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Rudd on Economy

We are in the midst of an election campaign where much concern is justifiably being expressed about the paucity of serious policy announcements by either major party - not to mention the paucity of most of those that have been announced. Perhaps the most important serious announcement has been by Abbott – if elected the Coalition will not increase the burden of taxation (that is, the proportion of tax to GDP) – but this has hardly been discussed.

Nor has much attention been given to the excellent Stan Kelly lecture given on 15 August by the former head of the Productivity Commission, Gary Banks. The occurrence of that during the election campaign is entirely coincidental. Even so it deserves much more attention because it identifies the need for major policy changes, both economic and political, to reverse the trend in recent years for government policies to become much more accommodative to special interest groups. Protective arrangements of various kinds now extend to a wide range of industries and these arrangements are reducing productivity and economic welfare generally. Just as importantly, it identifies a major problem with the political process now prevailing in Australia.

Banks first outlines some of the sources pressing for the  reduction in such policies from the 1960s and accords much deserved credit to former MP Bert Kelly (the son of Stan) for the almost lone role he played in the political system for many years in pointing out the economic damage being done by the high tariffs then imposed. My sole regret is that the important role played by the Treasury was overlooked, probably because Banks was unaware of it and the intense ongoing debate within the public service. When I joined in 1958 Treasury had another “Bert” (Bert Woodrow) who played a similar role to Bert Kelly but in combating the pressure from the department of Trade in support of “Black Jack” McEwen. Treasury’s Bert played an important role in the success of Treasury in securing Ministerial approval for a major reduction in quantitative restrictions on imports in 1959. That reduction, in turn, helped turn the intellectual debate against tariffs.

In his lecture Banks runs through policy problems that remain today or have developed anew:

In addition to the foregoing listing of examples of the return towards a rent-seeking society, Banks considers the interest groups and media outlets, and the regressive changes in the political process, that have contributed to the changes in the recent political environment. He concludes that “the re-emergence of a rent-seeking society poses a bigger threat to the future living standards of Australia than the ageing of our population or the vicissitudes of world markets”.

In effect, Banks is saying that there need to be major changes in both economic and political arrangements. He is optimistic that the threat can be overcome if only because in the 1980s and 1990s we overcame the previous threat. Let us hope he is right.

Des Moore

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