Summary
If Australian governments are serious about raising rates of economic growth, they must reform the tax mix and increase the workforce participation rates of women and older people. This could contribute over $70 billion per year to economic growth in the next decade. There’s nothing else big enough to change the game.
Australia opened its economy in the 1980s, and privatised and deregulated in the 1990s, leaving comprehensive reform of tax and welfare as the major opportunity for increasing Australian economic growth.
This report aims to identify economic reforms that would produce the biggest returns and that would be supported by most policy specialists as both desirable and workable. It identifies areas where policy research should focus because there is potential for substantial economic reform, but not enough evidence to be sure. The report also aims to start a discussion about the importance of prioritising reform.
Prioritisation is essential because major reform is hard. It takes time to design and implement good policy and in government, resources are scarce. Political capital is finite, funding is limited and so is the senior leadership time required to see major reforms through. When governments try to do too much at once, they tend to achieve the small reforms and mishandle the major ones.
In the current political climate, with a 24-hour news cycle, and little money to ‘buy reform’ by paying off the losers, major economic reform may seem a low priority. But it’s equally possible to see this moment as an opportunity. Australia faces great and growing challenges in the next 20 years. These include the need to manage the mining boom and its impacts on the larger economy; the rise of a billion-strong Asian middle class; an underperforming education system; an ageing population; and the need to address climate change. Bold leadership is needed.
Of course, growing GDP is not the only goal of government. Well- being and happiness matter most, and individuals and families make decisions on that basis. However, this paper focuses on economic reforms because their impact can be broadly measured, and their economic contribution enables social, environmental and distributional reforms that improve people’s lives.
A wide range of potential economic reforms were assessed according to two criteria: the size of the opportunity over the next decade, and confidence in specific policy solutions. That confidence matters: Australian governments achieved their most lasting reforms — such as the post-war immigration program, and the economic reforms of the 1980s — when policy specialists broadly agreed on an evidence-based rationale for change.
These criteria identify a small number of reforms that can change the game over the next decade. We should broaden the GST to cover education, health and food, but reduce income and corporate taxes. We should reduce the disincentives to paid work for women with young children by changing benefits. And we should increase the age at which people can access their superannuation and the aged pension.
Better teacher training and performance management, and better allocation of health resources, will yield large benefits in the longer run. But for now, only three reforms — tax mix reform, female and older people’s workforce participation — can change the game. They should be the core economic reform priorities for Australian governments.