Turning down the economic turbo boost

Second, Keating floated the exchange rate, deregulated the financial sector and reduced tariff rates to near zero, allowing markets to more effectively allocate resources in the economy.

Third, labour and product market liberalisation, started by Keating and extended by Howard and Costello, contributed enormously to our economic “miracle” as well.

Indeed as recently as May 2007, Henry called labour market reform Australia's “shock absorber”, a pivotal policy for achieving full employment and low wage inflation together.

These policies pursued by the last two governments turbocharged the economy by raising labour utilisation and productivity.

According to Treasury figures, labour utilisation rates rose nearly nine per cent from 1978 to 2006 with most of the dividend achieved through higher participation and more hours being worked, as the unemployment rate in 1978 was similar to that in 2006.

This participation dividend was combined with productivity growth nearly one percentage point above trend in the 1990s largely due to labour market reforms, lower tariffs and other deregulatory policies.

This is why Australians are much richer and better positioned today than when we have previously entered recessions.

And yet, the three crucial labour market reforms for achieving this “miracle” are all under partial threat from Rudd Labor.

The first crucial labour market reform is the workplace level reform of enterprise bargaining and then the introduction of AWAs. Both of these instruments received wholesale endorsement by the OECD as recently as last month for improving the operation of the labour market.

Yet, worryingly, the OECD has placed the more regulatory and less flexible Forward with Fairness under a watching brief for its effects on youth unemployment.

And while the Employment Minister Julia Gillard has achieved some efficiency gains by proposing a national industrial relations system, along with simplifying awards, the majority of this gain was achieved through WorkChoices using Federal laws to override state systems in regulating companies.

Any efficiency gains from a national system are also more than offset by the regulatory and wage burdens from increasing the scope of the safety net.