David Leyonhjelm on growth and productivity

Op ed in The Fin last Friday.

When the new Reserve Bank Governor testified before a parliamentary committee recently, some Labor politicians who love big-spending saw an opportunity. They quizzed him on the global failure of low interest rates to boost ‘aggregate demand’ — the sum of all spending in an economy — and raised the case for more government spending to boost it. The new Governor, keen to be polite and appear impartial, fell for the trap. While he rejected the relevance of the question for Australia, he went on to muse about global conditions and the general case for government spending on infrastructure.

That was enough for commentators of the left to declare that the new Reserve Bank Governor supports more, smarter government spending. Infrastructure is it, they reported him saying, and conveniently left out any reservations about Australia.

In fact, the rest of the Governor’s testimony was actually a defence of supply-side economics that would have made Reagan and Thatcher proud. Because while the Reserve Bank Governor is responsible for managing ‘aggregate demand’ through adjusting interest rates, he is acutely aware that this is not the sole, or even the key, driver of incomes and employment in Australia. More important is ‘aggregate supply’, the economy’s capacity to produce useful things.

Within government, responsibility for ‘aggregate supply’ actually rests with the Treasury, which is tasked with minimising the damage that regulators and tax authorities inflict on the productive capacity of the nation. The Reserve Bank Governor is not part of Treasury, but this did not stop him from outlining the important ‘supply side’ reforms that Australia desperately needs to pursue.

The Governor lamented the planning rules imposed by regulators that constrain private sector investment in infrastructure, and criticised government spending on infrastructure without a business case. Such spending can depress our income and employment growth by increasing the tax burden on business, without providing an offsetting boost to business conditions.

The Governor also highlighted the fundamental importance of ‘structural reform’. This refers to the removal of regulatory and tax impediments that discourage businesses from expanding their production and employment. The Senate select committee inquiry into red tape, which I established this week, will be taking a close look at aspects of this.

Every cost that Australian businesses face can be reduced through structural reform, to the benefit of profitability, incomes and employment.

Business input costs can be reduced through removing such things as import tariffs, the ban on importing second hand vehicles, and cost-padding regulations on imports like timber products.

Energy costs can be reduced in the near term by abolishing the renewable energy target, which encourages the replacement of cheap power sources with expensive and unreliable ones, and in the longer term by removing the ban on nuclear power.

The costs of employing staff can be reduced without reducing take-home pay by abolishing workplace regulations like unfair dismissal laws, which only serve to keep labour lawyers in steady employment.

The costs of obtaining finance can be reduced by relaxing prospectus requirements and other corporate regulations for all businesses, not just for start-ups. The costs of complying with regulations can also be reduced by removing duplication of state and federal environmental approvals, and by accepting regulatory approval in one jurisdiction as sufficient for another jurisdiction.

And the cost of business generally can be reduced by the Senate passing the Government’s business tax cuts coupled with its paring back of government spending.

Structural reform to expand production and employment also involves removing barriers to private businesses expanding into new markets. Barriers arise whenever governments give incumbents power to prevent new entrants under the pretext of quality control, such as occurs within the legal, pharmacy and medical professions. And the biggest barrier to the expansion of private businesses in a market occurs when government decides to provide a service itself and make it free, such as government-owned hospitals, schools and media.

The Reserve Bank Governor noted in his testimony that Australia’s economic growth of 3.3 per cent is above trend. This shows there is no case for increasing government spending on public servants or handouts to businesses and individuals. The economy does not require stimulating and there is no case for budget deficits and debt. However, there is always a case for expanding our economy’s productive potential. All this requires is for government to get out of the way.

David Leyonhjelm is a Senator for the Liberal Democrats

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17 Responses to David Leyonhjelm on growth and productivity

  1. Bruce of Newcastle

    Good stuff from Mr Leyonhjelm.

    The costs of complying with regulations can also be reduced by removing duplication of state and federal environmental approvals

    I think it is worthwhile mentioning that Mr Trump has announced that his policies include to reduce company tax to 15% and to shut down the USEPA, which has been complicit in exactly the above.

