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Can these economists turn things around for Australia's betrayed generations?

By business reporter Gareth Hutchens

9-12 minutes

In recent weeks, key members of Australia's last generation of true economic reformers have been speaking up with urgency about the poor state of our economy.

Professor Ross Garnaut, former Treasury secretary Ken Henry and former competition tsars Allan Fels and Rod Sims have each been in the news lately.

All were deeply involved in the reform era of the 1980s and 1990s, when the Hawke and Keating Labor governments restructured Australia's economy to drag it out of a period of stagnation.

And now, decades later, they're ringing alarm bells again.

"Why are you hearing more of these older voices? Because we've just had the worst decade ever for economic performance in Australia's history," Garnaut told me last week.

"This last decade, starting in 2013, was the first decade in our history where real wages were — on average — lower at the end than at the beginning. You can't find any other 10 years since Federation where that has happened.

"That's why old people like us feel like we can't keep quiet. It's a catastrophe."

Australia's superpower export economy

Garnaut, with Professor Rod Sims, delivered an important speech at the National Press Club last week and unveiled a big new idea.

They are both directors of a new think-tank, The Superpower Institute, which Garnaut founded to change the narrative about climate change and Australia's economy.

Garnaut was principal economic adviser to prime minister Bob Hawke from 1983 to 1985, as was Sims from 1988 to 1990.

They both say our national debate about what a low-carbon future will look like has been too focused on what Australia will lose from the energy transition, as the world's largest exporter of gas and coal taken together.

They say we're forgetting to think of the huge advantages Australia will enjoy in a low-emissions future, given we have the world's best combination of solar and wind energy resources and some of the world's largest resources of the critical minerals needed for the energy transition.

They say we'll gain immensely from manufacturing green iron, green aluminium, green transport fuels, green urea and green silicon, and it will make economic sense to manufacture those products in Australia for export using the world's cheapest renewable energy.

They say the economics of commodity exports and manufacturing will be flipped on their head in the new world, to Australia's great advantage.

"Australia can have more employment and higher incomes in the relatively short term, and be much richer in the longer term, by moving early and decisively in building and expanding the zero emissions superpower export economy," they say.

"If Australia seizes the opportunity, it can repeat the experience of the China resources boom which peaked around 10 years ago. But this time the opportunity can be sustained, rather than boom and bust, and we can manage it better for broadly based development."

Which brings us to their big idea.

Recovering from our 'lost decade'

In their Press Club address last week, Garnaut and Sims said policymakers could help to transition Australia's economy into an advantageous low-emissions future by placing a "carbon solutions levy" on this country's fossil fuel extraction sites from 2030-31, at the same level as the European Union carbon price (about $90 a tonne of carbon dioxide).

They said such a levy would initially raise more than $100 billion in revenue a year, declining slowly as fossil fuels exited Australia's economy over time, and that money could be used to underwrite Australia's renewable energy transition while over-compensating households, slashing electricity bills by $440 a year and removing all petrol and diesel excise, and significantly lowering inflation.

"Our main message today is that export of zero-carbon goods can underpin a long period of high investment, rising productivity, full employment and rising incomes in Australia," Garnaut told the audience.

"The superpower transformation can put us back on a path to higher productivity and living standards after a lost decade."

But he also predicted how the current generation of politicians would respond to his idea.

"We expect that the established political parties will rule out this suggestion," Garnaut said.

"That is the way ideas for efficiency-raising reform are discussed in contemporary Australia. [But] that will not be the end of the matter. If there is continued community interest and growing support, political leaders will come back to it."

The intergenerational tragedy for younger Australians

And then there's former Treasury secretary Ken Henry, who has also been warning about the state of things.

Dr Henry was the last person to subject Australia's tax system to a root-and-branch review, back in 2008-09.

The final report from his tax review was published in 2010, and it made 138 recommendations — a wish list of tax reforms to set Australia up for the 21st century — but few were implemented and two of those that were introduced in some form were later repealed.

Last week, he warned that our tax system had deteriorated to the point that he was worried about Australia's "social compact" holding together.

"We're in a worse position now than we were 15 years ago when we were writing the review," Dr Henry told the ABC.

"It's an intergenerational tragedy that we have allowed this to happen."

Henry was an economic adviser to Labor treasurer Paul Keating from 1986 to 1991, and served as an Australian representative to the OECD from 1992 to 1994.

He said tax reform took time, and it helped to be extremely patient when calling for reform if you wanted to keep your sanity.

He said many of the big tax reforms of the 1980s and 1990s had their genesis in the Asprey Review of 1975, with the GST being one of them, introduced by Liberal prime minister John Howard in 2000, 25 years after it was recommended by Kenneth Asprey.

He said he was under no illusions about the time it took for true tax reform to occur in this country.

But even still, he said, he was despairing about the condition our tax system had fallen into, as successive governments had failed to adapt the system to huge changes that had occurred in the global economy this century.

Ken Henry, former Treasury secretary, says the benefits from introducing the GST in 1999 have been "completely undone".(Source: John Gunn, ABC News)

He said intergenerational unfairness had now become embedded in the tax system, and housing, the state of climate policy, and the Commonwealth's over-reliance on taxing workers' incomes were three areas of major policy failure.

He said workers were now shouldering far more of the tax burden than they were 15 years ago because other taxes had been generating less revenue over time.

"The only Commonwealth tax that is growing as a share of GDP is personal income tax," he said.

Meanwhile, earlier this month, Professor Allan Fels published an 80-page report, commissioned by the Australian Council of Trade Unions, on the pricing practices of Australia's largest companies.

Professor Fels said Australia's modern economy had become dominated by a huge number of extremely powerful companies that were exploiting their market power to rip off customers and kill competition, and governments were not paying the issue enough attention.

A public policy tradition

I asked Professor Garnaut why key members of the older generation of economic reformers were increasingly speaking up these days.

He said he belonged to a generation of economists who had been encouraged by their professors, while students, to contribute to democratic civil life.

"I grew up in an environment of economics in which interest in public policy, thinking through the current issues, was seen as being central to the job of an economist," he said.

"I was at the ANU with people like Nugget Coombs and John Crawford and the next generation like Heinz Arndt and Max Corden, who encouraged that sort of thing."

One of those men, John Crawford (1910-1984), was a pioneering advocate in Australia of the belief that good democratic government relied on a quality bureaucracy, with top public servants and officials performing a vital function, like "statesmen in disguise", who could make welfare-enhancing contributions to policy as trained analysts and advisers.

Garnaut said there were some younger economists doing good public policy work in Australia today, but he felt something had changed in Australia in recent decades, including within the media, and the quality of our national conversation about policy wasn't as good as it used to be, and it was undermining our politics and economic performance.

"The causation runs two ways," he said.

"One of the reasons for our political instability over the last decade has been a grumpy electorate, because incomes have stagnated. Ordinary people are doing it tough. They know they can't get a house as easily as their parents did and it makes them grumpy.

"It's really extraordinary that the longest term a prime minister has had since 2007 is three years. There were a few duds amongst those prime ministers but they weren't all duds, and I think the grumpy electorate from the poor economic performance and worsening income distribution of the last decade has put some tension in society that's contributing to our political instability, and the political instability itself contributes to bad policy," he said.

So, I asked, if politicians seized the opportunity to turn Australia into a renewable energy "superpower", as he's suggesting, could that fix our problems with declining real incomes, inflation, and deteriorating living standards?

"And will our democracy start working better and we'll get better policy?" Garnaut asked in reply.

"Yes, I really think that. That's what we're hoping," he said.