The government has brought down its extraordinary economic and fiscal update, a giant turning point in the history of Australia.
The cost of the excellent JobKeeper and JobSeeker policies are known. The dizzying heights to which the unemployment rate will rise is forecast: a shocking 9.25%. The record debt and deficits are there in black and white: $677 billion in net debt this year, and rising.
Yet somehow this one-of-a-kind document has transported Australian politics to familiar territory. We are out of the bright glare of the pandemic and back in the groove: the Coalition wants to cut taxes to makes the economy grow faster.
More widespread productivity reform is in the wings, and popular sentiment will be against it.
Why do we always end up here? I think I can answer that. And do so in a way that explains a lot about contemporary Australia.
One thing most Australians agree on is we need to spur economic growth to pay back all that debt. We either grow our economy enough to make the debt look small, or we try to raise taxes and pay it back. The latter is a recipe for stultification, so the former is preferred.
What follows is known. To create economic growth we speak of tax reform. Of industrial relations reform. Of microeconomic reform.
The government’s budget is coming out in October and we can expect it to include policy ideas cribbed from the Productivity Commission, taken from the old Henry Tax Review, lifted from the old Harper Review into competition.
All of them will be ideas that let the economy run fast loose and clean. All of them will be exceedingly unpopular in a world where people are hurting.
There is a giant gap between the way the wonks look at the world and the way regular people look at the world. When wonks tweak the cogs of the economic machine, they look at the speed the overall machine runs at. When the tweaks happen, regular people tend to focus on the cogs that now have to spin faster to do their jobs.
Take broadening the GST as an example. It’s an efficient tax, so the more we rely on it and the less we rely on inefficient taxes, the more efficient the economy becomes, the faster it can grow, the richer we all should get. In theory. But a hike to GST amid high joblessness is easily characterised as a lift in prices, an attack on the poor. And that’s not wrong.
Another example is deregulating the pharmacy industry so you can fill a prescription in a supermarket. This should make the cost of pharmaceutical goods cheaper, which is a win for consumers. But it will be seen as killing small local pharmacies where the pharmacist knows you. Both sides make valid points.
Where should we land in this debate? Is right on the side of the population who tend to oppose change? Or on the side of the experts who want to bring it in?
I personally believe microeconomic reform can make our economy grow faster, can raise average incomes, can increase GDP. I worked at Treasury after all! I know the script and understand the assumptions behind it.
Great examples of deregulation include letting shops open on Sundays. Or permitting competition in trans-Pacific flights, which halved the price of flying to LA and caused a huge boom in US-Australian travel.
What I’m less sure about is whether all such reforms are costless. We need to pay attention to what it is that is being used efficiently. Is it goods? Let’s use them as efficiently as possible. Or is it people? Because being used efficiently by a business isn’t always a pleasant experience.
I recall vividly being used efficiently as a young part-time worker. I had a regular scheduled Tuesday afternoon shift. I would often be sent home after the minimum of two hours if the restaurant was quiet, having netted myself around $15 in pay. What was efficient for the business was unpleasant for me.
A similar issue arises with cutting red tape. That red tape was usually put there for a reason. When you cut the red tape you lose whatever that tape was holding together.
In some cases, of course, the reason for a rule is no longer relevant. Take Sunday loading, for example. We used to pay more because it was an affront to work on the weekend. Now, plenty of young people are just as happy to work Sundays as any other day. There is nothing so special about Sunday any more.
But then, when Sunday loadings are cut, people complain about an attack on workers. And it’s true, take home pay falls for some people when Sunday loadings are cut. The idea is that more employers employ more people on Sunday if wages are the same as the rest of the week, but that’s harder to observe.
The last election was 14 months ago. The next election must be held by September 3, 2022.
The government is getting a good rap for its handling of the pandemic, but that could change fast if it pivots from Keynesian economics to Austrian economics. The lessons of WorkChoices might be forgotten in the Coalition, but they will not be forgotten by Labor.
When I look at the political impediments to reforms that boost efficiency I ask: have we harvested all the low-hanging fruit from the productivity tree, such that what remains is too costly to pick?
