Category: Economy

Australia has had a string of politically inspired and often useless royal commissions. The fiasco surrounding Dyson Heydon’s acceptance of an invitation to speak at a Liberal Party dinner made it even more likely that his enquiry into trade unions would be quickly discounted, except for those who wanted to pursue a political agenda against trade unions and by implication, their association with the ALP.

In response to the Trade Union Royal Commission report, Malcolm Turnbull identified himself with business and the political ‘right’ rather than the public interest or the middle ground. He is consistently taking an ambivalent approach whether it is on climate change, coal mining, gay marriage the republic or the NBN. In response to Heydon’s report, he was not as hectoring as the Employment Minister Michaelia Cash. That is not his way with words, but in substance he followed along.. It was the same on his visit to the US. The tone was different but not the substance. We could do with ’more matter and less art’

We have had a long list of royal commissions into trade unions. In 1976 the Fraser government had a Sweeney Royal Commission into the maritime unions. In 1982 the Fraser government received a report on bribery and corruption by the building unions. In 1984 the Costigan Royal Commission dealt with racketeering by the Ship Painters and Dockers Union. In 1989 Heydon and Meagher recommended that trade union officials should have the same fiduciary duties and responsibilities as company directors. In 2001 John Howard commissioned the Cole Royal Commission to investigate the conduct of industrial relations within the building industry.

Despite this plethora of royal commissions, very little resulted.

Perhaps aware of this record, Dyson Heydon in his final report decided that he had to call to his aid a former High Court Chief Justice, Sir Harry Gibbs. In his report, Heydon said

‘Sir Harry Gibbs was universally admired for probity. Near the end of his long life, much of which had been devoted to controversies about the meaning of the constitution, he concluded that it did not matter much for the health of the nation what the constitution meant, so long as one condition was satisfied. That was the inherent decency of the Australian people continued.’

Mystified as anyone would be by this comment about Sir Harry Gibbs. Richard Ackland in the Australian Guardian commented

‘The relevance is mystifying as is the decision to propel Sir Harry (Bill) Gibbs onto the field of battle in this context. Gibbs, while a judge in Queensland, conducted a royal commission into allegations that the National Hotel in Brisbane was the centre of a call-girl operation sanctioned by the Queensland Police. After ruling heaps of available information as inadmissible and accepting an amount of perjured testimony, he could find no evidence of police corruption. This finding was so disastrous that it is credited with empowering the rotten apples in the Queensland police for another 23 years – until the Fitzgerald Royal Commission came along. Why on earth would Heydon launch his trade union report by citing a conservative judge whose name is the kiss of death in the pantheon of royal commissions?’

Tony Abbott established a royal commission headed by Mr. Hanger on the Home Insulation Program, or pink batts as it was better known. In his report Hanger criticized the commonwealth government for having relied on the states to implement their own occupation and health laws, their own employment training programs and their own building regulations. He said

‘To rely on the states and territories to police their own respective workplace health and safety laws seems to have been misguided.’

What a remarkable thing to say! As even the most ignorant would know, the states have clear responsibility in these areas which they jealously guard. To say nothing of the responsibility of employers. Yet Hanger decided to try and pin responsibility on the commonwealth government and let the states and employers go free. For a political beat-up that is hard to better. It is not surprising that we have heard little further about the first of Tony Abbott’s royal commissions into the previous Labor government’s administration. But it gave Tony Abbott and News Ltd an opportunity to attack.

Then we had Dyson Heydon on Julia Gillard. In his interim report, Heydon said that Ms Gillard’s ‘intense degree of preparation, her familiarity with the materials, her acuteness [and] her powerful instinct for self preservation made it difficult to judge her credibility.’ In the same vein as Mr Hanger’s report on pink batts this was also an amazing thing to say. Was Heydon really saying that Julia Gillard was too smart for him? Would he have preferred her to be unprepared and ignorant about the material on which she was questioned?

And despite the royal commission grilling over several days and the media frenzy, Bill Shorten got home free.

The royal commission into trade unions and the Liberal Party favour corporate style regulation of the unions. They fail to acknowledge that corporations exist to advance the profits of shareholders and in this they get enormous advantages through ‘limited liability’. But trade unions are community organisations established to protect the rights of workers in a marketplace that is heavily biased against them. Union activity in Australia has been largely decriminalized since the 19^th Century. Unionists should be penalized for taking action for personal gain but they should not be penalized for acting in the course of an industrial dispute to support their members.

This royal commission into trade unions was designed to weaken trade unions. Yet trade unions have been a continuing feature of Australian political, economic and social life that protects vulnerable people in the workplace. When asked in 2014 what Australia had done right to defend the economy against chronic inequality that had occurred in the US, Nobel Prize winning economist, Joseph Stiglitz said ‘unions’. Republican presidents and business interests have bitterly attacked the role of trade unions in the US. That is one reason why there is now so much alarming inequality in that country.

It is not surprising that there are strong unions in our maritime, construction and mining industries. Dangerous workplaces will inevitably produce strong unions to ensure workplace safety. Tough work produces tough union leaders. Every ten days there is a workforce death in the construction industry. It is dangerous work. In his cossetted world does the royal commissioner really understand how dangerous construction work can be?

The royal commissions on pink batts and trade unions have been politically partisan. There are other areas of major concern that would have been a more appropriate focus for royal commissions and transparency. Why did almost 600 of our major corporations pay no tax in 2013-14? That included such companies as Transfield, News Group and Exxon. People damaged by conflicted advice from financial planners in our banks were refused a royal commission. There has been systemic exploitation of workers by such companies as 7-Eleven and labor hire companies. But again, no royal commissions in these far more serious areas. And the one royal commission that we should have had above all others was a royal commission on the flimsy and manipulated information that led us into the Iraq War and tragedy for millions of people, a tragedy that is still unfolding.

The HSU and the CFMEU are fair game, but the big end of town that funds the Liberal Party is left to run free.

There is certainly no room in Australia for unionists that are ‘louts, thugs, bullies, thieves, perjurers …. ‘as the royal commissioner described some of them. Laws should be exercised or stronger laws introduced to address these problems. But why be so partisan and allow really big offenders to go scott free just because they are closely aligned to the Liberal Party.

At the urging of the big end of town who want him to intervene on the side of capital to the detriment of labour, will Malcolm Turnbull over-reach on industrial relations as John Howard did on Work Choices?

