A social democratic response to the Great Depression of 2008

Australia must recognise that the utilising the enterprise model has failed and must embrace industry policy, not only in labour relations but also in providing the infrastructure to support business change.

This should not be mistaken to be a return to protectionism or as hand outs to inefficient business. Industry settlements in wage bargaining provide the vehicle for labour productivity improvements not only to flow through the industry for the settlement but to have a wider impact on the economy as a whole.

To illustrate this, in the early 1990s I was involved in enterprise negotiations for the brick manufacturing industry and one of the outcomes was changes in work practices that enabled significant energy cost savings. As these negotiations were on an enterprise level only one company accessed this benefit. Therefore this would have led to reduced input costs for the housing and construction in some markets, if there had been an industry-wide settlement this would have led to an industry-wide reduction of input costs.

Investment

Linked to the focus on industry as the vehicle for change, is the need to establish industry investment funds as a safeguard against the potential of a future collapse in the international finance sector or limited access to investment for Australian industry.

The funds would enable corporations to invest up to 20 per cent of pre-tax income in industry funds. The trustees would be representatives of the workforce and businesses in the industry.

There would be no tax on contributions, earnings or withdrawals. Individual corporations would have access to their contributions plus a default return rate equal to official interest rates plus 2 per cent.

To access their funds, the proposed investment would need to be for expenditure in Australia for the purpose of generating employment, investing in new capital, or research and development. As this fund enjoys tax free status, monies would not be available for corporate jets and the like.

Assuming a return at some point to normal investment returns, the funds would generate returns in excess of the guaranteed holdings for individual corporations. The funds would be required to keep an additional reserve to ensure liquidity, the excess would be available to support infrastructure associated with the industry.

This infrastructure could include supporting industry training, research and development and physical infrastructure that well assist the development of the industry.

Furthermore, we must never again allow the revenue from a resources boom to be wasted again. To this extent we need to replace the current royalty regimes with a resource rent tax administered by the Federal Government.

Essentially the current royalty regime of a flat rate/volume of mineral overtaxes small projects and undertaxes large projects. I refer to the ABARE paper for a full explanation of this situation.

The revenue from the resource rent tax would be placed into an investment fund. The states would be fully compensated for handing this power to the commonwealth with untied grants from the investment fund reflecting the revenue that they would have gained under the pre-existing royalty regime.