By Katie Lahey
Business Council of Australia
Interest rates may bite, but long-term prosperity should be the key goal, writes Katie Lahey.
The latest move by the Reserve Bank will cause many people to focus on their short-term economic circumstances, such as how their mortgage might be affected next month.
But the interest rates rise should perhaps also be a timely reminder to cast ahead to the longer term and consider the challenges Australia faces if we are to sustain strong economic growth in the years ahead.
Australia is now operating at close to full capacity and, against the backdrop of a remarkably strong global environment, it is not surprising that inflation concerns have emerged.
For the Business Council of Australia, the questions raised by these developments are not so much about the appropriateness of this or future decisions by the RBA, but rather how we can ensure the economy is positioned over the long run to remain competitive and to sustain strong economic growth and prosperity.
There is little doubt that our prosperity owes much to the reforms put in place by successive governments over the past two decades. However, the benefits of these reforms are beginning to wane. A new reform agenda, tackling issues like regulation, taxation and infrastructure, is now needed to underpin a similar run of strong unbroken growth and low inflation into the future.
Such an agenda will only be successful if it is supported and implemented by the Commonwealth and state governments together. Australia can no longer afford the duplication and inefficiencies that flow from inconsistent and poorly co-ordinated policies across different levels of government.
The good news is that there does seem to be a strong spirit of co-operation across governments at present. We have seen more activity through the Council of Australian Governments in the past 12 months than we have in many, many years. This is welcome, but the reality is that election cycles afford a relatively short window of opportunity in which to deliver results.
The BCA believes that political leaders must make the most of the environment by developing policy structures and frameworks - like a strong and independent COAG Reform Council – that will lock in better co-ordination, and continue to drive the reform process.
Research undertaken for the BCA shows that a new reform agenda would deliver significant benefits – a larger economy, increases in real wealth for Australians, and higher tax revenues. The question is whether governments are prepared to hold themselves to account for delivering such outcomes, or not.
Perhaps yesterday's RBA decision, which was beyond the control of governments, might cause governments to reflect on the longer term legacy they can actually have a profound impact on – that is the economic growth and wellbeing of Australia.