ARE WE STILL THE LUCKY COUNTRY?

In October 2009 I delivered a paper to the Melbourne Mining Club titled “Being lucky is not enough”. In that speech I talked about how Australia could remain competitive in uncertain times and how we could foster strong sustainable growth into the future for the benefit of all Australians.

Australia still has enormous opportunity before it. We are positioned in a very unique way to benefit from the shift in the globe’s economic centre of gravity from the western world, to Asia. And we stand to benefit enormously from the emergence of the Chinese middle class over the next two decades.

Yet I am concerned future generations of Australians will look back and lament that we did not make the most of what lies ahead of us. I fear they will look back with regret that our leaders opted for the most politically expedient outcomes, not those that were in the best long- term interests of the country. I worry that future generations of Australians will have to contend with the results of ‘lazy reform’.

My concerns about the direction of our country have been brought to a head by the sovereign debt flare ups that we have witnessed recently, particularly in peripheral Europe and the US. These episodes have showed very clearly the ultimate consequences of poor policy design including lax fiscal policy.

It is true that our government balance sheet is currently in relatively good shape.

But this sort of loose thinking misses the simple point that our position today reflects the hard decisions taken over years gone by. Those decisions include obvious ones like how taxes are raised and spent, but also encompass reforms of the labour and financial markets in the 1980s, and the introduction of compulsory superannuation.

These were not easy reforms to make, but important reforms never are. They took political courage and an unyielding focus on what was in the national interest. It took a long time to determine what the best policy design was, and even more time and hard work building community support. Remember how long it took John Howard to build community support for the GST, which he took to an election?

Simple comparisons of Australia’s fiscal position to other countries also overlook the fact that things can deteriorate quickly both because of bad luck and bad policy design. As I am sure all of you are aware, in a very short space of time Australia went from having zero net public debt to an expected $220 billion peak in Commonwealth bond issuance.

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