The 'Pet Shop Galah': will the budget face up to micro-economic reform?

In 1987, micro-economic reform was all the rage. It became so talked about that the then treasurer Paul Keating once remarked that if you went into your local pet store you would find the galah talking about micro-economic reform. Of course this remark presaged one of the great economic reform periods in Australia's history.

The next year saw the election of Nick Greiner in NSW, followed by Dean Brown in SA and Jeff Kennett in Victoria. These four leaders introduced some of the most far reaching economic reforms in Australia's short federation. The impact of these reforms was to be found in labour productivity levels over the next decade. Ironically, by then, Australian leaders had tired of reform and switched their act to entertainment. The gains of the previous decade were not exactly lost, but they were not built on. In other words we kind of went sideways.

Under Keating, budget after budget worked to bring competition to Australia's national economy. Large amounts of money were put aside to encourage states to undertake micro-economic reform, open sectors to competition, and knit together otherwise state-bound sectors into national grids.

These were hard fought reforms. They often involved the attacking of vested interests and protected privilege. The protests were not gentle affairs, and they were not popular, but they were right.

So as we sit down to watch the next episode of the soap opera that has become federal politics, we are left to wonder: where did all the galahs go?

Why have these wonderful birds stopped singing? After all, the galahs have nothing to lose? The federal government is not exactly popular, nor does it seem to have a surfeit of new ideas that it is busting to implement. Why not try the concept that good policy could actually be good politics? When it comes to the micro-economic policies of the late 1980s and early 1990s, much of it was left unfinished. Some of it needs to be reviewed, others renovated, and some just finished. Not to mention that many areas crying out for micro-economic reform never got around to being started.

So where would a self-respecting galah begin? Now that is a difficult question mainly because there are so many areas in which the economy could be improved. If you were looking for places where you could get the biggest bang for your buck, it would probably be in two areas: reform of the financial system that encouraged the development of risk capital for SMEs; and transport, in particular rail.

Whereas in most other parts of the world banks provide loans on the basis of cashflow to businesses, in Australia this just does not exist. And our main form of freight transport is road, which with congestion and rising fuel prices can now represent more than 50 per cent of the cost of the product you are purchasing. In other parts of the world this would lead to an increase in rail freight. It has not happened in Australia.

Wayne Swan so often looks like a treasurer in search of a coherent idea, much less an agenda. And yet his budgets have largely remained silent on the issue of micro-economic reform. It has the benefit of putting pressure on the newly elected Liberal State Governments, would finally give the Gillard Government an economic agenda that would stand in stark contrast to that of Howard's.

Finally, micro-economic reform gets labour productivity moving in a positive direction, and that is critical for its political fortune. Looking back at the last 25 years of electoral politics in Australia, when labour productivity figures are positive, the polling figures of a government tend to be as well. Possibly because positive labour productivity allows for real wage increases.

In any case, in the absence of another economic agenda, the potential to put pressure on Liberal State Governments, and improve the government's underlying political prospects, seems like a good idea for this budget.