There are drums beating in the policy jungle that the first days of May might finally see Australia commit to necessary economic reforms.
Of course, it remains possible that a small target government might squib the hard stuff, but the longer it is delayed, the harder it will become, the more Australia’s potential will be unrealised, the more many Australians will suffer for it.
The first two weeks of May feature the confluence of the Reserve Bank’s pre-budget statement on monetary policy and the budget itself, a budget delivered under the shadows of two (at least theoretically) major reports.
This budget, unlike October’s interim “watch this space” effort, will set the tone for Jim Chalmers as Treasurer, establishing whether he is a manager or a leader, whether he has the ticker and skills to move Australia forward after the lost decade.
Step 1: PRRT
There’s already one piece of low-hanging reform fruit set to be plucked on May 9: Ending the Petroleum Resource Rent Tax (PRRT) rort that has cost, and is costing, the Commonwealth scores of billions of dollars.
It was there for the taking in October, five years after the Callaghan Review pointed its finger at the fiddle offshore gas producers were enjoying with a little internal transfer pricing, but a Treasury apparently still adjusting to a non-LNP government took its time in delivering the secateurs.
Treasurer Chalmers last week indicated the PRRT was ripe and the gas industry effectively confirmed it by bursting forth in the predictable media with claims that, no, really, it already paid plenty of tax and there was no need to pay any more – and please let’s not mention the fiddle about the point at which gas is priced because it’s too difficult to explain.
But like Mr Chalmers’ adjustment of one little bit of the superannuation system’s excessive generosity for the well-off, fixing the PRRT is only a tiny step on a long road of fixing rorts and inefficiencies large and small in the tax system, let alone any thoughts of actually reforming it to serve the nation better.
The softly-softly Albanese government might not be game to antagonise more than one self-interest group at a time – and the gas industry is a very soft target at present due to prices and profits.
When the going gets tough …
Labor’s history from the three previous elections is that it can be scared away from good policies quite easily.
(To state the obvious, the whole basis of the rich salary packaging industry is to exploit the ability of some – but only some – people to minimise their tax. That other people have to pick up the tab for such minimisation is of no concern.)
Beyond what might be easily grabbed for this budget’s bottom line though, Treasurer Chalmers is facing deadlines in his program of building a case for major reform – or “having a conversation”, as he keeps calling it.
Most immediately, around his neck is the albatross of the government’s commitment to the stage 3 tax cuts for the relatively well-off while the government simultaneously sticks with the Coalition’s 2022-23 budget decision not to renew the Low and Middle Income Tax Offset (the LMITO or “Lamington”) – effectively a tax increase for most workers of up to $1500.
Issues aplenty
How does a Labor Treasurer sell that double without promising something grander and more encompassing?
And suddenly we have Bill Shorten admitting there are major problems with where NDIS costs are heading and that just whacking the more egregious providers won’t fix it.
And there’s the supposed “Defence Strategic Review” the government has been sitting on for a couple of months, promising a Reader’s Digest version will be released any day now, or at least before the budget.
(It’s not really a strategic review, being a rushed effort with its major findings decided before it started. Its job is to rubber stamp the AUKUS spendathon after the event and make the case for a massive increase in spending on things that go bang.)
Are you seeing a pattern here? A “conversation” about big costs that will feed into the constant hanging over from Dr Chalmers’ October budget – the diverging paths (in a bad way) of expected spending and revenue if nothing changes.
Time to talk
Every galah in the economics pet shop has been on about that. We all know we need to stop kicking the can down the road no matter that real reform is hard and will upset just about everybody if it’s done well.
The next election is two years away – how long a conversation do we have to have for a very cautious Prime Minister to take difficult changes to an election?
How long is a piece of string?
How long can he rely on Peter Dutton being unelectable?
And then there is that other report that Jim Chalmers has, the one on the Reserve Bank.
It is a most curious thing, sparked primarily by the odd disgruntled former employee and a bunch of academic economists with no track record of responsibility or particular crystal ball mastery but united in the idea that, in retrospect, they could have done it better.
Unsurprisingly, the economists reckon people very much like themselves should be having the final say on monetary policy, rather than the present bank board.
The RBA has made mistakes. Any institution trying to divine the future will. All central banks have. Indeed, what will be missing from the report is evidence that any other system has reliably provided better outcomes than the RBA.
Nonetheless, there will be changes, hopefully for the better.
But that’s not the potentially interesting bit.
The real insights
The terms of the inquiry were sufficiently wide for radical change, just not at the RBA itself.
Monetary policy – setting interest rates – is a terribly narrow, blunt and primitive tool when it operates on its own to set the speed of the economy.
Fiscal policy – what and how the government spends and raises – can do much more and, at least theoretically, do it with more finesse and less collateral damage.
As Ross Gittins has explained, that’s where the inquiry could make a real contribution to policy by placing more of the responsibility back on government, rather than leaving it for all the pollies and galahs to blame the RBA governor of the day.
That’s the potential of this report, delivered to a Treasurer who wants to have a big conversation as he juggles all the above and more on the election timetable highwire.
As old Bill wrote:
There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
But he also warned:
Rough winds do shake the darling buds of May.
