If the Australian economy is to emerge from hibernation stronger than when it entered the hole, the way we go about our economic lives will need to change. Huge disruptions such as depressions, recession and wars cause us to rethink what we were doing before getting hit so that we might be more resilient next time. That needs to happen now as we grapple with the biggest economic shock since the Great Depression.
It’s not as if the economy was in good health when we were forced into hibernation. Productivity growth, which has been responsible for more than 80 per cent of the improvement in Australian incomes over the last four decades, had slowed so badly before the crisis that it actually slipped into reverse gear. Instead of the normal capital deepening where, through new private investment, workers were given new equipment embodying the latest technologies to work with, Australia has been experiencing capital shallowing. It’s the first time this has happened since records were first kept and probably the first time ever.
A lack of private investment explains this dreadful situation. Outside the mining sector, corporate Australia has been using its profits to increase dividends and to buy back shares, instead of reinvesting them. While this has kept shareholders happy, it has enfeebled the economy, stripping it of resilience against a big chill – far from ideal when entering hibernation.
Australia’s economic success has bred what Professor Ross Garnaut calls a Great Complacency. The Hawke-Keating reforms were born out of a crisis as the post-war folly of turning the Australian economy inward, protected by high tariffs, took its toll in the form of a recession in the early 1980s and a currency crisis in the mid-1980s.
In anticipation of the Asian Century, the Hawke and Keating governments fashioned Australia’s open, competitive economy through reforms that the Howard government continued and extended in places.
Sure enough, an economy to our north, home to 1.4 billion people, emerged from a century of self-imposed isolation, with a voracious appetite for Australia’s iron ore and coal to build its cities linked by very fast train lines. China’s re-emergence underwrote Australian economic growth not for a decade, or two, but almost three.
As Australia celebrated a world-beating 28 years of recession-free economic growth it just seemed so easy. We were the lucky country after all. Something always seemed to turn up. And it did. In January 2020. A viral pandemic.
We had coasted. While my ministerial colleague, Lindsay Tanner, and I were working with the states on a sweeping 27 areas of deregulation in 2008-2010, Lindsay said to me: “Mate, Australians are good in a crisis but when there’s no crisis we go to the beach.” We’ve been at the beach for a long time.
We have allowed creeping re-regulation of the economy even when the case for it has been weak. We have tolerated falling school standards and abysmally low tertiary entrance scores for teaching degrees. We refuse to pay teachers properly or reward them for good performance. What sort of advanced society shows such disrespect and low regard for its children’s teachers?
Our workplace relations system has been marred by confrontation. Enterprise bargaining has been made far more difficult through court interpretations of the no-disadvantage test. The award safety net remains overly prescriptive such that variations that suit both employers and their employees cannot be made without a full enterprise bargaining agreement.
Yet business organisations and trade unions have cooperated through the crisis to cushion the effects on COVID-19 restrictions on the workforce. If that spirit could be carried into the recovery phase, changes to workplace relations laws that benefit employers and workers – with no disadvantage to workers – might be possible.
And perhaps the interests of workers and owners in a company’s profitability could be better aligned through carefully crafted employee share ownership plans.
Business investment could be incentivised through the extension and expansion of the investment allowance announced in the first economic support package – a policy I have been advocating since 2015 and which Labor took to the 2019 federal election, making the prospects of bipartisan support very high.
The investment allowance could be an instalment in the transition of Australia’s corporate tax system to a cash flow tax, as advocated by Ross Garnaut, Stephen Anthony, Rueben Finighan and me.
Telehealth might have taught us a few lessons about working smarter in our health system, which the government has recognised, as might all the online business meetings occurring during the COVID-19 restrictions. When the economy emerges from hibernation do all the bears really need again to cram onto planes, trains and automobiles for face-to-face get-togethers, destroying our productivity and sensibilities and requiring massive new investments in peak-hour infrastructure?
When we emerge from hibernation, working mothers might want to increase their hours of work to help repair family budgets. Yet many will be able to keep as little as $1 per extra hour worked – a consequence of the insidious interaction of the income tax, family tax benefit and child care subsidy systems. In fact, KPMG analysis reveals some groups of women would send their family budgets backwards by working an extra day a week.
We encourage women to go to university – with 57 per cent of enrolments now women – but then punish them for having babies.
These are just a few reform ideas worth considering. Others are not, including tariffs to protect so-called strategic industries which, by the time the rent-seekers are finished, would be every industry under the sun.