Australians are facing a gruelling 2016. A growing revenue crisis is placing severe constraints on the budget, meaning the government will probably be contemplating cuts in services and other “soft target” areas like pensions, child care subsidies and related welfare measures. The neo-liberal vandalizing of the country’s manufacturing sector, and the short-termism that is now a fixed feature of economic policy-making in Australia, mean that employment prospects are bleak, especially for school leavers and recent graduates. The consequences of climate change are becoming more apparent by the day as the country struggles through a summer of heat waves, droughts, floods, and bushfires. The cost of the country’s military involvements in the Middle East is mounting at a high rate. Maintaining the Manus Island and Nauru asylum seeker gulags is costing Australian taxpayers billions. China is no longer the cash cow it was during the squandered resources boom. Globally, the major capitalist economies continue to stagnate while burdened by debt levels greater than those preceding the 2008 global financial crisis. Meanwhile, since 2012 the Lowy Poll has been charting a growing dissatisfaction among voters with the country’s politicians and political institutions. This trend is particularly noticeable among 18-29 year-olds. The most recent Lowy Poll found that 37 percent of that age group believes that a non-democratic government could be preferable to the one we have at present.

All of these factors point to the need for a radical reappraisal of the country’s system of governance. A close, hard look at the Australian federal system should be at the top of that agenda. The forthcoming white paper on federalism is meant to come up with ideas for the “Reform of the Federation, and the responsibilities of different governments, [and to] clarify roles and responsibilities to ensure that, as far as possible, the States and Territories are sovereign in their own sphere.” This is a narrowly ideological approach to the extremely serious problems now besetting our ramshackle federation.

It is now more obvious than ever before that the nineteenth century compromises that resulted in the present federal arrangements are profoundly unsuited to the political challenges of the twenty-first century. What we have are separate representative governments in six states, two territories, and at the federal level. This is in addition to various forms of local government within the states. Critics of this absurd version of over-government have pointed to the expensive duplications, bureaucratic mazes, regulatory jungles, blame gaming, and inefficiencies these arrangements routinely foist on the people of Australia.

We can add to this inglorious list the rank incompetence of state governments, vividly on display when the Napthine government in Victoria signed a doomed contract to build an East-West link road system which has cost Victorian voters over a billion dollars, despite the project being abandoned. In addition state governments have the ugly reputation of being the most corrupt forms of government in Australia. If memories of the shenanigans of the Burke government in Western Australia or the Bjelke-Petersen government in Queensland are fading, consider the lurid revelations in 2015 about the antics of certain senior Education Department bureaucrats in Victoria.

The main defence of state governments has always been couched in terms of the democratic principle of subsidiarity. Put simply, this principal asserts that the best forms of government are those closest to the people. What the application of this principle fails to acknowledge is that no matter how “close” government is to the people, if the people are shut out of the policy decision making that affects their lives, if they are inadequately consulted (or even hoodwinked) during policy making (for example, on grounds of “commercial in confidence”), if they are denied avenues for genuine participation in the making of those decisions, then it is simply a political fiction – a big fat governance lie.

What we have to wake up to is the fact that representative government is not democratic government. At the beginning of the twentieth century the German political sociologist Robert Michels identified what he called the “iron law of oligarchy.” This notes that all emerging social democratic political parties and states contained within them the seeds of oligarchy – structures that would allow powerful minority groups to seize control of their organisations and ensure that their preferred candidates would keep that control intact for generations. The forms of representative government that developed throughout the twentieth century illustrate the veracity of Michels’ “iron law.” They are all governed by oligarchical, self-perpetuating elites. Their mainstream political parties also reflect exactly the same characteristics. Paramount among them is the determination to lock popular participation out of government decision-making. The oligarchs in the mainstream parties, in and out of government, and their bureaucrat, media, and business allies are impervious to the needs and opinions of ordinary citizens. In Australia this is especially evident at the levels of state governments.

Australia can no longer afford its tumbledown nineteenth century federal system of governance. Its myriad politicians, public servants and political parties are ridiculously expensive; they uniformly fail to deliver the essential public services needed by the mass of people excluded from the oligarchical minority for whom the system works to the disadvantage of all the rest.

So what is to be done?

We need to revive some of the regional thinking of the Whitlam years. Abolishing state governments has to be high on the constitutional reform agenda. Also high on the agenda should be their replacement with geographically and economically rational regional provincial assemblies. That these would be directly answerable to a more accountable central government should be also high on the agenda and vice versa – for example, by making the senior elected chairpersons from the regional assemblies members of a reformed Senate.

This must go hand in hand with a creative civics education program in schools and the wider community, to give people access to information and to develop structures that will enable them to participate effectively in making the policy decisions that affect their lives. The oligarchs will dismiss this as “populism” because the thing they fear most is losing their iron grip on the power levers in the Alice-in-Wonderland maze that is the Australian federal system.

The time is here to talk about getting rid of state governments and reviving the ideals of democracy in Australia’s stalled constitutional dreaming.

Allan Patience is a political scientist in the Asia Institute, University of Melbourne

In the AFR today, John Kehoe writes about the power of lobbyists and crony capitalists who are killing faith in markets. He refers particularly to the US where ‘crony capitalism’ is sapping vitality out of the US economy. He adds that

‘If you analyse the very richest Australians, beyond lucky inheritance, many have built their enormous wealth in industries heavily influenced by government regulation. Media, gaming and real estate development dominate the c.v.s of the upper echelons of the BRW rich list.’

See link to John Kehoe’s article: http://www.afr.com/opinion/regulation-crony-capitalists-are-killing-faith-in-the-markets-20160104-glyr2q

I am also reposting an article I wrote in May this year for our policy series. It was entitled ‘Vested interests and the subversion of the public interest‘.

Over the past forty years, leading developed economies, most notably the United States have experienced an upsurge in inequality of income and wealth. Most of the benefits of economic growth have accrued to those in the top 1 per cent of the income distribution. Meanwhile, living standards for those in the bottom half of the income distribution have stagnated or even declined.

Piketty’s work, published in reports and academic journals, has documented these trends. His book, Capital, not only brought the issues to the attention of a broader public, but presented an analysis suggesting that worse is to come. Piketty argues that we are in the process of returning to a ‘patrimonial’ society, in which income from inherited wealth is the predominant source of inequality.

Piketty’s work has previously focused mainly on the United States, but the research presented in Capital points to similar trends in the United Kingdom. Although inequality has grown much less in France, the third country on which he has detailed data, Piketty argues that the same trend will emerge unless there is a substantial change in political conditions.

To the extent that there is a general trend of the kind described by Piketty, we would expect it to emerge first in the English speaking world, where the shift to market liberalism and financialised capitalism was earlier and more complete. And, indeed, a sharp increase in inequality may be observed in other English speaking countries including Canada and New Zealand.

