Let’s call it: the 30-year liberal economic reform project in Australia is dead. And there seem to be few people mourning it, even among the true believers. Maybe that’s because we’ve still got all the rhetoric and ritual of reform, but none of the substance.
Take the concerted effort by the government overnight to dress up its free-trade credentials by keeping a Howard-era commitment to free trade with the world’s poorest countries and “take the pledge” internationally on protectionism. No harm in either. And in Craig Emerson, the government at least has a credentialed free-trade exponent, one acknowledged even by Labor’s enemies.
So we have the rhetoric of free trade. But this government declined to end the rort of parallel imports restrictions on books. And earlier this year it actually strengthened our anti-dumping laws, which primarily function to punish consumers and local businesses. Then there was the $300 million handout to the steel industry. And in response to complaints from unions and the manufacturing sector, it has put new “local content” reporting regulations on companies receiving government funding.
By the way, the use of conditionality on government funding is a public policy tool that deserves more scrutiny. The Howard government used conditionality to force construction businesses, whether subject to federal IR law or not, to conform to its anti-union “National Construction Industry Code”, its push for independent contracting and WorkChoices. Its appeal of conditionality is that it permits governments to impose requirements on business with no legislative or even regulatory scrutiny.
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There’s a similar gap between rhetoric and reality over the carbon pricing package. The government/Greens/independent package is ostensibly the free-market solution, in contrast to Tony Abbott’s Big Government, winner-picking model. But the low carbon price and ample compensation to trade-exposed polluters means the free-market aspect won’t achieve much. Instead, there are a variety of “direction action” measures, mostly inserted at the behest of the Greens, that will drive investment in renewables (or, in the case of the CEFC, not “drive” investment but actually invest itself). The carbon pricing package is a free market sports car with a Big Government FJ Holden engine under the bonnet.
The package is a fine symbol of the end of the economic reform period that started with the Hawke government (or, if you’re generous, the Fraser government’s Campbell Inquiry) and, in retrospect, barely made it into the Howard government’s third term (forget WorkChoices — that was a political attack on unions and had nothing to do with economic reform — in fact it caused a fall in productivity). The likes of the IPA try to suggest carbon pricing shouldn’t be discussed in the same breath as previous major reforms, on the basis that it is intended to “make the economy less efficient”. In fact, carbon pricing should remove one of the last major forms of protectionism, the subsidy Australian businesses enjoy via cheap but emissions-intensive energy. And like other forms of protectionism, the debate over ending this subsidy is bedevilled by the perception that the only benefits from its ending accrue when other countries do the same. In fact, there are substantial first-mover/early-adopter benefits to decarbonising an economy, especially one as carbon-dependent as ours, but under successive governments we’ve concluded we don’t need such benefits, evidently preferring that they flow to the Chinese and other countries more prepared to develop renewables technologies.
However, the carbon pricing package does little to remove carbon protectionism for the next few years. It’s as if Hawke, Keating and Button dumped tariffs but replaced them with billions in handouts for “jobs-intensive, trade-exposed industries” in the manufacturing sector.
Elsewhere, the story is similar. A notional commitment to tax reform, even a big inquiry and a summit, but only one significant reform and that was destroyed when Kevin Rudd was knifed. Some changes to infrastructure investment allocation, but no interest in tough issues such as infrastructure and congestion pricing. A refusal to consider another financial sector inquiry. Some steps forward on health reform, but not the federal takeover once mooted, that would end the division of responsibility and funding. The Murray-Darling — the one area where Howard retained some reform zeal, primarily because of the drought and that it was going to upset the Labor states — is a debacle, saved only by the rains coming. And rhetoric about the ever-growing housing supply gap, but no action despite COAG promises.
To be fair to this government, it has been good on the smaller/easier things such as regulatory harmonisation or greater accountability for education. It has tried to wind back middle-class welfare at the margins, albeit while expanding it in other areas. But in comparison to the Coalition, it’s a dogged advocate of reform. In addition to its socialist approach to reducing carbon emissions, the Coalition has turned its back on many of the key elements of economic reform project of the past 30 years. It wants to further punish consumers and business by strengthening anti-dumping. Tony Abbott says “national security” will be the basis for his government to protect heavy manufacturing while his industry spokeswoman complains about “playing fields not being level”. His government would go back to pumping up middle-class welfare, one of the key areas where John Howard turned his back on economic reform. And Barnaby Joyce leads a xenophobic chorus against foreign investment.
None of this is a problem for Abbott. His intellectual background is more DLP than Liberal Party. He would be right at home in the Catholic Right of Labor — socially conservative but committed to economic intervention and Big Government. To an extent, Howard has already paved the way within the Liberals, having moved from being the driest of economic dries in the 1980s to a big taxing and spending prime minister in his third and fourth terms. But Abbott goes significantly further. It’s also assumed Abbott’s objection to a return to WorkChoices is merely political, but it may well reflect his core values, which are far less instinctively anti-worker and anti-union, certainly less so than many of his colleagues. And less so than Howard, who waited patiently for more than two decades to avenge the humiliations inflicted on him by the union movement when he was Treasurer.
So here’s where we are at 2011: serious economic reform is now only notionally supported by the leadership of a Labor minority government and some of its Right faction, while the balance of power Greens and, even more strongly, the Coalition, urge state interventionism and a big role for government. It’s not merely that economic reform has lost momentum, major reforms are at risk of being reversed; indeed, in some areas such as welfare they already have been. The period of economic reform that created the most fundamental change in Australian postwar society is now over.
*Tomorrow: who’s to blame for the demise of reform? And is it such a bad thing after all?