Opposition Leader John Howard’s “”headland” speech identifies why Australia is in an economic bind. The nation was rightly opened up to international competition with deregulation of the financial and foreign-currency markets and the reduction in tariffs. However, without extensive reform in Australia, Australian industry would be left behind. There was some reform, but not enough. The major stumbling block was reform of the labour market. Mr Howard said yesterday that this was because the Keating Government was bound to look after its mates in the official positions in unions. It meant not only a failure to reform industrial relations but also a failure to reform critical parts of the transport system and public-sector utilities where unions were strong.
Mr Howard rightly points out that continued tariff reform which benefits consumers with cheaper prices cannot go ahead without commensurate reform in the labour market and transport system, otherwise the foreign debt would blow out further.
Mr Howard is right to focus on Australia’s foreign debt as the nation’s primary economic problem. Some debt is fine if it is financing investment that will repay the debt, create employment and leave an asset after the debt has been repaid. However, the evidence suggests that much of Australia’s foreign debt is not doing this. The result is that confidence in the Australian economy is at risk. It means that the economic levers that Prime Minister Paul Keating is so fond of talking about are not as effective as they should be. The large debt means that if economic growth runs too high, the only way to control a further surge of imports is to raise interest rates with the flow-on of business slow-downs and closures and job losses.
Tragically, none of this is new. The message has been the same for at least three years. But there are several differences in circumstances that make Mr Howard’s The difference now is that three years’ experience, if anything, reinforces the truth of the message. It shows that each of Mr Keating’s explanations each set of gloomy economic statistics are spins and that the promises of better things never come to fruition. How many more spins are needed? Thirdly, the three years have shown to some extent what is possible with the sort of reforms Mr Howard is pointing to by reference to New Zealand, which is ridding itself of debt, has lower unemployment than Australia and whose currency has improved while Australia’s has fallen.
There is a further difference. Mr Howard realises the danger of detailed prescription. Yesterday’s speech explained the need for change and the direction of change. It avoided detailing specific spending cuts. That is a calculated risk for Mr Howard. In the absence of a response to “”where are the cuts coming from?” voters might assume the worse. Against that, a general fear is less likely to sound in vote losses than the prospect of a specific loss.
The commitments in yesterday’s speech are far more likely to haunt Mr Howard after the election if he wins it than in the lead up to it. He has promised independent benchmarks to measure international competitiveness; the Commonwealth’s financial position; and detailed monetary policy statements by the Reserve bank. Mr Keating may not like it, but it is good pre-election politics and good post-election policy.