NEWS

MYEFO will show Australia becoming a banana republic unless we reform

Monday, 19 December 2016
Image: Rick Stevens | Source: AFR

Image: In 1986 Treasurer Paul Keating warned Australians on talkback radio that we risked becoming a banana republic.

 

Tony Shepherd writes in the Australian Financial Review

The era of the Lucky Country is coming to an end as Australia approaches $350 billion in Commonwealth debt this year. Debt which is funding recurrent expenditure. There is no hope of recovery without serious reform which needs to address the fundamental role of government in Australia.

With the release of the Mid-Year Economic and Fiscal Outlook (MYEFO) today, all Australians must now acknowledge we are living beyond our means and borrowing to cover the shortfall.

Until the nation has a stronger sense of the challenges, it will be difficult to achieve any meaningful change. As it stands there is no consensus on the economic challenges and even less on how to deal with them. If we fail to address these economic challenges the burden will most heavily fall on the poorest Australians.

 

We cannot give up. The Menzies Research Centre has therefore decided to have another serious crack at addressing Australia's economic challenges with an expert, diverse review panel that I will be privileged to lead.

Learning from the Commission of Audit

In 2014 I chaired a review into Australia's finances which did not end up delivering the serious changes required to fix the structural deficit and consequent mounting debt.

The National Commission of Audit had a thorough process and sensible structure – but there are three lessons which we must heed.

First, we have to separate the problems from the solutions. Our problems include growing debt, falling competitiveness and, subsequently, a bleaker future.

 

We must till the ground and explain to all Australians the problems the nation faces. These problems are not insurmountable but the longer we leave it, the harder it will get.

If the community is unaware we have economic problems then they will hardly support the solutions. We can now see that the 2014 budget was a bunch of solutions to deal with problems that most Australians had never heard of.

This time we will ensure there is sufficient time for the issues to percolate. We will take the time to engage widely with a range of stakeholders, using the best data available to objectively present the facts on Australia's economic challenges before proposing options or solutions.

There are no quick wins or "rinky dink" solutions. We must patiently unpack the problems and explain them clearly and succinctly.

 

A just society means a strong economy

Second, I do not believe we have wide acceptance of a very important fact: the basis of a just society is a strong economy and a strong economy comes from the private sector. There is limited acceptance that Australia's households and families will suffer if we cannot reduce the national debt.

We now face the very real risk of a credit downgrade and have no buffer for the next inevitable crisis. We have low or slow growth.

The government's financial position is often considered as an abstract thing. It is not. Its health goes to the very sustainability of hospitals and schools. It goes to the sustainability of welfare and pensions.

 

Financial health of government also extends to whether business has confidence to invest in Australia at a time when there is fierce global competition for investment.

It is clear that private sector investment is on hold and this reflects a lack of confidence in where the country is heading. The proposed company tax cut is a great example of whether Australia wants to encourage investment and employment or do the reverse.

President-elect Trump wants to cut company tax to 15 per cent in the US and Theresa May is slashing the UK's to 17 per cent by 2020. We cannot pull the doona over our heads and oppose a modest cut of 5 per cent by 2025.

Overcomplicating things

Linking the nation's general prosperity to the community's ability to access health and education services – as well as finding a full-time job – is a harder task than I thought it would be. The truth is we have overcomplicated it when all we need to do is to tell the truth.

The truth is if we don't create a competitive economy with a sustainable budget, Australia will be a banana republic.

The third lesson is we must have a balanced, transparent, credible process of review.

We cannot have vague timetables or processes which cannot be widely understood. We must also draw upon a range of skills and backgrounds. The panel we have assembled has a mix of business and public sector involvement across large and small business. We also have diversity of age, gender and location.

The youngest member of our panel is under 30. He brings the perspective which has been missing from the public debate on public sector debt: we are mortgaging the future. Young Australians will be the victims of a toxic game of pass-the-debt-parcel. Their parents and grandparents are racking up the debt with no qualms about how it will repaid in the future.

The Shepherd Review, as we are calling it, plans to set out a statement of national challenges in February 2017.

This statement will catalogue and explain each major national economic challenge Australia faces as we approach the third decade of the 21st century. We will engage on these challenges across the community. We will return with options papers to address the challenges after the budget in May.

The panel will then consider submissions and make final recommendations by August 2017. We will publish all submissions and transparently present our blueprint.

For our children and grandchildren, we must aspire to remain the lucky country. If not, we risk becoming the banana republic of which Paul Keating so eloquently warned in 1986.

Tony Shepherd is a director of the Menzies Research Centre and chairman of the Shepherd Review

 

Read the official Shepherd Review Press Release here

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