Monday, November 15, 2010

Resources boom presents real challenge for government

THE OECD's question for Australia is simple: how do you manage a resources boom to maximise the gains and minimise its negative impacts on inflation, the budget, and other industries?

Its own answers are mostly good ones, even if they seem to have been written by Treasury, like a ventriloquist using the OECD as its dummy.

First, ensure taxpayers get the benefit of the boom by putting a comprehensive tax on mining profits, and not the three-legged dog Julia Gillard gave us. The mining tax should be redrawn to cover all minerals, all mining firms, and raised higher rate so taxpayers do not end up paying the miners.

Second, the government should not spend the money on routine services, but save it, or spend it only on infrastructure.

Third, keep open the doors to skilled migrants, to avoid labour shortages pushing wage rises out of control, and forcing the Reserve Bank to drive up interest rates.

Fourth, lift spending on infrastructure and regulate it better. Invest more in public transport, and make trucks pay the full cost of the wear and tear they impose on our roads. Slow the rollout of the NBN, to encourage competition between internet technologies.

Fifth, start a new wave of reform, mainly through comprehensive tax reform, but also by removing government support for the car industry. (Like Treasury, the OECD simply ignores the real-world impact of closing down our biggest manufacturing industry).

And last, set up a serious anti-poverty program, to bring more people into the workforce by tackling the underlying causes of their disadvantage: poor health, poor education, homelessness, welfare traps and dole benefits below the poverty line.

This is a real challenge for a government that has messed up the few bold decisions it has taken, and for an opposition that likes reforms only if they're popular. But if Treasury is right, this is the environment we are facing, so challenges can't be avoided.

It's a pity the OECD relied so heavily on Treasury's advice, and hence proposes to shut down the car industry. That would intensify the damage the resources boom will do to the south-east, where most Australians live. Learn to think outside the square, guys.

But the rest of its report raises many ideas our politicians should be thinking and talking about. Not that they will. Treasurer Wayne Swan yesterday ignored the 98 per cent of the report focused on reforms to highlight the few bits that let him pat himself on the back. How ungainly. How out of touch.