The government has brought down its extraordinary economic and fiscal update, a giant turning point in the history of Australia.
The cost of the excellent JobKeeper and JobSeeker policies are known. The dizzying heights to which the unemployment rate will rise is forecast: a shocking 9.25%. The record debt and deficits are there in black and white: $677 billion in net debt this year, and rising.
Yet somehow this one-of-a-kind document has transported Australian politics to familiar territory. We are out of the bright glare of the pandemic and back in the groove: the Coalition wants to cut taxes to makes the economy grow faster.
More widespread productivity reform is in the wings, and popular sentiment will be against it.
Why do we always end up here? I think I can answer that. And do so in a way that explains a lot about contemporary Australia.
One thing most Australians agree on is we need to spur economic growth to pay back all that debt. We either grow our economy enough to make the debt look small, or we try to raise taxes and pay it back. The latter is a recipe for stultification, so the former is preferred.
What follows is known. To create economic growth we speak of tax reform. Of industrial relations reform. Of microeconomic reform.
The government’s budget is coming out in October and we can expect it to include policy ideas cribbed from the Productivity Commission, taken from the old Henry Tax Review, lifted from the old Harper Review into competition.
All of them will be ideas that let the economy run fast loose and clean. All of them will be exceedingly unpopular in a world where people are hurting.
There is a giant gap between the way the wonks look at the world and the way regular people look at the world. When wonks tweak the cogs of the economic machine, they look at the speed the overall machine runs at. When the tweaks happen, regular people tend to focus on the cogs that now have to spin faster to do their jobs.
Take broadening the GST as an example. It’s an efficient tax, so the more we rely on it and the less we rely on inefficient taxes, the more efficient the economy becomes, the faster it can grow, the richer we all should get. In theory. But a hike to GST amid high joblessness is easily characterised as a lift in prices, an attack on the poor. And that’s not wrong.
Another example is deregulating the pharmacy industry so you can fill a prescription in a supermarket. This should make the cost of pharmaceutical goods cheaper, which is a win for consumers. But it will be seen as killing small local pharmacies where the pharmacist knows you. Both sides make valid points.
Where should we land in this debate? Is right on the side of the population who tend to oppose change? Or on the side of the experts who want to bring it in?
I personally believe microeconomic reform can make our economy grow faster, can raise average incomes, can increase GDP. I worked at Treasury after all! I know the script and understand the assumptions behind it.
Great examples of deregulation include letting shops open on Sundays. Or permitting competition in trans-Pacific flights, which halved the price of flying to LA and caused a huge boom in US-Australian travel.
What I’m less sure about is whether all such reforms are costless. We need to pay attention to what it is that is being used efficiently. Is it goods? Let’s use them as efficiently as possible. Or is it people? Because being used efficiently by a business isn’t always a pleasant experience.
I recall vividly being used efficiently as a young part-time worker. I had a regular scheduled Tuesday afternoon shift. I would often be sent home after the minimum of two hours if the restaurant was quiet, having netted myself around $15 in pay. What was efficient for the business was unpleasant for me.
A similar issue arises with cutting red tape. That red tape was usually put there for a reason. When you cut the red tape you lose whatever that tape was holding together.
In some cases, of course, the reason for a rule is no longer relevant. Take Sunday loading, for example. We used to pay more because it was an affront to work on the weekend. Now, plenty of young people are just as happy to work Sundays as any other day. There is nothing so special about Sunday any more.
But then, when Sunday loadings are cut, people complain about an attack on workers. And it’s true, take home pay falls for some people when Sunday loadings are cut. The idea is that more employers employ more people on Sunday if wages are the same as the rest of the week, but that’s harder to observe.
The last election was 14 months ago. The next election must be held by September 3, 2022.
The government is getting a good rap for its handling of the pandemic, but that could change fast if it pivots from Keynesian economics to Austrian economics. The lessons of WorkChoices might be forgotten in the Coalition, but they will not be forgotten by Labor.
When I look at the political impediments to reforms that boost efficiency I ask: have we harvested all the low-hanging fruit from the productivity tree, such that what remains is too costly to pick?
Our political system seems designed to prevent productivity-enhancing reform from happening. And you can’t deny the will of the people. We’re a market democracy, with the emphasis on democracy
So is there any other way to promote economic growth?
The answer is yes: population growth. That’s also unpopular, but it can be tweaked without quite the same level of debate. If we can’t agree on economic reforms that promote efficiency, expect a big surge in population as we try to grow our economy in a way that makes our debt look smaller.
What type of reform would you like to see? Let us know your thoughts by writing to [email protected]. Please include your full name to be considered for publication in Crikey’s Your Say section.