No. 23

The inevitability of economics

Stone the crows, surely everybody is sick of the Henry Tax System Review by now.  Well, not long to go now. Sure we still have to get through the Budget on Tuesday but by the weekend after next only desperates who actually enjoy op eds by economists will be talking tax and structural reform of Australia’s economy will be off the agenda.

Only if we are incredibly unlucky. Because what we need is a new national argument about tax – and every other issue that can improve our productivity. An argument that runs for a generation, when we pause for breath before starting another discussion, or more accurately another version of the one we have had since Bob Hawke, Paul Keating and John Howard realised Australia had to always improve the efficiency of its economy or go broke.

Paul Kelly explained the way Labor governments saved us from ruin in the 1980s in The End of Certainty and he demonstrates how John Howard continued the reform tradition in last year’s The March of Patriots, where he makes it clear that patriots are always up for the hard yards on the endless and ever-so rocky road of reform.

“At the Treasury Howard and Keating absorbed one great message: that a vulnerable Australia must improve its economic performance by deep structural changes. This idea framed their political brains. It invested them with conviction and a resolve to change the nation,” Kelly writes.

And nothing about the economy has changed. For pessimists, the mining boom will end sooner rather than later and we need to prepare for hard times ahead. For optimists, demand from Asia will stay stronger for longer, giving government the chance to generate dividends that keep on compounding.

Whichever happens, we need to keep moving on the route to reform. And Henry provides a road map. The crows are keener on some of his ideas than others (with a preference for the ones we can understand and don’t suspect of being private jokes included for the funsters at the Mont Pelerin Society).

But whatever the crows think, there are enough ideas in the Henry Review to keep everybody engaged, people of all political persuasions and none, in the debate that matters most – how to keep Australia’s economy growing.

The green extreme will argue economics is irrelevant, that as long as state subsidised candles and a lentil ration are universally available we should all live lives that save the environment from our present wasteful ways.

But tell that to every oldie who needs a hip replacement, their grandchildren who want a roof of their own and everybody in between who thinks the job of government is to improve our quality of life – and that covers spending on everything from welfare to wind power. The point is, the economy will have to keep on expanding indefinitely to provide the goods and services we need.

And so we are where we always are – at the start of the long and endless road to reform, a road that never ends because there are always new challenges to face, improvements to offer, threats to confront and ideas to grapple with. Anybody who says there are no new ideas under the sun never met an economist with an ARC grant.

But, while our circumstances have changed, are we as willing to contemplate root and branch reform as we think we used to be? Probably not, but that is because we romaticise the past in preference to the mundane present.

The truth is that there was no golden age for tax reform. From the Spooner Committee on income tax a half-century back through the six reviews that followed, recommended reforms were rarely adopted quickly, if at all.

The fact tax scholars (sentimentalists that they are) still come over all emotional about the work of the mid 1970s Asprey Committee demonstrates the wheels of reform may grind finely but they also grind exceeding slowly.

And the same will apply to Henry, which could shape the debate for decades to come. With luck, prime ministers not in parliament yet will be adopting some of its recommendations.

But only if the politicians are kept up to the mark by economic enthusiasts who understand the economy that stays the same stultifies.

And that means lots of research on tax reform and welfare churn, productivity improvements and ideas on keeping employment up and inflation down. And it means even more journalism, reporting scholarly work for a general audience and holding politicians to the mark when they ignore it. And it means a relentless attack on the rent seekers and sundry other opportunists who hate change and claim rational economics is optional.

It’s time for the patriots to form fours and march off on the road to reform – arguing as they go.

Stephen4@hotkey.net.au

'2012