Debate about the recent federal budget will no doubt focus on the merits of specific savings measures, and it is legitimate that the parliament debate those properly.
This has to be done through proper policy debate and process – not political point-scoring.
But what’s more important is that we don’t lose sight of the broader context for this budget and the consequences of inaction.
The budget has to be seen as a step towards Australia succeeding in its biggest challenges yet – surviving and thriving as a small part of a very large and competitive global economy, and dealing with the costs of an ageing and changing population. To do this, we will need to think differently about growth and what it takes to be competitive in a global market.
Put simply, this is about choices, and those choices will either strengthen our ability to take on our challenges or weaken our resilience.
Let’s get some facts on the table. By 2050, there will be fewer than three people working to every retiree, compared with about five people today. This will place huge pressure on our tax base, huge pressure on services, and huge pressure on our competitiveness.
If we look at our competitiveness, we are currently 21st on the World Economic Forum ranking, down six places in the past five years and the first time Australia has ever slipped out of the top 20.
Old debates about the rise of globalisation are over. Globalisation, in which technology and digitisation make almost everything tradeable, and where geographical location is less of a trade advantage, is well and truly here.
We can face the challenge head-on, or fail to tackle it and watch our living standards and our life choices not just stagnate, but slip backwards.
Last year, The Weekend Australian gave me the opportunity to write a series of articles about the Business Council of Australia’s Action Plan for Enduring Prosperity.
This year, I am going to draw on the next phase of that project, which will tease out what we mean by thinking differently about growth and competitiveness in a global market.
I will write about how we need a more global mindset in how we do business, how we work, and how we design public policy. We need to play to our strengths by unshackling the sectors where we have a comparative advantage in the world.
We have to build the capacity of our people to be equal to or better than the world’s best.
We must avoid putting roadblocks in the way of our traditional advantages in low-cost energy.
And we have to accept that to be stronger and more resilient in the future we will need well-managed population growth.
So if we look at the budget as simply a bookkeeping exercise, we can see that the budget measures have accounted for $36 billion against government expenditure of $1.7 trillion over the next four years – about 2 per cent.
We would do better to assess the budget against whether it makes a meaningful start to a 10-year strategy, underpinned by four integrated pillars:
- unprecedented fiscal discipline, including sorting out roles and responsibilities between the commonwealth and the states and territories
- driving economic growth, building on our comparative advantages, and lifting our productivity
- improving our tax system to shore up our revenue and encourage investment and growth
- good social policy that provides an effective safety net and improves workforce participation.
The budget took important steps to correct an unsustainable spending pattern, and restore fiscal discipline, but it also showed more than anything how hard major reform is.
The job of reform in government program delivery is not just about reducing spending, it’s about innovation in how services are delivered so that they are delivered more effectively and with better value, because if we don’t do things better, over time the savings will be eroded.
One of the lessons of the successful past reforms is the value in broad acknowledgment of the nature of the problem and the value of tackling the problem through a collaborative approach.
We need a different approach to tackling these issues because the approach we have taken so far relied on features of our economy that are no longer there:
- favourable demographics that increased both the number and share of people in the workforce
- in Australia’s case, a one-off increase in the terms of trade that drove investment in our resource sector to record levels
- the benefits of structural reforms made during the Hawke, Keating and Howard years.
Australians understand our challenges, and they also understand that they require our government to make choices.
Instead of debating whether there is a budget emergency, we should be focusing on the purposeful choices to ensure that we avoid an emergency further down the track. The difference between high and low growth – or for that matter no growth – is not trivial for Australia.
It is the difference between getting by, possibly with declining income, versus increasing national prosperity, closing the fiscal gap while maintaining quality services, and being able to afford the costs of an ageing population while maintaining living standards.
It is time for us to think differently to shore up our future. The government is right to call out to us that we cannot continue living beyond our means and that this will present greater risks to our prosperity if left unchecked.
If the parliament is not able to make the choices required for a stronger future, it must be willing and able to confront the Australian people about the long-term consequences of failing to act.