    Emails show indications that the EPA is corrupt – kowtows to green groups

    Maybe an Australian politician might like to adopt both those policies here.

  2. Tel

    I’ve heard about the possibility of creating an incentive to work, simply by allowing people to own private property and keep the wealth that they produce.

    Do you think that’s worth a try?

  3. Oh come on

    Crikey. I know Judith’s been heavy-handed with the bold lately, but Rafe has one-upped her by bolding the entire article – AND attached dozens of tags!

  4. Gab

    I’ve heard about the possibility of creating an incentive to work, simply by allowing people to own private property and keep the wealth that they produce. Do you think that’s worth a try?

    Novel idea that won’t work in this society where 48% are telling politicians that the other 52% need to pay more taxes. And the politicians agree.

  5. Gab

    #2174546, posted on October 16, 2016 at 7:40 pm

    Loon alert!

    Don’t be so hard on yourself.

  6. Snoopy

    I see I have to spell it out for Gab.

    I a.p.p.r.e.c.i.a.t.e.d. T.e.l.’.s. c.o.m.m.e.n.t.

  7. Andrew

    Hopefully the second (and the absence of another DD election, probably the last) for the LDP will look nothing like the first. More serious tax and productivity policy discussion (hint: at least two states can no longer produce anything like the electricity they need to survive; we are about to announce tens of $billions of writeoffs of a worthless phone network); less Triggs, gays, Wong, lax borders and stupid videos for Twitter.

    Almost nobody voted for a lower taxing Sarah Sea-Patrol; twice as many voted for clueless far-left Hanson FFS, because she concentrated on the issues people care about.

  8. marcus Oh really us.

    Hanson far left. That memo was not circulated in to my in tray.

  9. Rafe Champion

    Liberty Quote

    The financial acid test of most ‘public’ services is whether the people for whom they are supposedly intended would pay for them. Let government and subsidised ‘public’ services be judged not by politicians and lobbyists but by the people for whom they are intended.

    — Arthur Seldon

  10. Mark A

    You crazy optimist you. LOL

    PS, don’t hold your breath.

  11. Thefrolickingmole

    I’d also ask for any appeals against developing be restricted to one omnibus appeal rather than strategic law fare designed to make starting work decades away.
    All costs, including opportunity costs to be borne by the group opposing.
    Oh and RABZ the abc.
    Start any reply to a special pleading for funding with ” well just take that from the abc/arts budget” and if they winge accuse them of drowning puppies/sodomizing greyhounds, whatever the sob du jor is for the da.

  12. Gardez Bien

    Don’t forget government set hourly rates and penalty rates. Mostly it is a case of government getting out of the way.

  13. Baldrick

    More like this from DL please and less on lefty fringe issues.

  14. OldOzzie

    God Help Australia with Construction

    Concrete Truck offloading concrete into Pump Truck parked with space to get by on Normal Street – 2 Stop/Slow Lollypop Holders either end controlling traffic for no obvious reason.

    Brick truck offloading Pallet of Bricks to sidewalk in our street, again Ute with signs parked before , plus the ubiquitous 2 LollyPop men with Signs – WTF?

    Multiply that across Australia and what cost does it add to building – unbelievable.

    In Switzerland – Guy about to whipper-snip grass on main road, puts out triangle before where he is working, no change in speed limit.

    We have lost the Plot in Australia.

  15. DtjW

    OldOzzie – NBN pit with 900mm high, bright yellow, metal fence surround that also requires a warning message, “Pedestrians this way” with helpful arrow directing people to walk around said bright yellow metal fence. Does the government think we are really that stupid that we have to be directed around a barrier?
    Makes me laugh every time.
    What doesn’t make me laugh is the cost of producing these signs for every pit fence for the NBN. Just another superfluous cost at the expense of taxpayers.

  16. Michael Cunningham aka Faustino aka Genghis Cunn

    I had dealings with Philip Lowe many years ago when he was a Reserve Bank researcher and I was at EPAC, and got a very good impression. First impressions of him as governor are that he might be more cognisant of and supportive of genuinely helpful economic policies than several of his predecessors. And will be something of a counterweight to Martin Parkinson, a poor choice for PM&C head.

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