The Australian Financial Review
By Hugh Morgan
Business Council of Australia
A decade and a half of comprehensive economic reform has delivered strong growth and brought higher prosperity and wider opportunities to most Australians.
Whether we as a community lock in – or lose – this remarkable prosperity has been the guiding principle of the recent work of the Business Council of Australia on behalf of the chief executives of Australia’s leading 100 companies.
As the BCA has consistently argued, Australia’s future growth and prosperity cannot and must not be taken for granted.
Driving this message home is no easy task when we have enjoyed strong economic growth and low unemployment over the past decade, which has lulled us into the perception that high-level growth will continue of its own accord.
As long as the debate on economic reform – so crucial to our future prosperity – fails to move beyond the political or policy arenas, it will fail to resonate with individuals and to pierce the deep-seated community complacency about Australia’s future economic wellbeing.
This complacency is short-sighted. It overlooks the factors that have delivered the prosperity Australia has enjoyed, and the challenge of sustaining such prosperity in light of an ageing population and intense global competition.
Such complacency also overlooks the fact that Australia’s recent pattern of growth, strong housing and consumption growth underpinned by rising indebtedness has increased Australia’s economic vulnerability.
As a contribution to this essential debate, the BCA recently released a study called Locking in or Losing Prosperity: Australia’s Choice.
Its key message is that higher living standards and increased wealth do not come about by default, accident or luck. They require prudence, planning and hard work, as well as both leadership and a co-operative national effort.
Using modelling by Access Economics, the study outlines the impact of the past 20 years of reform on the livelihood and wealth of individual Australians. It also models the potential impact of an economic reform program over the next 20 years that builds on what has been achieved to date.
The numbers speak for themselves.
The average Australian is more than $83,000 better off in real wealth terms (in today’s dollars) as a direct result of the economic reforms of the past 20 years.
By 2004 there were an extra 315,000 people in jobs because of labour-market reforms and the unemployment rate was 5.8 per cent rather than 8.1 per cent.
At the same time, Australia shot up the Organisation for Economic Co-operation and Development league table of relative prosperity from 18th to eighth position.
If we can continue to build on this prosperity, the future looks just as remarkable.
Without further reform, official projections suggest that Australia’s economy is likely to grow by less than 2 per cent a year. But if we can achieve growth of 4 per cent a year for the next 20 years, the average Australian will be $74,000 better off (in today’s dollars) by 2025.
Under this scenario, our economy would be 40 per cent bigger than it would otherwise be, and Australia could be the third most prosperous nation in the developed world. Commonwealth revenues would increase by nearly 9 per cent of gross domestic product by 2025, generating an extra $80 billion.
This $80 billion equates to the money that the federal government is spending this year on the environment, the unemployed and sick, the Pharmaceutical Benefits Scheme, Medicare, defence, education, pensions and aged care.
It would be enough to meet the fiscal demands of an ageing population, or cut personal taxes by 30 per cent.
In the absence of such a strong growth path, the analysis demonstrates that Australia could slip down the OECD prosperity ladder to 18th exactly where we were before the reforms began in the 1980s. The early warning signs are already there, including a sharp deterioration in our productivity performance and a growing downward trend in our international competitiveness.
But a strong-growth future is achievable. As the analysis outlines, the policies the BCA believes are needed to sustain 4 per cent growth constitute a comprehensive, but by no means radical, agenda.
First, we need a quality debate involving politicians, policymakers, business and the community on where Australia is going. (Encouragingly, the Bracks state government in Victoria clearly understands this imperative as its reform blueprint released this weekend demonstrates.)
Then we must commit to a program of reform as soon as possible. The BCA believes such reform must encompass improvements to our workplace relations, taxation, infrastructure and business regulatory systems.
This is not reform for reform’s sake. Either we start to make changes now so that our economy continues to grow strongly and enjoy the benefits that brings, or we do nothing and let our hard-earned prosperity slip away.
There will be consequences either way. Let’s make sure they are the consequences we desire.