Well with all this debate about how the Government has wimped it on the Henry review and its emissions trading scheme, let’s see if we can’t put together a mechanism that helps rate economic reform in terms of difficulty. So here’s a possible model, and your thoughts are welcome.
What are the significant factors in major economic reform, and what makes it difficult for governments?
The scale of reform is an obvious starting point: a government deserves greater credit for pursuing major reform than small reform. I’ve suggested a simple small-medium-large scale — worth 1, 2 or 3 points.
Next, the level of support for a reform on one’s own side of politics is important. It’s a rare reform that punishes a government’s core constituency, or meets extensive internal opposition. It’s easier to pursue reforms strongly backed by your own constituency — like Labor with superannuation (or even Paul Keating’s IR reforms), or the sale of Telstra by the Coalition — than ones that are opposed by your own side — like Labor’s tariff cuts. On the basis that you should be rewarded for reforms that upset your own side, I start the scale at 0 for reforms that are supported by your own side, 1 for limited opposition and 2 for strong opposition from your own mob.
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The level of community support is also clearly important. Serious economic reform rarely receives strong support in the community (Rudd’s health reform is an exception), or even a high level of understanding. Nevertheless, governments that tackle reform that faces strong community opposition — like the Howard Government’s GST — deserve more credit than those that only diffuse opposition or opposition limited to particular groups. I’ve suggested 0 for strong community support (like health), and then up to 3 points for strong community opposition (like the GST).
Then there’s the issue of how hard it is to get reform through parliament. Apart from the golden period of economic reform in which John Howard supported much of the Hawke Government’s agenda, governments usually face parliamentary opposition to their reform plans. I’ve graded that on the basis of whether the measure was opposed by the Opposition of the day, the cross-benches were willing to deal, or whether there was complete opposition that meant a government had to await a change in the Senate or a change of heart by the Opposition (Peter Costello’s PBS reforms spring to mind) before achieving its goals. I’ve suggested 0 for reforms that are supported by the Opposition, 1 for reforms that can be negotiated through with the support of the cross-benches, and 2 for reforms that faced strong opposition within the Senate.
The final criterion is a variant of community opposition: how powerful are the enemies of reform? What sort of opposition can the losers from reform mount? Reforms that take on a well-organised and well-resourced industry sector — like the CPRS — are clearly more difficult than ones that target more diffuse or less well-organised groups — such as, for example, the manufacturing sector in the 1980s, or welfare reforms, where no one except the social services sector speaks up on behalf of the reform ‘targets’. Reforms pushed through in the face of well-organised opposition from industry deserve more credit than ones where the targets aren’t well-organised or resourced. I’ve proposed a scale from 0 for no opposition through to 3 for CPRS-style highly-organised industry resistance.
So that’s our scale. Let’s give it a trial run with some of the biggest economic reforms of the last 30 years. Here are the results:
|Size of reform||Supported by own side||Level of community support||Parliamentary support||External opposition||Score|
|Howard: 1996-97 budget||2||0||3||2||1||8|
|Hawke: tax reform||3||0||2||0||2||7|
|Hawke: financial deregulation||3||0||0||0||1||4|
|Rudd: response to GFC||1||0||0||1||1||3|
|Howard: RBA independence||2||0||1||0||0||3|
John Howard’s GST: Principally an attempt to remove inefficiencies and distortions from the taxation system rather than fundamentally reshape the economy, the GST lacked the true scale of, for example, tariff reform and was supported by the conservative side of politics. But there was strong community opposition, manifested in a close-run election, followed by a tortuous passage through parliament and a well-organised campaign from a variety of industry groups designed, if not to derail the GST, then debauch and neuter it for their own purposes. It scores 10 out of 13, making it the most demanding reform taken on by a government in recent decades.
Peter Costello’s 1996-97 Budgets: While not reforms per se, the first two Budgets of the Howard years reversed years of fiscal drift under Keating — partly due to a jobless recovery, but eventually entirely due to Labor’s lack of discipline — and cemented fiscal surplus budgets into the Australian political landscape after a long absence. They faced strong community opposition — including a famous siege of Parliament House — and opposition from Labor and the cross-benches. They score an 8.
Bob Hawke’s tariff reform: While Gough Whitlam started the process of tariff reduction, the Hawke Government’s comprehensive tariff reduction program in the 1980s set the scene for a major restructuring and opening of the Australian economy. It gets big marks for its significance, the hostility of the union movement (and, to a lesser extent from the community), but it was supported by the Opposition and the manufacturing sector lack organisational muscle to fight it. It scores 7 out of a possible 13.
Bob Hawke’s tax reforms: We had to wait more than a decade for a consumption tax, but the Hawke Government’s capital gains tax and fringe benefits tax reforms were a substantial improvement in the tax base and faced enormous opposition from business, which went ballistic over what it called the ‘Farewell Bob Tax’. Hawke had the last laugh, and the long tax-deductible lunch was no more. 7.
Paul Keating’s compulsory superannuation: The reputation of the Keating Government grows over time — despite fiscal indiscipline and the lingering effects of recession, it produced national competition policy, IR reform and perhaps Keating’s signal achievement: compulsory superannuation. With benefits that will continue to increase generation after generation, and introduced in the face of opposition from the Coalition and business, it scores a 7.
God almighty, I feel like I’m MCing an awards night.
Several reforms that scored 5 — NCP, a slow-burn reform introduced through COAG and bitterly contested by the states who demanded compensation (plus ça change…); the privatisations of the Hawke and Keating Government, pushed through over the objections of the union movement; and Workchoices — introduced against plenty of strong opposition, but without any serious economic benefit and via a compliant Senate.
So, how does the Rudd Government’s efforts measure up? The CPRS, for its long-term impact and organised opposition, scores highly, although I declined to give it a high score for parliamentary opposition since the Government started with a bipartisan consensus on the issue. It gets a 7, but it’s now moot courtesy of being shelved. Tax and health are both middling-level reforms, and health gets marked down because of the strong community support for it. Tax gets a 5; health is sitting on 3 but might increase with parliamentary opposition. And the Government’s response to the GFC, which may not have permanent benefits but saved tens and perhaps hundreds of thousands of jobs, garners a 3.
What do you think — what key reforms have I omitted? And have I been too harsh or too kind? Let me know what you think and we’ll see if we can take this beyond a parlour game and make a useful tool for assessing public policy.