A Blueprint for Preserving Prosperity

The Australian Financial Review

By Michael Chaney
President
Business Council of Australia

A sustained commitment to reform is needed to keep living standards rising, writes Michael Chaney.

As we move closer to the federal election later this year, the temptation for political parties to lure voters with quick fixes and instant rewards will inevitably increase.

But in this election year, perhaps more so than others in the past decade, election policies must be focused on the longer term.

The opportunity for Australia to pass on our current levels of prosperity to future generations is significant. Equally, the risk is that we might squander these gains and fail to manage prosperity into the long term any more effectively than we did in the 1950s and ‘60s.

In the past three years a broad consensus has been built around the need for a new round of economic reform. In striving to demonstrate their economic management credentials, governments and their opposition counterparts around the country are in furious agreement that the reform journey must continue to make sure this period of growth is not a one-off.

Organisations like the Business Council of Australia have laid out carefully considered, deeply researched proposals for reform in key areas such as infrastructure renewal, workplace relations and federal–state relations reform.

Recent announcements about national water management, climate change and energy as well as support for fundamental change in federal–state relations point to a shift towards more strategic thinking among our political leaders.

This momentum parallels what the BCA believes is a growing desire in the community to hear more about a strategic vision for the country and how, as a nation, we can leverage our present prosperity well into the future.

Despite these favourable signs, the business community remains concerned that the push for reform might be sidetracked or even dislocated by the 2007 campaign.

We are also concerned large financial and policy commitments made for tactical reasons by political parties during the election year might constrain Australia’s ability to plan and invest strategically for sustained growth.

This is why, in its federal budget submission released this week, the BCA has announced its intention to outline a set of reform standards for the election. These standards, which we will detail in April, will be used to assess whether the key economic policies of each party will pass on prosperity or erode it.

Their intention is to frame election thinking around a single, basic objective – elevating the country’s living standards into the world’s top-five band by 2012.

Over the past decade and a half Australia has risen up the Organisation for Economic Co-operation and Development table in terms of living standards, measured by gross domestic product per capita, from 17th in 1991, to 7th now. But despite strong economic growth over the past few years labour productivity is well below that of other OECD countries.

Combined with the headwinds of an ageing population and the reality that the benefits of past economic reforms are starting to erode, the economy is now slowing to a pace that will make it difficult to sustain current levels of prosperity.

As one of its reform priorities for 2007, the BCA is calling on the federal government to lead fundamental reform of federal–state relations.

The current system, oriented more to finger-pointing and blame-shifting rather than concerted action, has little chance of effectively addressing the major economic challenges on the horizon, including infrastructure renewal and managing the impacts of an ageing population.

A second reform priority for this year involves concerted action to reverse Australia's declining business tax competitiveness.

In a world where economies are increasingly structuring their tax systems to attract more of the jobs and investment Australia is competing for, we urgently need a strategic plan for business tax that allows us to stay ahead of the competition, rather than constantly play catch-up.

Business tax revenues have been the fastest growing revenue stream for Canberra in recent years, providing $49 billion in revenue in 2005–06 and the ability of governments to fund personal tax cuts and a raft of other social spending initiatives.

Business has outlined its strategic vision for the nation, based on a clear and achievable objective.

This election year provides a great opportunity for politicians to detail their vision and how it can be achieved.