In policy terms this is turning into one of the worst elections of the modern era.

Easy claim to make, I know, but until 2007 we were blessed with quality economic reformers amongst our political leaders. That didn’t mean the Hawke-Keating and Howard-Costello Governments didn’t make shocking decisions on important issues, or didn’t tire as they aged, but rarely have we had a race to the bottom on key issues like we’re witnessing now.

The edifice of middle-class welfare built up after 2000 by John Howard — against the inclinations of Peter Costello — remains a toxic legacy for the Australian economy. It’s the reason we retained a structural budget deficit despite years of surpluses from the mining boom.

Wayne Swan and Kevin Rudd made a start at chipping away at it – curbing the private health insurance rebate, cutting access to the Family Tax Benefits, freezing the Family Tax Benefit thresholds, but it essentially remains intact.

Last week Julia Gillard, keen to secure the votes of key lower and middle-income demographics, threw some $220m at Family Tax Benefit recipients, under the pretext of extending the education rebate to school uniforms. Yesterday Tony Abbott trumped that, offering an extension of the rebate to private school fees and other tuition costs, which the Coalition has costed at $760m over four years.

Labor, seeking a Box Hill-style gotcha, rapidly emerged to declare the Coalition costing was wrong and the proposal would cost more like $1.4b.

The truth is probably in-between, but that primarily reflects that the Opposition doesn’t get access to the most up-to-date policy parameters, rather than any error or evidence of unfitness to govern.

Labor’s blatant bribe was bad enough, but the Coalition’s is even worse. Inevitably, the rebate will push school and tuition fees up, as these sorts of handouts always do.

It also extends Government support for private education, although the rebate can also be used to claim school charges that are now routinely levied in the public sector – and which are far smaller than private school fees.

Between the Liberals being hellbent on driving parents to private schools, and Labor being too timid to address the issue of school funding for fear of being wedged on the issue, we’re skewing our primary and secondary education funding models further and further away from any sort of efficient design.

The logic of Julia Gillard’s MySchool website, and performance pay for teachers, should lead inexorably to a new model of school funding that at least partly enables parents to exercise real choice in schooling through some form of voucher system, albeit within the confines of systemic funding for infrastructure.

At the moment we’re halfway between that model and a top-down bureaucratic model. Education is too important to be left to function as a market, but that doesn’t mean market signals can’t be used to improve performance.

As with immigration, the parties’ pandering to key demographics is distorting public policy badly. Labor and the Coalition’s attempts to secure the votes of a small number of swinging voters in outer-suburban electorates that have been poorly-served by state governments risks damaging a key factor in our economic growth, price stability and future fiscal policies. Now, on education, the attempt to secure the votes of middle income earners is keeping education funding on a politicised policy merry-go-round, incapable of moving forward, backward or any other direction that might sound good in a slogan.

The policy positive so far is that both parties are avoiding lavish spending commitments. Whether that has been driven by the seachange effected by Kevin Rudd’s “this reckless spending must stop” in 2007, or simply because the budget is in deficit, is a counter-factual one can only guess at. We’ll know in three years time when, regardless of what the Coalition might say, the Budget will be a damn sight healthier and offer far more opportunities for politicians to spend up big.