Our political system seems designed to prevent productivity-enhancing reform from happening. And you can’t deny the will of the people. We’re a market democracy, with the emphasis on democracy
So is there any other way to promote economic growth?
The answer is yes: population growth. That’s also unpopular, but it can be tweaked without quite the same level of debate. If we can’t agree on economic reforms that promote efficiency, expect a big surge in population as we try to grow our economy in a way that makes our debt look smaller.
What type of reform would you like to see? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication in Crikey’s Your Say section.
Could the author be so kind and send us a link to a research that would show us how many jobs were created after cut in Sunday penalty rates?
You’re not wrong about the unpopularity of population growth.
Whatever economic problems it purports to solve, the myriad issues related to environment and amenity offset the gains.
I’ll pass thanks.
Thank God we’ve solved the climate crisis and can focus solely on economic growth once we have the pandemic under control.
Whatever else, reducing weekend penalty rates does not increase employment. Businesses aren’t charities, they will always employ the very least number of people regardless of whether penalty rates apply.
As for using population growth to overcome a problem, it’s equivalent to buying a tiger to overcome your mouse problem. It’s also just deeply cynical and hopelessly unimaginative. I’m guessing the last person in Treasury to ‘think outside the box’ (cough) was escorted off the premises by security. The only question is who was that person, and was it this century, the last, or the one before that.
It’s a fair article Jason, but how is it that we have comparatively low national debt, and yet aren’t doing any worse or better than countries with 3, 4 and many more times debt. When are we going to wake up to the fact that it is a fake debt, as opposed to the very real household debt of which we are world leaders. (Aussie, Aussie, Aussie, oi, oi, oi!)
When is someone of imagination in Treasury going to blast out of the box and say something inventive, new, creative, original? How are we going to fight today’s wars if only the previous wars generals call all the shots?
Or at least, when is someone from Treasury or The Reserve going to explain why MMT can’t work? I don’t know, something a bit more erudite than ‘there’s no such thing as a free lunch’, when clearly there is.
What Economists base their thinking on is a complete mystery to me.
One mob of them is running around screaming. They cry, “debit and deficit is out of control. It’s a disaster we’ll all be ruined. The country is stuffed. Our decedents, yea! unto the seventh generation will be paying off this debit.
(They don’t say, if the country is stuffed, where they will get the money from.)
Another mob of economists is calmly sitting back saying,” Governments are not like households. Governments/Countries do not have to borrow to pay off debt. They can issue Bonds or just print money to cover the bills.
Yet others have different ideas .
Not being conversant with econobabble myself, Is there anyone or anywhere this is explained in simple terminology for me?
If economics is really a science why is there so much disagreement among its practitioners? Something so important as a country’s future and guidance should not be about as accurate as divining the meaning of the contents of a chook’s stomach.
Homo economicus doesn’t exist, so no economics isn’t a hard science. People do not make rational decisions and there’s plenty evidence that human motivation isn’t just based on greed and power. Unfortunately we’ve allowed those humans who *are* motivated solely by greed and power, to take this power, whilst believing they would continue to build and nurture a society.
There needs to be a re-think entirely, in which governments should play a massive role, globally. We actually need ‘de-growth’ to ensure we still have a planet in 100 years. Think of consumer products that now no longer last decades or even centuries because producers make them short lasting for profit reasons. Ongoing revenue can be generated through a rent-a-product model, which incentivises producers to make products longer lasting and less break-prone (a circular economy, such as Amsterdam Airport having “light as a service”)
A job guarantee to provide services (we know we will be needing much more social, health, aged care workers already) and looking after our environment for the common good. Increased investment in science, because the current capitalist structure is actually reducing speed of advancement rather then accelerating it. This is just the tip of the iceberg, the ideas are there, the models are there, the evidence of a lot of these ideas is out there as they have been experimented on. Whilst there is no panacea and economic and societal structures need continuous change, us plebs intuitively know that we can’t go back to ‘before’,. It’s there for everyone to see, but it’s being obfuscated by powerful interests.
