Tuesday, 9 August 2011

A mini budget; just in case things go sour

The huge drop in the share market is a wake-up call for complacent policy makers everywhere.

Whether the markets bounce up or down this week is irrelevant. The big problems facing the United States and Europe are not yet being confronted.

At best the latest Congressional deal is another bandaid. Under the deal, the US will only cut the growth of spending, so spending will grow and in 2013 there will be another fight about lifting the debt ceiling.

US jobs figures were fractionally better last Friday, but so what? Far more relevant are the facts that US workforce participation is close to its lowest for 30 years and underemployment is around 25 million.

Europe is worse; not only is debt out of control, but the reforms needed to overcome inefficiencies in key economies are yet to be even debated.

Australia should not be waiting for another economic blow like last week before we get our act together. Australia needs to be as well prepared as possible in case the world economy falls into recession.

We don't need to panic. Australia is better off than some, so we have time for policy makers to seize the moment for necessary reforms. We ducked the worst of the first leg of the GFC partly because we had no debt. Now our debt levels are rising, government spending programs have been incredibly wasteful and our big exports to China mean we have a lot of eggs in one basket.

Gillard should have a mini budget as a platform to announce some structural reform and to cut back on waste and unnecessary spending.

Around the world other countries are introducing austerity packages. The Australian public are already steeling themselves for the possibility of tougher economic times. The statistics show they are saving more than ever. How is it that the Australian people can see what needs to be done but Canberra goes on spending?

A pre-emptive mini budget would be well received. The Australian public are not stupid. Politically, the public would welcome some sign, any sign that Gillard knows how to govern in the national interest. Taking tough decisions that are clearly justified would not be the end of Gillard, it would be the restart she desperately needs.

Her mini budget should preferably abolish the carbon tax, cut spending, abandon the mining tax and at least examine possible savings from the NBN. Now is not the time to be putting more costs onto business. Extra costs on business in the current economic climate are going to cost jobs. Gillard should be looking at how she can reduce costs on business.

US President Obama is expected to soon propose cutting payroll taxes. Gillard should be thinking if she could do likewise. The Coalition could complement Gillard's abolition of the carbon tax by scrapping Abbott's paid parental leave policy.

Then Gillard should turn her attention to some structural reform. The Reserve Bank Governor recently suggested labour market reform had to be part of the solution to Australia's woeful productivity performance and now the Productivity Commission (PC) has weighed in with some strong evidence of the need for change in the retail sector.

Gillard is always saying that Australians should follow the advice of economists on carbon policy, so she should accept the PS's advice that her legislation Fair Work Australia (FWA) is not working as promised. The PC has provided chapter and verse on many of the problems caused by FWA.

Of course the PC did not attribute every problem to FWA but there is now no doubt that there are significant problems with Gillard's reregulation of the labour market. For example, at the behest of the powerful shoppies union, Gillard disallowed working hours of less than three hours in the retail sector. This immediately cost young people their after school jobs in newsagencies and like businesses. Gillard said she would get the kids back to work, but after nearly two years the problem is still not fixed. And the PC notes that the restriction is not just about young people but for all casual workers.

There has been an ongoing effort to solve the issue but the PC says of the latest bandaid solution "there is a risk that the restriction will have a perverse effect on many of the casual employees it is seeking to protect". "It may... create an incentive for retailers to engage students where they might have otherwise preferred to have engaged a more mature or experienced adult worker".

The Coalition's response was that the Government's proposed review of the legislation should be brought forward. But the review will be an internal one, the bureaucrats will be handpicked by the ACTU and if the report says anything useful it will be buried.

A comprehensive review is a good idea, but for the retail sector we now have the PC report. The Coalition said it will respond to real problems with practical answers. Well, the PC has spelt out the problems in graphic detail so how about some policy?

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