Prime Minister John Howard and his Treasurer can be reasonably pleased that Australia has weathered the Asian economic crisis so well. On his return from a trip to the United States Mr Howard pointed out that Australia was being held in high regard in the US, and that this was one of the reasons.
Economists disagree on why Australia was not brought into the crisis, joining other nations in our region with spiralling interest rates and declining currency. However, several reasons come to mind. First, the Australian economy is much bigger than any other in the region. To the extent that currency speculators were hovering, Australia was too big as prey for them. Secondly, Australia’s currency has been openly traded and its financial system deregulated for more than a decade. The previous government can take the credit for that. Thirdly, the Howard Government has successfully dealt with government spending. That has kept inflation low. Fourthly, Australia has far better political and economic institutions. The separation of powers and a free and democratic system make corruption on a wide-spread official level virtually impossible.
So while Mr Howard is congratulating himself and his government, he should take some time to reflect on matters both economic and social.
He should recall that a decade ago he and his colleagues were urging radical changes to the Australian tax system so we could be competitive with the Asian tigers. They looked at their rates of economic growth with envy and dismay. They ignored that fact that the Asian tigers’ growth rates were coming off a low base. And now what has happened? Without resort to the Asian tax rates, which were hopelessly inappropriate for Australia, Australia’s growth rates are better than Asia’s and our economy is in better shape.
But the lesson has not been learned. In the US Mr Howard was again calling for radical change to lower taxes. He argued that we needed a lower tax regime to stay competitive, to attract capital from the US. He was even talking about zero capital-gains in order to attract US pension funds. It was a similar argument to the one we heard a decade ago about the Asian tigers. There may be some merit in changing the capital-gains tax regime, but let’s not do it because we feel we much have a system competitive with the US or competitive with Asia. Let’s not be too supplicant about it.
Mr Howard pointed out on his return from the US (not on the John Law show) that there was a “”new regard for the strength and maturity of the Australian economy”. Well, it is probably strong enough for us to devise our own tax system for our own conditions.
Moreover, if the Australian economy is so strong, it is now important to look more carefully at social issues. Mr Howard said upon his re-election that he would look more at social issues after his first term was dominated by economic issues. He said he would give attention to indigenous Australians, but he has done little about it. Yesterday he was given a reminder by his outgoing deputy, Tim Fischer, who said he felt personal sorrow and disappointment about progress in health and education for indigenous people.
Mr Fischer also pointed to the same Australian economic strength as Mr Howard and linked it to the possibility that Australia could use it to further reconciliation.
So while it is fine to bask in economic strength, as measured by growth rates and inflation, we need to ask, what is the economic strength for. Surely, it must be to further human happiness. That will require using some of the economic strength for Australians who are not so well off.
Good economic fundamentals are a means, not an end.