Gareth Morgan, Director of Gareth Morgan Investments
Faced with the prospect of a strong dose of rationalist economics should John Hewson win power in the upcoming election, Australia is getting cold feet. Ever the skilful politician, Paul Keating is enunciating loudly the costs that will be faced by Australians during the transition to Hewson’s world of diminished privilege and flatter tax burdens. For example, last week saw a vitriolic debate over the costs and benefits of protection afforded the vehicle assembly industry. This debate was lost by Hewson.
In contrast to the early days of Rogernomics, the Coalition in Australia has published its agenda for policy change. The Fightback package is a most comprehensive document, laying out the detail of policy changes including a 15 % GST, tariff reductions to 5 % or less by the end of the decade, labour market deregulation, privatisation and corporatisation, and an independent Reserve Bank charged with maintaining 0-2% price inflation. All this has a familiar ring to New Zealanders but the difference in Australia is that the policy’s promoters have disclosed their plans, setting the stage for wide public debate there prior to this policy reform being voted on.
The policy of disclosure fits well with the rationalist tenor of Hewson, but has also provided Keating a marvellous opportunity to pick on specific transition costs and draw Australians’ attention to them. For instance he has castigated the Opposition for its 5% tariff policy on vehicles compared to his 15 % plans. He has successfully orchestrated a cacophony of dire warnings from local managers of assembly plants, threatening plant closures and redundancies. Further, he’s travelled to Japan and extracted an undertaking from Toyota that plans for big investment in Australian assembly would be “reassessed” should the Opposition win.
The response of Hewson to this drama has been pathetic. He hasn’t met fire with fire by confirming that his economics does not confirm privilege on specific producers but rather ensures all Australian consumers and firms have access to the cheapest products so their real incomes and international competitiveness respectively, are promoted. Instead he’s tried to counter that greater tariff reduction will not threaten local car assembly – rising to the Keating bait and engaging in a debate that assumes local car assembly benefits Australia, when it’s the net benefit or cost that the market should decide – not politicians via arbitrary conferring of protection. In this regard the level of the debate on protection in Australia languishes at low levels – indeed as it has sunk to here now that anti- dumping duties are being spuriously imposed by our own government.
Hewson is failing to raise the debate above the short term costs that Keating is using to denigrate the need for policy reform. Another example of sloppy compromise is the zero rating Hewson’s GST will have on health and education spending – political sop which dilutes markedly the efficiency of Fightback. By failing to drag Keating up to debate on his terms, Hewson is on the back foot now and will be lucky to prise Keating from power.