Earlier in the year this column argued the need for a National Reform Summit to help bridge the political divide in Canberra by finding common ground on a new economic reform program (AFR 3 March 2015). Agreement has now been reached by business groups, the ACTU and the community sector to pursue this worthy goal at a summit on 26 August. The idea is to make good reform easier and opposition to good reform harder. If one or the other major political parties adopts a reform agenda based on agreements by representatives of a broad spectrum of the community at the summit, it will know it has a strong alliance backing it. Conversely, if the rival party seeks to oppose the reform program in an effort to harvest votes, it will struggle to find credible allies to help it prosecute the anti-reform case.
Australians, having lived through almost a quarter century of recession-free economic growth, have come to assume our material living standards will continue to rise as they have done for so long. Something, they imagine, will turn up. Yet the China minerals boom is over and there’s not another China coming around the corner. The developed world is awash with debt and productivity growth in rich countries is dreadful. This matters, since productivity growth accounts for almost all the growth in incomes in the developed world over the last few decades and 88 per cent of the Australia’s income growth per person. Populations of rich countries are ageing, leaving fewer working-age people to earn the incomes and pay the taxes needed to support those who are too old to work.
A dangerous cocktail is brewing which leaves Australia vulnerable to a global economic crisis. Yet in Canberra we had a budget emergency last year but now we are expected to believe it is under control and the budget is on a credible path back to surplus. That path relies on a return to trend economic growth, and then some more, not by forecast but by assumption. It relies on Australia’s falling terms of trade stabilising at more than 20 per cent above their long-term average. It requires bracket creep to collect a rising share of the declining real incomes of Australian workers. And it assumes a resurgence of productivity growth which it simply not occurring. In fact, by the broadest measure of productivity – multifactor productivity, which reflects technological progress – we are less productive today than we were a decade ago.
Until the Australian parliament recognises Australia has a big economic problem no reform will happen. In an economic crisis emanating from overseas it would be the most vulnerable who would suffer most. Young people would struggle to find work, older retrenched workers might never work again, the underprivileged would be shut out of rewarding work and small business owners would be bankrupted.
A strong economy and a fair society go hand in hand. That’s why ACOSS, the ACTU, the BCA, ACCI, AiG, and seniors groups have agreed to work together for a new reform program.