Reform rethink needed, says former Treasury secretary Martin Parkinson

Former Australian Treasury secretary Martin Parkinson has called for an urgent revamp of Canberra’s economic reform agenda.

Former secretary of the Treasury Martin Parkinson, above, says that without change the country could face ‘heightened vulnerability’ in the event of a future shock. Picture: Nikki Short

Former Australian Treasury secretary Martin Parkinson has called for an urgent revamp of Canberra’s economic reform agenda, warning that without change the country could face “heightened vulnerability” in the event of a future shock.

Dr Parkinson, also a former member of the Reserve Bank’s policy-setting board, said the country responded well to initial challenges of the pandemic in 2020 by releasing huge amounts of government funds, but the crisis had not been used to rejuvenate the narrative around reform.

The “sugar hit” of the fiscal and monetary stimulus would sustain the economy for a few more years yet, with households sitting on huge nest eggs, but the economic experience beyond that could be mediocre, he said.

“We’ve got a really difficult situation with us, because we’ve got a population that will be a million people smaller by 2030 and we have spent all of this money, and we haven’t bought any reform,” he told economists on a webinar Tuesday.

“To be brutal, we have a high stock of debt, a smaller and older population, higher dependency rates, and a heightened vulnerability for the next crisis because we are going to be starting in a weaker economic position,” Dr Parkinson said.

In a bleak assessment of the outlook, Dr Parkinson said the options for policymakers beyond reforms to raise productivity were limited.

Raising taxes to pay off debt would slow the recovery, while cutting government spending would also be rejected as untenable, he said.

“Structural reforms to boost productivity and hence growth is apparently now a vanity exercise. Are we going to rely on inflation? Well if we do, that’s really regressive,” he said.

Among the low-hanging fruits of reform were things like embracing a shift to a greener energy economy, with foreign investment into Australia increasingly being driven by environmental considerations, he said. The education sector is also an area for reform given the need to build modern skills.

“Contrary to what people keep saying, all of the serious analysis shows that there is a massive jobs pay-off, particularly in regional Australia, if we embrace action on climate change,” he said.

Australia’s productivity performance has been lacklustre for some time, with wages growth stuck in a decade-long decline.

Dr Parkinson said he was also open to the idea of a regular review of the RBA’s operations, which could extend to its internal practices and a discussion around whether its 2-3 per cent inflation target was appropriate.

Calls to review the central bank have recently come from economists and academics, with many highlighting its failure to achieve its inflation target.

Dow Jones Newswires