Economic Reform

I spoke yesterday on the Matter of Public Importance debate - on the topic of economic reform.


Matters of Public Importance - Economy
16 November 2010


Dr Leigh (Fraser) (4:38 PM) —In rising to speak on this matter of public importance I want to make three points to the House today. Firstly, the strength of the Australian economy is testament to Labor’s good economic management. Secondly, Labor is committed to economic reform in the future. Thirdly, that those opposite have no commitment to economic reform.

Let us turn first to the strength of the Australian economy and Labor’s track record. When it came to dealing with the global downturn, Labor delivered household payments to low-income households and much-needed infrastructure to everyone. It is unclear whether the coalition would have done anything at all in response to the greatest global downturn since the Great Depression. But if they had, it probably would have been tax cuts for the rich. In contrast, Labor’s strategy was exactly what international groups such as the G20, the OECD and the IMF recommended: ‘timely, targeted and temporary’ fiscal stimulus. We should always be trying to get the level of unemployment below what it is today, but we can be proud of our successes. There would be another 200,000 unemployed Australians today were it not for the fiscal stimulus that the Labor government put in place. We did that with remarkably little debt. Australia’s net debt will peak at six per cent of GDP in 2011-12. By contrast, the average net debt of the G7 countries is expected to peak at nearly 100 per cent of GDP.

Moreover, our debt load has at least as much to do with revenue falls as it has to do with spending increases. The global financial crisis stripped $110 billion out of the budget. Anyone who argues that we should not have taken on a small amount of debt to accommodate this is effectively saying that when the global financial crisis came we should have cut spending or raised tax rates. If that is the position they are taking, it is up to them to tell us which programs they would have cut and which taxes they would have raised.

But when it comes to talking about the current state of the Australian economy, don’t just take my word for it. Let us look at the Reserve Bank minutes of 2 November, just released, which note:


The labour market remained strong.


They go on to say:


Consumer sentiment remained at a high level …


And further:


Business conditions remained generally favourable …


Or we can look at the latest OECD report on Australia, which begins with the opening paragraph:


The Australian economy has been one of the most resilient in the OECD during the global economic and financial crisis.


It then says:


The strong policy response and encouraging outlook restored confidence rapidly, and exit from the stimulus is underway.


Historically, Labor can claim credit for many of Australia’s major economic reforms. The Curtin government put in place uniform personal income taxation and laid the foundations for a post-war full employment policy. The Whitlam government implemented universal health insurance and began the process of lowering Australia’s tariff walls. Hawke floated the dollar and negotiated the accord. Keating introduced the superannuation guarantee and enterprise bargaining. It is timely to note that many of these reforms were opposed at the time by the coalition. Labor has always been committed to economic reform. This Labor government stands committed to a new wave of economic reform in the future. In her speech in Brisbane, on 12 October 2010, the Prime Minister said:


In Government, we must walk the reform road every day, and minority Government is no excuse.


The Prime Minister then went on to set out the new agenda for economic reform. She went through five important aspects of the modern economic reform agenda: the most significant fiscal consolidation in at least 50 years, with a budget back in surplus by 2013. They included:


… cutting the company tax rate to make our businesses more competitive; better sharing the benefits of our commodity boom; superannuation reform to lift national savings and support domestic investment …

… investing in roads, rail and ports, and the National Broadband Network to build productivity and economic capacity …


And then in relation to the critical reforms in education, she said, ‘Taking the market based tools that have made our financial and industrial capital so much more productive and applying them to schools, providing choice, information and incentive structures.’ She went on, ‘Our structural reforms will drive efficiency across the hospital system. Instead of states receiving block grants, hospitals will receive activity funding.’ That is fundamental economic reform in the modern age and sets the Gillard Labor government squarely in the great Labor tradition of economic reform.

Finally, it is important to refer to the position that those opposite take when it comes to economic reform. The Leader of the Opposition has been reported as saying that economics is a bore. It is as though he thinks that saving Australian jobs, improving our tax system and dealing with climate change are all sideshows to the main game: coming up with a snappy, three-word slogan for the evening news.

And, worse, the Leader of the Opposition does not even seem to have bothered to understand Economics 101. In February, he told ABC Radio National:


… in New Zealand they have tried to reform their way through the global financial crisis under the new government’s leadership and they seem to be doing pretty well.


Actually, New Zealand’s unemployment rate at the time was seven per cent compared to Australia’s five per cent. If we had had New Zealand’s unemployment rate, we would have had another 200,000 jobless. As respected economic commentator Peter Hartcher put it:


The opposition leader has shown that he can’t tell a kiwi from a kangaroo, a plus from a minus, wreckage from recovery.


There were a series of Superman comics, and one of the characters in those Superman comics was Bizarro. Bizarro was an ‘imperfect duplicate’ of the Man of Steel. His face resembled white faceted stone, and he said things like, ‘Me am going away now.’ Eventually, Bizarro settled on his own planet and peopled it with thousands of imperfect duplicates of himself, Lois Lane, and the rest of the Superman family. The Bizarro code was:


Us do the opposite of all Earthly things! Us hate beauty! Us love ugliness! Is a big crime to make anything perfect on Bizarro World!


Today, the coalition is taking us into Bizarro world economics. In Bizarro world, the party of the right does not believe in free markets. Its shadow finance minister does not like floating exchange rates, its shadow Treasurer wants to reregulate interest rates, and the opposition leader does not believe in a market mechanism to tackle climate change. It is Bizarro world all right: ‘Us hate markets. Us love regulation.’ Of course, the Leader of the Opposition has form on this. In the Adelaide Review in November 1994, he said:


The floating dollar remains an article of faith with the leadership of both main parties notwithstanding its exceedingly dubious outcome for Australia and the damning verdict of the Economist magazine … that the experiment with floating exchange rates had failed and it was time to return to pegged rates.


I have taken a keen interest in a certain aspect of the first speeches in this parliament. As an economist, I am interested in what new members of parliament have to say about economics. I could not help noticing an interesting fact, which is that the first speeches from this side of the parliament have been much more pro-market than those from the other side of the parliament. The member for Chifley referred with pride to the trade liberalisation that took place under Labor. The member for Canberra talked about the over-regulation of the Indian economy and her pride as a small-business worker. The member for Greenway referred to her background as a corporate lawyer working on telecommunications, competition and broadcasting laws.

On the other side of the House, we had a clear demonstration of what those opposite think about markets. The member for Riverina said in his first speech that Australian agriculture ‘needs protection—fair trade rather than free trade’. The member for Flynn said that the fishing industry required assistance and should not be swamped with imports. The member for Aston said that he did not believe the taxes on binge drinking, pollution or congestion had any impact on behaviour. And the member for Dawson said:


I believe income tax should go.


This is despite the fact that the income tax is generally regarded as one of our most efficient taxes. In the interests of time, I will skip over on this occasion some rather unorthodox views about economies of scale from the member for Hughes and some particularly unusual views about how capital markets work from the member for Forde.

Like the US Republicans, the Coalition are increasingly becoming a party of conservatism, not a party of liberalism. The result is that there is only one party in this House any longer committed to economic reform, and that is the Australian Labor Party.

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