Too high a price for growth

MORE women should join the workforce, we should all work till we are at least 70 and we should pay GST on everything, including healthcare, education and food. These three policies are the simple recipe for economic growth, according to a recent report by the Grattan Institute. But the underlying assumption that growth can be divorced from its social costs is misleading. The wilderness awaits those who follow an economic prophet without a moral compass.

The question we need to ask is a different one: "How will we benefit from growth?" It is all too easy for more people to work longer to boost workforce participation at the cost of destroying our way of life. As The Age front page detailed last week, we could lift productivity by asking everyone to wear a barcoded armband and only pay them when they pass under a scanner in the act of making widgets. It's a warning of what happens when economics, morality and democracy are divided into separate spheres of thought. Setting priorities for growth and productivity without common values is economic folly and political futility.

Let's take each measure in turn. The report suggests that by levying GST on health, education and food our tax system would be more efficient but unfairer. The authors acknowledge the GST is a regressive tax and hope welfare transfers would make up the difference. Expanding the GST is simply the unfinished business of the sole substantive reform of the 11 years of the Howard government, during which time productivity flatlined while income inequality soared. The main thing going for this suggestion may be that it has forged agreement between Julia Gillard and Tony Abbott to reject it.

The next big quick fix is raising the retirement age to 70. That way we would all be forced to work longer in order to expand the economy. It's true we will all have to fund the longer lives we lead. Greece has taught us we can't retire early and borrow our way to the future. There are a complex range of issues about how together we should face the challenges and opportunities of longevity to build high-quality lives. Simply working longer and enjoying retirement less in order to expand the economy should not be the objective.

Finally, the think tank's report suggests more women should participate in the workforce so we can boost the economy. Indeed this would potentially be a progressive outcome: our current policies on female workforce participation and childcare are unfair. But the main reason to help women participate in the workforce is not economic growth for its own sake. The real reason is to enable them to share equal opportunity and equal reward. Already the childcare tax deductions proposed by the Grattan Institute have been criticised by Treasury as only helping the rich an unfair solution for an unfair situation.

The Grattan approach to reform has two key shortcomings. First, the report suggests these policies should be our priorities because they are purely economic, politically doable and would enhance growth. This is no way to contest the future of Australia. The authors' solutions would be unfair and reduce the quality of our lives. Instead, reform must be both economically sound and morally grounded. Growth is not a moral conviction. Political doability is not a value. Reform is never purely economic.

Second, the report puts all major efforts to improve productivity in the "too hard" or "too far away" baskets. This sells Australia short and makes our lifestyle and our economy vulnerable. Noted economist Paul Krugman states it clearly: "Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker."

Just as more people working longer is a fallacy of growth, working longer hours for less pay is a fallacy of productivity. Genuine productivity involves the complex task of producing better products and services, improved economic systems and new technologies. More productive Australians will be better able to support their families and retirement as well as afford the time to have families and retire. We will be richer in not just time and money our jobs will be more competitive, more profitable and more secure.

There is a grab bag of current policies that should enhance participation, boost growth and address longevity: raising the minimum tax rate, introducing paid parental leave, applying progressive taxation to superannuation, levying the carbon tax and mining tax. There are a number of recent policies that should enhance productivity, such as the national broadband network, R&D tax credit, increased education funding, healthcare reforms, improved dental care, a national disability insurance scheme and national infrastructure projects. These policies are not enough to secure our future. The current state of political debate and media coverage of these issues have been a national disgrace, so contributions from all think tanks are a welcome addition to the mix.

Let me end by asking a simple question. Think about all the things you would fight and die for: your partner, your children, your mother, your country . . . higher gross national product? This is the problem of economic reports like the Grattan's if you turn the important issues of economic growth and productivity into a sterile debate that comes at the price of a good life we have already lost the fight. We have to talk about economics in a way that makes it human and sounds human. Quick fixes for economic growth are not the answer.