Dominic Perrottet’s long economic policy game is just getting started

The NSW Premier has been busy on policy while his peers have been reform-shy and pandemic weary

Dominic Perrottet has set the economic reform standard among the nation’s treasurers. Picture: Getty Images

Dominic Perrottet may be the last best hope for meaningful economic reform to boost living standards, if not in Australia, then certainly in its largest state.

The NSW Premier was the odd man out among a reform-shy and pandemic-weary group of custodians, which includes federal Treasurer Josh Frydenberg. All bold treasurers are alike; each one is timid in their own way. But Mr Perrottet is considered a genuine reformer among the policy elite, past and present, and his tax proposals have been endorsed by the OECD and others.

Through proposed stamp duty reform, pursuit of intergenerational equity, and incentivised federalism, Mr Perrottet could be the prime mover to shift the productivity dial. So far, he’s proved to be in a hurry, committed to better regulation, more investment and fiscal sustainability, with a focus beyond the current electoral cycle. For now.

As someone once said of F1 drivers, they lose a second per lap for every child they have. The ­father of six got off the starting grid well on Tuesday, but three looming by-elections will slow him down and narrow his vision.

Millennial Mr Perrottet has seized on property transfer taxes. His cohort, in the prime of child rearing, has watched rates of home ownership tumble from the 60 per cent of their parents’ era to just above 40 per cent today.

“We are facing a challenge when it comes to generational ­equity where many young people today cannot get the keys to their very first home,” Mr Perrottet said on Tuesday, echoing Gladys Berejiklian, who vowed to address housing affordability when she became premier in 2017.

“We have a duty to ensure that generations that come after us have more opportunity and prosperity than we have, and in order to do that reform is key – reform is crucial,” he said.

Stamp duty is reviled by economists, the most inefficient tax across states and territories revenue streams, a bad tax that stops people from moving for work or downsizing when the kids leave home. It’s a tax on people, ­mobility and the economy itself.

Wearing his retail politics hat, Mr Perrottet argues stamp duty adds 2½ years to the time to save a deposit of 20 per cent of the average NSW property.

As well, the state’s key reform advisers argue switching from transfer duty to a broad-based land tax would enhance economic efficiency, support a more equitable distribution of the tax burden, and provide a stable and sustainable revenue source.

Two years ago, Mr Perrottet set off a review of federal financial relations, chaired by former Telstra chief David Thodey, hoping to take the shackles off the ­national economy’s performance.

He envisaged a grand bargain among the states and Canberra, shifting the tax burden to a broader GST or land tax to boost economic growth. It has not come to pass, and may never do so, due to the timidity of the flock.

“The states have the most scope for reform, but one thing holding us back is a federal tax system that penalises progress, especially the GST carve up,” he told The Australian in June about a system that rewards indolence.

“NSW is ready to do the heavy lifting, but we could overcome ­future challenges a whole lot faster with support from a federal government that incentivises reform, rather than penalises it.”

NSW wants Canberra to set up a Productivity Fund to encourage all states to undertake reform, particularly those outlined in the federal Productivity Commission’s Shifting the Dial report.

After Western Australia secured a higher share of the GST split, worth an extra $5bn, Canberra was forced to ensure no state was “worse off” after NSW lobbying. On Tuesday, Scott Morrison said the GST deal was set in stone. But Mr Perrottet claims he’s not done.

On broader economic and fiscal reform, his message is the clock is ticking and the earlier we start, the less pain there’ll be later.

Projections in the 2021 NSW Intergenerational Report show the state’s population could be 11.5 million in 2061, up from 8.2 million today, leading to a fiscal gap of 2.6 per cent of gross state product. Cutting it will require higher female workforce participation, better health outcomes, digitisation of services, and an effective transition to renewable energy.

“Demographics don’t lie,” Mr Perrottet told this newspaper in June. “What is clear is that driving productivity growth and participation rates will be areas of increasing importance for every state and the commonwealth.”

Mr Perrottet set up the NSW Generations Fund, to help citizens manage any build-up in debt. It is projected to reach a balance of $430bn by 2061.

The NSW Treasury investment strategy on the fund has been controversial, suggesting the fast-driving Mr Perrottet may have pushed the speed limit.