With Labor releasing its first budget late last month, a new set of assumptions, perspectives and priorities that guide the role of the federal government in economic policy was revealed. To understand what this inflection point represents, Honi spoke with Andrew Leigh, a former Honi Soit editor of ‘93 and professor of economics at ANU, who currently serves as the Assistant Minister for Competition, Charities and Treasury.
What direction does the new government want for the Australian economy?
Leigh has spoken publicly about the need for a “zippier” economy, with more dynamism and productivity. In a recent Sydney Ideas talk at Sydney University, he praised the Keating government’s competition reforms in the early 1990s, which he said boosted the Australian economy significantly by creating economic competition.
Leigh evidenced this problem with reference to the dominance of large corporations and the sluggish pace of innovation. “We’ve seen a decline in the number of startups in Australia, an increase in market concentration and markups,” he told Honi.
Honi asked how the recent budget intends to get Australia’s ‘zip’ back.
“The most recent budget invests in people, which is absolutely vital to getting a stronger economy for individuals, in infrastructure and in institutions,” Leigh said.
Leigh pointed to investment in new TAFE and university places, the development of transport infrastructure and the NBN, and institutional reforms to promote competition as reflecting the budget’s priorities.
The National Competition Policy, which was implemented in 1995, enforced a policy of ‘competitive neutrality’ that meant government-owned monopolies had to compete against private companies with no special advantages. The Keating government also initiated a programme of privatisation of government assets like the Commonwealth Bank, as part of a broader project of economic rationalisation.
Honi asked Leigh whether privatisation would play a role in creating a more dynamic economy two decades later. He responded that uncompetitive behaviour from private corporations is a chief concern now, particularly the mega-corporations that dominate the digital sphere.
He pointed to a number of challenges posed by an increasingly digital economy: the proliferation of fake online reviews, the lack of interoperability between search platforms, and the capacity for those running online marketplaces to preference their own products.
“We need to think about how our competition laws need to adapt to a world in which there is massive market dominance in social media by Facebook, massive dominance over online retail by Amazon, massive dominance of search by Google, recognising that we need to update laws in order to get a better outcome for consumers,” he said.
As for whether new innovations should be concentrated in specific parts of the economy, like green industries, Leigh instead suggested competition ought to be an economy-wide feature.
“It runs right across the economy. So you know, baby food, beer, the internet, service providers, health insurance, this isn’t just an issue of banks and supermarkets,” he said.
Leigh is a keen advocate for raising Australia’s productivity, which he says is the key for rapidly improving living standards. Yet productivity has not neatly been correlated with wage increases in recent years — in fact, the last decade of productivity growth has been met with no real wage growth.
“We’re also keen to make sure that workers get their fair share of the productivity increases that are happening,” Leigh said.
Leigh pointed to the Secure Jobs, Better Pay Bill, which passed the Lower House last week, as aiming to increase real wages. The Bill involves a set of reforms aimed at increasing unions’ bargaining power, including by allowing employees to bargain across multiple businesses and scrapping the Australian Building and Construction Commission.
“We need to ensure that we’re closing the gender pay gap. Getting real wages going again, getting flexibility back into the workplace for employees who want to combine work and family,” Leigh added.
Why a wellbeing budget?
One notable focus of the budget was the use of ‘wellbeing’ as a macroeconomic indicator, broadening the metrics pursued from simple economic growth.
Asked why the government is pursuing the ‘wellbeing budget’, Leigh told us: “It’s not enough for governments to look just at GDP. As important as that indicator is, we need to look at the number of years people are living and how healthy those years are. We need to look at the state of our natural environment and the strength of our community… So we are really updating budget metrics in a way that fits the norms of Australian society.”
Leigh pointed to health as an example of the sort of policy area that might get neglected if the government focuses only on GDP growth, rather than considering quality of life.
“To take a simple example of that, health investments in those who’ve left the labour market don’t flow through to have an immediate impact on GDP, but they have a huge impact on wellbeing,” he said.
However, in Leigh’s view, the wellbeing budget does not represent a move away from the pursuit of GDP growth. When Honi asked about the role of redistribution, rather than growth, in improving wellbeing, he replied, “I care a lot about inequality… But we also need to be increasing total output.”
Leigh, who described himself as a pro-growth progressive, added that, “Boosting living standards for everyone is the goal of the government… I think there’s a notion that you have to choose between equity and efficiency. You can have growth or you can have fairness, but you can’t have both.
“But an area like competition reform or expanding the opportunities for entrepreneurs from disadvantaged backgrounds or increasing the number of university places, all of those reforms that’ll be good for equity and good for growth.”
Given Leigh’s faith in the compatibility between equity and growth, it remains to be seen how significant the ‘wellbeing’ focus will be in changing Australia’s economic approach.
More to do on mental health, welfare and education?
Despite the wellbeing focus, change lags on some policy areas important to young people.
Leigh cited budget constraints as limiting the government’s policy responses to several issues. When asked whether the government would continue the increase to subsidised mental healthcare sessions under COVID-19, which is due to expire in December, Leigh responded that the government is prioritising mental health via early intervention and acute care programs.
As for the mental health sessions, however, he said, “I don’t have a particular answer on the number of sessions… other than to say that it’s certainly an issue that is raised with me. But with a trillion dollars in gross debt, we do have the challenge that we’re not able to do everything we’d like to do in the budget.”
Leigh had a similar response when asked whether welfare recipients could expect to see cost of living relief via increases to Youth Allowance and JobSeeker, saying that “It’s a challenge of making these things stack up within the fiscal envelope… If you go back three years, debt was free — now it comes at quite a substantial sticker cost.”
He added that, while university students might struggle to make ends meet at university, they can expect substantial returns through higher lifetime earnings in the long-term.
A recent report by the National Union of Students (NUS) suggested that lowering the age of independence to 18 could lift hundreds of thousands of students out of poverty. Honi asked whether this kind of welfare reform could help students to get through university and encourage more young people to seek a tertiary education, who might not otherwise access a degree.
Leigh argued that many people are facing financial stress at the moment, including students, but that the budgetary position meant the government had to accept trade-offs in spending.
“What we’re faced with is a budget, which is overloaded with Liberal rorts and waste and debt hitting nearly a trillion dollars. So on the face of that, we’ve had to make a number of difficult decisions. We’ll continue to look at all of these payments and do what we can for the most vulnerable,” he said.
It’s worth noting that, despite the government’s desire to restrain the national debt, they are continuing to enact the Stage Three tax cuts, which will cost the budget $254 billion over a decade.