Not another Seinfeld election

Given the economic outlook for higher debt, higher spending and a decade of budget deficits, Australia cannot afford what independent economist Chris Richardson predicts will be “another Seinfeld election about nothing”. Both sides of politics have a duty to explain what they will do to fix the problems that inevitably will come from a less-productive economy in which government is promising to do more. The situation was neatly summed up by former treasurer Peter Costello, when he said we are progressing to a higher-tax, higher-spend, higher-debt country at the same time that we are becoming a less-productive country.

The level of national and state debt has been growing despite a surge in national income from a sustained commodities boom thanks to China and disorderly global energy markets. Government coffers have been bursting with higher tax receipts from business and wage earners exposed to incentive-sapping bracket creep.

But the signs are that our terms of trade face an uncertain future with a downturn in China and the prospect of disruption thanks to a global trade war directed by an unpredictable US president-elect, Donald Trump. And there is no sign that either major party has a plan for the sort of tax reform, spending restraint or productivity-boosting measures that are needed to put the national budget back on track.

Increasingly, the experience for many is of a two-speed economy in which a sharp rise in public sector spending is masking tougher conditions for the productive sector that is needed to create wealth to pay the bills. This is in part reflected in the growing number of insolvencies, which, if present trends continue, the opposition estimates could total 35,000 since the Albanese government was elected. The Coalition has forecast an extra 10,000 businesses will go under by the time the next parliament sits. The government argues the higher number of business insolvencies reflects the fact there are more businesses operating and is a hangover from the pandemic. The RBA also found that on a cumulative basis, insolvencies have remained short of their pre-pandemic trend and, while at a record high in absolute terms, their share of total businesses still remains typical of historical standards at less than 0.15 per cent.

This may be true, but it downplays the impact of 13 consecutive interest rate rises and the chilling effect on business of the Albanese government’s industrial relations reforms that reduce flexibility and strengthen the arm of trade unions. The increasing burden of red and green tape is of growing concern for business. Deloitte Australia CEO Adam Powick told our annual CEO survey the biggest issue his company was hearing from its client base was the “significant and growing impost of federal and state government regulation, which is stifling business investment and innovation”.

AMP’s Alexis George said the economy had slowed to a crawl, with GDP up just 0.8 per cent over the year to the September quarter and the biggest slump in per capita GDP since the early 1990s recession, outside the pandemic. BHP’s Mike Henry said political leaders need to be examining the entire set of policy and regulatory settings and ask whether they are moving Australia towards being a more competitive place to invest and do business. He said: “Australia needs to put in place an industrial relations system which enables flexibility, rewards hard work and builds productivity, a tax system which is stable and internationally competitive, and regulatory oversight that is effective and efficient so as to encourage investments that stimulate the economy.”

Ashurst’s Paul Jenkins said comprehensive tax reform and the removal of regulatory hurdles to development were needed to encourage productivity-enhancing investment and help drive economic recovery. He said there had not been real, comprehensive efforts to reform a tax system that was increasingly unfit for purpose.

This is the policy contest we expect from leaders of all sides of politics so voters can make an informed choice at election time.