Australia, on the other hand, looks like a counterexample. On most measures of inequality Australia looks more like France than like the rest of the English speaking world. Although Australia’s have experienced an increase in inequality on most measures, the general picture is one of broadly distributed improvements in living standards, as illustrated by Peter Whiteford’s contribution to a recent seminar on Piketty published by the Australian Economic Review (AER). As Whiteford notes:

Income growth was highest for the richest 20 per cent of the population, at close to 60 per cent in real terms, but even for the poorest 20 per cent, real incomes grew by more than 40 per cent between 1996 and 2007.

Other measures such as the Gini coefficient and the ratio of median to mean income tell a similar story. Inequality has increased over the period since the 1980s, but only modestly and with frequent reversals.

Turning to the top 1 per cent of the income distribution, evidence from tax data, presented by Roger Wilkins in the AER volume suggests that the share of income accruing to this group has risen, but not to the same extent as in other English speaking countries This is consistent with the observations of Piketty himself, who notes:‪

the upper centile’s [top 1 per cent] share is nearly 20 percent in the United States, compared with 14–15 percent in Britain and Canada and barely 9–10 percent in Australia.

Much of the credit for this comparatively benign outcome must go to the Labor government that held office from 1983 to 1997 and implemented a relatively progressive version of the market liberal reform agenda. Labor managed a reform of the Australian tax and welfare system that shielded low income Australians from the worst effects of the market liberal revolution that swept the English speaking world in the 1970s and 1980s.

In most countries, policies of financial deregulation, privatisation and microeconomic reform were accompanied by regressive changes to the tax and welfare systems. By contrast, Labor introduced broadly progressive tax reforms including a capital gains tax and a crackdown on tax avoidance.

Rather than treating welfare payments and tax policy as separate, the restructuring sought to integrate the two, taking account of the combined impact of means tests and tax policies to optimise the balance between efficiency and redistribution.

These changes weren’t sufficient to prevent growing inequality of income and wealth, and some of them were eroded over time. Nevertheless, in broad terms, a redistributive tax–welfare system was maintained under the succeeding conservative government, even as it was being eroded in other English-speaking countries.

Labor returned to office in 2007, just in time to make its next big contribution: the fiscal stimulus that allowed Australia to avoid the recession generated by the Global Financial Crisis in nearly every other country. In combination with previous successful pieces of macroeconomic management, such as the Reserve Bank’s handling of the Asian Financial Crisis in the 1990s, the result has been an economic expansion lasting nearly 25 years, unparalleled in Australia’s economic history, and scarcely equalled anywhere in the world. The strength of the labour market has encouraged a broad spread of prosperity not seen elsewhere.

Together these factors explain why Australia has avoided the drastic increases in inequality seen in other English speaking countries. On the other hand, although Australia’s a long way from the plutocracy that already characterises the United States, there is no room for complacency.

Australia’s relatively equal distribution of income and wealth depends on a history of strong employment growth and a redistributive tax–welfare system. Neither can be taken for granted. The end of the mining boom has inevitably resulted in slower growth which bears hardest on those at the bottom of the income distribution. And, as elsewhere, the political pressure to take burdens from the rich and shift them to the poor is never-ending.

Moreover, Australia has not proved itself immune to the political dynamic, noted by Piketty, by which increasing personal wealth allows the wealthy to dominate politics, then enact policies that protect their own wealth. The archetypal example is Silvio Berlusconi in Italy but the situation in the United States is arguably worse. The majority of members of the US Congress are millionaires, with not much difference between Democrats and Republicans.

Given the pattern of highly unequal incomes, and social immobility observed in the US today, we can expect inheritance to play a much bigger role in explaining inequality for the generations now entering adulthood than for the current recipients of high incomes and owners of large fortunes. Inherited advantages in the patrimonial society predicted by Piketty will include direct transfers of wealth as well as the effects of increasingly unequal access to education, early job opportunities and home ownership.

The move towards a patrimonial society already happening in the US is evident at the very top of the Australian income distribution. As in the US, the claim that the rich are mostly self-made is already dubious, and will soon be clearly false. Of the top 10 people on the Business Review Weekly (BRW) rich list, four inherited their wealth, including the top three. Two more are in their 80s, part of the talented generation of Jewish refugees who came to Australia and prospered in the years after World War II. When these two pass on, the rich list will be dominated by heirs, not founders.

The same point is even clearer with the BRW list of rich families. As recently as 20 years ago, all but one of these clans were still headed by the entrepreneurs who had made the family fortune in the first place. Now, all but one of the families are rich by inheritance.

So, Australians have no room for complacency. In an economy dominated by capital, and in the absence of estate taxation, there is little to stop the current drift towards a more unequal society from continuing and even accelerating.

On the other hand, Australia’s relative success in using the tax and welfare systems to spread the benefits of economic growth provides grounds for optimism elsewhere in the world. Australia’s experience belies the claim that any attempt to offset the growth of inequality must cripple economic growth. On the contrary, the evidence suggests that there is plenty of scope for progressive changes to tax policy that would partly or wholly offset the trends towards greater inequality documented by Piketty.

This article was first published on John Quiggin’s blog on 2 January 2016.

Let’s put aside the irony of a Liberal government, the preacher of the ills of ‘big government’, spending $45 million to reach its expensive Royal Commission tentacles into the operation of trade unions. Let’s put aside the obvious political nature of such a witch-hunt, designed to reduce the power of unions to negotiate on behalf of workers, a seek and destroy mission with the pincer-movement aim of a) benefiting employers at the big end of town, b) reducing unions’ capacity to contribute funds to Labor election campaigns and c) to discredit Labor MPs with union backgrounds. For now, putting these contradictions and political trickery aside, which are so wholly obvious to us but strangely not apparently obvious nor interesting to commentators in the mainstream media, let’s instead look at the Trade Union Royal Commission’s findings in relation to the lives of those people the commission paradoxically claim to represent the interests of; workers.

