It might also be that today there are fewer policy reforms worth doing – perhaps most of the big ones have already been done.
To test whether previous governments really were better at reform than more recent governments, we would need a running list of reforms proposed in advance, so we could see what proportion were adopted.
Between 1972 and 2018, the Organisation for Economic Co-operation and Development produced 31 Economic Surveys of Australia – roughly one every 18 months.
Each publication put forward reforms that the OECD believed would increase economic growth and living standards.
The good old days were better
Our analysis of the full series finds that between 1984 and 2001 the overwhelming bulk of these recommendations were taken up by the Hawke and Keating governments, and by the Howard government in its first two terms.
But from roughly 2003 onwards, the record is a lot more patchy: many more of the reforms recommended by the OECD have been either rejected, only partially implemented, or (in the case of carbon pricing) implemented and then unwound.
Fate of OECD Economic Survey recommendations
Policies that the OECD recommended but which ran into the sand include reducing the gap between the company tax and top personal income tax rates, implementing a mining resource rent tax, reviewing negative gearing, creating competitive neutrality among Australian ports, aligning the eligibility ages for superannuation and the age pension, including more of the value of owner-occupied housing when calculating eligibility for the age pension, and raising Newstart.
A number of other proposed reforms continue to sit in the too-hard basket, including increasing the rate and coverage of the goods and services tax, swapping stamp duties for property taxes, congestion charging for roads, and the use of smart meters for time-of-day electricity pricing.
An imperfect measure, that tells us something
As a means to evaluate the history of reform, the OECD Economic Surveys aren’t perfect, but they’re guide.
It’s true that the scope and number of OECD recommendations has expanded over time, but that expansion was already underway during the Hawke/Keating and Howard eras.
And it’s arguable that these days, the OECD recommends smaller reforms – it certainly recommended many more between 1997 and 2010.
It’s likely that the OECD’s recommendations are partly influenced by the views of the government of the day. But many recommendations have been suggested under one government and implemented by the next.
And while OECD recommendations aren’t gospel, many policy experts support most of them. For instance, all of the policies that are on the OECD’s continuing wish-list are also advocated by the Grattan Institute.
Our review of what happened after the OECD surveys is broadly consistent with popular wisdom, or at least the recollections of old men (usually men) that the good old days really were better.
And it is consistent with work in progress by Alphabeta reviewing the history of Australian economic reform.
Our review also shows that it often takes a long run-up of research, advocacy, and detailing before a government implements a major reform. Many reforms were only implemented after sitting on the slate for well over a decade, including the goods and services tax, lower tariffs, a more flexible award system, lower company tax, and competition in utility industries. Reforms often require patient advocacy.
It’s hard to prove beyond reasonable doubt that Australia has got worse at it. But our review of the OECD’s recommendations for Australia over the past 48 years is consistent with the oft-cited view that governments in the most recent 20 years have rejected many more significant reforms than governments in the 20 years before them.
There’s plenty still on the slate for the 20 years to come.
The Conversation is running a series of explainers on key figures in Australian political history, examining how they changed the country and political debate. You can read the rest of the series here.
Paul Keating was one of Australia’s most charismatic and controversial prime ministers.
Born in Bankstown, New South Wales, into an Irish-Catholic, working-class and Labor-voting family, he left school before he turned 15. Keating joined the Labor Party as a teenager, quickly honing the political skills that would serve him so well in later life. He entered parliament as MP for Blaxland in 1969 at just 25 years old, and briefly served as minister for Northern Australia in the ill-fated Whitlam government.
He subsequently served as a very high-profile treasurer in the Hawke government from 1983-1991, before defeating Bob Hawke in a leadership ballot in December 1991. In doing so Keating became Australia’s 24th prime minister, serving until John Howard defeated him in the 1996 election.
To Keating’s supporters, he is a visionary figure whose “big picture” ideas helped transform the Australian economy, while still pursuing socially inclusive policies. To his conservative critics, Keating left a legacy of government debt and rejected “mainstream” Australians in favour of politically correct “special interests”.
He was a skilled parliamentary performer, renowned for his excoriating put-downs and wit.
Keating played a major role in transforming Australian political debate. He highlighted the role of markets in restructuring the economy, engagement with Asia, Australian national identity and the economic benefits of social inclusion.
Keating is remembered most for his eloquent advocacy of so-called “economic rationalism” both as treasurer and later as prime minister.
