Most Australians sitting down to Christmas dinner will reflect that since the change of Prime Minister in September Australia has taken a turn for the better. Business confidence has improved and new jobs are being created in the service economy as the mining boom peters out. Turnbull has administered a dose of fiscal reality, abandoning the pretence that annual economic growth will automatically bounce back to 3.5 per cent in the next couple of years and remain there. Yet much more needs to be done before Australia can be considered to have returned to a sustainable growth path. Here is a Christmas wish list.
Urgent fiscal repair requires not only cutting back on wasteful expenditure but also new revenue measures. In an advanced, ageing society such as Australia’s, spending on health will inevitably rise faster than gross national income. Even if the Australian health system achieved maximum efficiency governments will not be telling patients that they cannot have blood tests, scans and hip replacements. Nor should they. Quality health care is a key indicator of a country’s social progress. The extra spending is yielding sharply improved health outcomes.
Making room for rising health budgets will require expenditure restraint elsewhere. Spending on middle-class welfare should be trimmed further by de-indexing the upper income thresholds that help determine eligibility of higher-income earners for family payments. Including the family home in the age pension assets test for people under the age of 40 would give them ample time to plan for the change while not disadvantaging older Australians who have counted on its exemption. Long-term budget savings would be huge.
Generous superannuation tax concessions for high-income earners, a 50 per cent discount on the taxation of capital gains and unrestricted negative gearing concessions are indefensible. Future generations of Australians are being expected to pay off government debt worsened by the subsidisation of the lavish lifestyles of wealthy members of the present generation.
Despite the success of the Paris climate change meeting, Australia is stuck with the centrally planned direct action scheme more befitting a Soviet satellite. The government should at least tighten the standards for major emitters and increase the penalties for exceeding them. The result would be a desirable combination of increased revenue and reduced emissions.
One of the reasons given by treasury for belatedly downgrading its estimate of future trend economic growth was that population growth has been slower than expected. A larger immigration intake focussing on young migrants, especially refugees, would bolster both economic growth and entrepreneurial risk taking.
But where would the extra migrants live? Most settle in Sydney and Melbourne which are experiencing worsening congestion. Major transport infrastructure investment featuring high-speed rail is essential if Australia is to have a more decentralised pattern of settlement. Governments will not be able to fund much of this infrastructure and it is heartening to hear Turnbull advocating the capture of some of the land value increases to help proponents finance the huge investments required.
Lifting multifactor productivity growth would seem an odd Christmas wish but it is essential to future improvements in living standards and a fair society. Turnbull’s innovation statement is a good start, reversing Abbott government funding cuts, restoring some initiatives that Greg Combet introduced as innovation minister, and adding new ones. But the extent to which governments welcome or seek to thwart disruptive technologies from overseas will be the most powerful determinant of future productivity growth.
Above all, Australians should wish from Canberra a genuine contest of ideas. Just as Turnbull is in the market for ideas, the Labor opposition has been developing fresh policies and releasing them for debate. Business leaders should make a New Year’s resolution to get to know the originators of these ideas. They are already familiar with the Bill Shorten and his senior Shadow Cabinet Ministers. Many have dealt with the most highly qualified economist ever to enter federal parliament, Dr Andrew Leigh. But they should also make the time to meet newcomers such as Jim Chalmers, Clare O’Neil, Tim Watts, Pat Conroy and Terri Butler who are operating across factional lines to help guarantee the Labor Party continues its tradition of developing new policy ideas for a better country.
It is sometimes said that Australia is at the arse end of the earth. With all the trouble in Europe, North Africa, the Middle East and North America, that’s just fine by this columnist. Happy Christmas, Australia!