May 3, the first preferences matter more in the long term. The first preferences are the agents of reform.