Forty years after $A float, no brave new world of prosperity in view

Third, driven by young treasurer Paul Keating and Reserve Bank governor Bob Johnston with the support of Bob Hawke, the float set off a domino effect of bold policy liberalisation that pulled Australia out of its economic decline.

Rather than a burning platform for change, the global financial crisis and the pandemic have encouraged a culture of social protection all round.

Notwithstanding the float, the Labor-ACTU wages accord was the frontline policy for fighting inflation. After blowing up the economy during the late 1970s resources boom, the unions accepted real wage cuts to restore company profits and reduce unemployment from its 10 per cent peak.

It was not until the exit from the early-1990s recession that, as formalised under Liberal treasurer Peter Costello, a politically independent Reserve Bank was charged with keeping inflation within 2 per cent to 3 per cent.

Decades of uninterrupted growth

The floating dollar and the low inflation target underwrote an unprecedented generation of unbroken economic growth that only ended with the pandemic shutdowns of 2020.

But the excess budget and monetary stimulus injected into the economy by the political class and the Reserve Bank mandarins spilled over the economy’s disrupted supply lines to produce the sharpest prices outbreak of the inflation-targeting era, even if accompanied by the lowest jobless rate in half a century.

This time, a new Labor treasurer responded to the pain of taming inflation by showing the Reserve Bank governor the door, rather than using him as a policy ally. Yet Jim Chalmers has maintained the basic framework of the low inflation target, while thankfully pulling back from requiring the Reserve Bank to give “equal consideration” to fighting inflation and unemployment.

The bigger issue is that, compared with 40 years ago, there is no political momentum for a brave policy agenda that would deliver the productivity gains needed to stop Australia becoming entrenched as a low-growth economy. The main political parties have become too structurally weakened, while social media polarisation has made it harder to build a centre ground consensus.

The prosperity set off by the float and then the China resources boom has encouraged a political culture of redistributing more than the economy can produce or pay for. Rather than a burning platform for change, the global financial crisis and the pandemic have encouraged a culture of social protection all round.

Last week’s NDIS and GST political deals confirm the dog’s breakfast of federal-state financial reforms and the tax system. While there has been no 1970s-style wages breakout, the Albanese government is following ACTU commands to close any “loopholes” in Australia’s over-regulated labour market. The difficult energy transition is increasingly being driven by government command rather than market incentives.

The anniversary of the seminal policy decision of Australia’s 1980s-90s economic success story comes at a time when no brave new world of prosperity is visible on the political horizon.