The budget is a sugar hit from a prime minister who thinks that microeconomic reforms to pay for it are vanity projects.
When I was 15 years old, a band named The Archies released a hit song titled Sugar, Sugar. As the Treasurer gave his budget speech, I couldn’t get the lyrics out of my head: “Pour a little sugar on it honey. I’m gonna make your life so sweet.”
To be fair, the word “sugar” doesn’t appear in the budget speech. But nor does “productivity” while “reform” makes a cameo appearance.
Some of the extra spending is vitally needed and welcome, most particularly on aged care and mental health.
But most of it is designed to secure the government’s re-election.
An economy can’t run on sugar forever. Throughout the budget papers are indications that a sharp economic recovery is already underway. Yet the candy man is everywhere.
More worrying is the government’s lack of ambition for the nation. After the current bounce back, economic growth is forecast at around 2.5 per cent, very close to its average over the six years prior to COVID-19.
A return to that tepid growth performance would leave unemployment above the level Treasury and the Reserve Bank now assess as being necessary to get real wages moving.
It’s axiomatic, then, that real wages cannot rise over the four-year budget period. And that’s exactly what the budget papers forecast – no recovery from a sharp real-wage reduction this year and weak wages growth over the last several years.
An economy’s productive capacity can be improved sustainably only through economic reforms designed to lift productivity.
The announced extension of immediate expensing until mid-2023 will be useful for tradies and farmers but major private investment projects take more than two years to deliver. In any event, this hardly constitutes a comprehensive microeconomic reform program.
A recent, seminal Productivity Commission report https://www.pc.gov.au/research/ongoing/productivity-insights/long-term/productivity-insights-2020-long-term.pdf confirms in numbers what economists have long argued: since Federation, almost all of Australia’s increases in GDP per person have been attributable to labour productivity growth.
The same report states that microeconomic policy reforms of the 1980s and 1990s contributed to a productivity boom in the 1990s, when Australia’s productivity grew at its fastest rate in the two decades both before then and since.
In other words, the Hawke-Keating microeconomic reforms produced a productivity boom in the 1990s the likes of which Australia hadn’t seen before and hasn’t experienced since.
Wouldn’t you think a government now, confronted with low growth and forecast declines in real wages, would be interested in a new round of microeconomic reform?
Yet when asked at the National Press Club about his interest in microeconomic reform, Prime Minister Morrison said he wasn’t interested in pursuing policies for the sake of “vanity” https://www.afr.com/politics/federal/morrison-rules-out-big-reforms-20210201-p56ybd
Australia desperately needs a new microeconomic reform program based on cooperation between business, unions and civil society organisations. The National Reform Summit of 2015 achieved a great deal of cooperation, with the Business Council of Australia, the union movement, the Australian Council of Social Services and seniors’ groups working together to find common ground.
During 2020, the Business Council of Australia, the Australian Council of Trade Unions and the Council of Small Business Organisations Australia achieved agreement on reforms to the industrial relations system, only to have it scuppered by other business groups.
The Hawke government’s National Economic Summit of 1983 laid the groundwork for the microeconomic reforms that created the 1990s productivity boom and made Australia a successful open, competitive economy.
In his budget reply, Labor leader Anthony Albanese argued the case for economic reform. He called for a new spirit of co-operation between unions and business, striving to improve productivity and working conditions.
It’s a promising start.
Labor governments have done most of the big economic reforms in the past and can do so again in the future.
The candy man was very popular in Willy Wonka and the Chocolate Factory but the grown-ups in Australia know the economy can’t be made stronger and their children’s lives made sustainably better simply by handing out lollies.
When political smarties would come into Bob Hawke’s office urging him to hand out lollies to segments of the voting population Labor was at risk of losing, Bob would reply: “Never underestimate the intelligence of the Australian people.”
Liberal governments like to pour scorn on Labor governments for racking up debt and deficit disasters, disparagingly describing them as Whitlamesque.
Now for the truth.
Tucked away on the final pages of the budget papers is a table revealing that, in real terms, the Whitlam government’s net debt per Australian peaked at a little over $1,000, the Rudd-Gillard government’s after the Global Financial Crisis at $8,500 per person, while the Morrison government’s legacy is projected to exceed $28,000 for every man, woman and child in Australia.
That’s a lot of sugar, honey, with not much to show for it.
Craig Emerson was an economic adviser to Bob Hawke. He is a distinguished fellow at the ANU, chair of the McKell Institute, director of the APEC Study Centre at RMIT and adjunct professor at Victoria University’s College of Business. He co-convened the National Reform Summit in 2015 supported by the Financial Review.