Handing out money is no substitute for reform

Bookmark and Share Governance & Service Provision | Simon Breheny
Australian Financial Review 2nd December, 2014

Some might think the 2014 Victorian state election was a referendum on the East West Link. But they overlook the vital $209,000 investment in a mattress recycling facility that would have graced Ballarat had the Napthine government been re-elected.

Sadly, despite the need for serious economic reform, it was the trivial and meaningless that dominated this year's Victorian state election campaign.

The lasting legacy of the Victorian Coalition government is Premier Daniel Andrews and his CFMEU-backed government. Under the state's new administration, Victoria risks being a drag on the national economy. But the damaging policies of the Andrews government are only half the reason. The Coalition's neglect of meaningful economic reform for a full term in government is the other. An enormous opportunity for economic reform has now been lost over the four years under Ted Baillieu and Denis Napthine.

The only way to grow an economy is to allow enterprise and entrepreneurship to flourish. Taxation and regulation restrict the ability of businesses to innovate and grow. Any government that is serious about growing an economy and growing jobs must tackle these impediments to economic success. Taking money from taxpayers and spending it on projects approved by a government bureaucracy doesn't grow an economy, it shrinks it. If the opposite were true, Cuba's economy would be a thriving beacon of success.

But these policy areas have been deserted by the Coalition. The state Coalition government made only minor changes to the regulatory system, despite appointing the eminently qualified John Lloyd to the newly created position of Red Tape Commissioner in January 2013. Although recommendations were made to the government, only a handful were ever pursued.

Tax has been another area of policy neglect. One of the only tax policies of the Baillieu/Napthine government was to cut payroll tax cut from 4.9 per cent to 4.85 per cent. Announced in the 2014/2015 budget, it moved Victoria in the right direction but was incredibly modest, and was not part of a much-needed broader tax policy. The answers to deeper questions about why the state government imposes a direct tax on employment were never given because the question was never asked.

It has been odd to read some commentary suggesting that a major reason for the Coalition's defeat at this election was the Abbott government. This is quite clearly not the case.

Many have pointed to the problems the Victorian government faced in its first two years. But although there was a recognition that problems existed, the solutions to those problems were never found. As premier following the 2010 election, Baillieu failed to develop and implement an agenda of economic reform that Victoria still desperately needs. One of the arguments for switching leaders in March 2013 was that the new leader would have time to turn the ship around before the election in November 2014.

At that time there was more than 18 months until the state election. But the new Napthine government did not seize the opportunity for reform. Instead it continued down the same path that got the Coalition into a mess in the first place.

Some of the first acts of the Napthine government involved spending more money. In his very first week, Napthine announced $200 million in new funding to the TAFE sector and explored the idea of a new government-backed recycling scheme.

Imposing a moratorium on coal seam gas exploration was one of the most damaging decisions the government made in relation to energy policy. The decision, in November 2013, cut off a market where Victoria could have a very significant advantage.

During the state election campaign, this habit became even worse. The Napthine government was responsible for a rolling flurry of announcements. The frenetic pace of spending commitments alone was quite extraordinary. No sooner had journalists reported on one spending commitment then another, of even greater magnitude, was being made.

If any requests for government funding were rejected during this campaign, you wouldn't know it from the outside looking in. At the very least, the promise of $283,000 in joint federal-state funding to expand a Reservoir-based ice cream maker suggests that the threshold for releasing taxpayer funds was very low indeed.

The Coalition government does deserve some credit for maintaining a AAA credit rating when other states couldn't, and for its budgets projecting surpluses throughout the forward estimates.

One good thing Napthine has done is call for renewal. In his concession speech in Melbourne on Saturday night, he said: "It is time for renewal, it is time for change."

The Liberal Party must learn that outspending the Labor Party, trying to beat them in areas where the ALP has a natural advantage and pandering to special interests, does not pave the path to success. Committing to the principles upon which the party is based, presenting an alternative to the ALP and putting forward positive reform policies is the only way back for the Coalition.

 

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