Another economic crisis and the cupboard appears bare

“The problem with Australia is that whilst it might handle adversity very well, it doesn’t handle prosperity very well at all,” says Steve Miller, Black Rock’s departing head of Fixed Income.

Nothing could be more true of the past 26 years of continuous economic growth in Australia. Built on the back of the Hawke and Keating governments' response to Australia’s last economic crisis, we have been the envy of the world.

But not any more, because within these past 26 years has been prosperity: Australia’s largest mining boom, pouring surplus income into government coffers, and wasted by the Howard-Costello government on unsustainable transfer payments (read the Baby Bonus), PAYE tax cuts, unsustainable uncapped superannuation retirement benefits and temporary fuel tax indexation reductions, all done for short-term political advantage.

There's nothing to show for future generations except a narrow-cast Future Fund to offset Commonwealth unfunded superannuation liabilities. No sovereign wealth fund to fund infrastructure, no investment in education, no significant investment in research and development.

So here we are in another economic crisis and the cupboard appears bare. Yet, on this anniversary of the passing of arguably Australia’s greatest prime minister, Bob Hawke, we could do worse than look to him for inspiration on how you bring the country together through reforms that will increase productivity and drive economic and job growth.

We need a new accord with government, unions and industry around a new set of reforms to build a sustainable recovery. The Prime Minister’s announcement on Tuesday is the first step, but without industry-wide bargaining, it is near-impossible to achieve real social wage offsets. The PM will need to stare down his backbench to achieve this breakthrough.

This new accord should build on the current initiative by the unions and industry to keep building and construction going through COVID-19 and the leadership of the ACTU in advocating and supporting JobKeeper and JobSeeker programs.

This accord should build on five key themes.

First, skilling the nation. Nothing will increase productivity more in an advanced economy than investment in education, leading to a skilled workforce to take advantage of key technology, advanced manufacturing and industrial design opportunities. Our universities are research and development incubators, but with the drop in international students and a cap on funding places, they can’t reach their their full potential in skilling Australians and undertaking research.

Second, a compact for income security. We won't be able to stimulate the economy without real wage growth and an increase in statutory incomes and benefits. We need demand underneath the economy which only increased spending by all Australians can provide. By moving to industry-wide bargaining from enterprise bargaining, real wages will increase while a social wage (superannuation, universal health care, childcare) can more easily be part of the compact. Statutory incomes need to rise (and equalise). Keep the JobSeeker increase long term, equate it with other statutory benefits over time (such as the age pension) and provide regular indexation.

Third, the Commonwealth should directly invest in infrastructure. Through compulsory superannuation, Australia has more than $3 trillion of funds under management. Of this, about $360 billion is available for infrastructure investment. Yet due to the rate of return required by funds, a large portion of this investment heads overseas. The Future Fund should become a real sovereign wealth fund and fund the differential required for superannuation funds to invest in Australian infrastructure. If this was in place from the start of the Future Fund's existence, we would already have a very fast train from Melbourne to Sydney and there would have been no need for Chinese investment in the Port of Darwin. Greater investment into infrastructure will also be enhanced by maintaining the planned superannuation guarantee increases.

Fourth, we need a comprehensive plan for import replacement in key supply chains and for advanced manufacturing. This would have been easier if the Abbott government had not driven the automotive industry offshore when our exchange rate was at parity with the US dollar. Imagine how many Toyota Camry and Holden Caprice cars we would be exporting now at an exchange rate of around 65 cents. Nevertheless, it is not too late to look for new opportunities in battery storage, electric vehicles and renewable energy developments.

Finally, climate change. Australia has great opportunities for investment through a zero carbon emissions policy. Professor Ross Garnaut has mapped a way forward for Australia to be the natural home for an increased proportion of the global post-carbon industry. We have unparalleled renewable energy resources and the necessary scientific skills. All we need is policy certainty and stability through a price on carbon to address the risks and opportunities which climate change presents.

All these initiatives can only be achieved through a new accord with government, unions and industry. Hopefully the aftermath of the COVID-19 crisis is the breakthrough impetus needed to achieve this. One thing is certain — to do nothing will inevitably lead to a different, more dispiriting next 26 years.

Steve Bracks was Premier of Victoria from 1999 to 2007.