The policy goals Prime Minister Abbott took to the election were small government, lower taxes and a budget surplus. He explained how he intended to maintain these goals while meeting his heavy spending commitments: “A stronger economy is the key to everything else." The power of this “key" in resolving the obvious tension between his broad policy goals and his spending commitments will be tested by his government’s response to Holden’s present demand for additional taxpayer support.

We have learned what “a stronger economy" means from the reforms of the 1980s and 1990s, which contributed substantially to the prosperity we have since enjoyed. Those reforms strengthened the economy not by enabling us to do the same things better (i.e. through improved productive efficiency), but because we moved from things we did less well to those we do better (i.e. by improved allocative efficiency). The single most important policy message for Abbott is one grounded in that experience, because it allowed resources to move from less competitive to more competitive activities within and between firms and industries, throughout the economy.