A federal election is an opportunity to take stock of how Australia is doing, where it’s going, and what governments can do about it. This series, written by program directors at the Grattan Institute, explores the challenges that Australia faces and advocates policy changes for budgets, economic growth, cities and transport, energy, school education, higher education and health.
Australia has a new government. After an eight-week campaign, and a week of watching the count, its members will doubtless be delighted to switch from electioneering to governing. Their first and most important task is to choose their priorities.
What problems and opportunities face the government? And what can it do about them? This article, the first in a series for The Conversation, draws on the Grattan Institute’s recently released Orange Book 2016 to identify priorities for policy reform.
Above all, the government needs to promote economic growth in a sluggish global economy, and bring the budget back under control. Government should put a priority on those reforms that will make the biggest difference to the economy, to peoples’ lives, and to the budget. Priorities also need to take account of political realities. Top of the list should be those measures that either don’t require parliamentary approval, or where there is some chance of support from either the Labor Party or the Greens, given that mustering a Senate majority from among the independent Senators will mostly prove impossible.
The new government faces some tough tasks
After nearly 25 years of uninterrupted economic growth the economy risks running out of steam. The end of the mining investment boom and falling commodity prices have pushed down per capita national incomes over the last five years. GDP growth is subdued, although there’s a good chance that Australia will complete a mining cycle without ending in recession, for the first time in its history, as Grattan Productivity Growth Program Director Jim Minifie argues today in his article on the economic outlook.
But the prospects for faster economic growth are dim. Economic growth has tended to be slower across the developed world since before the global financial crisis. Although opinions differ on the causes, many believe that growth will be slower for longer.
Irrespective of what it may have argued during the election campaign, the incoming government won’t be able to put off the task of budget repair for much longer. Commonwealth budgets haven’t come close to balancing for eight years. Interest on the accumulating debt now consumes 4% of government income, or as much as the Commonwealth spends on public hospitals. Younger generations will be taxed more to pay for today’s spending. Every $40 billion deficit, the norm for each of the last eight years, forces households aged 25 to 34 to pay an extra $10,000 in tax over their working lives.
Our large capital cities, transformed in recent years by economic success, have growing pains. House prices are very high relative to incomes. Home ownership is falling for all households aged under 55. Most new housing is far from the city centres where most new jobs are being created. More people spend longer in traffic getting to work. The physical divide between rich and poor is growing.
Our political system is not dealing well with these challenges
The incoming government must face the challenges of reviving our economy and fixing the budget against a backdrop of growing community anxiety towards globalisation and distrust of political leaders. About 26% of the electorate voted for minor parties in the House of Representatives, and about 34% in the Senate. Australia’s swing away from mainstream politics is a milder form of the UK vote for Brexit and the US Presidential bid of Donald Trump. Yet it shows that progress is not inevitable towards the more open economy and flexible markets that have increased prosperity over recent decades.
The pace of economic reform has already slowed in Australia. There have been fewer economy-wide reforms over the last two decades than in the 1980s and 1990s, perhaps because many have largely been completed, and because there was less impetus for reform while the mining boom buoyed the economy.
Authors: John Daley, Chief Executive Officer, Grattan Institute