Using my own situation as a worker and union member as a representative case study, I note with alarm that the Prime Minister, Malcolm Turnbull, has proclaimed the findings of the Trade Union Royal Commission (TURC) as justification to fight an election over industrial relations. Clearly Turnbull thinks that there is a large enough problem in the trade union movement, a movement just as separate to the operations of government as a private company, that he’s pushing this problem to the top of his government’s agenda. The handful of bogey-man union officials who have been cited in the TURC findings as having acted not in the best interest of workers, are now the government’s enemy number one. As a union member, I don’t like to hear about my union funds being used to fund union officials’ extravagant lifestyles, nor do I appreciate reports of criminal activity, which appear to be almost entirely confined to rogue elements in construction unions. But, as a worker and a member of a young family, a woman, a parent to a young child who has childcare and then her whole education in front of her followed by a job search, a mortgage holder, a South Australian, a buyer of groceries, a daughter of aging parents, a wife to a husband who works in the manufacturing industry and a member of a society experiencing the scary and increasingly apparent effects of climate change, I must admit, the conduct of a few dodgy union officials in industries I don’t work in, whose conduct hasn’t been proven to adversely impact the conditions of workers they represent, is about as high on my list of ‘what is the government doing about this?’ priorities as the fate of Johnny Depp’s girlfriend’s court case over the illegal entry of small dogs.

And even if I did care deeply about the conduct of some dodgy union officials in the construction industry (which I don’t), I care a thousand times more deeply about those union officials having the freedom to do their job to help safeguard the safety of workers on construction sites. I’m pleased there are union officials stopping work when they see risks to workers, because it’s blatantly clear that if the union officials didn’t care, no one would. This is because it’s obvious that many construction employers care far more about the speed of their profit making than they do the safety and wellbeing of their employees. So if it wasn’t for the unions stepping in to insist on safety, far more accidents and deaths would occur. I would have thought a responsible government would be more concerned about safety on construction sites than the isolated actions of a few bad apple unionists. Especially after that very same government were so upset about the deaths of four insulation installers that they held a Royal Commission into a government program that funded the private companies whose unsafe work practices led to the tragic deaths of workers. Another Royal Commission aimed at hurting the Labor Party; do you see a pattern forming here?

I notice a day after the release of the TURC findings, the ABC News Radio poll asking ‘In your experience, are unions riddled with ‘deep-seated’ and ‘widespread’ misconduct?’, after 3,466 votes have been cast, found 74% said ‘no’.

This result suggests I’m not alone in my perception of the TURC findings as more of a political statement than the experience of union members.

As a worker, it would be wholly irrational for me to congratulate, or indeed vote for a government vowing to smash the power of unions. As a worker in an economy with stagnant wage growth, it would be counterproductive for me to encourage my government to give employers, who already hold an elephant-on-a-seesaw-unequal position of power in the Goliath-capital battle with David-the-workers, any more power to define my working conditions. Because let’s face it, not every employer wants to pay the minimum wage, without penalty rates, minimum entitlements and no chance of a pay rise. But enough employers do (take a look at 7-eleven) so that the entire wage structure of the country would be pulled down without unions pushing back against the floodgates. When former PM Tony Abbott said WorkChoices was dead-buried-and-cremated, workers always knew that it would only take a second-term Liberal government 5 minutes to resurrect the WorkChoices zombie from the grave; a zombie who’s bite is fatal to workers’ rights.

Therefore, if Turnbull wants to play this game and if he is really serious that dodgy union officials are the biggest threat facing our country, and his highest agenda item in an election, I echo Bill Shorten’s words on hearing Turnbull’s plans: BRING IT ON. And so say all of us.

Victoria Rollison is a political blogger, working in marketing and communications.

The Roosevelt Institute’s Chief Economist Joseph Stiglitz a Nobel Economics prize winner in his own right, has come up with a block buster report on the social and economic problems facing American society. This115 page report which was published as a book in November 2015 was put together with valuable assistance and input from a broad cross-section of people under the stewardship of Stiglitz. Notable economists such as Brad De Long and Robert Reich were among the consulting researchers.

Stiglitz’s team of researchers have revealed that the USA is in big trouble and at the heart of it are misplaced rules, laws and economic policies, based on faulty economic theory. If you combine this with an over-arching, pervasive, narrow minded neo-liberal ideology, then you have a recipe for economic and social disaster.

American neo-liberal ideology and orthodox economic thinking have produced income and wealth inequality of immense historical proportions. Lowly paid workers are in the majority whilst the greater percentage of income and wealth is transferred to an ever decreasing smaller number of people.

“Over the last 35 years, America’s policy choices have been grounded in false assumptions, and the result is a weakened economy in which most Americans struggle to achieve or maintain a middle-class lifestyle while a small percentage enjoy an increasingly large share of the nation’s wealth. Though these lived experiences and personal challenges are important, they are only the tip of the iceberg that is the crisis of slow income growth and rising inequality. To fully understand the scope of the problem, we must also examine the array of laws and policies that lie beneath the surface—the rules that determine the balance of power between public and private, employers and workers, innovation and shared growth, and all the other interests that make up the modern economy.” Dominant economic frameworks over the past 35 years—like “trickle-down” economics, and the idea that markets work perfectly on their own—paved the way for an onslaught of policies that decimated America’s middle class. This paper presents an evidence-backed alternative framework:

• Markets are shaped by laws, regulations, and institutions. Rules matter.
• The rules determine how fast the economy grows, and who shares in the benefits of that prosperity.
• Concentrated wealth can hurt economic performance. Under the right rules, shared prosperity and strong economic performance reinforce each other. There is no trade-off.
• A tentative, piecemeal policy response to help the neediest will not suffice. We must rewrite the rules of the economy with a focus on restoring a balance of power between the competing interests that make up the modern economy” p.7

What should and can Americans do to rectify this appalling predicament? According to Stiglitz and his researchers they must:-

1. Ensure that the financial sector becomes responsive to consumer needs, by removing hidden financial charges and fees. Bring in rules that penalises risky investments.
2. Make full employment the goal.
3. Introduce legislation to protect vulnerable workers. Allow workers to organise and strengthen their right to collective bargaining.
4. Change the tax system to make it fairer, by removing corporate welfare tax expenditures and raising taxes on capital gains and dividends. Introduce a financial speculation tax to deter short-term trading and encourage long-term investment.
5. Ensure some reasonable level in the remuneration of chief executive officers with ordinary salary/ wage earnings.

The most dramatic recommended changes were to:-

• Overhaul American social security, by introducing a universal Medicare and affordable health care.
• Expand Social Security with a supplemental public investment program modelled on private Individual Retirement Accounts, and raise the payroll cap to increase revenue.
• Invest in young children through child benefits, early education, and universal pre-kindergarten.
• Increase access to higher education by reforming tuition financing, restoring protections to student loans, and adopting universal income-based repayment.
• Expand access to banking services through a postal savings bank. Create a public option for the supply of mortgages.

