By the end of this year, Australia will have a new government. If the opinion polls and betting markets are any guide, Tony Abbott and his Coalition partners will be sitting on the Treasury benches before Melbourne Cup Day with a decent majority and starting to implement their agenda.
Among many policy changes, Abbott and his team will be abolishing the current carbon pricing scheme and implementing their direct action plan to reduce carbon emissions. The Coalition will abolish the mining tax, introduce paid parental leave and, in its terms, "cut government waste” as it works towards a larger budget surplus and a reduction in government debt.
But as everyone knows, or should know, the predictive power of polls and betting markets this far out from an election is not good. The Gillard government is, on average, only four or five percentage points behind the Coalition and has closed the gap from 10 to 12 points around the middle of 2012. Many pundits acknowledge there is a fighting chance that Julia Gillard can win the election if she gets the electorate to focus on her policy agenda and the undoubted strength of the economy.
If she wins, her agenda after the next election will be the fully funded rollout of disability insurance and education reforms aimed at boosting long run productivity.
However these scenarios unfold, there are a range of ongoing economic challenges that the new government, Abbott or Gillard, will have to be deal with if Australia is to extend its current 21 years of unbroken GDP growth and build upon the quite massive rise in living standards that have occurred over that time. A critical part of that policy challenge will be to entrench the current low rate of unemployment at 5 per cent, plus or minus a little.
Be it Abbott or Gillard, labour market policy will be important. Ensuring the population is knowledgeable, educated and skilled over the years to come will be the bedrock of the policy agenda.
Linked to that will be further efforts to encourage workforce participation including changing the criteria surrounding the retirement age. It may be a tax issue, but a policy agenda that encouraged older people to remain in paid employment and reduced any financial penalties from staying in employment should be on the policy table. Furthermore, having a suitable degree of labour market flexibility to allow workers displaced from weaker parts of the economy to be able to be absorbed in the sectors that are doing well is a role good policy can play.
There should also be a policy agenda from the new government that looks to eliminate expensive and economically useless government funding for people and industries that should not receive scarce tax dollars. The first home owners grant, the baby bonus, superannuation tax breaks, defence purchasing, spending on the faltering parts of manufacturing are but a few that should be reviewed and then probably phased out. A cleansing of these sorts of items would yield savings to the government and would inevitably boost productivity and well-being over the medium term.
Then there is tax policy. The government needs to make sure there is enough tax revenue to pay for the range of reforms, including education, national disability insurance and embedded costs associated with an ageing population. The breadth and level of the GST should be reviewed, the income system should be simplified with a reduction (elimination?) of tax deductions, the mining tax needs to be revamped and more user pays contributions via the tax system could be considered for the social welfare system.
From a global perspective, locking in the economic, cultural and defence engagement with Asia is the obvious agenda that needs to be handled with tact and confidence. The Asian Century white paper outlined how Australia can derive rewards from closer ties with Asia. This is the easiest policy item in many ways, but one that can be underlined with a clumsy approach to issues like the treatment of asylum seekers.
Governing is not easy. Inevitably there are losers from most policy changes, including those outlined above. The good news is that in most instances the losses will be a reversal of largesse or market distorting policy.
Whichever side forms government towards the end of this year, the items above are a few issues that should be on the policy agenda. No doubt more issues will crop up through the year and as the election campaign unfolds, but if at least some of the above issues are dealt with, it would be a good start to keeping the Australian economy strong, dynamic and productive.
Stephen Koukoulas is managing director of Market Economics and was former economics advisor to the Prime Minister Julia Gillard.
An urgent agenda for the next PM
Markets are betting Tony Abbott will be in power by November, but the result is not certain. Whoever is leading, the economic focus should begin with education investment, labour reform, unproductive welfare and tax.
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