Economic storm clouds warrant a policy rethink

Editorial courtesy of The Australian

The national account figures for the March quarter, revealing GDP lifted by an unimpressive 0.1 per cent across the first three months of the year, should give the Albanese government a sharp message. Aside from the pandemic, the economy grew at its slowest pace in three decades in the year to March. After accounting for a rapidly rising population, growth on a per capita basis fell by 0.4 per cent, economics correspondent Patrick Commins noted. This was the fifth consecutive quarterly decline. Commonwealth Bank head of Australian economics Gareth Aird said: “The economic pie is still expanding modestly but the average size of the slice of pie that each Australian has received over the past five quarters has progressively shrunk.” The economy is “a heartbeat away from recession”, KPMG chief economist Brendan Rynne said.

Too many aspects of economic policy, unfortunately, are heading in the wrong direction. The government should look at foundations set in the Hawke-Keating and Howard years and attend to basics, optimising conditions to encourage private sector investment, profit, employment, productivity gains and growth. Policies that limit the footprint of government by reducing regulation, holding down company tax and payroll tax at state levels, and giving employers and workers greater autonomy to negotiate work practices, pay and benefits to suit their industries would be a basis for reviving growth.

Despite such impediments, the private sector is doing its job on the productivity front, better than the public sector, where productivity is tanking. As Mr Aird notes, since the pandemic, total productivity growth across the economy has been flat. But within the market (private) sector it is up 2.8 per cent. Government needs to be more efficient in delivering services, enacting policies that boost output per worker in the public service. The National Disability Insurance Scheme is a prime example, fuelling services inflation.

Business columnist Robert Gottliebsen fears when Labor’s most recent IR changes take effect on August 26, companies unable to lift prices will resort to a wave of retrenchments “of some magnitude”. Yet union demands emerging from the ACTU Congress in Adelaide would make a deteriorating situation worse. Without major productivity offsets, which are not being canvassed, the push for shorter hours, including four-day working weeks on the same pay, and 10 days “reproductive” leave would further weaken productivity.

Nor is this the time for the Albanese government to risk taxpayers’ money on picking winners. Housing Australia, for example, the agency tasked with delivering Labor’s $10bn affordable housing fund for low-income families, paid out $30m in executive salaries and consultants’ fees in a year without delivering a single completed home. When subsidies dry up, soaring energy prices will drag down growth further.

Where they emerge, sensible proposals such as Industry Minister Ed Husic’s call for a cut in company tax – a call brushed aside by Jim Chalmers and Treasury secretary Steven Kennedy – need to be taken seriously. As Productivity Commission boss Danielle Wood told Senate estimates on Tuesday, cutting Australia’s 30 per cent company tax rate would make the economy more competitive internationally. At her first Senate estimates hearing since being appointed to the commission, Ms Wood repeated her sensible warning that “there are costs as well as potential benefits associated” with the government’s flagship industry policy, Future Made in Australia. Subsidies, she said, risked propping up uncompetitive industries across the longer term. The economy can ill afford that.

Economist Chris Richardson’s take on the national accounts figures on Wednesday was one of “pain leaking out of every number”. Bad as the figures were, the picture will be far grimmer if the economy becomes ensnared in stagnant growth and stubborn inflation. A rebound in inflation or stickier than anticipated price pressures could force the Reserve Bank of Australia board to lift interest rates again, governor Michele Bullock told Senate estimates on Monday. On top of flat growth, that would usher in a time of extended economic pain.