The lessons learnt from the USA are there as a warning to Australia. Australians should be very careful now about allowing the present government to focus on deficit reduction via fiscal cutbacks, instead of new job creation. Full employment for anyone who wants to work is the keystone for any just and healthy society and should be the number one priority for any government. In addition, workers should be on guard where they have no union coverage or their union protection is whittled away by new industrial legislation that prevents unions from operating effectively in workplaces. Reducing deficits and worker protections during economic slumps will only impoverish workers, the unemployed and the poor and should be resisted vigorously by all ordinary Australians.

The Anglo-American variety of neo-liberalism has been a dismal failure in the UK and the USA, where it has caused only hardship and poverty for the populace, Australia should take the right steps not to make the same mistakes.

[Wayne McMillan is a keen follower of current economic trends and policies. He has been studying Economics for over 30 years, he lives in Whalan NSW.]

Repost from 25/02/2015

Many will recall in the Monty Python film, the Life of Brian, an anti-Roman revolutionary played by John Cleese, but who reminds me of Joe Hockey, asks rhetorically about the Romans, ‘What have they ever given us?’  Expecting the answer ‘Nothing’, he is irritated when he is told that they provided aqueducts. Cleese’s character slowly concedes further points, until he asks ‘Apart from the sanitation, medicine, education, wine, public order, irrigation, roads, fresh water system and public health – what have the Romans ever done for us?’  And still someone chips in with another suggestion of what the Romans have done.

Clearly the Liberal Party holds a similar view to the anti-Roman revolutionary. Its platform says ‘That only businesses and individuals are the creators of wealth and employment’.

The Commission of Audit in its highly ideological report assumes also that government and ‘red tape’ must be cut back.

Like the John Cleese character, conservatives choose to ignore the great pioneering and continuing role of governments in our community and mixed economy – roads and railways, power, water and sewerage, law and public order, security, education, hospitals, galleries, museums and national parks.  I could go on!

In world terms, we have a small public sector in Australia. Including all levels of government, our public sector is less than 35% of GDP. The OECD average size of government is over 40% of GDP. In the successful northern Europeans countries such as Germany, the Netherlands and the Nordics, the public sector exceeds 43% of GDP. And they have taxes to pay for their successful public sectors.

Just think of what Norway has done in establishing its public Pension Fund. This fund now has $1 trillion in investment. The fund was established by the Norwegian government in the 1970s when Norway began to develop its oil and gas resources. If only we had done something similar to tax the super profits of mining companies in the recent mining boom. We would now have a stronger and more diversified economy. Instead we have companies like Rio Tinto returning $7.8 b to shareholders in a share buyback.

The successful economies of the world have all invested heavily in the public sector to enhance human capital in areas such as education, science, research and development, and innovation. But in the name of economy and reducing waste, we are reducing government funding in these areas. We don’t even have a Minister for Science.

No country has ever achieved greatness by cutting back on key government activities. This is not to say that the government sector should be large. But it should be effective and efficient.

Just look at some of the false economies that are part of the current political environment in Australia that would damage the public sector and the public interest.

• The government is considering cutting back the Australian Bureau of Statistics and possibly the five year census. But so much of ABS data is essential for good decision-making in both the public and private sectors.
• We have cut back on policy and administrative skills in commonwealth departments and more and more we contract it out to so-called independent and professional management companies that have little or no corporate memory. One consequence of the scaling back of government expertise was the pink-batts mess.
• The economists we see and hear so much of on TV are usually in the pay of big corporations and the banks. They are unlikely to give us an independent assessment in such areas as privatisation and superannuation. Cut backs in university funds have resulted in fewer intellectuals working in the public square.
• Late last year the former Assistant Commissioner of the Australian Tax Office warned in a letter to the Australian Financial Review that repeated efficiency dividends had seriously hurt the ATO’s ability to collect tax. In the recent budget, the ATO had its funding slashed by $189 million with more than 3,000 jobs to go. With corporate tax avoidance almost endemic what a strange time to be cutting back ATO staff.  My mother would have said it was ‘penny wise and pound foolish’. Economists would call it a false economy.
• The public sector is often more efficient than its private counterparts. For example, private health insurance firms have operating costs, including profit that are three times higher than Medicare.
• Comparing ‘apples with apples’ public hospitals are as efficient as private hospitals. Schools in the public and private sectors that enrol similar students turn out much the same results
• The derided ‘red tape’ is often the means to protect the public interest. No wonder private ideologues don’t like it.
• Governments can borrow much more cheaply than private corporations, but it is seldom mentioned.

We have been encouraged to forget that our prosperity is based on both public and private goods. To many people government has become ‘invisible’, except as a vehicle for welfare. Australians have lost sight of the contribution of the mixed economy, not only providing public goods, but also in ensuring that the forces of greed and short-sightedness don’t lead to economic collapse.

It is noteworthy that despite the continued denigration of government and the public sector, the three most trusted institutions in Australia are public institutions – the High Court, the ABC and the Reserve Bank. In the survey by Essential Research, there was not a private group in the top eight most-trusted groups and institutions in Australia. The three least trusted groups were business, trade unions and political parties.

There is a major and important role for governments to play. We need to assert the importance of the economic role of government in our mixed economy. We should stop apologising for government.

The article below by Professor Ray Markey was posted before the release of the recent Productivity Commission Report on penalty rates.

Following the release of the report, Professor Markey commented as follows:

‘The Productivity Commission report presents no new evidence for increased employment from reduced penalty rates. Mainly there are theoretical economic arguments and modelling based on it. Time use survey data is very selectively cited and dated anyway since the last survey was in 2006. It clearly shows that people prefer weekends for being with family and friends and does not refer to studies showing it is difficult to make up during the week for this weekend time being lost due to work. The one new argument in the report is very interesting, namely that the onus of proof about the impact of reduced penalty rates on employment should be reversed i.e. employers shouldn’t have to prove this is the case to get changes – clearly an admission of a lack of evidence.

It is tiring to hear penalty rates linked with productivity as the minister responsible, Senator Cash, did on radio this morning. It has nothing to do with productivity and neither the Productivity Commission nor the main employer submissions made this claim. Productivity increases would require increased output relative to inputs (labour). Reducing penalty rates will increase employer income and potentially profits, but it is inconceivable how it affects productivity positively. If the argument that employment will increase as a result of reduced penalty rates is true, it may have a negative impact on productivity. Cheaper labour costs certainly provide incentives for employers not to engage in innovation to increase productivity and this is the trap for low wage economies such as New Zealand, where they struggle with lower productivity than Australia and lower wages. Reducing penalty rates, therefore, is a distraction from the Prime Minister’s focus on an innovation agenda.’

