On the cusp of another economic transformation

Articles and op-ed

Published in The Australian

14 July 2012

Three days ago the silver anniversary of an event of monumental significance to Australia's modern prosperity slipped quietly by.

The re-election of the Hawke government on July 11, 1987, empowered it to press ahead with the transformation of the Australian economy from one shrunken in on itself by decades of heavy protectionism to an economy facing the world and the opportunities this, the Asian century, would offer.

A quarter century later the Gillard government is shaping Australia's second great post-war economic transformation.

Far from being complacent, as respected business leaders suggested mid-week, the government is implementing a comprehensive, productivity-raising reform program.

By 1987 the Hawke government had deregulated the currency and financial markets. But tariffs remained at historic highs, inefficient government enterprises were shielded from competition and the labour market was still heavily centralised.

In a speech at Ballarat during the election campaign, Bob Hawke laid out a program of further micro-economic reform he would implement if granted the historic third term he had wished for on a note he'd placed in a crevice in Jerusalem's Western Wall six months earlier.

It came to pass and the rest, as they say, is history.

On the back of the Hawke-Keating reform program, productivity growth reached record highs in the second half of the 1990s and Australia has enjoyed more than 20 years of recession-free economic expansion.

But it wasn't growth for growth's sake.

Through education reforms that increased the proportion of students going on to Year 12 from one-third to more than two-thirds, it was inclusive growth.

Yet the engine of future prosperity, rising productivity, was allowed to slow from the late 1990s.

Masked by a housing boom and a mining boom, Australia's productivity growth slowed for the entire first decade of the 21st century. During the early part of that period there was no comprehensive micro-economic reform program. Australia slept through a Great Complacency.

Household wealth was inflated by a housing bubble blown larger by deliberate government policy. And from 2004 middle-class welfare was doled out to boost the household incomes of a vital voting demographic group, funded by the company and capital gains tax proceeds of mining boom mark I.

Despite the trauma of the global financial crisis and the economic stimulus it demanded, the incoming Rudd government began assembling components of a new, productivity-raising reform program. The building blocks of a new reform program included moving Australia towards a seamless national economy, and developing a single national industrial relations system, a single national school curriculum and proper school transparency and accountability.

But now the program is wider and deeper. A training entitlement is engendering greater competition in the vocational education system. A revamped research and development support system is enabling small businesses to gain access to incentives early, instead of having to rely on earning sufficient taxable incomes later against which to claim deductions.

Incentives are being offered to universities to accept more disadvantaged young people. A trebling of the tax-free threshold to $18,200 is a fillip to workforce participation and productivity.

And the rollout of the National Broadband Network will be a game-changer in breathing life into improved company practices and innovation.

The government has committed to reducing unwarranted delays in major project approval processes and has improved the tax treatment of private investment in infrastructure.

After a decade of lethargy, the first tentative signs of a possible pick-up in productivity growth may be emerging. Businesses are beginning to abandon old models, responding to the new competition from the online economy. The book industry, for example, has voluntarily adopted the reforms that were mooted by the government a few years ago. Retail has gone from a sector fully insulated from international competition in 1987 to one heavily exposed to it now. Falling transport and communications costs are making every stage of production contestable, obliging businesses to be productive if they are to remain competitive.

The Gillard government's productivity-raising reform program and the adjustments Australian companies are beginning to make to their business models are heralding the second great Australian post-war economic transformation, following the creation of our open, competitive economy by the Hawke and Keating governments.

Much work needs to be done in lifting productivity to give Australian businesses a competitive edge in Asia. By 2030, the middle classes of Asia will have swelled to an astronomical three billion people, more than 100 times the size of Australia's domestic market.

By reconnecting with and building on the Hawke-Keating reform program of a quarter century ago, the Gillard government, far from being complacent, is locking Australia's future into the Asian region in this, the Asian century.

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