Under Hawke and Keating, Labor advocated free markets, globalisation, deregulation and privatisation, albeit in a less extreme form than the Liberals advocated. For example, while Labor introduced major public sector cuts, it attempted to use means tests to target the cuts and protect those most in need. Nonetheless, Hawke and Keating embraced the market far more than previous Labor leaders had.
Along with New Zealand Labour, Australian Labor became one of the international pioneers of a rapprochement between social democracy and a watered-down form of free-market neoliberalism. Years later, British Prime Minister Tony Blair, who had visited Australia during the Hawke and Keating years, was to acknowledge the influence of Australian Labor on his own “Third Way” approach to politics.
Keating justified his economic rationalism on the grounds that the Australian economy needed to transform to be internationally competitive in a changing world. To avoid becoming one of the world’s “economic museums” or “banana republics”, in Keating’s view, there was no alternative but to embrace his economic rationalist agenda.
Trade unions and the ‘social wage’
At the same time, Keating argued that his economic policies would avoid social injustices. This contrasted with the outcomes of the extreme economic rationalism of the Thatcher and Reagan governments.
Unlike in the UK or US, where anti-union policies were pursued, the Labor government was prepared to work with the trade union movement to introduce its economic policies. Under the Accord agreements, trade unions agreed to wage restraint, and eventually real wage cuts, in return for government services and benefits.
Hawke and Keating referred to this as the “social wage”. They claimed the resulting increased business profits would encourage economic growth and rising standards of living.
Social inclusion and economic growth
Keating saw his economic policies and progressive social policies as compatible. Increased social inclusion would contribute to economic growth.
Drawing on Hawke-era affirmative action legislation, Keating argued improved gender equality would mean women could contribute their skills to the economy.
Keating was also a passionate advocate for reconciliation with Indigenous Australians, including acknowledging the injustices of Australia’s colonial past and facilitating Native Title. He envisaged an Australia where Indigenous people would benefit from sustainable economic development, cultural tourism and could sell their artworks to the world.
National identity, Asia and the republic
In Keating’s ideal vision, Australia would engage more with Asia and benefit from the geo-economic changes occurring in the Asia-Pacific region.
Then Opposition Leader John Howard accused Keating of rejecting Australia’s British heritage. In fact, Keating acknowledged many positive British influences on Australian society. However, he argued that Australia had developed its own democratic innovations such as the secret ballot long before Britain accepted these. He also suggested Australian values had become more inclusive as a result of diverse waves of immigration.
Consequently, it was time for Australia to throw off its colonial heritage, including the British monarchy, and become a republic. Keating believed that doing so would enable Australia to be more easily accepted as an independent nation in the Asian region. He established a Republic Advisory Committee as part of preparations for a referendum on becoming a republic.
Australia’s greater relationship with Asia has had major benefits for the economy, although Keating underestimated the downsides of increased competition. Recently, he complained about what he sees as excessive security fears in relation to China and their impact on Asian engagement. The republic remains unfinished business.
Keating’s vision has also left some unintended consequences for Labor today. Despite his patchy record in achieving them, Keating argued that both tax cuts and budget surpluses were important, even at the expense of public sector cuts.
Consequently, it became harder for Labor leaders to make a case for deficit-funded stimulus packages when needed (as Kevin Rudd tried to do during the Global Financial Crisis). Similarly, it became harder for Labor leaders to argue for increased taxes to fund a bigger role for government, as Bill Shorten attempted during the 2019 election.
In addition, as I argue in a recent book, Keating-era policy contributed in the longer term to poorer wages and conditions for workers. Labor is predictably loath to acknowledge this. Keating also underestimated the detrimental impacts of economic rationalism on other vulnerable groups in the community.
The 2019 election result suggests many Australians no longer believe Labor governments will improve their standards of living.
Rather than the prosperous brave new world he envisaged, parts of the Keating legacy may have made things harder for subsequent Labor leaders. Nonetheless, Keating remains a revered figure in the Labor Party and one of its most memorable leaders.
He might also be worried that publishing negative forecasts creates the risk of self-fulfilling prophecies. (It’s an important difference between economic and weather forecasting – predicting rain does not make rain more likely.)
But on Tuesday Treasurer Josh Frydenberg saw fit to release details of Treasury forecasts of a 10% rate of unemployment, which he said would have been 15% were it not for the JobKeeper allowance, so such concern can’t be universal.
