Tariffs Were Easy, Why Not A Carbon Price?


Crikey’s Bernard Keane recently compared the 1991 tariff reforms of the Hawke government to the Rudd/Gillard government’s carbon price reform effort. While I have a lot of sympathy for Keane’s views, I think he and many other critics underestimate the fundamentally different political situations prevailing in the lead up to 1991 and 2011.

Julia Gillard wants voters to see her as the heir to the Hawke-Keating Labor reform tradition. This is a major change from Beazley, Crean and (to a lesser extent) Latham Labor in opposition, when the Hawke and Keating reforms were seen as something to be kept in the background, much to Paul Keating’s chagrin. Rudd flipped between support and obfuscation (rather than opposition) writing essays knocking neo-liberalism, which could only really be interpreted as a backhander to the liberal economic reforms pursued by Hawke and Keating.

Gillard, however, has had no issue with grabbing the Hawke-Keating reform legacy with both hands, even if her grasp so far is only around the rhetoric, rather than real policy reform itself. She seems to believe that repeating that she is a reformer over and over again like a slightly demented, chanting monk will somehow make her one.

In a speech to CEDA on 1 February, Gillard argued:

Through good decisions and hard choices, we built an open and competitive economy based on skills, productivity and innovation. I am a product of that era. That is why I know that our continued economic success depends on continuous reform. Reform to nurture us through the resources boom. But also reform to take us beyond the resources boom. Nurturing the boom and sharing the growth won’t just happen it will take national leadership and decision-making. Reform is essential if we are to realise our aspirations to progress as individuals and as a nation.

While it might be too early to tell whether Gillard will convert her words into real policy change, many supporters of substantial government action on climate change are already despairing. Given the Rudd government’s turnaround on climate change policy in 2009, this is not surprising.

The reform era from the mid-1980s to the late-1990s (let’s not forget Howard’s GST as a major reform effort) provides some important lessons for today’s necessary climate reforms but I don’t think they are as clear cut as many think.

There is no doubt that the 1991 Building a Competitive Australia package was a gutsy reform. (I wrote about it as part of an article called "The Domestic Politics of Globalisation" in the Australian Journal of Political Science in 2001). The 1991 statement cut remaining tariffs substantially. The general level of assistance was to be reduced from the 10 per cent and 15 per cent levels declared in May 1988, to a general rate of 5 per cent by 1996; motor vehicle tariffs were to be reduced from 35 per cent to 15 per cent by 2000 (in annual increments of 2.5 per cent); textiles, clothing and footwear tariffs were to be reduced to a maximum tariff level of 25 per cent in 2000, with quotas being terminated by March 1993, two years earlier than planned; and finally, general agricultural assistance was to be reduced "in line with the pace of tariff reform in manufacturing" (see section 5 of the document for details of the measures). The really significant changes were inclusion of the car and textile, clothing and footwear (TCF) sectors.

The 1991 reforms broke the back of protectionism in Australia and proved Labor’s globalising resolve in the face of economic adversity. But the package was just another (albeit major) step in a long period of reform, not a sudden change in direction. The 1988 tariff cuts announced as part of the May Economic Statement prepared the way, even though the economic situation had obviously deteriorated substantially by 1991. By this time, the Labor government had also built a coalition in support of tariff reform and had spent the previous eight years persuading and coercing Australians that such changes were inevitable.

There were still some sceptics in the business sector about tariff reform in the early 1990s, but the battle of ideas had been largely won. Even the formerly protectionist Metal Trades Industry Association eventually accepted the inevitability of tariff reform. Unfortunately, the development of a carbon price (especially a high price) is not seen as inevitable and the battle of ideas has certainly not yet been won. Most importantly, the government doesn’t have the same level of business support, although it might over time. Marius Kloppers’ support for a carbon tax may be seen down the road as an important milestone in climate policy. But building a sense of inevitability about climate reform has a way to go yet.

In 1991, even the union leadership didn’t argue too hard against the tariff reform package with Martin Ferguson describing it as "a sweet and sour Chinese dish", with the large tariff cuts one of the "sour aspects". Labor also had an opposition arguing for harder and faster policy on the liberalisation front and key business players were effusive in their praise.

Importantly, much of the serious media was supportive as well. Traditional Labor voters seemingly had no options but to vote for the Democrats or some other minor party, before they effectively preferenced Labor anyway. Hawke and Keating and other like-minded Ministers effectively marginalised those in the party and the union movement who wanted both a moratorium on tariff cuts during the recession and a more activist (non-tariff based) industry policy for the future.

In 1991 Labor declared, and most of the policy and business elite agreed, that tariff reductions were the most important reform to be undertaken because only they would ensure the adjustment of Australian industry to world economy pressures and competition. In 2011, it’s certainly possible to make exactly the same case about developing a carbon price, but the fact is not enough key players simply are making that case. Indeed, many are arguing exactly the opposite.

This is the first of two articles on tariff reform and the carbon price reform by Tom Conley. Read the second on New Matilda on Thursday.

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.