Now that Heartshunter has taken the plunge I’ll add a bob’s worth too and thus extend my remark
of 24July-20:19
Not even to the late 19th century did markets clear when the world was more or less laissez faire so
market imperfections are to be associated with markets (even with much more rapid communication) rather than governments (who can make a mess of things too). The ultimate role (and justification) for government was Bretton Woods. Major corporates are never slow at offering their hands to government handouts (well exceeded the NASA budget for 2007-8) but begrudge increases of the minimum wage.
Marxism, (even overlooking the fearful common misinterpretations) has something to offer. However, take a look at a topic known as ‘Post Keynesian Economics’ which attempts to take account of “class” in economic transactions. Economics is very ideological. Freidman literally invented (with no recourse to data) the ‘Permanent Income Hypothesis’ as a deliberate counter argument to any role of government and ipso facto to contradict Keynes and Keynesian economics. About 30 odd years ago various
sociological studies pointed out that the community does NOT act as Friedman conjectured (however superficially plausible the Income Hypothesis was at the time). I suspect you have the drift.
When any 1st year (Economics or Psychology) text has to bang on for pages from page one as to how “scientific” the topic is one ought to reflect upon some of the quotes that exist from Hamlet and of Queen Gertrude in particular. A physics or chemistry text commences, typically, with a discussion on accuracy, measurement and a topic known as ‘significant figures’. Different huh? I possess degrees from both sides of the fence.
This article by JM is, in my opinion, dreadful and utterly unfit for current global conditions but I would require equal space to refute the article in detail. The PRC got to were it is with a one-child policy (relaxed since 2015) but the point ought to be evident. India, by comparison (domestic in-fighting aside) is slip-sliding away; India has even lost military control over its own ocean; the exercises mooted by the USA are not for nothing. The countries of Scandinavia had major world markets 50+ years ago and their populations (were and) are very much less than the population of Australia.
In order to discuss the “debt” stuff an analysis of the Asian Crisis (no printing of money) with the 2007-8 event (money everywhere – hence the global effects of interest rates) would have to be made (and I’d need equal space, again, just for that undertaking).
What is fascinating is that with the aid of Machine Learning tools and the computing power required we are on the threshold of being able to determine the information that is contained in the market. The HSBC banking group is a leader in this regard.
Considering JM is using the word ‘reform’ in the title, you know where this is going. Keep the foundation the same, but tweak around the edges. But we know the system is flawed, so why keep the flawed foundation the same?
Change is what is required. We know what stuff doesn’t work and we also know what works. Further experimentation required too.
Thank you for the attempts to explain Economics Guys, including Goat Tees and others.
The big puzzle for me is how can there be such a MASSIVE difference of opinion.
ONE. Debit and deficit is going to ruin us.
TWO. There is no debit and deficit, it doesn’t apply to countries and government, so no problems.
And which is the more probable?
Debates within the ‘hard’ sciences can be vigorous too (at PhD level – not undergrad) but the differences turn (typically) upon the inferences for further research from the data or study and very seldom about the science per se.
For economics the differences are ideological and hence the range of opinion. Cast an eye over Amazon for a title such as “The History of Economic Thought”.
Failing that, take a look at Galbraith’s “The Affluent Society” and “The New Industrial State”. They were written in the late 50s but are very relevant nowadays. Galbraith wrote a heap of books.
As to your questions (ONE & TWO) let history be the guide. If Crikey wishes to provide 3,000 words I’ll oblige with a detailed answer. Alternatively, Rundel might have a crack. He attempted a review of the Economics of Sraffa a couple of years ago; 8/10 for trying but 4/10 for content. On the ‘history’ side take a look at the recovery in Asia that occurred WITHOUT printing money.
With all due respect, this matter is beside the point given the ‘developments’ relating to the South China Sea. When we have the leader of the Opposition emulating the Secretary of State the game is over.
Thank you for that Erasmus.
Between the South China Sea and USA and Climate change I think you are right. The petty details of esoteric economics are insignificant.
In this instance, Goat Tee is the most enlightening for me. You covered it as ideology also.