Policy on the Run: where is it taking us? (Presentation to Minerals Council Conference - 6 September 2017)

 I gave one of the ‘keynotes’ at this Minerals Industry conference, held during the annual ‘minerals week’ events in Canberra.  

The theme of my presentation was – yet again -- how poor policy process over the past decade has produced a string of poor policy outcomes, with no real end in sight. (I am starting to find my recounting of this a bit like Groundhog Day, except that each time things seem to have altered for the worse.) 

Giving the table from my Outlook talk (see below) another outing – supplemented by the RET and Gas Bans -- I noted thatundisputed first prize for ‘policy on the run’ was the Bank Levy. It appeared so fast, with so little process, that it took everyone by surprise (even, as I understand it, some officials in the Treasury). Against the usual tests for a ‘good’ tax, it strikes out not just on efficiency and equity, but even effectiveness. And the face-saving notion that it might nevertheless be justified as an implicit charge for government ‘guarantees’ does not hold water. If anything, it is likely to increase the risks to taxpayers (small as they may still be). 

Right up there in poor policy land, the combination of elevated state-based renewables targets and bans on gas production have uniquely succeeded in forcing electricity prices to unprecedented highs and reliability to unprecedented lows. As noted previously, the present ‘wicked problem’ for policy is the creation of policy itself. It is a case of government failure, not market failure. We know from the Productivity Commission that the first phase of the price lift-off (pre-2012) was in large part related to network costs responding to regulatory signals; the second phase is attributable to (a) a RET-induced surge in intermittent renewable capacity, (b) the consequent retirement and non-replacement of large scale coal-fired base load capacity, and (c) high gas prices underpinned by a policy-induced shortage of domestic supply.  

As things stand, the resulting energy policy ‘trilemma’ seems insoluble under the existing national abatement target. Given ongoing bipartisan attachment to it, one of the other two policy goals will have to give way -- either reliability or affordability or (as now) both. Part of the explanation for the position we find ourselves in is that for several years governments have encouraged the electorate to believe that, despite the relative fossil-fuel intensity of our economy, we could cut emissions at negligible cost and regardless of the instrument used. (Indeed official government modeling largely assumed the costs away.) Some state governments are even persisting in this deception. 

Like Tolstoy’s famous observation about families in Anna Kerenina, each of the policy misadventures in the table has its own unhappy story. But there are also some broader themes.  

Generally even in cases where there was a good start to a policy development process, outcomes were spoiled by poor engagement with stakeholders and the wider public, and ultimately poor implementation. Spin and sloganeering are increasingly substituting for explanation.  

Along the way, we are seeing the language of public policy twisted into new forms. Tax hikes in the budget have become ‘saves’. And, wherever possible, taxes are referred to as ‘levies’ (like the Bank tax) or even, more coyly, ‘prices’ (carbon tax). We also found during the latest round of superannuation reforms (watch that space) that the word ‘retrospective’ no longer has the meaning long ascribed to it. And of course the very word ‘reform’ has departed from the dictionary definition of ‘change for the better’ to mean just ‘change’ – or even change for the worse. Fairness has become the dominant criterion, with its interpretation going well beyond the traditionally Aussie ‘fair go’. A fair reform today is one in which there can be no losers, even temporarily, unless they are at the upper end of the income distribution: a definition that would have ruled out every important structural reform of the past.  

Governments’ ability to hold the line in the face of political resistance is a pale shadow of what it was. For example, that GST reform was quickly raised and as quickly withdrawn on two separate occasions in the past few years (and under different PMs and Treasurers) is almost beyond parody.  

The line of a previous Treasurer that good policy is good politics, or at least can be made so via good process, has been perverted to the contrary proposition ‘good politics must be good policy’. And the new metric by which a government’s policy performance is judged has become the volume of legislation it is able to steer through the Parliament.  

How did it come to this? How might we extract ourselves? Each Groundhog Day weakens my confidence in seeking to answer the first question or even that doing so would help answer the second. Churchill famously spoke of the opportunities for reform afforded by a ‘good crisis’. But it would be better not to have to wait.

Melbourne Institute's Outlook Conference session on 'Policy in a post globalisation world'

I was one of the panelists for the wrap-up session of this (always excellent) conference. It focussed on the political difficulties of reform today and the rise of populism. Other panelists were Paul Kelly, Jennifer Westacott, Glyn Davis and Melbourne Institute Director Abigail Payne. The session was chaired by David Uren, who wrote an overview piece about the conference in The Australian on Tuesday 18 July.

In my remarks I agreed that reform is undoubtedly a more challenging proposition these days. The politics are tougher, the media less supportive, the public less trusting. And howls of protest  greet any initiative that has a hint of a loser.

But real reform has never been easy. Before giving up we need to ask if we have been trying hard enough. According to a major OECD study, success depends on solid preparation, extensive consultation and effective political selling. These have been lacking in more recent times. Underprepared policies are being foisted on an unprepared public. As a result there has been a succession of policy misfires and reversals in Europe and North America, and not least in Australia.

Take tax. A big ticket reform item like the GST was abruptly raised here and just as abruptly dropped, without explanation. Corporate tax reform has been heavily compromised. Personal income tax rates have been going the wrong way. And then we get a distortionary tax on selected banks literally out of left field.

Much public policy is being made on the run, when it needs more than ever to be well prepared and properly justified and explained. The table tells the story. As a consequence, too many policy and reform initiatives are failing the dual test for 'success' of (a) being likely to do good and (b) being accepted as such by the community. As noted both in David's article and at conference, if this doesn't change it is hard to be optimistic about Australia's future living standards. While the environment for reform is clearly more challenging, that is unlikely to change. The only way forward is for governments to lift their game.

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