In the current review of modern awards before the Fair Work Commission, employers are challenging the level of penalty rates. At the same time, the Productivity Commission says excessive penalty rates for Sundays reduce hours worked, mean unemployment is higher than it needs to be, and reduce options for businesses and consumers. It wants Sunday penalty rates in some sectors to be set at the Saturday rate.

A penalty rate for Sunday work was first implemented in Australia for working “unsocial” hours in 1919. The 1947 ‘Weekend Penalty Rates Case’ expanded penalty rates to Saturdays, while Sundays were set at a rate of double time. Later decisions specified that workers would need to be compensated for the loss of opportunity for family life and social time resulting from weekend work.

More than 60 years on, employers argue the world has changed. It has, but many of the arguments employers make are not supported by the evidence.

Myth 1: Given extended trading hours, it’s no longer abnormal for people to work weekends

Most employees still do not work unsocial hours. According to the Australian Work and Life Index, 38 per cent of workers work unsocial hours; only 32.2 per cent of workers work weekends and 18.9 per cent of workers work evenings after 9pm regularly. These figures include the 13.1 per cent of workers who work both evenings and weekends regularly.

Myth 2: It’s only young single people that work weekends.

While being single with no children is more common than other family types among these workers, they are not a majority: there are also many couples both with and without children, and sole parents.

Women are also more likely than men to work weekends. HILDA data indicates that only 22 per cent of male and 21 per cent of female weekend workers were dependent students; in other words, 78 per cent of all weekend workers were not dependent and pay their own bills.

Myth 3: The disadvantages of working weekends are only bad for those who work very long hours.

Employers argue that the adverse effects associated with working weekends are only relevant to those who work very long hours, and that the days and times themselves are no longer relevant, either because people no longer engage in the activities which previous decisions attempted to protect, or because these activities can be made up on other days and at other times.

But those who work on weekends do so at the sacrifice of time with friends and family, time which cannot be simply made up through time spent at other times during the week. This is particularly acute on Sundays, which remain a time for spending time with family. In spite of claims to the contrary, the differentiation between Saturdays and Sundays remains relevant in modern Australian society.

In general, the recompense of penalty rates is the key reason for willingly working weekends; with far fewer doing so to meet their own flexibility needs. However, the experience of the Work Choices era, and the importance and power of employer expectation, does suggest that many employees would not, in the absence of penalty rates, be able to avoid weekend work due to fear of losing their jobs, and indeed employees being forced to work weekends for no extra pay seems the most likely consequence of removing penalty rates.

Myth 4: Those who work in industries that pay penalty rates are not low paid.

Many workers on penalty rates are among the low paid. According to the Australian Work and Life Index, 37.8 per cent of workers who work weekends only and receive penalty rates rely on these to meet household expenses. This increases to 48.8 per cent for those working both evenings and weekends, and 52.2 per cent for Sundays only.

Myth 5: Reducing or eliminating penalty rates would increase employment.

The empirical evidence for increased employment as a result of reducing penalty rates is non-existent. Employer arguments have been based essentially on economic theory, which is merely hypothesis in the absence of empirical confirmation. What may be relevant in terms of the impact of wages on employment is that none of the available empirical evidence suggests minimum wages have a significant effect on net employment, a point reiterated by the Productivity Commission.

While some studies do suggest a substitution effect, this would be a matter of balancing one set of employed workers against another — older workers versus youth. However, a number of studies suggest no effect at all, and some suggest a positive effect.

Given the evidence, it is difficult to see any benefits likely to accrue from the abolition or reduction of penalty rates for employees, employment levels or greater availability of services to the public.

Professor Ray Markey is Director of the Centre for Workforce Futures.
This article was originally published on The Conversation on 2 December 2015.

Every year, the International Tax Review nominates its ‘Global Tax 50’ — the people and organisations who are most influential in improving tax systems around the world. Two years ago, David Bradbury made the list, for being “a vocal and proactive voice on a variety of tax issues”.

One of Bradbury’s award-winning reforms was tax transparency — laws that required the tax office to report the tax paid by firms with total income above $100 million. The Liberals didn’t like the change, and voted against it at the time. After winning government, they set about trying to repeal it — first by warning of kidnap risk, and then by suggesting that it might embarrass some firms if the public knew how little tax they paid.

Farcically, the government said that it wouldn’t pass its own multinational tax package unless the parliament agreed to wind back secrecy. In effect, Scott Morrison was holding a gun to his own head, but the Greens fell for it. On the last day of parliament for 2015, the Greens Party agreed to amendments that kept two in three private companies out of the tax transparency net.

This week’s release of tax transparency data has shown the value of letting the sunlight in. The 1300 economic groups covered by the report had a combined taxable income of $170 billion, and contributed $40bn in tax towards funding Australia’s schools, hospitals and roads.

Worryingly however, the tax office report also reveals that one in four of these companies paid no tax despite earning over $100m in revenue. In the energy and resources sector, 57 per cent of multinational firms paid no tax, while in the banking and financial sector the figure was 45 per cent. The companies concerned will no doubt want to explain these figures further to their customers and the Australian community.

Tax transparency matters because without it, we have no way of knowing if big companies are paying their fair share. There are plenty that do, and their contribution deserves acknowledgment.

More importantly, though, it is clear some firms don’t. When companies are paying tax at a fraction of the standard rate, Australians should ask why. At a time when the government is talking about raising the GST to 15 per cent — a decision that would hit low-income Australians hardest — it is right that we should look closely at whether all taxpayers are making a fair contribution.

While Labor has supported the Government’s baby steps on multinational tax, we don’t believe they are enough. We are particularly concerned about the government’s unwillingness to address the practice of companies loading debt into Australia to artificially inflate their tax deductions.

Thanks to the ongoing corporate tax inquiry — particularly the work of Labor senators Sam Dastyari and Chris Ketter — we know that some big companies are transferring money into their Australian arms and dressing this up as a loan, even though it’s really just shifting money from one pocket to the other. In paying back these artificial loans, companies can send their profits overseas while pocketing a tax deduction at the same time.

That’s the problem Labor’s package zeros in on. By moving to a worldwide gearing ratio approach, companies would only be able to claim deductions against the average amount of debt they owe to banks around the world.

Labor’s plan is grounded in careful OECD work, and costed by the Parliamentary Budget Office. By closing loopholes, we recognise that Australia needs a tax system that rewards the productive, the innovative, the resilient, the clever and the competitive. Not a tax system that rewards those willing to push the envelope the furthest.

