Economic ‘reform’ is only urgent when it comes to cutting its own tax rates or increasing red tape for union enemies
The only time the business community pretends to take economics seriously is when they want to slash their taxes – or other people’s wages.
By Richard Denniss
The economic evidence to support the case for multimillion CEO bonuses is as weak as the economic evidence that cutting penalty rates would boost employment. But in Australia, when self-interest and power combine, a lack of evidence is rarely a problem.
The economic case for tax reforms such as the introduction of carbon taxes, resource super profit taxes and wealth taxes is as overwhelming as it is irrelevant. When economic theory and evidence combine to suggest a carbon tax would be a simple and efficient way to reduce greenhouse gas emissions, the business lobbies bury their heads in the sands of their winter escape. There is zero chance of our self-appointed “business leaders” lifting a finger to push for climate policy reform in the next few years. No matter how good such change would be “for the economy”.
But when it comes to cutting their own tax rates or increasing red tape for their union enemies, there’s an endless flow of opinion pieces, summits and media appearances making the case for “urgent reform”. They are more interested in the policy changes that directly benefit them than the ones that are the most important for the economy.
Politics in Australia has become the art of dressing self-interest up as national interest and no one does a better job of feigning concern for mum-and-dad investors and working families than the industry groups that raged against regulations designed to protect small investors and strongly supported cuts to the incomes of working families.
So, if the business community were genuine about serious economic reform – and that is a very big if – what should they focus on? While there’s no right answer to that question, there is a right way to go about looking for that answer.
Step one would be to identify all of the policy areas where big changes might drive significant economic benefits. In addition to reforming the way we currently subsidise carbon pollution instead of taxing it, some obvious areas for “serious” economic reform include:
- Making childcare more affordable for low- and middle-income working families to boost the number of women in the labour force.
- Changing our education system to resemble the structure, and the outcomes, of the systems found in the Nordic countries.
- Providing cheap and fast public transport to connect affordable housing to the centres of job creation.
I know, I know, that’s a list of social policies not “economic reforms”, but step two in any rigorous process to identify economic reform priorities would be to develop a rough estimate of the potential benefits of a policy change.
While around 60% of working-age women (15-64) are active in the Australian labour market, in New Zealand the figure is 65%, and in Iceland, the country that regularly tops the list for gender equity, 72% of working-age women are in work.
If the Australian labour market and childcare sector was as supportive of women’s choices as Iceland’s are, then our GDP could increase by more than $183bn. How good is that for social policy?
Similarly, the cost of our failed experiments with private school subsidies are enormous. The quality of education we provide to Australian children is falling far behind the education kids are getting in Singapore, Canada and Finland. And we are slipping further.
It’s as if giving billions of dollars in public money to private schools with indoor pools and orchestra elevators is doing nothing to improve educational standards in Australia.
Most economists would agree that targeted investment in education does more to drive long-run economic growth than anything else.
But, as with carbon pricing, who cares about what economists actually say when the opinions of the powerful are so freely available?
And while it’s true the business lobby groups frequently opine about the need to control government spending, Australia’s business elite are remarkably silent about the billions in public money that have flowed into their own kid’s exclusive schools.
Then there is congestion. In our major cities, congestion imposes huge costs on the vast majority of Australia’s workers, their families and businesses. Not only does reducing congestion allow people to save money on housing and transport, it improves the quality of their lives and the productivity of our economy. It too should be main game for those interested in serious reform.
But alas, in Australia the business lobby groups, not economists or voters, get to tell us what our economic priorities should be. And in Australia, despite the fact that we are a low-tax country with low rates of union membership, the business community tells us that the “serious issues” we have to urgently address are more tax cuts (that they want), and new attacks on workers (that the unions don’t want).
To be clear, there is no “right” tax system and there is no “right” industrial relations system. We should always be open to debating the options. But in what world, after 20 years of cuts to taxes and worker protections, could more tax cutting and losses of worker protection be the number one reform priority?
Last year we were told that cutting penalty rates would be great for the economy. Now, even the small business lobby concedes penalty rate cuts did not create a single job. Such an outcome should come as no surprise, as Professor Martin O’Brien observed: “Of the 151 academic papers the [Fair Work] Commission referred to in its decision, not one contained sound empirical analysis of the employment impact of penalty rates.”
Just as we spend billions of dollars subsidising new coalmines and private schools with no complaint from the business lobby groups allegedly concerned with serious economic reform, we just spent $158bn on tax cuts – one of the most expensive bills to ever pass through the Australian parliament – without so much as a Senate inquiry into the consequences.
It’s time we reformed the way we talked about reform. The dictionary says reform means “change for the better”, but in Australian public debate it has simply come to mean “change demanded by the powerful few”.
There’s no doubt we should reform our tax system, our industrial relations system and the way our government provides a wide range of important services. We could of course choose to emulate the tax and spending policies of Donald Trump or we could learn from the Nordic countries – which have the strongest economies, the best education systems and the best health systems in the world.
If business lobby groups were genuine about the pursuit of serious economic reforms they would present the evidence that shows it is more important to change Australia’s unfair dismissal laws and cut taxes than to make the childcare system more affordable.
But they aren’t more important, so the business lobby groups won’t. Powerful groups don’t need evidence. That’s what makes them powerful.
• Richard Denniss is chief economist at the Australia Institute
First published at The Guardian Australia – Wednesday 10 July 2019. See: https://www.theguardian.com/commentisfree/2019/jul/10/australias-business-lobby-has-mastered-the-art-of-dressing-self-interest-up-as-national-interest