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Australia's future: slow growth, falling terms of trade, lower per capita incomes?

By Geoff Carmody - posted Friday, 13 December 2013


This first type of response to falling real incomes requires more inputs to lift output to support rising incomes. It involves using all available resources more extensively – working them harder – to do the job.

The second type of response involves working available inputs more intensively – working them smarter – to lift their productivity, lower unit production costs, and thus support rising real incomes.

For example in the private sector, do Australians pay too much for medicines? Is coastal shipping over-regulated, increasing its costs? Could the Government change these?

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The second area for seeking productivity improvements is the public sector itself. At present, with large structural deficits extending (at best) well into the future, governments are directly increasing their claims on future incomes to service their growing debt. One can debate the merits of 'good' debt versus 'bad' debt, but debt used to finance present government consumption and/or investments failing proper cost-benefit analysis is both unsustainable and intergenerationally unfair.

This is properly a concern of the 2013-14 National Commission of Audit, which has broad terms of reference (suitably interpreted) to deal with this issue. I've had a go at this type of exercise in 1996. I don't wish to add to the mountain of specific advice and submissions the current Commission is receiving.

But I'd like to offer three general pieces of advice as the Commission develops recommendations to deliver a sustainable public sector in Australia.

First, if there is no strong case for governments doing something they are already doing, such programs should be scrapped. For example, whatever its commercial merits – and I don't regard paying for its own operations as one of them anyway – I don't see the Clean Energy Finance Corporation as a business where governments should play a role. If there is an information gap, then fill that gap, don't set up another government business enterprise with what is essentially a commercial mandate.

Second, as far as possible, be very clear and specific about program objectives, and as far as possible make sure these can be readily and objectively measured. Otherwise, the programs can become just so much waffle and soak up scarce taxpayer funds for little measurable benefit. Objectives and their close and effective monitoring should drive policy and taxpayer resource allocation.

Third, undertake a careful policy design review. The detail of government policy delivery mechanisms should be fit for purpose, understood well by those responsible for their implementation, and as far as possible free from ambiguity and unintended side effects. Pink Batts weren't. I suspect a lot of Australia's tax system would be found wanting from such a review.

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Ultimately, of course, it does not matter what the National Commission of Audit recommends. What matters for future Australian living standards is the Government's response.

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This article was first published in the Australian Financial Review.



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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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