There is a new global economic environment arising from a more difficult politics.
The very heart of the European project – pooling sovereignty for growth – has been wounded. Across the Atlantic, many are experiencing diminished prosperity. The Chinese economic miracle – of which Australia has probably been the greatest single beneficiary – is slowing. Projected new miracles in emerging economies have yet to come to the fore.
Companies are not investing, despite the corporate world being flush with cash. The cost of debt is at historic lows, and bizarrely negative in some countries. There is a need for that cash to find an investment home.
And then there’s the digitalisation of the global economy…
It is an exponentially more complex world. And while much is far from clear, some things are certain. Technology disruption is here to stay. Volatility is here to stay. Slower economic growth rates are here to stay.
Political malaise and reform depression are untenable. The cost of inertia is rising, as Standard & Poor’s is reminding us.
Our focus must be on what can, and will be pursued, rather than what we can’t do. Reform measures that improve our productivity and set us on a sound fiscal path for the future are more critical than ever.
In the next 3 years we need to consider measures to reduce our structural budget deficit, both on the revenue and expenditure side.
We must continue to embrace tax reform. Superannuation changes cannot be pushed aside. Company tax reductions remain critical for future foreign investment.
Reforms involving better interaction between the tax and transfer system could reduce high effective tax rates, particularly for women working part-time and seeking to increase their hours of work. Such measures could significantly lift female participation rates and hence our productivity. Reforms to improve our Federation and replace highly inefficient state taxes with more efficient ones should also be part of the future Council of Australian Governments (COAG) agenda.
Ultimately, we need a focus on outcomes in the negotiation and compromise that we will see in the 45th Commonwealth Parliament. We need to look forward to raising the bar of the level of political discussion. We must embrace reform if we are not going to be left behind.