‘Big’ no longer beautiful for Australia’s reform agenda

With Tony Abbott’s political capital at a new low, he’s shifting the focus from big reforms to small wins. David Crosling/AAP

As the haze lifts (in the short term at least) on Canberra’s leadership ructions, we can see the extent of the car wreck that is Australia’s economic reform agenda.

“Political uncertainty hits business”, screams one headline.

“Wrong turn on budget repair”, says another.

They’re right.

The reality confronting even the most optimistic reform advocate is that little of reform substance will now emerge from the current government, and probably the next.

This at a time when the tide continues to go out on the mining boom, the jobless rate hits 13 year highs, and reform of our economy is becoming increasingly urgent.

A year or so ago all seemed possible.

The corporate sector lobby had done a lot of ear-bending in Canberra to shape much of the tone and substance for a “big-bang” approach to economic reform.

So it was delighted to see tax reform, workplace relations, federal-state relations, budget repair and infrastructure all on the table – at the head of which was a new “business-friendly” government with a big stock of political capital and an apparently big reform appetite to match.

One terribly-conceived federal budget later - compounded by repeated missteps and gaffes by the prime minister and his senior team - and all this has given way to plummeting opinion polls and a backbench revolt.

When political leadership is under such potentially terminal pressure, the animal ‘ism’s of politics take over.

New agenda: survive

Ad hocism, populism and short-termism become the forces that drive the most basic of political instincts – survival.

All are anathema to the mind-set and long-term vision needed to drive big policy debate and big reform decision-making.

Until now, the government could blame a hostile Senate for frustrating its agenda and creating policy gridlock around changes like tertiary fee hikes and fuel excise increases.

But all these ‘ism’s are now on display as the government sounds a full-blown retreat from its own reform agenda.

The scope of the retreat may not be that obvious at the moment.

But vague words pointing to a softer, “family-friendly” budget in May, and the government’s recent announcements on tax point to a new and different “reform” paradigm.

This is one where all things “big” in terms of economic policy reform are out, while all things “small” are in.

Incremental, politically-friendly change – aimed at protecting the interests of constituencies that the government can use to rebuild political capital - will now be the order of the day.

Big, crash-through reform like the 2014 budget - seen as appeasing the reform desires of big vested interests, particularly the corporate sector - is definitely out.

Abbott at a business event in November: what a difference three months makes. Dan Himbrechts/AAP

Tax tussle

To illustrate: the original tax reform promise by the Abbott government to big business was a “root and branch” review of Australia’s tax system.

The carrot for the big end of town was a reduction in the corporate tax rate, to offset the impost levied on them to fund the prime minister’s “pet” paid parental leave scheme (PPL).

Also implied was the promise to business of a streamlined, 21st century-ready system to replace the current red tape driven regime.

With Tony Abbott abandoning the PPL two weeks ago, the corporate sector expected some immediate indication of tax relief.

What they appeared to have got instead is the worst of all worlds – a piecemeal, ad hoc tax “policy” aimed at appeasing growing populist forces on the government’s backbench, and ultimately its small business constituency.

The government has confirmed small business will get a tax cut.

But corporates now fear theirs may be held off indefinitely to pay for budget repair as well as social services aimed at winning popular support.

What’s more, the potential move threatens to create a 1950s-style two-tier business tax system with all the red tape headaches and complexities this implies.

Despite other likely backflips and self-imposed policy gridlocks, the government will continue to portray itself as economic reformers committed to systematic change.

That’s why its tax reform “white paper” will be released with fanfare within a few weeks, kicking off a public consultation process on tax reform, including a possible rise in the GST.

But with the government subsisting on very low levels of political capital, no-one should expect major change to a system notoriously difficult to discuss, let alone reform, without creating significant public angst and opposition.

The same applies to workplace relations changes, significant reform of federal-state relations, strategic national infrastructure planning, higher education changes or Medicare reform.

The list goes on.

A return to voter hand-outs?

Fiscal repair will continue to take centre stage because Australia’s balance sheet continues to deteriorate at a rate of knots.

But talk of a “budget emergency” and a combative, sturm und drang approach to spending cuts is likely to be replaced by a more incremental approach to budget reform.

Timelines to fix the budget will be pushed further and further out, giving more scope for voter hand-outs at the expense of investing in others areas of major reform.

The corporate sector senses that on the back of the prime minister’s leadership travails as well as the Queensland and Victorian state election results, the government is jettisoning its commitments to “big” economic and fiscal reform.

Predictably, business leaders are now bemoaning the lack of political leadership.

Some argue privately that swapping Tony Abbott with Malcolm Turnbull will instantly breath new life and credibility into Australia’s economic reform agenda.

But they should realise that underpinning the immediate paradigm shift from “big” to “small” reform lies a deeper shift in public opinion.

In a post-GFC world, the voting public is highly sensitive to market forces getting it wrong.

And it is more wary than usual of sweeping claims that “all-or-nothing” market-based solutions - like deep public spending cuts and price signals at the core of the 2014 budget - can be applied as fair and effective panaceas to policy problems.

To help get big reform back on track, trust and fairness – the two issues that have effectively destroyed the Abbott government’s fiscal and economic reform agenda – need to be addressed head-on.

“Fairness” requires far more attention to social policy - not just as a sub-set of economic or fiscal change, or the occasional rhetorical reference to the importance of social equity.

Sizable adjustment packages targeting reform “losers” as well as far greater policy commitments aimed at bringing the marginalised into the mainstream economy need to be sold as integral parts of the bigger reform package.

Most of all, true reform requires more innovative solutions to grow the economy, rather than just blunt austerity measures which – as the post-budget economic environment has demonstrated - crimp consumer demand and confidence.

Being on the run and on the nose, the Abbott government hardly has the strategic capacity and credibility to refashion its policies and narrative along these lines.

Maybe the next government - Coalition or Labor - might have a chance.

But until then, far from “root and branch” reform, we’re likely to see only minor pruning and a light sweep of the garden.