Over the weekend, and in the week prior, the following captains of industry and senior officials advocated a sovereign wealth fund to help the Australian economy fend off the effects of Dutch Disease:
- Glenn Stevens, Governor of the Reserve Bank
- Roger Corbett, Chairman, Fairfax
- Brian MacNamee, CEO, CSL
- James Mackenzie, Chairman, Mirvac
- Ralph Norris, CEO, Commonwealth Bank
- Ian Johnston, CEO, Fosters
- Grant King, CEO, Origin Energy
- Chris Roberts, CEO, Cochlear
- Richard Goyder, CEO, Wesfarmers
- Executives at Lend Lease, Tabcorp and Coca-Cola Amatil
This is the creme de la creme of Australian service industries, which represent seventy-odd percent of the economy, plus it’s most senior and powerful economic manager, as well as the Chairman of one half of the Australian media duopoly.
This is a dream team of supporters for a government seeking to introduce a policy that addresses Dutch Disease. There’s huge employers, credible economists and media clout to control the agenda.
Yet this blogger cannot recall any one of these folk supporting the Rudd/Swan proposal for the Resource Super Profits Tax (RSPT) which was, explicitly, an attempt to remedy Dutch Disease.
How is it that none of these “leaders” broached the notion of a fiscal stabilisation facility during the RSPT debacle? Any one of them could have helped deepen the debate beyond what it became, a gunfight between the government and mining interests.
Some of the reticence is probably an expression of the boys club of Australian business executives and the general populism of our culture. Despite seeing ourselves as lovers of the maverick and the larrikin, we are, in fact, a deeply conformist society that lops the head from too tall a poppy. Sticking your head out amidst that furious business rebellion was no easy matter, as this blogger found for himself at Business Spectator.
And that is where we get closer to the prime cause of that national failure (for that is what it was). How did Kevin Rudd and Wayne Swan create a political environment in which even the natural allies of those seeking to mitigate Dutch Disease felt unable to speak out?
The easiest way to understand how extraordinarily poor their execution of the policy process behind the tax was, is to look back at how the similar Petroleum Resource Rent Tax (PRRT) was created in the early eighties.
The PRRT was official Labor policy in opposition for two years before the 1983 election. During that time in Opposition, an extensive debate was stimulated around the need for the tax. The general public was first educated of the need for the tax then converted to its cause.
When the tax was made policy in 1984 in government, a similar backlash came from the businesses it targeted. They howled of its unfairness and threatened to flee the country, just as the majors did during the RSPT debacle.
But the populace was already on side. The affected interests couldn’t destabilise the government.
Another important difference was that the PRRT was applied only to new or greenfields projects.
This time around, we had a secret policy, foisted on all and sundry, with no public debate and a compressed timetable with an approaching election. The entire episode lasted an unbelievable 7 weeks from the announcement of the tax to the downfall of Kevin Rudd. 7 weeks!
None of that is to argue that the RSPT was, in detail, a good policy. This blogger agreed with criticisms that the proposed loss rebate mechanism was unrealistic and the trade-off profit share dimension reminiscent of expropriation. Of course, the proposal did not include an SWF either.
But Rudd and Swan had both had access to the corporate memory that executed the PRRT. The original tax was based upon a dissertation by the current Minister for Trade, Craig Emerson, and it was implemented under Hawke’s economic advisor, Ross Garnaut, who is currently advising the government on climate change mitigation.
Had this experience been tapped in a better managed policy process and debate, the flaws of the RSPT could have been thrashed out, supporters of a new approach to managing Dutch Disease heard, and a decent and balanced tax might have emerged. If that is overly optimistic, at least the earth could have been tilled and the public educated for an attempt down the road.
Instead we have a $100 billion Budget black hole, a political economy poisoned against any increased resources tax, damaged firms that other countries don’t want around, and no real path forward for a substantial SWF.
Kevin Rudd paid a terrible price for his mismanagement. The man most directly responsible, Wayne Swan, was promoted to Deputy Prime Minister.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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