Instead, back then, governments tried to get their budgets to balance by cutting their spending, making matters worse.
Those depressions occurred well before statistical agencies compiled national accounts.
But a survey of retrospective estimates I did with Robert Ewing suggested that during the Great Depression real GDP may have contracted by 10% to 20%.
The Asian Economic Crisis is another
A more recent parallel to the size of the current fall in Australia’s GDP is the experience of some of our neighbours in the 1997 Asian financial crisis. In 1998 it brought about huge falls in real GDP in Indonesia (13%), Thailand (8%), Malaysia (7%), Hong Kong (6%) and South Korea (5%).
The current contraction has been unusually rapid and it is hoped that the recovery will be too.
The IMF predicts Australia’s GDP will expand by 8.4% in 2021 after falling 7.2% in 2020. It believes we are in the worst of the recession now and the recovery will begin in the September quarter that starts in July.
In year-average terms that understate the size of swings the IMF expects real GDP to shrink 6.7% in 2020 compared with 2019 and then to grow 6.1% in 2021 compared to 2020.
It has revised down its forecast for global growth this year from an increase of 3% to a contraction of 3%. (By contrast, during the global financial crisis global GDP slipped by only 0.1%)
What it terms the “Great Lockdown” is the worst global economic scenario since the Great Depression.
Worse outcomes “possible, even likely”
The US economy should contract 5.9% this year before bouncing back 4.7% in 2021. China’s economy should barely grow in 2020 (1.2%) before bouncing back 9.2% in 2021.
Output and incomes in emerging economies are predicted to return to pre-pandemic levels in the second half of the year. The advanced economies generally won’t return to where they were until the end of 2021.
These are forecasts that might prove optimistic. Depending on conditions and programmes in place in each country, it is likely many business will not survive and many consumers will decide to remain cautious about their spending for some time.
much worse growth outcomes are possible and may be even likely – this would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment.
Rarely has the trajectory of a downturn been harder to forecast.
Much will depend on the virus itself, on the way in which countries adjust their restrictions to deal with it, and on us. At the moment few of us are feeling good.
The queues of unemployed people outside Centrelink offices in recent days are reminiscent of the dole queues seen across Australia during the Great Depression of the 1930s.
At that time, most states provided inadequate food vouchers rather than cash to people in the form of income support payments. This made it particularly difficult for renters, many of whom were unemployed due to the mass closure of factories, to continue to pay rent.
In NSW, lower-income areas of Sydney were particularly badly hit by unemployment, and because the working class was a renting class, this quickly translated into homelessness.
For example, male unemployment reached 38.9% in the then-working class suburb of Newtown by 1933, well above the NSW average of 32% and three times the rate in the affluent suburb of Vaucluse.
Tent cities sprang up in Sydney’s Domain and on the outskirts of the city in suburbs like La Perouse, such as the ironically named tent city, Happy Valley. Although this is likely to underestimate the numbers of homeless at the time, the 1933 census reported
33,000 people [were] travelling in the hope of work and 400,000 [were]
living in shelters made of ‘iron, calico, canvas, bark, hessian and other scavenged materials’.
COVID-19 and assistance for renters
There are distinct parallels between the severe economic downturn of the 1930s and the economic repercussions of the COVID-19 crisis in terms of mass business closures and worker layoffs.
The Australian government has estimated that one million Australians could become unemployed as a result of the coronavirus. However, it is not clear if this comprises only those who will be directly affected by business closures or includes people impacted by the flow-on effects.
Taking into account the current unemployment rate, an additional one million Australians would bring the rate to 13% of the Australian workforce, from my own estimates.
Although the increase in Centrelink payments announced by the Morrison government will help those workers suddenly without jobs, additional measures are needed to protect people who can’t pay their rents and are faced with possible eviction.
Emergency laws to protect renters are also currently being debated in Tasmania.
Staving off homelessness in the Great Depression
There is precedent for legislative reform of this kind from the Great Depression.
In response to the mass numbers of job losses in NSW, the government at the time, led by Premier Jack Lang, passed two pieces of legislation aimed at providing relief for renters. This legislation was very significant, as it was the first of its kind that afforded tenants across NSW any serious amount of protection.