We need a plan to win investment from the world, yes. But this plan should work because big firms think it is worth buying into Australia — not because our government thinks they have to cut special deals that sell us out. A plan that leverages the ingenuity of the Australian workforce, the strength of Australia’s institutions and the quality of Australia’s infrastructure.

Our plan for winning investment from the world should not be premised on how big a tax break companies can get here, because that is not a competition we’re ever going to win. If we want to join the countries at the top of the global league table, we need to invest in growth, not engage in a race to the bottom with our tax loopholes.

In recent weeks the OECD has handed down the final set of deliverables for its Base Erosion and Profit Shifting Action Plan. This plan has been more than two years in the making and lays out a comprehensive 15-point agenda to close the loopholes that have opened up in the tax net due to changing technology and an increasingly global business environment.

The 15 items on the action plan tackle everything from the taxation of intangible goods to hybrid instrument rules and the creation of a multilateral tax instrument to allow more rapid co-ordination of rules between OECD countries in the future. Australia is making progress in some of these areas — for example, the effort to extend the GST to digital downloads, which was supported by both Labor and Liberal state and territory governments. But there is still a lot of work to do.

The Treasurer has the OECD’s blueprint, and Labor’s costed proposals. He must now choose between his regressive measures and our progressive proposals. Unlike a 15 per cent GST, closing multinational tax loopholes won’t impede growth, worsen inequality or make housing less affordable. There should be no more excuses and no more delays when billions of dollars in tax revenue are potentially at stake.

Andrew Leigh is the Shadow Assistant Treasurer. This article first a appeared in the Business Spectator on 17 December 2015.

This second article, in response to the release of the Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) on Tuesday 15 December, focuses on the Government’s fiscal strategy. It is a companion piece to another article that focussed on the Government’s economic strategy and what the Government expects that economic strategy to achieve.

As had been well telegraphed in advance, total budget receipts are now expected to be $33.8 bn lower over the next four years of the forward estimates than expected last May in the 2015-16 Budget. This reduction in receipts mainly reflects lower than forecast commodity prices impacting on company profits and a weaker outlook for wage growth. On the other hand, and consistent with the Government’s tight fiscal strategy, spending decisions have been more than offset by other decisions to reduce expenditure elsewhere in the Budget.

In sum, the budget deficit (technically known as the “underlying cash deficit”) as projected in MYEFO shows a small deterioration of about $2 bn., or ¼ per cent of GDP for the current financial year, resulting in a projected budget deficit for 2015-16 of $37.4 bn., equivalent to 2.3 per cent of GDP. In the following three years, however, the projected deterioration in the budget deficit increases to around ½ per cent of GDP.

Notwithstanding this projected deterioration in the budget deficit, the MYEFO continues to project an eventual return to a small budget surplus, equivalent to 0.2 per cent of GDP in 2021-22, a year later than previously projected in the May Budget. For a few more years after 2021-22, small budget surpluses are projected, but by 2025-26 this latest projection shows that surplus is back down to 0.2 per cent of GDP, after which the Budget is likely to slip back into permanent deficit if present policies are maintained. In other words, even if one accepts the authenticity of these latest projections, the extent of the planned fiscal repair would appear to be inadequate.

Furthermore, given the recent history of these projections for the Budget deficit, a first question is how credible is this latest one? The Treasurer tells us that fiscal repair is a long journey and we must be patient, but equally this journey could be characterised as the pursuit of a mirage that is forever on the horizon.

More seriously, the credibility of this projected fiscal repair strategy depends upon the underlying economic assumptions and the commitments under-pinning that fiscal strategy.

The economic projections have been revised downwards, as described in the companion article to this one. These revised economic projections probably do now present a more realistic view of the future economic outlook, given the Government’s economic strategy and noting the risks involved in any such projections.

As regards the credibility of the Government’s fiscal strategy, the key commitment reported in the MYEFO is to maintain strong fiscal discipline with

1. The expenditure to GDP ratio falling, with spending measures having to be more than offset by reductions in spending elsewhere in the Budget
2. A ceiling on taxation revenue equivalent to 23.9 per cent of GDP
3. A target of achieving budget surpluses building to at least a 1 per cent of GDP as soon as possible.

In principle, commitments of this kind can greatly help in maintaining the necessary fiscal discipline. They only work, however, if they are carefully calibrated so that they represent what can realistically be achieved, given the range of the Government’s other priorities and policy commitments. Equally if the fiscal commitments cannot realistically be met, nothing is achieved by them – instead the Government only ends up with broken promises and a loss of its economic credibility.

Judging by the nature and quality of the expenditure savings announced in the MYEFO, the Government may well find that it will continue to have difficulty in finding savings of sufficient quality to achieve its first commitment to a falling ratio of expenditure to GDP. Indeed, this mid-year review has already included some $20 bn. of savings which have so far been rejected by the Parliament. Now the Government is promising more of the same, with controversial measures which will reduce bulk billing for example. While administrative savings to improve compliance for welfare recipients and tinkering with the funding standards for aged care, even if acceptable, have a long history of under-delivering in practice.

The root of the problem is that the Government’s approach to achieving expenditure savings seems to be to remove funding from a lot of relatively small programs. This typically results in a loss of services, including from non-government agencies; a reduction in the quality of public functions such as the arts and culture, the environment, and numerous humanitarian causes; and various categories of people missing out, and often perceived as unfairly missing out. Instead a better approach to public expenditure control would be to focus on long-term improvements in the efficiency and effectiveness of programs, especially major programs such as health and education that involve very large expenditures.

In my article, “Fixing the Budget – Part Two” published in Fairness, Opportunity and Security, I outlined how this alternative approach to expenditure control might actually work. I used evidence from a number of sources, including other contributors to this blog, and showed that net expenditure savings ‘reaching around $20 bn. annually should be possible in the budget over the next four to five years, mainly from health and infrastructure, if genuine reforms were introduced’. These savings would not be front loaded and would require some time to be realised, but frankly that would be a good thing, given the present economic outlook.

Even these quite large savings, however, would not be sufficient to achieve a return to a sustained fiscal surplus. Realistically an increase in taxation revenue is unavoidable if we want to retain the government responsibilities and quality of services that the vast majority of us expect. Indeed, when we compare ourselves with other like-minded countries, such as New Zealand, we find that we expect the same of government but are only paying 15 per cent less in total taxation as a share of GDP. It is time that our politicians recognised this basic fact and shaped the future public debate about budgets accordingly, otherwise I fear that we are doomed to endless fiscal failure.

