AceBusinessDesk – In 1983, Gerard Henderson wrote a famous article: It was titled “The Industrial Relations Club,” and it described the vested interests that had grown like weeds around Australia’s wage-setting institutions and been responsible for some of the economic malaise of the 1970s and early 1980s.
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Henderson said the “IR Club,” whose members included the Conciliation and Arbitration Commission, the ACTU, employer groups, and some government departments, had far too much economic influence.
He said its members often disregarded economic realities and secured excessive wage increases for workers that worsened inflation and drove unemployment higher, while leaving governments to suffer the political consequences at the ballot box.
“A key sector of the Australian economy is virtually controlled by club members,” he wrote.
“There is no simple solution to Australia’s industrial relations problems. Nor can there be. The IR Club is almost 80 years old and its impact cannot be suddenly overturned.
“A reforming government which seeks to achieve changes in industrial relations will have to take on not only the union leadership and the IR bureaucracy – it will also have to confront industrial ‘heavies’ in some employer peak councils,” he said.
It contributed to an energetic political movement in the 1980s and 1990s that successfully dismantled Australia’s old wage-setting institutions and replaced them with a new model, destroying key elements of the IR Club in the process.
In the decades since, Australia’s economy has been rebuilt on a different growth model and new vested interests have entrenched themselves in key sectors of our economy.
His article was influential.
If you wanted to write a Henderson-type article today, about the groups (and their networks) that were preventing governments from pursuing the reforms needed for Australia’s economy to flourish, you’d have different targets.
But that was 40 years ago.
And you’d start with “The Property Investors’ Club” and “The Fossil Fuel Club.”
It’s an intergenerational tragedy
How many times do we have to listen to experts calling for serious tax reform before we do something about it?
Practically everyone agrees our tax system isn’t fit for purpose anymore.
A few months ago, former treasury secretary Ken Henry warned Australia’s tax system was in a worse position now than it was 15 years ago, and young people were paying the price.
He said policymakers had allowed intergenerational unfairness to become embedded in the 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.
“It’s an intergenerational tragedy that we have allowed this to happen,” he said.
But in the three policy areas Dr Henry highlighted, vested interests have been working hard for decades to prevent meaningful reform.
In Henderson’s article from 1983, one of his complaints about the old “IR Club” was that its members were more interested in perpetuating the system from which they were benefiting, rather than caring about the health of the overall economy and the people in it.
You could say similar things about the groups that have prevented reform of the tax system this century.
Take “The Property Investors’ Club.”
A political calculus has supported that club for decades.
“Anybody who owns a house is very happy that the value of that house has gone up, let’s be quite straight about that,” former prime minister John Howard said in 2003.
“I haven’t found anybody in seven and a half years shake their fist at me and say ‘Mr Howard, I’m angry with you for letting the value of my house increase’,” he said.
The damage it’s done to Australia’s social fabric is immense.
Last week, economics professor Ross Garnaut said Australia risked “giving up on equity” if governments failed to reform our housing and tax policies to improve the economic prospects of our younger generations.
He said this country’s housing outcomes were so bad they were now affecting young peoples’ “attitude to life.”
“It’s quite clear that in this generation, kids can’t go into life in the same expectation of owning their home as before,” he told the ABC.
“I think that’s a big pity for Australian society. We have to fix it up.”
And yet, despite the acknowledgement by many that there is a problem with our housing situation and its tax arrangements, think of some of the solutions on offer.
Only two weeks ago, Opposition Leader Peter Dutton said if he wins the next federal election he’ll introduce temporary changes to immigration to try to reduce pressures on housing in the short term to help to solve our housing crisis.
He said he’d reduce annual permanent migration from 185,000 to 140,000 for two years and introduce a two-year ban on foreign investors and temporary residents purchasing existing homes in Australia, among other things.
But economist Saul Eslake put some of those numbers into perspective.
“I’m very much in favour of things that would improve people’s chance of attaining the ‘dream of home ownership’ (and very much against things that make attaining that dream harder),” Mr Eslake wrote.
“The most recent statistics from the Foreign Investment Review Board tell me that foreign investors purchased 1,339 established dwellings in 2021-22, the latest year for which data is available.
“If stopping foreigners from buying 1,339, 2,500, or even 10,000 properties would make a significant contribution to ‘restoring the dream of home ownership’, how much greater a contribution to that worthy objective might have been made by preventing the 171,727 domestic investors who were granted loans for the purchase of established dwellings in 2021-22 from having done so (or even reducing that number by, say, 20 or 50 per cent)?
“For example, by abolishing negative gearing and reducing the capital gains discount for investors purchasing established (as distinct from new) residential properties,” he said.
It would pay for a lot of necessary tax reform
Or take “The Fossil Fuel Club.”
The Kyoto Protocol was signed in 1997. It came into force in 2005.
Australia’s government had years to design an optimal policy approach for climate change before the protocol kicked in.
Dr Henry, who was treasury secretary from 2001 to 2011, argued in 2004 that Australia should adopt a national emissions trading scheme (ETS).
He said it was really important that a price on carbon be introduced as quickly as possible to help the business community make long-term investment decisions as Australia got ready to shift to a heavy reliance on renewables.
In his 2010 Tax Review, he warned Australia’s energy markets could become unstable if investors weren’t provided with sufficient certainty to make long-term investment plans for renewable energy.
A Labor government, in power federally between 2007 and 2013, eventually did introduce a carbon pricing scheme late in 2012, but it was repealed by the next Coalition government in mid-2014 before it was about to merge with the European emissions trading scheme.
What state has Australia’s climate and energy policy been in since 2014?
In September last year, Professor Garnaut said Australia’s government would now be collecting $70 billion a year in revenue if the emissions trading scheme hadn’t been dismantled in 2014.
“That’s not a tiny bit of money,” he said.
“We could pay for the nuclear submarines with five or six years of the carbon price. One year would pay for more than two years of Medicare,” he said.
“We could cut every personal tax rate by 30 per cent from the highest to the lowest.”
He said we wouldn’t raise $70 billion a year from a carbon price forever, because the Albanese government wanted Australia to have net zero emissions by 2050, so the carbon price revenue would have been phased out over a generation.
But in the meantime, he said, “it would pay for a lot of tax reform” to update our tax system for the 21st century.
“There is no more important issue in Australian taxation reform than replacing current arrangements by efficient mineral rent taxation,” he said.
“The Henry Review proposals and carbon pricing were both defeated by massive campaigns by vested interests.
“When [Tony] Abbott won government in 2013, it encouraged vested interests to see investment in the political process as a rewarding path to defeat of proposals for reform in the public interest that challenge their own interests,” he argued.
What other “self-interest clubs” command a heavy influence over key sectors of the economy to our detriment, would you say?
The Superannuation Club? The National and Economic ‘Security’ Club? When looking at the labour market, the Privatised Employment Services Club?
There’d be more I’m sure.
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