Don’t scare the horses: Morrison’s business-friendly reforms change little

Dec 29, 2020

While the Prime Minister has acknowledged Australia needs to reconsider its policy framework to restore full employment, the areas identified for reform are poorly chosen, and little of substance is likely to emerge. An alternative will be discussed tomorrow.

It is a truism that Australia has done better than most countries in responding to the Covid pandemic – from a public health perspective and economically.

But as we enter a new year the key question for the Government is: where do we go from here?

Back in April, the PM told us the road out couldn’t be business as usual. ‘The policy frameworks we had prior to the election will need to be reconsidered on the other side to ensure we can achieve the growth that will be necessary to get people back into work.’ According to the PM, the economic advice was that we could not just try to grow the economy under the old [policy] settings.

So what has the Government done to set up sounder fundamentals to grow the economy and employment? What policy frameworks have been changed, and how effective will they be?

In his May Press Club speech, Morrison said the agenda of his JobMaker Plan must focus on enabling businesses to grow faster. He then listed possible reforms covering the provision of skilled labour, affordable and reliable energy, research and access to technology, investment capital and finance, market access, economic infrastructure, the amount of government regulation, the amount and efficiency of taxation of business, and last, but never last, that hardy perennial – industrial relations.

https://johnmenadue.com/employer-incentives-do-not-lead-to-an-increase-in-skilled-employment/

In brief, six months later, this is my report card on the Morrison Government’s reform efforts:

Skilled labour: Morrison proposed better information to guide student choices, simplifying the training system and the number of separate qualifications, and more rational training fees and subsidies. Most importantly Morrison recognised that VET had been underfunded with per capita funding falling by 25 per cent over the past decade in real terms.

However, the Budget provided no increase in VET funding, and the two most important reforms that VET needs were omitted – (i) to reduce the highly job-specific nature of the present training in favour of more generic training so trainees can readily adapt to new technologies and the jobs of the future; and (ii) to embrace further workforce development to improve the use of skills on the job.

Affordable and reliable energy: Morrison has committed to a ‘gas-fired’ recovery, which is of course nonsense – new investment in gas risks stranded assets, as renewable energy, in combination with batteries to provide reliability, takes over. No wonder no private company wants to build a gas-fired power plant.

The Morrison Government, like its Coalition predecessors, simply does not have viable policies for tackling climate change and investing in renewable energy.

Research and access to technology: Nothing to report, sadly, as nothing much has happened. Not only does Australia punch below its weight when it comes to research and development, it has a long track record of failing to commercialise the results of the research that is done here in Australia. But again nothing is on offer to rectify this.

 

Access to investment capital and finance: It is not clear that access to investment capital is actually the problem. Nevertheless, the Government wants to relax the controls covering the banks’ assessment of their clients’ credit worthiness in the expectation that this will increase the flow of new funds. Such relaxation flies in the face of the Hayne Royal Commission into Misconduct in financial services. Why proceed down this counter-productive path?

 

Market access: Unfortunately, rather than gaining access to more overseas markets, Australia has lost significant access to out biggest market by far – China. And the government’s handling of the tension has not helped.

 

Economic infrastructure: The budget announced a further $10 billion to the government’s infrastructure pipeline, taking it to $110 billion over the next decade. The total infrastructure spend on transport and communications over the four years of the forward estimates is shown as averaging $14.4 billion per year; almost double the $7.3 billion spent by the government in 2019-20.

The government doesn’t seem to appreciate that:

  • The infrastructure construction industry has been booming, with government real expenditure increasing at an average annual rate of 8.5 per cent over the past four years. Earlier this year COAG ministers expressed concern about cost over-runs caused by excess demand.
  • Most of the money is to be spent on mega infrastructure projects costing $5 billion or more, but these projects employ relatively few people and those who are employed are mostly males with specialised skills. Women and young people, who have been disproportionately hit by this recession, are not going to get jobs on these projects.
  • The vast majority of these projects do not have business cases when the governments commit funding. There are no business cases because most of the projects do not represent value for money. Politics dominates.

 

 

Government regulation: There is no case for further deregulation of bank lending (see above). Other areas on the list include skills and industrial relations, discussed elsewhere in this article, and the environment.

 

The Government proposes to simplify and reduce the time taken for projects to achieve environmental approval by handing the responsibility to the States. While this could work, the history of much environmental regulation has been inadequate enforcement, especially in the case of land clearing and water. Reassurance regarding enforcement will be a key if this change is to have long-lasting benefit.

Business tax: an investment allowance has been introduced – also referred to as an instant assess write-off scheme to buy capital equipment, a policy originally proposed by Labor. While it makes sense in the present circumstances, it only brings forward investment that can be justified over the lifetime of the relevant assets, so it does little to increase total investment over a longer period. A recent survey by MYOB also noted that more than half the nation’s business do not plan to use the scheme because they are still too worried about the economic future.

More generally, the case for cutting business tax is not strong. Taxes pay for services that are demanded (including by business), and if not financed by business taxation then someone else must pay.

Industrial relations: Business lobbyists and the ideologues in the government most favour industrial relations reform, along with tax cuts. It is also the one area where significant changes have been announced.

Much has been written about these proposed reforms, but briefly the changes to the definition of casual labour, award simplification, enterprise bargaining, and “greenfields” agreements are all intended to increase the flexibility for employers, but at a cost to employees and their bargaining power.

https://johnmenadue.com/coalition-war-on-casual-workers/

Apart from concerns about the fairness of these changes, they will arguably not strengthen the economy. The Productivity Commission found in 2015 that ‘Australia’s labour market performance and flexibility is relatively good by global standards’.

I agree with Professor Jeff Borland that further ‘IR reform is not the answer to our problems’. Instead, low wage growth is the most critical problem for the economy, and the Government’s proposed IR changes risk adding to that problem.

 

Conclusion

In sum, the Government’s reform effort has been a failure. Indeed, that is an understatement – it is almost a complete failure.

The Government’s avowedly business-friendly agenda is poorly chosen. Furthermore, little has happened on those items that could have helped promote sustained economic and employment growth.

But Morrison’s reform agenda mainly reflects his pragmatism. It focuses on resolving specific problems rather than embracing significant system change. It also represents what will appeal to the Coalition’s traditional supporters in business, without actually changing anything too much, which might otherwise upset the support he is seeking from voters whose natural inclination is to resist change.

An alternative reform agenda is needed to tackle the stagnation of the economy under various Coalition governments over several years.

That agenda will be addressed in my article tomorrow.

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