Abbott's economic policies fail to make the grade

The Abbott government's agenda is ideologically driven and contains no hint of a bigger vision for the economy.

One year on, where does the Abbott government stand? We were led to believe it would be a government of no surprises, and yet it’s hard to remember a more surprising and less predictable new government. 

Some commentators prefer to focus on the lies and broken promises but I’m more interested in whether their policies and reforms reflect sound evidence and ideas. Are we heading in the right direction? And are Abbott’s policies meeting our economic needs?

Critics of the Coalition will immediately point to rising unemployment. It’s true that the unemployment rate is at its highest level in 12 years, but it’d be a stretch to lay the blame at the feet of the Coalition.

It would be the equivalent of blaming the Rudd government for the budget blowout in 2008-09. In reality, governments inherit a set of economic conditions; Rudd, for example, inherited the global financial crisis. It takes some time before the new government has an opportunity to impose its will on the economy.

As a result, economic data won’t say much the success or failure of the Abbott regime, at least not yet.

The centrepiece of the Abbott government’s economic plan is the budget itself (including paid parental leave and welfare reforms) and its repeal of the carbon and mining taxes.

Plenty has been said about the budget and little of it has been pretty. It remains a budget that promotes inequality and places the greatest burden on those least able to bear it.

However, for all the talk about savage cuts, the budget actually did little to curb government spending. By 2016-17, spending is estimated to be around $700 million above estimates from the independent pre-election fiscal outlook tabled in August last year. 

The PPL scheme remains costly and unpopular and is at odds with the Coalition’s crackdown on welfare. Abbott was still spruiking the policy over the weekend but the Productivity Commission couldn’t have been clearer when it recommended redirecting funds reserved for PPL towards policies that actually boost employment and labour force participation (A better alternative to paid parental leave, July 22).

In fact, the Coalition’s approach to welfare needs a rethink. Cracking down on ‘dole bludgers’ might make for good sound bites but the ‘Work for the Dole’ scheme is a dud (Why work for the dole doesn’t work, July 28). Remarkably, the Coalition’s plan to solve Australia’s welfare dependency actually makes it more difficult to find a job.

Unfortunately, it has fundamentally misdiagnosed the problem. It sees high youth unemployment as a supply issue (kids today are lazy and don’t want to work), rather than a demand issue (firms are uncertain about the future and aren’t hiring). The government is solving imaginary problems, while failing to even recognise the scourge of high youth unemployment.

In other areas, the budget was quite forward-looking. Changes to the aged pension were unpopular but necessary and increasing the fuel excise was well overdue. The Coalition also deserves some credit for leaving compulsory superannuation contributions at 9.5 per cent -- rather than the proposed increase to 12 per cent -- as it will keep more money in people’s pockets during a fairly difficult time.

On the other hand, the Coalition’s two biggest achievements -- repealing both the carbon and mining taxes -- are victories for short-sightedness and vested interests. Removing the carbon tax might ease living costs now but it does so at the expense of future welfare; the Coalition’s Direct Action plan also places the burden of excess pollution on the taxpayer rather than the polluter.

If we accept that climate change is real (and the science is clear-cut) then removing the tax will ensure that resources are allocated poorly, favouring inefficient industries and big polluters. Furthermore, it all but ensures that Australian firms won’t be a driving force behind the green technology revolution. That’s hardly a victory for the Australian people or the economy.

The mining tax was portrayed as a key victory for the government but the tax was largely inoffensive and ineffectual. The only beneficiaries of repealing the tax are a handful of mining firms, although amid falling commodity prices, I doubt many are worried about making ‘super’ profits.

What becomes obvious is that the Abbott government has consumed significant political capital for little economic gain. It has fundamentally stuffed up the welfare debate, while the benefits of repealing the carbon tax are only temporary.

Budget reform is welcome but the Coalition didn’t do a great deal of it. Many of those reforms remain in question. Critically, its platform is viewed as unfair and ideological rather than based on facts and figures.

If anything, this government lacks ambition. It doesn’t seem to have any big, transformative ideas for the Australian economy. At no point has it created a vision for Australia that will last longer than the government itself. There’s no income accord or creation of superannuation, certainly nothing as ambitious as the goods and services tax or the national disability insurance scheme.

But we should also remember that we are only one year in. Most governments take a conservative approach in their first year and then expand their vision as they head towards re-election.

Hopefully that will be the case but, given the strong reaction to the Coalition’s first budget, I expect it will become more conservative over the next couple of years, forgoing ambitious reforms in favour of creating a small target for their opponents.

This would be a shame. There are so many areas in which the Coalition could create a lasting legacy. Imagine if it tackled housing affordability or reformed the superannuation and tax systems, or solved our youth unemployment crisis?

Hopefully in year two it will show a greater willingness to tackle the real issues facing Australian households and businesses. The Australian economy is facing a particularly difficult period and this is no time for a federal government to pursue an ideological agenda. We cannot blame the Coalition for the economy’s current struggles but it will inevitably take the blame if it fails to address those struggles.  By that measure, the Coalition’s first year has been a failure.