NAB chairman and former Treasury secretary Ken Henry has damned modern politics, saying it has degenerated into trench warfare where populism is the ammunition and the reform narrative has been replaced by the language of fear and anger.
In a withering speech to the 2017 Committee for Economic Development of Australia summit, Dr Henry has said modern politics is failing the people on budget repair, tax reform, population growth, infrastructure, energy security and climate change.
He will call on business to step up where it can to deliver policy.
“Our politicians have dug themselves into deep trenches from which they fire insults designed merely to cause political embarrassment. Populism supplies the munitions,” he said.
“And the whole spectacle is broadcast live via multimedia, 24/7. The country that Australians want cannot even be imagined from these trenches.”
He outlined a list of eight “long-overdue reforms” which he said was the minimum needed but added: “I have no confidence that this list of urgent and essential reforms will be achieved by today’s Parliaments”.
He said “today’s dysfunction” was in stark contrast to previous periods of policy success when politics was every bit as adversarial and partisan “but when the tribal tensions within parties were generally well managed and the political contest appeared to energise policy, not kill it”.
He lamented that not one major infrastructure project in the past decade had the shared support of the Coalition, Labor and the Greens and that every single government proposal for tax reform over the same period “has failed”.
“And the long-term fiscal, economic growth and environmental challenges identified in four intergenerational reports over the past 15 years? The opportunities identified in the White Paper on Australia in the Asian Century? Simply ignored.”
“The reform narrative of an earlier period has been buried by the language of fear and anger. It doesn’t seek to explain; rather, it seeks to confuse and frighten.
“Meanwhile the platform burns.”
Australia had become so paralysed by political inaction that it had gone from an optimistic nation which pioneered world’s best policy and nurtured world’s best institutions to a place that nobody looked to anymore “to see how it should be done”.
He identified the four priorities: as budget repair, a plan for a growing and ageing population, a settled policy for energy security and climate change, and an approach to “make the most of the Asian century”.
And on all four fronts, politics was failing.
‘Do you think anybody has a clue?’
He said under current settings, budget spending was not under control. It will be a forecast 25.2 per cent GDP by the end of the decade, down from the current 25.6 per cent, but will then start growing again as the population ages. At the same time, revenue was overly reliant on bracket creep.
Yet the budget is ill-equipped to cope with looming challenges.
Based on current estimates, Australia needs to build a city for two million people every two years or a city the size of Melbourne or Sydney every decade yet the only plan seems to be “stuffing” more people into Sydney and Melbourne.
“Have you ever heard a political leader addressing that question? Do you think anybody has a clue? At the very least, we are going to have to find radical new approaches for infrastructure planning, funding and construction,” he said.
“And that includes energy infrastructure, critical to our economic performance and our quality of life.”
Dr Henry said the biggest challenge confronting the energy sector was the “shambles” masquerading as climate policy.
“At least 14 years ago, our political leaders were told that there was an urgent need to address the crisis in business confidence, in the energy and energy-intensive manufacturing sectors, due to the absence of credible long-term policies to address carbon abatement,” he said.
“It is quite extraordinary, but nevertheless true, that things are very much worse today. And what about making the most of the opportunities of the Asian century? You never hear our political leaders even talking about this topic today.”
He said the four priorities could be met by adopting, as a minimum, eight reform proposals. These are:
- Apolitical infrastructure planning and pricing, including the widespread use of road user charging;
- A much lower company tax rate, or some other mechanism that reduces substantially the cost to Australian businesses of equity capital sourced from abroad, achieved much more quickly than is presently under consideration by our Parliament;
- The removal of stamp duties on residential property;
- Symmetrical tax treatment of interest and capital gains;
- An overhaul of state-based royalties;
- Market-based price signals to guide climate change mitigation and long term investment in the energy sector;
- A broader base and higher rate of GST;
- A substantial adjustment to roles and responsibilities between the Commonwealth and the states.
- He warned the budget was in no shape to fund compromises for some of these ideas, such as compensation low income earners for an increased GST.
“I stress that this is a minimum set of long-overdue reforms. Bear in mind also that our present fiscal position means that ‘buying reform’ through budget funded compensation in excess of normal indexation is not an option,” he said.
“Reforms have to be directed to strengthening, not weakening, the budget. Of course, I have no confidence that this list of urgent and essential reforms will be achieved by today’s Parliaments.”
Dr Henry said business leaders must also do much more to advocate reform as well as play an ongoing and active role in public policy to help people cope with the consequences of change.
“We do nobody any favours – least of all our shareholders – when we boast proudly, on the one hand, that we are the source of jobs and incomes but, on the other, insist that we need accept no responsibility for the impact of our business decisions on communities and the environment,” he saud,
“It is up for business to make the case for change and to lead.”
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