Putting Facts Before Fear in Economic Debates

I moved a private member's motion in the House of Representatives today on the strength of the Australian economy, and the need to approach economic debates with facts rather than fear (avoiding phobophobia).




A Strong Australian Economy
18 June 2012


I move: That this House:
(1) notes that:
(a) by historical standards, unemployment, inflation and interest rates are at very low levels;
(b) for the first time in Australian history, Australia has a AAA rating from all three major credit rating agencies;
(c) Australia's debt levels, despite the hit to revenues from the global financial crisis, are around one tenth the level of major advanced economies;
(d) OECD Economic Outlook 91 confirms that the Australian economy will significantly outperform OECD economies as a whole over this year and next; and
(e) the IMF has said of Australia: 'we welcome the authorities' commitment to return to a budget surplus by 2012-13 to rebuild fiscal buffers, putting Commonwealth government finances in a stronger position'; and
(2) calls upon all Members to approach economic debates with facts rather than fear, and to put the national interest first when discussing the strong Australian economy.


Economic reform in Australia has never been easy. In the postwar decades, the conservatives built up a tariff wall that helped make Australian industry uncompetitive and kept consumer prices high. In 1973, Gough Whitlam began the long process of breaking down Australia's tariff walls—the 25 per cent across-the-board tariff cuts.

What did those opposite do? They came into this place and attacked him for it. Ralph Hunt, Michael MacKellar, Ian Sinclair and others criticised it. Victorian Chamber of Manufactures condemned it. Yet nearly 40 years on, no-one is arguing for the tariff wall to be rebuilt.

This, in a nutshell, is the story of economic reform in Australia—argued by Labor, often opposed by the conservatives and in the end becoming a part of the Australian social fabric. The result of reform is the prosperity that Australians now enjoy: four per cent growth rates, five per cent unemployment, two per cent inflation and the RBA cash rate of 3½ per cent—economic circumstances the rest of the world would give their eye teeth for.

The Opposition

But when those opposite speak about the economy there is only one place where they seem to be willing to tell the truth and that is London. When the opposition leader was in London recently he said:

‘… Australia has serious bragging rights. Compared to most developed countries, our economic circumstances are enviable.’

When the member for North Sydney went to London he referred to the fact that Hong Kong, where debt levels are twice Australia's, had moderate government debt. He was certainly telling the truth and this clearly indicates his belief that Australia has low government debt. It is passing strange that it is only when they go to London—when they are in the 'mother country'—that those opposite can tell the truth about the Australian economy. It makes you wonder what is going through their heads. I think it could be something like, 'I did but see her passing by; I cannot tell an economic lie.'

It would be easy to spend 10 minutes talking about the protectionism of Barnaby Joyce, the DLP-style intervention of Tony Abbott, the backflips of Joe Hockey on the Parliamentary Budget Office and the opportunism around the debt ceiling. Those opposite would not know a Pigouvian tax if they tripped over one and they are the only ones in Australia who seem to think that royalties are better than a profits based tax for taxation of mining.

Back when they were introducing the GST, the coalition liked to point out that almost every OECD country had a GST. By 2015 there will be national or subnational emissions trading schemes in every OECD country but one; but now coalition MPs have changed their arguments. They say we should be lone wolves rather than running with the pack. Yet, as George Megalogenis reminds us in his most recent book, here is John Howard on 3 June 2007 promising:

‘This will be a world-class emissions trading system more comprehensive, more rigorously grounded in economics, and with better governance than anything in Europe. Implementing an emissions trading scheme and setting a long-term goal for reducing emissions will be the most momentous economic decision Australia will take in the next decade.’

Similarly, a profits based mining tax is no more a left-wing idea than a good one. It was the Hawke government which introduced the petroleum resource rent tax and a profits based tax on uranium but it was conservative Sarah Palin who put a profits based tax on petroleum when she was governor of Alaska. It was the Northern Territory conservatives who were responsible for the profits based mining taxes that have worked so well in the NT. Profits based taxes are just a smarter way of taxing mining. They make sure that when world prices rise taxpayers share in the windfall.