One of the bills, passed as the Reduction of Rent Act 1931, reduced rents state-wide by 22.5% and made leases that did not acknowledge this reduction illegal.
The other piece of significant tenancy reform was the Ejectments Postponement Bill 1931. This bill prohibited eviction from a dwelling house without an order of the court. If the court could be shown the rent could not be paid, the tenancy could be extended indefinitely.
In his second reading speech, William McKell, minister for justice in the Lang government, described the bill as “a bona fide effort to provide against hardship due to unemployment”.
As honourable members are aware, there is a large amount of unemployment, and there are many very deserving and reputable people who, unfortunately, are not able to pay their rent. It is a tragedy that people of that type, with their families, are being evicted from their homes, and the Government is desirous of preventing as far as possible evictions of that character.
Though the government was committed to helping renters, McKell clearly distinguishes between the deserving and undeserving unemployed in his speech, an unhelpful way of thinking that is still with us today.
Although it is not known how many evictions the reforms of 1931 prevented, the new laws were undoubtedly a boon for renters, given the news coverage of the time. Landlords and their representatives complained about the impact the laws had on their ability to evict tenants.
Hundreds of cases have been reported to the Real Estate Institute, where the owners of houses, dependent on rents for their livelihood, have been refused possession, and have also been refused relief under the dole system, on the grounds that they are property owners.
Unfortunately for renters, these reforms were relatively short-lived. The Lang government was sacked by the NSW governor in May 1932 and replaced in the next election by the more conservative United Australia Party and Country Party coalition government.
This change in government saw the passage of the Landlord and Tenant (Amendment) Act 1932, which repealed the Ejectments Postponement Act 1931. The rent reduction law was also made more favourable to landlords.
The interests of landlords were prioritised over those of unemployed renters, a salutary lesson to present governments not to let ideology and vested interests get in the way of needed reforms that will benefit a significant portion of the population during a crisis not of their making.
On the morning of Monday, March 4 1996, the young treasurer in the Howard government, Peter Costello, and his press secretary, Tony Smith – now the speaker of the House of Representatives – took an Ansett flight from Melbourne to Sydney for their first departmental briefing. The treasury secretary, Ted Evans, who had initially asked to see Costello privately, offered his resignation in light of the change of government. Costello assured Evans he wanted him to stay on.
Once the meeting began, Evans had some startling news for his new boss. The budget had an underlying deficit of about A$9 billion. “Costello appeared genuinely shocked”, his biographer, Shaun Carney, has reported. The size of the deficit probably did take him by surprise, even if the existence of a deficit of some kind did not. John Howard recalls that he had wind of it before his March 2 election victory.
A submission released today by the National Archives of Australia in its 1996-1997 cabinet records sets out the nature and scale of the problem that the new government saw as its most serious during its first term. But problem would become opportunity. In his autobiography, Lazarus Rising, Howard would call the 1996 budget “the most important of all budgets” delivered during his almost 12 years in government, as well as “the best and bravest in 25 years”.
Howard is hardly a disinterested party. Nonetheless, there is a persuasive strand of opinion among commentators that the fiscal decisions taken in 1996, while creating political pain for the government and economic pain for voters, were foundational for Howard and Costello.
The cabinet submission of March 18 1996 predicted economic growth of 3.75% for 1995-96 and 1996-97, on the back of improved performance from the farm sector as the drought ended. Weak demand was likely cyclical, a “temporary slowdown of the type which often occurs at this stage of the business cycle and that growth should strengthen in subsequent quarters”, as business investment again took off.
Howard’s quip from opposition in 1995 – that the recovering economy was “five minutes of economic sunlight” – was effective politics. But it was not supported by the new government’s own records, which referred to a “generally favourable outlook”.
Compared with the skyrocketing interest rates and then the recession the Hawke and Keating governments faced in the early 1990s (or the recession the Hawke government inherited in 1983), these were happy days.
However, unemployment remained high at well over 8% and was projected to stay there in the following year.
The government was also concerned about the drag on economic performance of continuing budget deficits and rising government debt. This was running down national savings, undermining investment and worsening Australia’s current account deficit – the difference between the value of imports and exports of goods, services and capital.
Costello committed the government to reducing the underlying deficit of 3.5% of gross domestic product to 0.5% over three years, thereby reducing public sector lending, relieving pressure on the current account deficit, and returning the budget to a structural surplus. The government rejected the idea of a single massive cut of A$8 billion in the 1996 budget as running the risk “of knocking the economy off course”. It therefore committed to cuts of A$4 billion in each of the budgets of 1996 and 1997, with an eye to less pain in the 1998 budget leading up to an election.
