Australia’s revolving door of leaders and treasurers makes it difficult to have good policy continuity.
Let’s hope The Economist’s front cover this week celebrating Australia as a model for the world is not the kiss of death for our economy.
As a senior finance executive confides, in past years when they ventured overseas to international meetings, the standard question from foreign peers was often, “What is the secret to Australia’s success?”
This year with another change of prime minister, the scandal-plagued banks on trial at the royal commission and even our national cricket team outed as cheats, the question more recently has been, “What is wrong with Australia?”
It’s a sign that Australia’s international brand is at risk of being damaged.
A brand can sometimes outlive the reality of the product.
In Australia’s case, complacency is a danger to the economy.
The luck that helped fuel our prosperity over the past 27 years – China’s growth and housing market booms – are both coming off the boil.
Politics in Canberra has been messy for the past eight years, as the revolving door of leaders – Rudd-Gillard-Rudd-Abbott-Turnbull-Morrison – exemplifies.
In an environment of constantly changing leaders and treasurers, it is difficult to have good policy continuity.
Thankfully some Australian institutions have helped keep the train on the rails.
In analysing why Australia has enjoyed 27 years of unbroken economic growth, one factor that receives scant attention is the strength and independence of the country’s public institutions.
Free of interference
The Treasury, Productivity Commission, Parliamentary Budget Office, Reserve Bank of Australia, even our recently maligned financial regulators, independent judges and the Australian Electoral Commission are largely free of political interference.
None of the above is flawless. But at the risk of putting too much faith in unelected bureaucrats, these institutions have played an important role in lieu of our democratically elected representatives.
Having recently returned from five years working in the United States, the politicisation of public institutions there such as courts, regulators and election authorities through corrupt “gerrymandering” of electoral boundaries has given me a greater appreciation for Australia’s apolitical system.
Sound public institutions with long corporate memories, specialist skills and political independence must count for something in keeping policy settings on some sort of straight and narrow.
Unlike the US, compulsory voting probably also helps ensure policy is somewhat sensible and centrist in Australia.
Yet Australia cannot rest on its laurels.
The economic reforms of the 1980s, ’90s and early 2000s can insulate us for only so long from external shockwaves.
Australia has not experienced a serious and sustained productivity-enhancing reform since Liberal prime minister John Howard and treasurer Peter Costello introduced the goods and services tax, abolished certain state taxes and cut personal income and corporate tax in 2000.
Labor’s Julia Gillard introduced carbon pricing, but the fixed starting price of $23 a tonne was too high by international standards at the time and the carbon tax was opportunistically torn down by Tony Abbott.
Now we are left facing a third-best energy policy, with a supposed free-market Liberal Party intervening in retail prices and threatening big energy companies with forced divestment of assets.
Business must wear some of the blame, having fought against Labor’s more efficient economy-wide carbon price. As a consequence, business is now facing the uncertainty of the Coalition’s populist energy meddling and Labor’s expensive and idealistic 50 per cent renewable energy goal by 2030.
Toxic political climate
The risks of bad policies are rising in today’s toxic political climate.
In the suburbs and regions, voters are restless, frustrated by a lack of real wages growth for the past decade, a period when politicians were awarded handsome pay rises and bankers hoovered up big bonuses.
Entering the election race, politicians are eager to offer simple solutions to complex challenges.
The Coalition is intervening in energy markets. The Prime Minister this week also waved his big stick at petrol companies.
Bill Shorten’s union mates are proposing we return to centralised wage setting and are pushing back against free trade deals.
These backward policies would be undoubtedly detrimental to the economy and the long-term prosperity of Australians.
Thankfully, Donald Trump’s tariffs have not caught on here with any serious politicians in the two major parties.
Australia is the world’s 13th largest economy and a middle power. While we are far from an influential superpower, foreigners do take notice of what happens in Australia.
For example, in the past week I have received several phone calls from offshore investors inquiring whether the Morrison government will approve Hong Kong’s CK Group’s $13 billion takeover offer for east coast gas pipeline company, APA Group.
As is right and proper, the takeover must pass a national interest test based on national security.
But the scenario highlights that what happens Down Under does reverberate internationally.
The International Monetary Fund recently showcased Australia’s resilient and flexible economy as an example for Asian neighbours to follow to insulate their economies from financial shocks.
We can be rightly proud of our long-term track record, but much of the past decade has been underwhelming.
National Australia Bank chairman and former Treasury secretary Ken Henry said last year: “Not so many years ago, an optimistic nation of Australians could be proud of a country that pioneered world’s best policy and nurtured world’s best institutions. But nobody any longer looks to Australia to see how it should be done.”
That may be a slightly extreme, pessimistic perspective, but there is more than a kernel of truth to it.
These days the world is increasingly talking about the revolving door in Canberra, misbehaving banks and naughty cricketers.
Brand Australia needs a revival.
John Kehoe is a senior writer in Canberra and was US Correspondent for The Australian Financial Review in Washington 2013-June 2018.
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