Federal Labor – economic policy for the future


Economic policy will, as usual, be the most important policy area for Federal Labor to get right.

What changes should be made by Beazley?

First cab off the rank is the former Opposition’s matching of the Government’s promise not to allow the budget surplus to fall into deficit even during a recession. The obvious point to make here is that if a recession arrived, the Government’s revenues would contract significantly and its obligations to pay substantially greater unemployment benefits would almost certainly automatically convert a budget surplus into a deficit. It is orthodox economics to allow that to occur anyway and during past recessions there has never been criticism of budget deficits in those circumstances.

Labor’s capitulation in this respect was depressing because it confirmed that the Opposition was gun-shy. The way to credibility on economic policy is to attack the government when it gets policy wrong, not meekly go along with it, particularly when anyone with a smattering of economic knowledge would realise the policy was misguided.

Second, the Howard Government has reduced the Federal Government’s net debt to minuscule proportions, largely through the sale of half of Telstra. What Howard and Costello have been arguing is that there is something essentially wrong with the Government borrowing money in order to fund necessary infrastructure. That argument is akin to saying that people should not borrow money in order to purchase a house but should simply save assiduously until they can afford to buy it for cash. That is a ridiculous proposition and the Opposition should oppose this view.

Next, there are measures necessary to make the economy more efficient, noting the need to combat the effects of the ageing of our workforce.

Such measures are essentially productivity improvements and strategies to increase the participation rate in the workforce.

The Productivity Commission has recently recommended that spending on education, particularly on lifetime (re-)education, and spending on research and development should be increased, not policies which Howard has pursued at all in the last nine years.

Another means of increasing productivity would be to rationalise the heavily distorted funding of transport and roads, noting the heavy subsidy of road transport as a result of road funding and the impact of taxation. In short, the road transport industry is not paying its proper share of the costs of maintaining our roads system. Funding could be diverted into rail infrastructure projects particularly in areas servicing the coal and other mining industries.

To increase participation rates in the workforce, the glaring policy failure of the Howard Government has been its determination not to encourage the provision of childcare facilities. The Government has declined to provide the substantial increases in financial support for childcare which are now clearly necessary, not only to ensure that women can participate more fully in the workforce but also to ensure that the birth rate is increased. At present, Australia is a dying culture because it cannot replace itself. Is that in accord with the conservatives’ view of the world?

As to trade policy, Labor must attempt to shift the Government’s focus from preferential trade agreements, beneficial as they may be if properly negotiated, to support for the lowering of tariff barriers on a multilateral basis. There is a real danger that over-reliance on complicated preferential agreements will slow overall progress on trade and trade issues.

As to the housing sector, Howard has encouraged speculative buying and a credit binge with the resulting boom now rapidly declining to bust. A review of policy measures to ensure overall policy does not favour property over equity investment should be undertaken.

Turning to Labor’s tax package announced during the 2004 campaign, there were elements of this policy (e.g. measures to avoid poverty traps) which were innovative and attractive but overall the tax measures were revenue neutral which was unlikely to persuade voters that there were significant advantages, particularly at an election. Noting that Howard has introduced a raft of bad policy tax concessions including a mish-mash of middle-class welfare provisions, it should not be difficult for Labor to constructively criticise the Government for that, on both equity and efficiency grounds.

Overall, what the Opposition lacked in the past three years was the strong advocacy of good policy that was a feature of the Hawke years. Some commentators have criticised Wayne Swan’s appointment as Shadow Treasurer because he is not an economist. This is unfair – neither was Paul Keating, to whom good policy was a by-word.

Now that the Howard Government is shortly to control both Houses, good policy is even more necessary. Without parliamentary power, the (economic) credibility of its arguments is the only thing Labor’s got – this side of the next election, that is.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.