28 July 2015
Every once in a while something brings the nonsense of daily politics back down to earth.
Last week Reserve Bank governor Glenn Stevens suggested that the slow growth we have seen over the last few years might not be a temporary post-Global Financial Crisis aberration. It might, actually, be the new normal.
Rather than the three or so per cent growth each year we’ve come to expect, we might have to get used to 2 per cent GDP growth.
For Stevens, this lower growth is a hypothesis, not a prediction. But even so it’s a big worry. In the long term, lower GDP growth means lower living standards for everyone. There is nothing more responsible for our historically unprecedented prosperity than our relentlessly growing economy. Growth is critical. Growth is fundamental. A richer society is a happier, healthier society.
Even if your taste in economic philosophy is less free market than mine, growth is the foundation on which government social services are built. Growth pays for the National Disability Insurance Scheme and helicopter flights to Geelong alike.
We can debate how much tax the government should impose. But you can’t tax income that doesn’t exist.
Yet neither party has any idea – let along any proposal, plan or program – for how to boost Australian growth back up to three, let alone four per cent per year. They’re not even talking about it.
Given that the most effective way to bring the Commonwealth budget back to balance is to increase growth (and therefore tax receipts) this silence is all the more stark.
A quick survey of the economic proposals on the political table is disheartening. Labor wants to boost taxes on savings (cracking down on so-called superannuation “concessions”). The Coalition wants to boost taxes on consumption, by raising the GST and imposing it on online and digital transactions. Labor wants to tax greenhouse gas emissions again. New taxes are not pro-growth.
Tony Abbott was widely ridiculed a few weeks ago when he responded to a question on the Greek turmoil by referring to the Government’s grocery code of conduct. This was all very funny but Abbott’s tone-deaf response hinted at the much deeper issue facing the Government: it has no central economic agenda.
That the Government can propose higher taxes and proclaim its desire for lower taxes in the same breath isn’t a failure of messaging, it reveals an absence of purpose.
The deregulatory drive of the Coalition’s first year, as inadequate and insubstantial as it was, is now a memory.
And abolishing the carbon and mining taxes was good. But somebody is going to have to pull the Abbott Government aside and quietly tell them economic management is about more than righting the wrongs of the Rudd and Gillard governments.
What would a pro-growth strategy look like? It’s not like there isn’t any low-hanging fruit for governments to grasp.
Our absurd and anachronistic restrictions on foreign investment should be eliminated. Competition law should be liberalised and reformed to allow firms to take advantage of economies of scale. The four pillars policy – which prevents mergers between the big four banks – is unjustifiable on any grounds apart from populist anti-bank sentiment.
Business formation is a proxy for economic dynamism. We need regulatory and workplace law to encourage business start-ups, rather than hinder them.
Some of our largest and most potentially-innovative sectors are held back by bureaucracy and regulation. A pro-growth political platform would have healthcare reform at the centre. Innovation policy needs serious change so innovators can bring ideas to market sooner.
And given the importance of education to growth it is embarrassing that the debate over education policy has devolved into a squabble over a shrinking pool of government money. The last big idea implemented in education was the introduction of HECS in 1989.
A pro-growth platform would liberalise Australian trade barriers without waiting for multilateral or bilateral trade deals to endorse them.
And a pro-growth platform would look at the teeming mass of skilled and unskilled labour around the world and see opportunity, rather than threat. Economic powerhouses have been built on immigration. Australia, with our abundant space and stable institutions, is uniquely placed to attract their entrepreneurial energy.
The economist Mancur Olson once described the progress of human society as an accumulation of special interests who defend the status quo. A country slides into stagnation as more and more groups grab privileges that hold back necessary structural change.
Olson’s is a pessimistic story. Let me amplify that pessimism. Australian policy debate is constrained most by the tyranny of the status quo – a refusal by the political class to consider anything but the most moderate, marginal adjustments to existing policy settings.
It’s obvious that Canberra still believes it has the broad strokes right. After all, they think a grocery code of conduct counts as reform.
Perhaps in the parliamentary triangle it looks that way. Right now, all special interests are being nicely catered for. Rents are sought in an orderly fashion.
But, from outside Canberra, it looks like the economy is slowly grinding into stagnation, and our political class is apparently powerless to do anything about it.
Courtesy of the IPA