The current Liberal Party leadership has more in common with the DLP than the market oriented party of John Howard, Brendan Nelson and the member for Wentworth, Malcolm Turnbull. The current National Party leadership has more in common with the all-round protectionism of Black Jack McEwen than the reforming party of Tim Fischer and Mark Vaile.

Economic Challenges

But, rather than dwell on the coalition's economic illiteracy, I want to talk about the challenges and opportunities for Australia. With the rise of China, Australia sees great opportunities for our exports not only of goods but also of services. Australian finance and architecture firms are engaged with the Chinese boom. As we move to a more open economy we need to make sure that we keep investing in infrastructure and education. We know that boosting the quality and quantity of Australian education is absolutely essential as we move to a more open and technologically savvy world. We need to boost productivity. There was some reference last week to the Productivity Commission ‘to do’ list. Lost in that debate was the fact that on that list are things such as efficient water pricing, harmonised building codes and quicker processing of applications for major resource projects—all of which the government is pursuing. We also need to make sure that we help build an entrepreneurial culture. I pay tribute to Australia's latest Nobel laureate, Brian Schmidt, for his enthusiasm in making sure we develop more scientists and researchers.

Academic Research

When the Leader of the Opposition was asked why he could not find a single academic economist to back his command and control climate policy over Labor's market alternative, he responded by saying that this said something about 'the quality of Australia's economists'. Nothing could be further from the truth. Australian academic economics is as strong as it has ever been. Let me take a moment to note for the House some of the important research taking place. At the Australian National University, Centre for Applied Macroeconomic Analysis has established a ‘shadow Reserve Bank board’ to look at uncertainty around monetary policy. The shadow board comprises Paul Bloxham, Mark Crosby, Mardi Dungey, Saul Eslake, Bob Gregory, James Morley, Jeffrey Sheen, Mark Thirlwell, and Shaun Vahey. I acknowledge the work that Warwick McKibbin has done at the Australian National University to build CAMA into such a powerhouse.

At Deakin University, the Deakin Policy Forum is aimed at stimulating high quality discussion of economic policy. At Griffith University, the Economic Policy Analysis Program aims to foster economic research, particularly in the area of macroeconomics. Simon Ville and Glenn Withers are currently editing the Cambridge Economic History of Australia—because it is only by understanding your economic past that you can build good policies for the future. At the Melbourne Institute, the HILDA surveys facilitate hundreds of academic studies including work on employment, health, inequality, mobility, crime and happiness. Victoria University of Technology is hosting the Australian Conference of Economists from 9 to 12 July and I am looking forward to speaking and listening to some of the quality presentations at that conference. The ANU Crawford School's Economics and Environment Network was an important contributor to the development of an emissions trading scheme through its support for Professor Ross Garnaut. The Crawford School is also hosting a public policy week from 16 to 20 July, which will include a roundtable on the Henry tax review with James Mirrlees. The University of New South Wales has set up a Centre of Excellence in Population and Ageing Research involving economists and demographers. Monash University recently hosted a major development economics workshop supported by AusAID and involving Abijit Banerjee from MIT. Next month, Monash is hosting a joint conference with Warwick University on superannuation. The University of Queensland is running the 2012 Society for the Advancement of Economic Theory conference.

Conclusion

When Labor put an assets test on the pension in the early 1980s opposition leader Andrew Peacock called it an 'assault on the elderly' and promised to repeal it when the coalition won office. A decade after floating the dollar, the Leader of the Opposition still thought it was a bad idea.

For every reform, there will always be someone standing against it, but the thing is that history will forget the naysayers. History remembers the doers. Eventually, history will forget the doers and the parliamentarians who spoke for reform; it only remembers the things they did. The things we do in this place will outlast us. Reforms like an emissions trading scheme, a profits based mining tax, the National Disability Insurance Scheme, school infrastructure that will stand the test of generations and the National Broadband Network will be here long after those of us in this place have moved on.
http://www.youtube.com/embed/dg5cxhCsGeE

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8/1 Torrens Street, Braddon ACT 2612 | 02 6247 4396 | Andrew.Leigh.MP@aph.gov.au