June 15, 2012
Any policy dialogue has value, but delivery is better.
IT'S easy to dismiss this week's economic forum as a political stunt. In large part, it was one. Prime Minister Julia Gillard and her ministers were transparent in their mission to persuade delegates that a national mood of negativity was out of whack with the ''economic fundamentals''. They are right, and if it served to remind Australians of their enviable economic position, the stunt may limit the harmful effects of unjustifiably negative sentiment. A greater benefit would be to sharpen the focus on the daunting ''to do'' list of economic reform.
A reminder of the gulf between identified priorities and political delivery was Ms Gillard's agreement that the company tax rate ''should be lower'' and was ''the priority for the next step in tax reform''. Her government recently dumped a modest cut to 29¢ in the dollar because the Coalition opposed it. As with the flawed carbon and mining taxes, politics usually trumps sound policy - which is a bipartisan affliction. Coalition leader Tony Abbott did business leaders no favours in resisting the cut, but he is right to join them in objecting to other business tax changes to fund a lower rate. That would undo the competitive benefit.
The government proposal that the cut could be funded by slashing research and development incentives displays a disregard for long-term drivers of productivity. Business, too, tends to favour ''flexibility'' short cuts - more work for less pay - over investment in smarter, high-value work by a more skilled, motivated and fairly rewarded workforce. Ms Gillard did nominate ''skills, infrastructure, innovation'' as keys to productivity growth, but the government has largely ignored the relevant recommendations of the Henry tax review, Productivity Commission and Gonski education review. In response to the latter, the budget set aside $5.6 million for policy and technical work. The review proposed a $5 billion investment to fix a system where everyone knows ''a lot of our student outcomes are not that good'', to quote forum delegate Jim Minifie of the Grattan Institute.
The government would welcome Reserve Bank governor Glenn Stevens' ''glass half-full'' view of the economy, but he and others were clearly impatient with talking about reform when the needs have long been clear. Pointing to the Productivity Commission's many ignored recommendations, he said: ''Go get the list and do them.''
As terms of trade decline from record highs, Australian incomes increasingly depend on productivity. Mr Stevens cautioned against a race to the bottom on wages. ''Are we really going to compete with the low wages of Asia with our wage rates? Probably not. There's no point pretending we can. What we have to do, it seems to me, is to try to compete with higher productivity.'' That requires public and private investment in productivity.
An obstacle to investment in the modern infrastructure needed to compete in the Asian century is inflated construction costs. With an infrastructure backlog of $700 billion, Premier Ted Baillieu's call for a Productivity Commission inquiry had merit. Instead, the Gillard government bowed to union sensitivities.
The Henry review focused on boosting competitiveness by simplifying taxation - 10 of about 125 federal and state taxes raise 90 per cent of revenue - and strengthening the base with more substantial resource and investment tax reforms than politicians are game to pursue. It proposed a company tax rate of 25 per cent. Canberra and the states struggle to deliver much more modest and agreed tax reform.
The combination of partisan and populist politics is paralysing. Essential reforms become too hard; protection for established but declining markets is easier to sell than visions of a more competitive, high-skill knowledge economy that builds on emerging strengths in new markets. ''We won't shy away from hard questions,'' Ms Gillard told the forum. Sadly, her talkfest reminds us of all the reforms this and previous governments have shirked.
A RARELY discussed feature of Australia's national anthem is that while it pays tribute to our land for abounding in nature's gifts, the sea's only apparent attribute is that it girds our home. As federal Environment Minister Tony Burke has correctly observed, generations of Australians have understood the need to preserve ecologically significant areas of land as national parks, but ''our oceans contain unique marine life which needs protection too''. The Age therefore welcomes the government's decision, made after years of planning and consultation, to establish the world's largest network of marine reserves.
The massive expansion of marine reserves, which will ring the country and cover more than 3 million square kilometres of water, includes waters with significant marine biodiversity, such as the Coral Sea, in which five reefs will now have full national-park-level protection. Pygmy blue whale habitats off the southern coast of Western Australia will also be included in the protected zones. The reserves are an insurance policy for future generations, for while Australia's fisheries are among the world's most sustainable, this fact alone cannot justify complacency. It is also the case that in taking this step Australia advances the cause of ocean protection internationally, because what is done in one country can have a significant impact on marine habitats elsewhere. The government's initiative and leadership can only boost the global effort to better protect marine life.
The network of reserves strikes a responsible balance between competing interests by allowing mining, oil and gas exploration and certain types of commercial fishing to continue in some zones. Indeed, the fact that both conservationists and commercial fishers have expressed dissatisfaction with the plan may be reason enough to judge it sound.
The industry will inevitably absorb some pain, despite the government's $100 million compensation package, but it also stands to reap the long-term benefits of sustainable fish stocks. The results of a recent study by international scientists in the Keppel Island group on the Great Barrier Reef provide strong evidence that marine reserves can help restock exploited fish populations on neighbouring reefs left open to fishing - the reserves in this study were found to have generated half the baby fish both inside and outside its boundaries. And scientists working on the Great Barrier Reef have already established that protected fish populations can bounce back rapidly from the impact of years of heavy fishing.