‘End of Australian exceptionalism’ demands bipartisan reform effort, says Michael Brennan

Former Productivity Commission boss Michael Brennan says the nation must embrace bipartisan economic reform to navigate the ‘end of Australian exceptionalism’.

Former Productivity Commission chairman Michael Brennan says Australia needs a new intellectual and political consensus to drive economic reform. Picture: James Croucher

Former Productivity Commission boss Michael Brennan says the nation must embrace bipartisan economic reform to navigate the “end of Australian exceptionalism”, as the IMF said the new focus on industry policy was not a “magic bullet” to lift productivity in an era of slower global growth.

The pandemic marked the end of three decades of uninterrupted growth that followed the early 1990s recession, and the country was now entering an age where the easy economic gains of the past were over, Mr Brennan said.

“When historians come to chronicle our present moment, they will most likely mark it as the point at which that third golden era came to an end,” he says in a speech to be delivered at an Infrastructure Partnerships Australia event on Thursday evening.

“Our future success will, most likely, rest not on benign external forces but on our home-grown ­response.”

The warning comes as the International Monetary Fund said that without ambitious measures to lift flagging productivity, global growth would slow to just 3 per cent by the end of the decade, or a full percentage point below the annual average over the 20 years leading up to Covid.

“The world economy faces a sobering reality,” IMF economists said. “Without policy ­intervention and leveraging emerging technologies, the stronger growth rates of the past are unlikely to return.”

Even as the IMF raises the alarm over the souring global growth outlook, the Washington-based body also cautioned against the growing enthusiasm for ­interventionist industrial policies in the wake of the Covid-19 health crisis.

“Industrial policy is not a magic cure for slow growth,” the IMF said.

“Most industrial policy relies heavily on costly subsidies or tax breaks, which can be detrimental for productivity and welfare if not effectively targeted. This is ­frequently the case as, for example, when subsidies are mis­directed toward politically connected sectors.”

Australia is among the least ­innovative economies in the world. New IMF analysis shows under 10 per cent of patents cited by companies are locally developed, with only Belgium and India lower among 22 countries. In contrast, more than 70 per cent of patents used by US businesses are American.

Amid a global tide towards ­intervention in the economy that prioritises outcomes beyond ­efficiency or growth, Jim Chalmers last week said “the lines ­between national security and economic security were once blurred – they’re now more or less non-existent”.

“We see national security, economic security and prosperity really as all parts of the same equation,” the Treasurer said.

Mr Brennan said the intellectual and political consensus that had underpinned the reforms of the 1980s, 1990s and 2000s had become fragmented.

“This is a time in Australia’s economic history when we can least afford drift, polarisation or a descent into becoming a rent-seeking society. We need to ­rebuild a sense of compelling ­policy orthodoxy; that intellectual centre of gravity,” he said. After Anthony Albanese in March announced a $1bn investment in creating a domestic solar panel manufacturing industry, Mr Brennan said policymakers should focus on the “broad, underlying enablers of growth, rather than placing bets on specific opportunities”.

“This does not imply a shrinking of the role of government (but) more a focus on what government is best placed to achieve: the funding and delivery of core services, market stewardship, leadership on international integration and well planned infrastructure provision,” he said.

Mr Brennan also urged that governments maintain tight fiscal discipline.

“Australia’s commitment from the mid-1980s onwards to the basic principle of balancing budgets over the cycle and keeping public debt low has served us very well,” he said.

“It has been underpinned by community opinion that governments should be able to prioritise and live within their means. Our tradition of strong fiscal management made possible the crisis response to the GFC and the pandemic.

“We would throw it away at our peril.”

Mr Brennan is the latest of a number of distinguished economic policy experts who have ­expressed concern about the lack of appetite for meaningful reform.

Former Treasury secretary Ken Henry, in a speech last week, warned that policymakers had consistently failed to confront the challenges outlined in successive Intergenerational Reports, not least that a shrinking pool of younger workers would have to shoulder the burden of funding ever more expensive public services.

Former Productivity Commission chairman Gary Banks late last year said a lack of reform zeal was undermining Australia’s high living standards and risked an “electoral backlash”.

Dr Banks also criticised the ­renewed enthusiasm for “made in Australia” policies as a return to “old think” industry protect­ionism.