The reform agenda is a joke already, at the AFR:
Prime Minister Scott Morrison and Treasurer Josh Frydenberg emphasised on Thursday that the states would have to do their share of the heavy lifting and they re-emphasised the importance of a 2017 Productivity Commission report, Shifting the Dial.
“All of these areas need to be looked at with fresh eyes,” Mr Morrison said.
These include replacing property stamp duties with a land tax, replacing vehicle registration with road user charges, and improving efficiencies and reducing duplication in health and education.
…Mr Morrison on Thursday all but ruled out curbs to negative gearing and franking credit refunds on the basis they would sap economic growth.
“I don’t understand how increasing taxes on people in that way … actually helps grow the economy. I’ve never understood that argument. There are some things that remain truisms.”
And there you have it. ScoMo’s “truism” cancels out any hope of structural reform to Australian growth drivers.
It’s not that many of these reforms are not useful. They are. And they could lift productivity at the margin. But there are three reforms that we need above all others to structurally shift growth drivers to more productive and equitable gains and they don’t even appear in the Shifting the Dial report. They are:
- slashing immigration;
- reforming negative gearing, and
- cheaper energy prices via gas reservation.
The first two structurally inhibit Australian capital productivity by directing capital into useless constant catch-up growth around infrastructure bottlenecks and unproductive property. The third drives immense hollowing out in non-mining tradeables.
There’ll be some niche growth in manufacturing but only thanks to government sponsorship for strategic purposes.
Because without these three changes, all you are doing is playing around the edges to lift income a little while ensuring all of those gains accrue to capital which will make secular stagnation worse by deepening the demand deficit.
This will all be made worse as China accelerates into the middle-income trap and commodity prices fall away permanently in the years ahead.
I now have no doubt that ScoMo will also reopen the borders as soon as possible to re-inject population growth without which these reforms will be borderline meaningless. That’s all they are, really, an attempt to catch-up to the productivity damage that mass immigration especially does.
We will see a decent property correction, no doubt, driven by an immigration hiatus, bank tightening amid mass unemployment. But it won’t last and weak growth (plus a useless left) will ensure that the Government will press the return to the ponzi-economy as soon as possible to hide its reform failure and enrich its mates.
That means the Australian dollar will remain inflated versus the counter-factual and wipe out any marginal competitiveness gains that we do see.
That all of this will land most heavily on the futures of our youth, who have sacrificed most for the good of their parents, will be forgotten.
We’re not going to waste this crisis, we’re going to use it to bury all hope.
