Expansive reform must be budget focus, not an option

Jim Chalmers talked up Labor’s “substantial reform agenda” in his budget speech but none of the measures the Treasurer mentioned will go far to fund the government-guaranteed, iron-clad annual increase in the National Disability Insurance Scheme, which will cost $52.3bn next financial year. Neither will they pay for any of the other ever-expanding programs inevitable in an ageing society for that matter – social security and welfare are budgeted at $291bn in 2025-26.

The budget in reply on Thursday will reveal whether Labor will be countered by a Coalition with a reformist agenda of substance. Peter Dutton’s temporary cut to fuel excise was not a first sign that instills confidence.

Dr Chalmers is, of course, working from the playbook of his mentor, Wayne Swan, who as treasurer appeared to assume government spending was always the answer. Instead, Dr Chalmers should look to Paul Keating’s achievements in the job, particularly the way Mr Keating backed the private sector to expand the economy and reduced the extortionate tax take – he lowered the top income tax from 60 per cent to 49 per cent in 1985.

In contrast, Dr Chalmers’ budget promise to shave a couple of per cent off the bottom rate is political pussyfooting that ignores the obvious. The way to fund sustainable government services is to grow the economy, in large part by allowing workers to spend their own income rather than the government ever increasing its take through bracket creep. Other than inconsequential tax reductions, Dr Chalmers’ headline example of economy-expanding reform in the budget is banning non-compete clauses for the three million workers he says are covered by clauses in their employment agreement that restrict their choices when moving jobs. It is an idea intended to give workers who are not keepers of big corporate secrets the right to change jobs and earn more money – but it will not end the malaise enfeebling our economy while government spending drives employment growth. Neither will other elements of the $900m National Productivity Fund Dr Chalmers claims will create “a more dynamic and productive economy”.

The Treasurer states his fund will revitalise national competition policy, attempting to cloak useful but hardly transformative reforms in the guise of the National Competition Policy. Perhaps Mr Keating’s greatest achievement, it expanded the market economy by reducing anti-competitive industry deals and state government regulation. In contrast, Dr Chalmers nominates a nationwide licence for electricians as the sort of change he has in mind. Worth doing but economy-wide reform it is not.

It is desperate stuff intended to present the government as an innovative reformer, but perhaps not as desperate as another budget reform lifting the Medicare tax threshold to $27,000 – important for low-income people but not a policy change that will create more wealth to pay for healthcare. And policies that expand the economy we must have if government is to sustainably fund the NDIS or any of the other ever-expanding programs to support our ageing population – and the national defence. As the unwelcome visit of a Chinese battle squadron to our waters demonstrated the other week, increased defence spending can no longer be left on the to-do list.

In the second half of the 1990s, GDP growth per capita was 3.2 per cent a year, driven by the productivity-improving reforms of the Hawke-Keating and Howard governments. The budget on Tuesday predicts 2.25 per cent without providing credible comfort on how the private sector can create it. The challenge Dr Chalmers ducked in the budget, and probably will at the imminent election, still will be there for whoever is treasurer after we vote. It is cutting government spending and reducing regulation to expand the economy.

As Mr Keating demonstrated with National Competition Policy, it can be done. And Dr Chalmers knows it. “The government has also tasked the Productivity Commission to identify more opportunities to increase productivity,” he said on Tuesday. The Productivity Commission is less unloved than loathed by rent-seekers on both sides of politics. However, the commission reports the way the economy is and proposes solutions that are based on economics rather than what lobby groups will wear and are safe ideas for marginal seats. If the next treasurer wants to be acknowledged as a real reformer who recognises that good policy ultimately is good politics they need to read up on competition reform a generation back, then select a discrete sector of the economy where growth can expand the economy across a generation. And once in office, let the Productivity Commission rip.