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Nation’s economic success little more than ‘good luck’

AUSTRALIAN BUSINESS REVIEW   October 7, 2018   David Uren

Business Council of Australia Chief Executive Jennifer Westacott. Picture: Kym Smith

Australia’s economic growth is driven more by “good luck” than good management and is vulnerable to an increasingly polarised political leadership that has failed to deliver genuine reform, according to the nation’s top business leaders and economic analysts.

Business Council of Australia chief executive Jennifer Westacott told The Australian a more ambitious commitment to economic reform was required from both sides of politics, and cited the failure of company tax and energy reform as evidence politics had become too ideological.

“Our GDP growth is being driven by population growth, by consumption and by government spending,” she said. “It is not being driven by the one thing we can control, which is productivity, but is being driven by luck. You can’t bank luck. Our GDP growth is masking a series of weaknesses.

“People think the good GDP numbers are a recipe for not having to do more to drive the economy harder and in particular to drive productivity harder.”

Canvassing concerns she will discuss at this week’s Melbourne Institute/The Australian Economic and Social Outlook Conference, Ms Westacott said there were many risks facing the economy, from the elevated level of household debt to the trade conflict between China — Australia’s biggest market — and the US. She also sounded the alarm on the sluggish rate of productivity growth, which has dropped to levels not seen since the 1970s.

Australian Chamber of Commerce and Industry chief executive James Pearson backed the critique, warning that the political system had failed to deliver in the areas of skills and workplace relations, as well as tax and energy reform. He said members were telling him that if they were succeeding, it was “almost in spite of the government — not because of it”.

There was concern that Labor, if elected, could be “influenced by what is the most radical agenda of big unions that we have seen in decades” and he warned that unions were “encouraging conflict and a culture of complaint”.

“What we are seeing at the national level is that on the one hand there is this partisanship, which means that compromise has become something of a dirty word and you are either seen as being for someone or against them, with little ground in the middle,” he said.

“It’s a combination of ideology, a preparedness to be loose with the truth and also, quite frankly, a focus on the short term by some politicians on what is popular rather than on what are the tougher policy decisions that should be made for the long-term good of the country.”

Deloitte Access Economics partner Chris Richardson warned living standards had not advanced significantly since late 2011 and that the easy gains from slipstreaming the Chinese boom had dried up.

He said the political system had struggled to deliver reforms that would make a difference, saying that cutting the company tax rate would have delivered tangible gains. “We’ve spent the last couple of years slamming our heads against a brick wall on that, so any politician who wants to fight a good reform fight in Australia over the next few years is going to think twice. Corporate tax is a dead duck for at least a couple of parliaments.”

Ms Westacott said Australia’s competitiveness was declining, partly as a result of an excessively high company tax rate, which, together with excessive regulation, was discouraging investment.

“If we are so reliant on external factors for our growth, what is the policy and fiscal ammunition we could bring to bear when we need it?” she said. “We do not have the same easy circumstances we had when the global financial crisis hit.”

Ms Westacott said she could understand why some would consider it naive to call for an ambitious reform agenda ahead of a difficult federal election, but believed political parties were making a mistake in ruling out reforms.

“We have a tendency to take more things off the agenda than we’re willing to leave on,” she said pointing to issues such as corporate tax and industrial relations reform.

She said she was disheartened by the failure of the national energy guarantee and said that unlike other policy failures, it had been developed with good processes. She attributed its failure, like that of company tax reform, to pure ideology. “It suddenly became a totem for the people who didn’t want Malcolm Turnbull to be the prime minister,” she said.

Similarly with company tax, most of the Business Council’s arguments in favour of lowering company tax had previously been articulated by Labor leaders. “It was abandoned when ideology came into play.” She said while it was hard in the current political environment to pursue a comprehensive reform program, there was scope for incremental gains.

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