Swan sets course for more productive economy

Articles and op-ed

Published in The Australian

4 August 2012

Allegations have been made by commentators and sections of the business community that Wayne Swan's defence of the mining tax amounts to supporting wealth redistribution over wealth creation. A second argument doing the rounds is that the replacement of Work Choices with the Fair Work Act has stifled productivity growth, leaving Australia dangerously exposed to a mining slowdown.

While conveniently fitting into a preordained narrative, neither argument is supported by the facts. But another, not so fashionable in business circles, is actually substantiated by lived experience – the capitalist system is failing to meet society's legitimate expectations.

Australia's Minerals Resource Rent Tax is a first cousin of the Petroleum Resource Rent Tax that has been operating in this country for a quarter of a century. Petroleum rent tax proceeds have flowed into the federal general revenue fund for use as the government of the day sees fit. The previous Coalition government, having opposed the petroleum rent tax – as the present Coalition has opposed the mining tax – nevertheless kept it and accepted $16 billion in proceeds from it. Those proceeds, together with company tax and capital gains tax revenue from the 2004-07 mining boom, were used to expand middle-class welfare through big increases in family tax benefits.

Proceeds from the mining tax, in contrast, are being dedicated to small business investment incentives and essential infrastructure investment, as well as boosting national savings through extra superannuation. All these uses of the mining tax revenue will boost national productivity. How does this amount to redistribution while the Coalition's appetite for middle-class welfare does not?

The Gillard government had planned to use some of the mining tax proceeds to cut the company tax rate, but it was blocked by the Coalition and Greens, who were joined in their opposition by influential sections of the business community.

A second inconvenient truth is that Australia's productivity performance is not, in fact, strongly influenced by the industrial relations system. But let's go with the flow for a moment, ignore the empirical evidence and entertain the argument that the shift from Work Choices to the Fair Work Act has had a heavy bearing on productivity growth.

Some of us were warning of a productivity slowdown from around the year 2000. We were told by the previous government not to worry; that faltering productivity growth was caused by a set of temporary factors – drought, declining oilfields, massive mining investment preceding mining income flows and the engagement of less productive workers as unemployment fell to low levels.

By 2006 growth in the broadest measure of productivity – multi-factor productivity – had actually turned negative. By that time, Work Choices was in full swing. So if we accept the assertion that the industrial relations system is a key determinant of productivity, then Work Choices made Australia a less productive country.

In the 12 months to March 2012, there was actually a revival in productivity growth. Whether this is sustained is yet to be seen. But if it is right that industrial relations is the big determinant of productivity growth, then logically the replacement of Work Choices with the Fair Work Act has been a great fillip to workplace productivity.

In truth, neither Work Choices nor the Fair Work Act has had much bearing on productivity growth, but those who claim otherwise are arguing against their own predilections.

Sensible proposals for modifications to the Fair Work Act should be considered on their merits, but let's not pretend they will have any discernible effect on national productivity growth.

Which takes us to the argument about capitalism. Thirty-five years ago the wealthiest 1 per cent of Americans received 9 per cent of the nation's income. Today, the top 1 per cent receives 23 per cent of total income. That's disturbing enough, but far more concerning is the fact that while America's rich get richer, the poor are getting poorer. Surely there's something amiss with capitalism when it impoverishes Americans?

Before condemning markets, let's be clear – the US economic system has shifted increasingly from private capitalism to taxpayer-funded capitalism. Too big to fail, US banks, insurers and car-makers were rescued by taxpayers who shelled out more than $US600bn ($570bn) – about 40 per cent of Australia's annual national income – to keep them afloat. All the while company executive bonuses kept flowing. For example, the American International Group, which received more than $170bn in taxpayer bailout money, paid $165 million in executive bonuses. These sorts of executives have the temerity to lecture governments about the value of markets and the failings of government.

Australia's system of capitalism is much more market oriented and therefore healthier and more sustainable. But Swan is right to warn about going down the path of US state capitalism. That's not class warfare: it's good advice.

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