Ditch policy complacency for fresh economic agenda

Australians are becoming restless about an economy in an induced coma to suppress the spread of the coronavirus. Travel bans, industry shutdowns and social restrictions have anaesthetised enterprises, throwing millions on to the Morrison government’s subsidised payroll. More pain is on the way, with forecasts of a 10 per cent contraction in gross domestic product and 20 per cent reduction in hours worked. Future Fund chairman Peter Costello sees some companies emerging stronger from the worst crisis since the Depression, while some will disappear. We can already discern the vortex of calamity, with the tourism sector, a vast income earner and employer, facing devastation. Tourism Minister Simon Birmingham says it will take many years for the international aviation and cruise industries to recover.

It is possible Australians will learn to holiday at home, although not in their homes. A weak dollar will reinforce the trend. COVID-19’s toll on lives and incomes in the US, Britain, China and Italy, major sources of inbound tourism, will leave a long tail of woe. Perhaps a negotiated relaxation of restrictions with New Zealand will create a “trans-Tasman bubble”, beneficial to two countries that have had great success in containing the virus. But filling the void of tourists from the rest of the world, won’t be easy, no matter how clean, green and COVID-19-free we prove to be Down Under. Virgin Australia’s failure was multidimensional. In rebuffing the carrier’s pleas for a bailout Josh Frydenberg was resolute that one-off deals for companies were not on. Any new assistance must be sector-specific or available to all enterprises.

A broader and bolder reform plan would pay higher dividends for the nation in the long run. Business Council of Australia chief executive Jennifer Westacott argues we have a once-in-a-generation opportunity to remake the nation. “We must be an aspirational society that rewards hard work and puts money in the pockets of ordinary Australians, and an entrepreneurial society where we can keep and attract the best and brightest,” she wrote in our pages on Monday. She echoed calls for reform from her members, some of whom shared their thoughts with John Durie at the weekend. Yet, as we hurtle towards possible economic oblivion, observers such as Alan Kohler wonder if the reform crowd is quarantined on an elite opinion fantasy island. “We are in the midst of a global pandemic and an economic depression, with government deficits rising to telephone numbers, and vested interests are rolling up their sleeves to ensure this is a crisis that doesn’t go to waste,” he argues. But we can, and must, do better.

Our political and policy machinery had become sub-optimal, to say the least, before the world went bat-soup crazy. Business had lost its risk-taking zest. Investment was in a deep hole. Young people were not starting new enterprises or innovating. Workers were staying in jobs longer, content, perhaps aspiring to less. It meant our economy was not as dynamic, creative or flexible as it could be. We got used to rising living standards and wealth via higher export returns, soaring home prices, overvalued stocks and growth in population. But returns for our toil stagnated as we worked old capital, tools and infrastructure beyond use-by dates; our global competitiveness sagged because of workplace rigidities, ancient regulations and high taxes, among many other constraints.

As Minerals Council of Australia chairwoman Helen Coonan notes, our company tax rate is 3 per cent higher than the G20 average and the second highest in the developed world. “Higher taxes will discourage investment, impede growth and threaten jobs,” she writes of the post-pandemic policy agenda required to achieve faster business-led growth. A nation reliant on foreign capital needs a competitive tax regime that encourages investment. That’s a fundamental principle.

As we argued two years ago when Malcolm Turnbull tried, but failed, to reduce the company tax rate to 25 per cent for all enterprises, we need a system that promotes aspiration and expansion; that is efficient and simple; that better balances federal and state financial responsibilities. It’s a huge agenda, as Ken Henry’s tax review showed a decade ago. Yet nothing bold has been done to improve a dilapidated, complicated system. It’s time. Almost immediately Labor has dismissed the push for lower taxes as an old right-wing ideological obsession or a cash grab by foreign shareholders. The saving grace, perhaps, is the nation’s aspirational class — from workers building assets for retirement to those trying to give their children a boost into home ownership — dodged a $387bn cluster bomb of taxes that would have obliterated our prosperity. The reforms Australia will need to navigate the post-corona world go way beyond tax relief and system repair, although returning fiscal drag to medium-income families should be a greater priority than it was a year ago. Amid the misery, there is goodwill and energy to drive a reform program. The nation will struggle to reduce unemployment and deficits, pay down debt and achieve financial security if it doesn’t ditch complacency. We need a fresh game plan for growth.