With defence spending quarantined from the cuts, the August 1996 budget was indeed a tough one. The usual suspects – health, welfare, the public service and tertiary education – bore much of the load. Nonetheless, the government’s own polling suggested most voters thought its measures “tough but fair”, dispensing necessary if bitter medicine.
Howard remarked at the December launch of the latest cabinet records release that the government applied to the budget a “fair go” test, although he would ultimately bear pain for his too-clever distinction between “core” and “non-core” election promises.
Tony Abbott was a young parliamentary secretary in 1996, on his way up but still some way from the real levers of power. By 2013, however, he had his own government and with his treasurer, Joe Hockey, faced the problem of framing his first budget.
The 1996 effort would have been a powerful precedent for a new Coalition government in 2013 and, at a superficial level, the Abbott government did many similar things. As Howard and Costello had done, it established a National Commission of Audit.
Costello had complained of the “Beazley black hole” – the deficit bequeathed by Labor’s finance minister, Kim Beazley. Conveniently for the government, he was also the new opposition leader. The phrase lived on as a way of reminding electors of the Labor Party’s weaknesses in economic management and the Coalition’s achievements and strengths.
In 2014, Abbott and Hockey spoke of a “budget emergency”. But whereas the public seems to have bought the “black hole” image – although described recently by economist Warwick McKibbin as more like a temporary “pothole” – voters appear to have regarded the Abbott government’s “budget emergency” as invented.
One reason for this failure ironically lies in legislative changes that Costello announced at the very time he drew public attention to the black hole. This was the Charter of Budget Honesty, which mandated more rigorous reporting on the national finances, including the alphabet soup of MYEFO (Mid-Year Economic and Fiscal Outlook) and PEEFO (Pre-Election Economic and Fiscal Outlook), as well as five-yearly intergenerational reports.
These initiatives, which a Costello cabinet submission of August 2 1996 said were intended to promote “responsible fiscal management”, made it well nigh impossible to spring the surprise of a large deficit on an unsuspecting public and successor.
Unlike Hawke and Keating in 1983, and Howard and Costello in 1996, Abbott and Hockey could not stoke panic to implement unpopular measures and back out of difficult election commitments. The Charter of Budget Honesty meant they could not claim to have been blind-sided by an unanticipated budget deficit.
Howard and Costello also faced a much more helpful set of parliamentary numbers than their Coalition successor. With a massive 94 seats in a House of 148, they had political capital to burn. While few imagined the government would last almost 12 years, equally few considered it could be defeated after one term.
But it is in the Senate that the differences between 1996 and 2014 become clearer. There, the Howard government held 37 seats in a chamber of 76. After the defection of disgruntled Labor senator Mal Colston in August 1996, the government could get its legislation passed without the support of the Australian Democrats if it had Colston and the other independent senator, Brian Harradine, on side.
By way of contrast, the Abbott government faced a Senate cross bench of considerable complexity and diversity. And, as Howard has remarked, dealing with the Australian Democrats was notably easier for a Coalition government than getting Greens support.
In 1996, Howard and Costello got the politics right. They still paid a political price, but it did not prove fatal. McKibbin argues that the introduction of a GST in 2000 was made easier by the reduction of government outlays and the elimination of the budget deficit in the government’s first term.
By dealing with spending in 1996, the government was able to turn its attention to revenue and taxation in a more favourable fiscal environment for politically difficult reform.
The image remains: as they contemplated their own horror budget, Joe Hockey and Mathias Cormann relaxed with cigars. Trivial in itself, this clumsiness epitomised the Abbott government’s muddled budget politics.
In 2014, after decades of strong economic performance, few believed that the drastic measures the Abbott government proposed in 2014 were either necessary or fair. Hockey declared the “age of entitlement” over, but voters suspected this did not extend to politicians or their friends.
The contentious measures in the 2014 budget – such as the Medicare co-payment and the winding back of unemployment benefits – did not pass Howard’s “fair go” test.
But the tough spending cuts Costello announced in 1996, while hardly provoking an outbreak of national joy, were an early taste of the professionalism and toughness that he and Howard brought to their long years at the helm.