Glimpses of a micro reform program

Although the popular choice in the 2007 elections was an apparently idea-lead leader, data-driven electoral management means we can expect no new government to have an ‘overarching narrative’ from the outset. Parties that make the fewest ‘mistakes’ and least offend entrenched opinions in a finely-balanced electorate win the laurel. Winners offer nothing that resembles a considered idea and only iconic pledges—like the abolition of Workchoices or “Saying Sorry”, or “A computer for every high-schooler”—in place of real programs.

The trivialization of electoralplatforms doesn’t mean, however, that government can be trivial especially when it comes to choosing how the Australian economy should develop. After decades of neglect, collective decisions seem sorely needed in transport, water and telecommunications to improve national infrastructure.

Yet somehow those decisions have got to be rescued from the messy, over-committee’d, state-government-log-rolling COAG bureaucracy. They must be made in the public eye and not secreted away by would-be mandarins like Senator Kim Carr who goes out of his way to cuddle up to industries like motor vehicles who have been a long-standing drain on public resources (currently more than $1 billion each year in tax subsidies and tariffs).

While we wait for Senator Carr to release the Bracks Report on more billion-dollar-bribes to the global motor vehicle industry, there have been two publications this week that point to some more rational approaches to micro-reform

The first is a clear-eyed review of the importance of resuming the micro reform agenda and of making transparent decisions about what to spend and where by Dr Gary Banks, the Chairman of the Productivity Commission. Over the years Gary Banks has made several dozen formal speeches on Australia’s regulatory agenda, on factors affecting the structure of our economy (the aging of the population, the regulatory burden on business, the cost of health services) and of our society (the aging of the population, again; gambling revenue and gambling addiction; equality of opportunity for aborigines, access to affordable housing). Most of these speeches deal with difficult or sensitive policy environments where the Productivity Commission has been given a mandate for review by government. Invariably, they are good-humoured, insightful and easy to read. Also, since his agency is tasked with standing back to review the way we make some important economic decisions, Gary Banks’ speeches often put the challenges of regulation in an historical perspective.

His Colin Clark Memorial Lecture at the University of Queensland this week, entitled “Industry Policy for a Productive Australia”, is possibly a little more combative than usual, dealing with the issues that are now at the top of the agenda for industry policy. The Australian newspaper reported it as likely to ‘anger’ government. If so, the anger would be misplaced because Banks has posed the questions that every Australian business and household has to ask about micro-policy. What guarantee is there that the billions we spend on assistance to any industry (or ‘innovation’) will benefit the whole economy and not just the Minister’s mates? This is far from an academic question, since Senator Carr is soon to tell us what he plans to spend and how on a vision of ‘innovation’ that more than likely (to judge from his own hints) will come from the beneficiaries of the subsidies. The recent record of politicians in handing out money to Toyota in a secretive way without even a request much less a need, gives every reason to be pessimistic.

The second report this week concerning the management of an emerging micro-reform agenda is “The Architecture of Australia’s Tax and Transfer System“, published by the Treasury as a contribution to a promised review of our complex system of direct and indirect taxes and the social and sector transfers they fund.

This review could be a major contributor to the emerging ‘narrative’. It is antecedent to the Productivity Commission’s concern with the distribution of assistance because tax reforms potentially alter the size of revenues returned as subsidies to indsutry (or tax subsidies when taxes are foregone). But many of the same questions of the efficiency of the tax transfer system and the benefits for the economy-as-a-whole of the transfers effected arise at this ‘higher’ level enquiry, too. Of course, the assistance to industry from the customs tariff is due not to the tax transfer (which benefits government) but to the imposition of higher prices on consumers. The Productivity Commission estimates the net benefits at about $1.4 billion but it costs consumers more than $9 billion (in unnecessarily high prices) to deliver that benefit (see page 282 of the Treasury Report).

In the micro-regulation of our economy—by definition the regulations that affect the distribution and re-distribution of resources in the hands of individuals—it’s OK for the government’s narrative to emerge. But it is essential that the government gathers evidence and makes plans in a careful and, above all, transparent way and bases it’s decisions on detailed evidence that it lays before us. Because in micro-reform they’re playing with our stakes.

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