Treasurer’s essay a call for new ideas

Treasurer Jim Chalmers’ recent essay on “values-based” capitalism has elicited strong responses from all sides of the economic debate. While it is encouraging to see Australians engaged in a conversation about the future economic direction of the nation, the intensity of the response has been surprising.

The reaction has no doubt been coloured by the Albanese Government’s recent energy-market interventions. They are a clear example of what happens when we fail to properly steward markets and address emerging challenges. We should avoid such scenarios in the future.   

But even before the pandemic, CEDA’s 2018 report Connecting People with Progress found that new ideas and approaches were needed to build the next generation of prosperity for Australia. This reflected the reality of our stagnating economic performance, the growing impact of structural challenges to the economy and acknowledged a growing societal disquiet.

In the same year, CEDA’s Community Pulse survey highlighted that Australians felt disconnected from the benefits of sustained economic growth. Fewer than 50 per cent of respondents indicated they had benefited from this growth, and only five per cent said they had gained a lot. At the same time, the community increasingly expected business to focus as much on its environmental and social performance as on its financial performance.

The challenges are well-known: slowing growth underpinned by declining productivity, and a lack of economic dynamism and diversity – we have too many eggs in too few competitive baskets.

On the social front, CEDA’s research drew attention to the entrenched disadvantage that prevailed, notwithstanding decades of sustained economic growth. This included recognition of intergenerational and post-code inequality – the fact that a small proportion of postcodes disproportionately accounted for a higher proportion of our most disadvantaged citizens.

At the time of Community Pulse, there was significant focus on income inequality. While our research concluded that aggregate income inequality had not worsened in Australia, the real purchasing power of lower income earners was affected by cost pressures for essential goods and services – food, petrol, education and health care. At the same time, their wages growth had flatlined. Responses to our survey were unequivocal: 79 per cent of respondents said the gap between the richest and poorest in Australia was not acceptable.

This occurred as structural challenges such as an ageing population and the moderation of globalisation created headwinds for future growth. We were also facing up to the challenges and opportunities of emerging technologies and decarbonisation.

A call for new ideas

Now, in 2023, the list of challenges keeps growing: heightened geopolitical risks; global energy-market dislocations, lingering supply-chain issues; a struggling health sector; and the fiscal legacy of the COVID-19 pandemic.

We must now consider whether our current policy settings and institutions are fit for the future. In that context, we should welcome the Treasurer’s essay. CEDA took it as a call for new ideas, debate and evidence; for a sharper focus on outcomes, priorities and evaluation. We should be willing to engage in policy discussion with a Federal Government that is prepared to discuss new ideas – one that is squarely focussed on delivering better outcomes for Australia and building a new generation of prosperity that reflects the wicked challenges of our times.

The approach CEDA took in Connecting People with Progress was to acknowledge the tremendous progress achieved through nearly three decades of sustained economic growth – with many Australians becoming healthier and better educated, living longer and enjoying financial security – and outlining a framework to build on that experience.

We acknowledged the critical drivers of past prosperity:

• Market reforms that drove competition, innovation and trade liberalisation and therefore increased access to better goods and services;
• Access to new ideas and skills through immigration;
• Robust and effective institutions, including improvements to the operation of our Federation; and
• A strong social compact.  

We called for more nimble policymaking and greater collaboration between business, government and the community.  

The role of markets

But the issue that has attracted the most attention in the Treasurer’s essay is the role of markets in delivering future prosperity. This is important and merits real debate and analysis.

Specifically, the questions we should address are:

• What are the economic and social outcomes to which we are aspiring?
• What is the role of markets in meeting those outcomes?
• How do we shape markets to deliver these outcomes in the best long-term interests of the community?

These were also the questions at the centre of the 2015 Harper review of competition policy.

There are some important considerations to add here. Firstly, markets don’t exist for all things, including for natural capital. This explains how we got to where we are in our climate change response. Likewise, the explosion of digital technologies and digitisation is fundamentally reshaping markets in ways that are challenging competition policy around the world. Finally, many of the services fundamental to wellbeing and prosperity – health, aged and disability care – are characterised by significant government funding and provision across multiple jurisdictions and funders, and this must be reflected in market design.

I would have liked greater insight into the Treasurer’s thinking on the design of markets beyond the role of investment. I am thinking here of how markets for human services work, and critical issues of choice and contestability. How do we design markets that create the right incentives for operators, for innovation, to improve service delivery and to provide options that meet the needs of consumers and clients? How are these markets funded and who pays for these services? These are critical market-making questions.  

Returning to the question of policy more broadly, we support the Treasurer’s call for a more independent and robust Commonwealth Intergenerational Report and would ask him to consider our recommendation that the independent Parliamentary Budget Office be tasked with this.

Over the year ahead you can expect to see new CEDA research on some of our key themes including: disrupting disadvantage; business dynamism; migration; and aged-care funding. These are all critical issues for the future prosperity of the nation.

We will continue to work with the Government through its inquiry processes and in forums such as the Ministerial Advisory Committee on Skilled Migration.

CEDA has a strong appetite for the “straight talk about our national challenges” the Treasurer highlights in his essay. We will continue to pursue this conversation through all of our platforms, and we take the Treasurer at his word when it comes to working collaboratively to drive change, focus on evidence and evaluate outcomes.