OPINION

Grand coalition economic reforms are best left in the '80s

You know how we can tell we've moved into the next phase of the coronavirus debate, shifting focus from the health consequences to the economic ones? We are hearing calls for a grand coalition of government, business and unions to join forces and drive reform.

Now it's the Prime Minister calling for the grand coalition of the '80s to reunite for "one more show".

Morrison may well like some political cover to implement tough reforms, however - much like synth-pop, mullets and Warrick Capper's shorts - some things are better left in the '80s.

And some things were not even that good back then.

The prospects of any meaningful reform emerging from such a consensus today is slim to nil. The two sides of this debate can't even agree on the goals of reform, let alone the methods. The left and right are as far apart on the key issues of economic reform as they have been since the 1970s.

A key difficulty stems from the fact that the left thinks the main problem is inequality and the answer is more government. By contrast, the right thinks government is actually part of the problem, and the answer is private sector growth and productivity.

The unions are desperate to cling to any and all protections remaining for them in the industrial relations system, while their boosters in the media are arguing that any industrial relations reform should strengthen union protections, boost minimum wages and increase regulation.

Left wing think tanks like Per Capita have been clear in their advocacy: they argue capitalism is broken and government should abandon free markets in favour government led actions aimed at "reducing inequality and constructing an economically and ecologically sustainable world".

Bob Hawke and Paul Keating at the national tax summit in 1985.

Bob Hawke and Paul Keating at the national tax summit in 1985.

This means protection for manufacturing, higher wages for subsidised workers in health and child care, a 'massive investment in public housing' and permanent increases in income support. Not to mention raising the superannuation guarantee.

Getup have gone further, with ads praising expensive policies like free childcare, doubling Newstart and wage subsidies, and arguing they should be permanently extended for everyone.

These reforms are more or less exactly the opposite of a productivity-focused agenda. And if paying for all this ever crosses their collective minds, or the mind of their collectives if you prefer, the sole answer is higher taxes.

The government has already made clear that it will not increase taxes, or introduce new ones, including the Treasurer specifically ruling out increasing the rate of the GST or broadening its base - even as a way of offsetting other tax cuts.

Business rightfully wants the company tax rate cut from its uncompetitive rate of 30 per cent. They would also like to deregulate workplaces, and delay increases in the minimum wage.

In this environment, where is the room for compromise? One side says taxes should be higher, the other says they should be lower. One side wants to increase minimum wages, the other wants to freeze them. One side says the answer is more regulation, the other says the path forward is deregulation.

Despite introducing multiple, massive stimulus packages in the midst of the crisis, the government clearly wants to return to its mantra of lower taxes and regulation, even though it would apparently prefer 'new' ideas.

Yet even tepid encouragement from the government towards economic liberation has been enough for the Labor leader to start attacking the government for pursuing "the old right wing agenda" of industrial relations reform and corporate tax cuts.

That would be the "old right wing agenda" that emerged from the grand coalition in 1980s, led by the longest serving Labor government in Australia's history.

This hints at the biggest difference between the reforms of the 80s and 90s and the current coronavirus downturn. The '80s and '90s reforms were spurred by the fundamental failure of the economic system of the '60s and '70s.

Australia was an insular economy where business was protected from international competition by tariff barriers, and unions were entrenched in a centralised wage fixing system. Meanwhile the government would micromanage the economy; through controls over the exchange rate, government monopolies and by fiscal stimulus and debt.

The benefits of unwinding of this system were appreciated on both sides of the political divide. Hawke and Keating, as well as Howard and Costello, understood the liberalisation of the economy would have enormous benefits for Australians, and so both parties introduced liberal reforms.

And far from this being the product of universal agreement from business and unions, many of these changes were introduced in the face of opposition from these groups - who were defending their rent-seeking profits and benefits.

The economic problems confronting Hawke and Keating in the '80s were exacerbated by external shocks, but the core issue was that Australia's economic system was broken.

The coronavirus downturn is the opposite: it's entirely the impact of an external shock on a sound economic base, albeit one that has grown a bit flabby after 28 years of uninterrupted economic growth.

Coronavirus is a big challenge; but it's not a failure of capitalism, a repudiation of free trade or a validation of big government. This is merely wishful thinking by the left fringe.

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The government is apparently looking for new reform proposals that can win bipartisan support in response to the economic challenges. It would be better to return to the tried and tested ideas that generated so much prosperity, even if they meet with opposition.

Indeed, any compromise with those who think our system has failed can only reverse the changes of the '80s and 90s, and return to an economy run by the special pleading of vested interests. The unions would get their concessions, business then gets theirs, government promises to spend more and consumers and taxpayers cop it from both sides.

We don't need a new economic settlement. We need to restore the free-market framework of the economy and get government out of the way.

  • Simon Cowan is research director at the Centre for Independent Studies.
This story Grand coalition reforms best left in the '80s first appeared on The Canberra Times.