Reform will have to wait, again

As the same-sex marriage postal survey rolls out and the responses roll in, Prime Minister Turnbull has pledged that his government will not be distracted from the urgent task of economic reform. It is a pledge he will be unable to keep. So many questions will arise during the conduct of the survey and its aftermath that the government will spend most of its time responding to them. And with the Coalition party room so deeply divided on legalising same-sex marriage, the goodwill needed to conduct a constructive debate on pressing matters such as the Finkel Review’s clean energy target is clearly lacking. When ministers make media appearances about portfolio matters, they inevitably will be asked their opinion on statements by opponents and supporters of same-sex marriage. Yet again, reform will have to wait.

Meanwhile, the need for a new economic reform program has not been greater since the early 1980s. But where is it? Indeed, what is it?

Ask business organisations what a new economic reform program looks like and they’ll tell you “company tax cuts” and “reduced penalty rates.” Such self-serving responses pale against the scholarly basis of the Hawke-Keating economic reform program. Upon forming government in 1983, the Hawke cabinet was able to draw upon several decades of intellectual work by leading economists at universities, government departments and the predecessor to the Productivity Commission. Their personal advisers included Professors Ross Garnaut and Barry Hughes.

A consensus had been reached: Australia should abandon its post-war, inward-looking, protectionist economic system and embrace an open, competitive model to engage with emerging Asia. The currency needed to be floated, unnecessary regulations removed, tariffs and quotas phased out, wage bargaining decentralised and government enterprises opened up to competition. The reforms took more than a decade to implement, but they paved the way for a world-record 26 years of recession-free economic growth.

But now, with private capital spending in the doldrums, real wages stagnating, underemployment at it highest level on record and the budget in heavy deficit, it just so happens that each reform proposal promotes the commercial interests of its advocates. A company-tax-rate cut would confer a massive windfall gain to shareholders and shareholding-executives of multinational corporations on the income streams from existing investments made at the present 30 per cent rate. Economic modelling suggests either a small gain or a small loss in national income, depending on assumptions made, but none of the modelling indicates that the tax cut would be self-financing even in the very long run.

A serious business-lobby proposal, described by Prime Minister Turnbull as the “go into the study, get out the service revolver and blow your brains out” option, is to increase the GST rate to pay for the company-tax-rate cut.

Cutting Sunday penalty rates for more occupations is firmly on the business agenda, now that the Fair Work Commission has ruled that, in terms of worker inconvenience, Sundays are no different from Saturdays. No compelling evidence was provided to the Fair Work Commission that cutting penalty rates would boost employment. Instead, the proposition was advanced as an article of faith, and at a time when consumer spending by working Australians is already feeble.

Having advocated such self-serving policies, business organisations then condemn the government of the day for lacking the political will to implement them. They consider it the responsibility of the Australian government to persuade the voting public that policies which would hurt them are actually in their own personal interests, or at least that they should take one on the chin for corporate Australia.

Australia’s business effort in setting out a genuine, new economic reform program is its weakest in at least four decades. Instead of taking a trip down memory lane, a twenty-first-century reform program – coupled with a broad community consensus built around it – is needed to solve twenty-first-century economic problems. Lamentably, the task of formulating such a program has not even begun.

Meanwhile, Coalition MPs will be bound by the party room to vote ‘no’ to same-sex marriage if the postal survey produces a negative result, and will also be free to vote ‘no’ even if the survey response is positive. At $122 million, it’s an expensive and illiberal way of solving an internal Liberal Party dispute.