Canberra's delusion machine will grind to a halt

Canberra has become little more than a creator of delusions in recent years, but the day is fast approaching that the economic havoc flowing from those delusions will cut through anything a politician, union leader or journalist can say. Economic pain speaks louder than words.

I will again go back to some of the recommendations put out by the Business Council of Australia before the last election for a glimmer of sanity and sound economic thinking. In its policy document Action plan for enduring policy, the BCA listed the reforms Australia needs, with appropriate emphasis to the things that will actually help the economy – rather than at the ballot box – which is all we’re getting out of Canberra.

Item one on the BCA’s nine-point plan reads: “Australia’s fiscal policy settings and long-term budget discipline must be strengthened, we have to adopt a more competitive and sustainable tax system and provide for a fairer sharing of money between the Commonwealth and the states.”

Labor borrowed heavily through the GFC period to stimulate the economy and keep doors of businesses, big and small, open. Obviously that was a highly contentious policy, but the BCA’s statement does not imply “therefore, an incoming Coalition government must slash its way to a budget surplus”, which is one of the delusions coming out of Canberra.

Labor, remember, started out with grand plans to fix the tax side of the equation, and comprehensively failed to do so.

A sustainable tax system is one in which every Australian individual and company pays its fair share. Whacking big business with an extra 1.5 per cent tax to fund paid parental leave, as the Abbott government is doing, is simply illogical.

It is also illogical to allow individuals a year or two out from retirement to be able to launder $30,000 a year through their super account at a tax rate of 15 per cent, thereby avoiding tens of thousands of dollars of income tax payments. Super was (and is) set up to create long-term savings and investment, not short-term undermining of the progressive tax system. Super tax concessions will soon be worth more than the defense budget.

There are many other holes in the revenue side of fiscal policy, particularly tax breaks on negatively geared residential property investments. But the point is Canberra –and its too-tame media scrum –pump out the delusion that all the reforms must be on the spending side.

So should we cut back the ambitious NDIS reforms that would otherwise transform lives and increase workforce participation so we can retain tax breaks for well-off Australians? The time for that kind of thinking is passing. It was only sustainable while the sun was shining.

Point four on the BCA wishlist reads: “We must equip all Australians with the right skills and education and boost labour-force participation so that we have more productive and innovative workplaces and a better workplace relations system that strengthens the relationship between employer and employee.”

Putting education funding aside for a minute (too giant a topic to deal with in passing), the key points in that paragraph are productivity, innovation and relations between employer and employee.

The delusions being spread around these issues are manifold.

Productivity in most businesses is not being undermined by wage blow-outs. In economic theory, wage bills are of decreasing importance as a factor in complex economic activity (alongside factors such as capital costs, materials costs, business services costs and energy). Multi-factor productivity is being hampered by underinvestment in technology, plant and equipment, and even in innovative marketing. We are not keeping up with our Asian neighbours on innovative management and ideas on the factory floor, in the paddock, or on marketing our export products to the emerging middle classes of Asia.

While whole industries go backwards, we blame workers at SPC Ardmona who labour for far less than the average national wage.

It is delusional. It is unsustainable. It has to stop.

The narratives that worked through the Rudd and Gillard governments were flawed and largely irrelevant.

No, the carbon tax did not shut down Alcoa, which had 94.5 per cent of its permits given to it at no charge.

No, the MRRT that big miners helped design has not impacted investment or profits in the resources sector to any significant degree.

No, we are not seeing wages blow out. In fact, at 2.6 per cent in the past year, they are under the rate of inflation at 2.7 per cent.

No, WorkChoices is not coming back. The only attack on 'your rights at work', as Labor would have it, is in newspapers who too willingly reproduce propaganda about wage blow-outs, and the hopeless knee-jerk reaction of opposition leader Bill Shorten to protect union power at all costs.

Conversely, in the spirit of the BCA's policy vision:

Yes, we need to fix the revenue side of the budget just as much as address spending.

Yes, we need what AWU boss Paul Howes has called a ”grand compact” between workers and employers to keep wages and conditions contained while real innovation and investment boosts output. (Howes has reason to crow about the deal he has just brokered with Rio Tinto’s Bell Bay workers.)

Yes, we need to attract foreign and local capital into growth sectors such as agriculture, tourism and education exports – and out of the non-productive debt frenzy going on in the residential property market.

Yes, we need to spend a motza, much of it via the federal government balance sheet, to patch up and then improve our creaking infrastructure.

But with a WA Senate election re-run and several state elections in the pipeline, we’re still stuck on ‘the carbon tax wrecks everything’, ‘the mining tax wrecks everything’, ‘workers are ripping Australia off’ and ‘we’re being invaded by people in fishing boats’.

The national delusions were a luxury of richer times. As the economic downturn bites, it’s time to tell the real story.