Last night, the head of the Prime Minister’s Economic Advisory Council, Maurice Newman, delivered a speech to the Committee for Economic Development of Australia (CEDA) urging the Government to embrace economic and fiscal reform, whilst blaming the former Labor Government for the economy’s and Budget’s woes.
There was some good aspects of Newman’s speech, including the admission that Australia lacks competitiveness, hamstrung by anti-competitive market structures, excessive regulation (red tape), and high wage costs. There was also a sensible assessment that Australia’s national income is facing a big hit as the once-in-a-century commodity price (terms-of-trade) boom unwinds and the population ages – a point made on this blog frequently:
Growth in real gross national income will slow significantly. Indeed, absent any success in reversing the trend, GNI is likely to fall 1 per cent over the next decade. This was inevitable. As our terms of trade have already fallen 15 per cent since since the 2011, 140-year peak, no one should be surprised. However, the fall has translated into a $32 billion drop in our GNI and, our terms of trade are projected to fall by a further 20 per cent by 2025. This is what makes balancing the budget such a difficult task. An expanding national income is key to rising living standards. Having become accustomed to better than 2 per cent annual growth for 22 consecutive years, we are now facing the prospect of growth with a zero in front of it. That will feel like hitting a brick wall.
Business also confronts the fact that workplace participation is falling. Since its peak in 2010 we have lost the equivalent of 200,000 workers… The economy is likely to lose a further 250,000 workers by 2025 as baby boomers retire in greater numbers. Collectively, this is equivalent to a 3.9 per cent reduction in the workforce and, without action to arrest the decline, strong growth will be harder to achieve.
What I found galling about Newman’s speech, however, was his one-eyed critique of the former Labor Government, which he blames for virtually all of the economy’s problems:
After having watched five long years of reckless spending, economic waste, class warfare, particularly aimed at business and, the mindless destruction of Australia’s international competitiveness and, the reintroduction of workplace rigidities, I thought I had a civic duty to stand up…
Indeed, I am shocked that so much economic damage can be inflicted in just six years (of the federal Labor government). While the full effect and extent of it is mainly invisible to most Australians…
Think, six years to create, more than a decade to repair…[T]he harm done is more than dented confidence. It is real and worse, structural.
…today’s deteriorating economic situation was entirely predictable and avoidable. The warning signs were there for all to see, yet Labor decided to ignore them.
For example, Labor’s commitments to its “better schools” plan, and the National Disability Insurance Scheme, which alone [would] come to $22.5 billion in 2019/20, were made in the clear knowledge of a budget already under serious and continuing pressure. Worthy though the causes may be, in the circumstances, it was reckless.
Labor’s justification for its unbridled spending was the global financial crisis. A temporary stimulus may well have been justified, but, thanks to China, it should have been short lived. Today’s problems were not made in New York, Athens, Dublin, or, Madrid, but in Canberra.
I find it curious that Maurice Newman criticises measures such as the Better Schools plan and the NDIS, yet remained silent on the ballooning of entitlement spending aimed at middle class families, the aged, and wealthy retirees under the Howard Government, which arguably contributed much more to Australia’s structural budget deficit than any policies implemented under Labor. How could Newman ignore all the baby bonuses handed out, increases in aged pensions, and the generous tax breaks implemented by the Howard Government for superannuation – including tax free superannuation for retirees and cuts to the superannuation contributions surcharge on higher income earners?
Similarly, how could Newman gloss over the Coalition’s acts in opposition, where they opposed nearly every reform that would have improved the long-term sustainability of the Budget, including opposing the mining tax and changing fringe benefits taxes on leased cars? Or Tony Abbott’s promised paid parental leave scheme, which if implemented will lavish taxpayer largesse on higher income families and blow a huge hole in the Budget?
I also find it inconsistent how, for all of his talk on the Budget deficit and the need for reform, Newman failed to mention the biggest and growing burden: Australia’s inequitable and unsustainable retirement system, which provides massive tax breaks to those on the highest incomes, costing the Budget billions in foregone revenue, whilst ignoring those most likely to be reliant on the aged pension – lower and middle income earners. He also failed to mention the absurdity of excluding the biggest asset most households retiree with – the family home – from the pension assets test, which dramatically increases costs on the Budget, while worsening inter-generational equity.
If Australia is to successfully navigate the challenges ahead, it needs frank and objective analysis and advice, not politically partisan utterances.