That brings us to the Government’s second fiscal commitment, that taxation revenue will be held to no more than 23.9 per cent of GDP. The MYEFO projections indicate that adherence to that commitment would allow taxation revenue to rise by about half a percentage point of GDP in 2028-19. It is very unlikely that additional revenue limited to half a per cent of GDP will be sufficient to repair the Budget on a sustained basis. Furthermore, it is likely that the States will demand some of that additional revenue and/or be responsible for raising it.

Accordingly the value of presently limiting taxation revenue to 23.9 per cent of GDP must be doubted. In addition, any such limit privileges those programs that are funded by way of taxation concessions, which are then often able to escape proper scrutiny. Whereas in reality there is no real difference between programs funded on the expenditure side of the budget and those which are funded by way of reduced taxation. In short, this limit on the share of taxation is therefore an imperfect constraint.

Instead the Government needs to approach the task of fiscal repair and tax reform starting from a consideration of its overall fiscal requirements. As argued above, this review should lead to a recognition that some increase in the overall revenue will be required. This increase could in turn then come from some change in the overall mix of taxation and/or a review of the various tax concessions, while still allowing some scope for moderate income tax cuts sufficient to offset the impact of bracket creep over the last few years.

The Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) released on Tuesday 15 December outlines the Government’s economic and fiscal strategy and, equally important, what it expects that strategy to achieve. It is especially significant on this occasion, as it represents the first major economic statement by the still relatively new Turnbull Government. As such this statement allows us to put some more content into our assessment of what, in its short life so far, has principally been an “aspirational government”.

In this article I will discuss the Government’s economic strategy, as revealed in the MYEFO. In a second companion article I will discuss the fiscal strategy.

The Government’s Economic Strategy

According to its MYEFO the Government has an ‘integrated national plan for economic growth and jobs’. The Government is putting in place policies, which it hopes will ‘create a dynamic, competitive economy that rewards effort, incentivises innovation and sets Australia up to capitalise on the abundant opportunities in the fast-growing Asian region’.

The key elements of this strategy as stated in MYEFO are:

1. The recently announced National Innovation and Science Agenda
2. The free trade agreements concluded with China, Japan, Korea, and the Trans-Pacific Partnership
3. Record levels of infrastructure investment through the $50 bn. infrastructure package, which allegedly will increase the economy’s productive capacity
4. The Government’s response to the Financial System Inquiry, which is expected to strengthen Australia’s financial system further to meet new needs and support sustainable economic growth
5. Strengthening Australia’s competition frameworks, including working with the States ‘to unlock the benefits of choice and diversity in areas such as health and aged care’
6. ‘A comprehensive dialogue on how to create a “growth friendly” tax system,
7. A strengthening budget position.

Assessment of the Economic Strategy

On the Government’s own admission, the results that it expects from its economic strategy are less than impressive, at least by past standards. In the current financial year GDP is only expected to grow at an annual rate of 2½ per cent, and by 2¾ per cent in the next year. The economy is facing a difficult transition from the resources boom, but nevertheless the short-term outlook for economic growth is disappointing bearing in mind the extent of excess capacity.

Furthermore, the forecast   rate of productivity increase over these two years is only ½ and 1 per cent respectively – well under the normal rate of 1.5 per cent annual increase. And the forecast for non-mining investment, which should be an important part of the transition from the resources boom, has been revised down in the MYEFO to show a small fall in the current year, and a much slower rate of recovery next year.

Looking further ahead, the Treasury has now revised downwards its expectation for the economy’s long-run growth potential, with Treasury now believing that realistically potential output can only be expected to increase at an annual rate of 2¾ per cent. This rate of potential output growth compares very poorly with an average annual rate of economic growth of 3½ per cent over the 1990s and 2000s, let alone the 4¼ per cent and 5 per cent average growth rates experienced in the 1950s and 1960s respectively. Indeed, it was only in the period of stagflation from 1974-75 to 1982-83 that economic growth was as low as we are now being asked to accept as being the best that we can do.

In short, on its own evidence the results expected from the Government’s economic strategy, as outlined above, are disappointing, at least compared to past performance of the economy. While the individual elements of that strategy may appear reasonable, it equally seems reasonable to query whether the strategy as a whole is adequate to the task.

For example, the National Innovation and Science Agenda contained a number of useful new initiatives, but most of the money came from switching money from other science related programs, and arguably a lot more money is really needed to become an advanced economy that produces as well as uses leading edge technologies.

Similarly, the free trade agreements have been massively over-sold. Their principal focus has been on achieving improved market access, but that of itself does not improve productivity and economic growth potential. Instead, more attention is needed on how to extract productivity gains by switching resources to more productive activities.

In the case of infrastructure investment, every parrot in the pet shop is calling for more infrastructure investment. But most of this investment is not subject to proper cost-benefit analysis, which helps explain why such analysis is never publicly available. An informed guess suggests that more than half of the Government’s $50 bn. infrastructure package would be better not spent.

Finally, one can be sceptical whether strengthening Australia’s financial system, giving people greater choice and lowering taxes will really make much difference to Australia’s rate of productivity growth or employment participation – the key drivers of economic growth. It is not that these elements of the Government’s economic strategy are without merit – in particular, ensuring financial stability and the integrity of the financial system is critical. Rather these sorts of initiative are unlikely to lift the rate of economic growth to the levels that Australians are used to and to which they aspire.

Instead a bolder economic strategy is called for which would focus much more on:

1. Achieving a major increase in skills, involving a substantial increase in investment to more than replace the cuts made in recent years
2. A stronger focus on making the best use of our skills as the key to enhancing future productivity growth. This would require a renewed management focus on achieving improvements in the organisation of work, a principle source of innovation, and less focus on cost cutting, which at worst can lead to lower productivity
3. Much more carefully targeted infrastructure investment, based on the introduction of proper pricing signals. As all conservatives should understand, pricing something for nothing is bound to lead to over-demand. Instead future infrastructure investment should be in guided by what will deliver the greatest economic returns, having regard to the value that users are prepared to pay for, and not in response to political whims.
   

Conclusion

Australia does face a difficult task adjusting to the end of the resources boom. It is being helped in this regard by the accompanying decline in the exchange rate and lower interest rates. But relying only on such market mechanisms is unlikely to achieve the results that Australians expect. The Government could and should do more to improve the supply-side of the economy, principally by improving the education and skills of the workforce, the way in which those skills are then used, and the quality of infrastructure investment, of which far too much is wasted on politically selected projects.