Wanted — one agenda for Federal Government. Must convey gravitas and policy substance but cost nothing.

Judging by Wayne Swan’s performance yesterday, he was so flabbergasted by what the international financial crisis has done to his budget that he’d become thoroughly disorientated. But that’s as nothing compared to the incoherence the Rudd Government now faces given it has no money to do anything.

The Prime Minister once said that unless you use being in government for reform, there is no point being there. I suspect he truly believes that. The idea of spending a significant part of his Prime Ministership merely nursing the economy through a worldwide slump is most likely anathema to Kevin Rudd.

The two big tax and expenditure reforms the Government remains committed to this term are a pension increase and an emissions trading scheme. The latter is ostensibly revenue-neutral, although there’ll be some administrative start-up costs in 2009-10 and 2010-11. The sooner it starts, the better for business, especially given the likelihood of a soft initial carbon price.

The only driver of the pension increase, however, is politics. There are better economic uses for the billions of dollars the increase will cost — even without leaving the family and community services area — but the Government has been mugged by a successful combination of an aggressive and clever lobbying effort and a populist Opposition (although, one wonders, will Malcolm Turnbull seek to re-introduce his bill to increase pensions next week?).

But even assuming the Treasury forecasts turn out correct — and we should all hope like hell they do — the pension rise will ensure there’s not much change left in the budget for any other big ticket recommendations that may emerge from Henry Review.

Which means the Government needs a revenue-neutral reform agenda. Luckily, there’s one begging for consideration.

Take Rupert Murdoch’s advice and take the long handle to the entitlement mentality. There are billions in middle-class welfare and taxation expenditures to be recouped. Lower the income test for the Baby Bonus and Family Tax Benefit-B from $150,000 to $100,000. Means-test the private health insurance rebate as well. Make a virtue of withdrawing such handouts during a slowdown as asking people to make a sacrifice. Redirect the funding to infrastructure or education, or funding a maternity leave scheme that would drive greater female workforce participation. The Australian will surely back the Government all the way…

Take the same approach to business welfare. The Government made a tepid start on this in the May Budget but since then has gone backwards, and looks like it will accept the Bracks Review’s recommendations to extend and bring forward new protectionist assistance for the car industry. Instead, cut current car industry funding after 2010 and redirect part of it to a retraining fund for the 60,000 workers in subsidised car industry jobs. And stop propping up Australian defence companies with a bias to local defence procurement. “Strategic considerations” are another code word for protectionism.

Further strengthen competition laws. Chris Bowen has made an excellent start with an anti-cartel bill and a commitment to address creeping acquisitions. But we’re still stuck with a merger test that has left us dominated by oligopolies, which will only concentrate further, at the direct expense of other businesses and consumers.

Take a serious look at getting rid of most state taxes, which tend to be far less efficient and far more distortionary than Commonwealth taxes. Of course, this will require an increase in the GST rate. Big problem. But it can be sold on the basis of revenue neutrality.

Have a referendum to transfer control of the Murray-Darling Basin to the Commonwealth, ending the environmentally and economically-catastrophic era of state management of a key national resource.

Establish fixed Commonwealth Parliamentary terms to provide business with greater certainty in the political cycle. Remember the extended election campaign last year?

Gradually increase the aged pension threshold to improve the participation rate and soften the impact of our ageing workforce.

Precisely none of those would be politically easy. They’d require expert salesmanship, rat cunning and, to use a Keatingism, more front than Mark Foy’s. But achieving even two or three of them would ensure that Rudd would be numbered with Hawke and Keating as one of the great reformers, and leave a far better legacy than a bunch of new roads and ports.

Peter Fray

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