The shape of the next Labor government is becoming clearer.
This week we learnt that it will end the practice of signing Australia up to trade agreements that haven’t survived a benefit-cost analysis.
Seriously. Korea, Japan, China. None of the three big agreements boasted about by Tony Abbott and Malcolm Turnbull has been subjected to an independent assessment of its benefits and costs. And nor has the far bigger, 5600-page, Trans-Pacific Partnership agreement signed by trade minister Andrew Robb shortly before he resigned and took up a position with the Chinese investor that runs the Port of Darwin.
Nor have any of Australia’s agreements ever had to face official scrutiny after the event. “Not that I am aware of,” were the words used by a foreign affairs official at a parliamentary hearing.
The US-Australia free trade agreement at least faced an unofficial analysis about the time of its 10th birthday in 2015. An economic modeller from the Australian National University applied the framework developed by the Productivity Commission and found it had cut rather than boosted trade between Australia and the US and the rest of world. Trade between Australia and the US also slid, but for other reasons.
It’s easy to see why the deal cut trade with the rest of the world. Like most exclusive agreements it gave special access to exports from its members. Here’s how it would have worked with the 12-nation Trans-Pacific Partnership (had Donald Trump not pulled the pin): Vietnam would have been a member but Thailand would not have been. The US-based Peterson Institute for International Economics has found that Vietnam would have exported more to Australia (which would have boosted its economy) in place of Thailand, which would have exported less (which would have harmed its economy).
And Australia would have had to change the way it made things, cutting inputs from countries such as Thailand and Indonesia under complex “rules of origin” if it wanted special access to the US, even where that meant much higher costs. The Korea-Australia agreement included 5200 rules of origin.
It’s little wonder that the business organisation closest to the action, the Australian Chamber of Commerce and Industry, finds its members less than keen to use the agreements trumpeted by the Coalition. Only 15 per cent use and understand the Australia-US Free Trade Agreement, 5 per cent use it without understanding it, 17 per cent understand but don’t use it, and 22 per cent neither understand nor use it. Another 41 per cent say it’s not relevant to them.
The chamber hosted Labor’s policy launch on Monday because it has long argued that a body such as the Productivity Commission should run the ruler over future agreements and should review existing ones every 10 years, both of which Labor would do.
Labor would also tear up what has come to be seen as a cosy relationship between the government and Treasury forecasters, handing responsibility for official forecasts to the independent Parliamentary Budget Office. It would make “convenient” forecasts such as the pick-up in wage growth in this year’s budget less suspicious. The Treasury would also lose responsibility for preparing the five-yearly Intergenerational Report, a document so debased by politics in its latest iteration that Treasury staff distance themselves from it when giving public presentations.
And it would make explicit the trade-off between cutting personal income tax and cutting company tax, in part by publishing 10-yearly projections for the cost of budget measures and in part by not proceeding with the unlegislated part of the company tax cut in order to deliver relief to ordinary taxpayers first.
It has consulted widely about its plans, receiving detailed input from 20 economists.
Negative gearing would be limited to new homes, and the capital gains tax discount that makes it attractive would be halved. Payouts from discretionary trusts would be taxed at the company tax rate. Deductions for the “cost of managing tax affairs” would be limited to $3000. “Junk” health insurance policies would no longer be eligible for the rebate, and the rebate along with the Medicare levy surcharge would be frozen for five years.
Labor is inclined to accept the Coalition’s proposed national energy guarantee, ending the climate policy wars by keeping the framework (subject to seeing it) and adjusting the emissions target as needed.
Although critical of the Turnbull government’s cut-price national broadband network, Labor won’t fully return to its original very expensive plan to deliver fibre to 93 per cent of households and businesses. It would aim for a touch under 40 per cent, a step up from the Coalition’s 20 per cent but nowhere near as expensive as would be rewiring most urban addresses in the nation.
It would keep offshore asylum seeker processing, but it would aim to process claims within 90 days instead of indefinitely and would set up an independent body to oversee Australian-funded detention centres.
The policies are not all to everyone’s liking, but at least they are set down on paper. Unless things change, this time next year we will be faced with a choice between a government that makes things up as it goes along and a government in waiting that knows what it wants to do.
Peter Martin is economics editor of The Age.
This article first appeared in the Sydney Morning Herald on 2 November 2017