Bloomberg has published and excellent editorial imploring Prime Minister-elect, Tony Abbott, to drop the populism and prepare for the challenges facing the Australian economy:
If ever an election was lost not won, it was the weekend’s vote in Australia…
To call the coalition’s platform weak would be generous. Mostly, it was empty — and its few specific ideas were notable for being bad ones.
Abbott has promised to scrap Australia’s carbon-pricing program, rejecting the best approach to dealing with climate change. He’s also said he’ll scrap the mining tax, without saying what will replace it. And he’s promised six months’ paid maternity leave at taxpayers’ expense – while calling himself a fiscal conservative.
In truth, Abbott campaigned as the worst sort of populist conservative…
During the campaign, neither party had much to say about the real challenges facing the country — namely, adapting more intelligently to Australia’s economic dependence on China and boosting the country’s productivity growth.
China’s long surge has been the key to Australia’s 22 uninterrupted years of economic growth. Booming exports of natural resources… fueled the expanding economy, keeping employment high and throwing off tax revenue that let successive governments raise spending without borrowing. Thanks to China, Australia came through the global crash unscathed.
With China’s growth fading, Australia has to adjust – and an uncharacteristically anxious country knows it. The fruits of the resources boom would have been better invested in a national fund to provide income in later years, but that wasn’t done. With the tax base under threat, other taxes and cuts in public spending will have to bear the burden. At the same time, employment and investment have to shift from mining into new high-productivity export businesses. Far from advancing such a program, Abbott’s proposals on carbon pricing and entitlements set things back…
To be a good prime minister, Abbott will need to reinvent himself again — drop the cheap populism, become the fiscal conservative he says he is, and lift his attention from short-term tactics to Australia’s real challenges.
It’s hard to disagree with Bloomberg’s critique. The Coalition ran a safe, populist campaign, which was highly successful in getting elected, helped of course by a woeful Government. But in doing so, it displayed some of the worst policy making that I have seen, highly inappropriate for the times.
In particular, the planned Paid Parental Leave scheme is a shocker, locking in expensive entightlements for the (mostly) wealthy for minimal, if any, productivity gain. The Coalition’s muted reversal of Fringe Benefit Tax concessions on cars, as well as re-targetting superannuation concessions towards higher income earners over lower income earners, are also some egregious policies aimed clearly at appeasing vested interests rather than improving overall productivity and welfare.
While China’s economy appears to be experiencing a bounce, which will hopefully keep commodity prices highly elevated for a while longer, both mining-related capital expenditure and Australia’s terms-of-trade are still likely to head south sooner rather than later, which would adversely affect growth in incomes, GDP and jobs.
Raising living standards in such an environment will require an end to populism in place of a concerted program of micro-economic (structural) reform, aimed at boosting competition, innovation, and productivity, in addition to well-targeted investment in productivity-enhancing infrastructure.
Let’s hope Prime Minister Abbott is up for the challenge.
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