Keep the Pressure on, Prosperity Is up for Grabs

The Australian Financial Review


By Katie Lahey
Chief Executive
Business Council of Australia

There’s no shortage of voices in the reform chorus that has been in full cry for the past 12 months. For its part, the Business Council of Australia has been calling for major change in four key areas of the economy – lower tax, infrastructure renewal, cutting red tape and workplace relations reform – as the basis for sustained long-term growth.

Whereas 2005 has been about growing consensus on what needs to happen to lock in prosperity, a new imperative for reform is emerging for 2006: an overarching framework to guide these proposals from rhetoric into action.

BCA research shows that with a program of serious economic reform, Australia can sustain growth rates of 4 per cent a year for the next 20 years.
As a result, the average Australian will be $74,000 better off (in today’s dollars) by 2025, the economy would be 40 per cent bigger than it would otherwise be and our living standards would be elevated to the third-highest in the world.

For their part, federal and state governments agreed in July to use the Council of Australian Governments (COAG) to drive reform in important areas such as skills, infrastructure and regulation reform. The BCA and other policy commentators support this initiative. It is recognition at the highest political levels that the benefits of past reform are running dry and that a new round of co-ordinated reform is needed to refresh our economy against new competition and challenges.

Yet for all the goodwill in the world, consensus at forums such as the June COAG conference can quickly fall victim to parochial and political interests without a set of arrangements that both encourages progress and sanctions backsliding.

The 1980s and ‘90s, when much of the economic reform that positioned Australia for the strong growth experienced over the past decade occurred, provide lessons and models for what should be possible.

In particular, National Competition Policy (NCP) played a fundamental role in creating the incentives for sustained productivity and economic growth.

As a framework for action, it succeeded in driving reform because it was developed around clearly stated policy goals agreed to by federal and state governments. Importantly, it was backed by a transparent institutional framework, clear timetables and incentive payments that bound governments together in the mutual pursuit of long-lasting economic reform.

The BCA has called recently for NCP to be reinvigorated and expanded to help Australia boost productivity and lock in economic growth and prosperity.

This is because in each of the four reform areas focused on by the BCA, a potential impediment is the lack of clear and robust lines of accountability and transparency across federal–state jurisdictions to drive lasting reform.

This potential shortfall in intergovernmental co-operation on important reform issues has the potential to cost Australia dearly. Serious reform can occur only if governments avoid the sorts of turf battles, such as the present dispute over a national industrial relations system and the recent wavering of support among states for a national energy regulator, that put political interest ahead of national interest.

A modified NCP model will help reform rise above these issues and tackle a wider range of impediments to productivity.

This new agenda should encompass the unfinished elements of the current National Competition Policy program, while extending competition to areas now outside the scope of NCP such as health, education and water.

All this requires a strong consensus on the need for further reform, and agreement on a co-ordinated, co-operative process for identifying and delivering reforms, backed by binding commitments.

The June COAG meeting agreed on the first. It will be of more than great interest to the BCA and others to see if COAG can go beyond the rhetoric when it meets again early next year. COAG will need to take responsibility for establishing a framework than can achieve reform, one capable of reaching high-level agreements quickly.

NCP provides proof of how much Australia can achieve with a common purpose. We must do it again or else risk consigning 2006 as the year we let prosperity slip through our fingers.