COAG’s Choice: Foresight or Failure

The Australian Financial Review

By Katie Lahey
Chief Executive, Business Council of Australia

Consider this scenario for Australia in 2015. Economic growth has not exceeded 2 per cent in more than five years. Unemployment is stuck above 8 per cent. Tax revenue from a sluggish economy can’t keep pace with demand for more aged-care and health services as baby boomers retire in record numbers.

Governments fund the difference with burgeoning debt, which helps to keep interest rates nudging double digits. Australia looks back to its golden economic age a decade ago, now a distant memory, and asks what went wrong.

Someone in 2015, contemplating Australia’s fall from grace, might pinpoint February 10, 2006, as the beginning of the end of a golden age.

The annual meeting of the Council of Australian Governments (COAG) held on that day was full of promise. The federal, state and territory leaders had committed to achieving a renewal of national economic reform. But when the crunch came, it was just too hard to make concrete agreements and timetables, particularly in addressing Australia’s red-tape blow-out and renewing vital infrastructure.

The 2006 meeting broke up with a fine-sounding, high-level communiqué that didn’t commit anyone to anything much.

It’s a scenario that business hopes remains a fiction. So many of the issues that loom as barriers to long-term growth, which need to be addressed now, can only be fixed through political and policy agreement at a national level.

The volume of red tape, for example, has been increasing at 10 per cent a year – three times the rate of economic growth. In 2003, commonwealth and state governments collectively added 33,000 pages of new laws and regulations.

Much of the resulting cost and compliance drain on business and the economy stems from too little co-ordination and accountability between governments. That’s why COAG this week needs to agree on a national program of red tape reform to address the costly morass of duplicated regulations, rules and compliance regimes.

Fixing Australia’s infrastructure bottlenecks requires a similar national approach.

The Business Council of Australia has highlighted a lack of proper planning and co-ordination within and between federal, state and local governments, rather than a shortage of funding, as the main source of the problem. Through improved policy and planning co-ordination, and the removal of impediments to investment in important infrastructure areas, Australia’s economy could benefit by about $16 billion a year.

The BCA has called for a state-of-the-nation infrastructure audit to be conducted every two years by the Productivity Commission. This would provide a baseline of information for effective planning for infrastructure needs and inject more accountability into federal and state decision-making and funding.

In its Benchmarking Reform Action and Budget Submission, released last week, the BCA outlined why this week’s COAG meeting is the litmus test for reform action in 2006.

Broad consensus is growing on the need for major reform in areas such as red tape, tax and infrastructure, and economic conditions mean we are well placed to invest strategically in future growth.

More significantly, with a number of elections on the horizon, there’s only a limited political window of opportunity to commit to a broad-based program of reform.

If little progress is made in 2006 – and particularly at COAG this week – it will be several years before the political opportunity for major reform arises again.

Failing to address the structural imbalances and underlying barriers to growth now will make the inevitable reforms more difficult and less palatable.
Consider an alternative future for Australia in 2015. Growth rates of about 4 per cent are the norm, our living standards are now among the top five in the world, and our health and social services remain well-funded, despite the demands of an ageing population.

And who had the foresight to start the process of clearing away the barriers to long-term growth?

In the future commentators would do worse than pinpoint the meeting of COAG on February 10, 2006, as the day when Australia’s political leaders decided to lock in prosperity.