The lesson here is that both economy-wide (macro) conditions and professional political expositions of the trade liberalisation rationale need to be conducive to trade liberalisation at the policy commencement and during the adjustment phase. The 1973−4 attempted liberalisations failed both tests. By contrast, the Hawke Government’s smoother and greater trade policy liberalisation in the period 1986−95 met both policy-favouring conditions. More recent Australian liberalisations documented by the WTO have also been accompanied by providential economic conditions and political expositions.
At present, Australia has continued economic growth, the only Western economy to have avoided recession during the global financial crisis. It has a government with significant political will. That’s where the liberalisation-favouring conditions end. The government is a minority on thin ice, well behind the opposition in opinion polls; it has also struggled to explain and validate rationalist economic policies such as taxes on mining and carbon emissions. Economic growth is also slowing due to the influence of global uncertainties, budget restraint to correct a structural deficit that emerged in 2009, and renewed inflationary pressures. Finally, the trade-weighted index of exchange rates has advanced by 48 per cent since January 2009, nearly twice the protection-reduction equivalents of the 1973 ‘dramatic’ tariff cuts. Is this the environment for further deliverable and sustainable trade liberalisation?
The recent WTO review of Australian trade policies may have understated or mis-specified the challenges for further economic reform. In its words:
‘A major economic challenge confronting Australia is to formulate appropriate macroeconomic and structural policies to facilitate rather than impede adjustment to the effects of its greatly improved terms of trade owing to the mining boom and the associated appreciation of the Australian dollar. The latter is likely to reduce the competitiveness of import-competing activities and non-mining exports…’
Unless there is a major downturn in the overall Australian economy in the next few years, an extremely unlikely prospect, there is no significant macro-activity impediment to trade liberalisation in view. The issues are political professionalism and exchange-rate shifts. Both potential barriers to trade liberalisation are more tractable than they may appear. In 1998, the Howard Government held off pre-announced tariff reductions to facilitate car-industry reconstruction, which took place, as did the delayed tariff reductions. This was great political skill in the face of hostilities and it ensured delayed liberalisation was achieved and sustained. In pressing-ahead with mining and carbon taxes the Rudd and Gillard governments have not taken heed of this lesson. It is better to delay or defer liberalisation than to press ahead in hostile circumstances. There is thus considerable scope for political professionalism to improve in a manner conducive to delivering sustained economic reform, as former Prime Minister Bob Hawke, former Minister for Industry and Commerce John Button, and former Prime Minister John Howard demonstrated by their own examples.
Economic reform in Australia does face barriers and challenges, as the WTO has stated. If the reforms are to be delivered, Australian historical experiences and economic evidence suggests that political skill in exposition and timing, rather than macro-economic conditions or exchange rate shifts will be the main determination of their success.
Neville R. Norman is an Associate Professor at the University of Melbourne. He is a member of the Editorial Board of the Competition and Consumer Law Journal and is President of the Economic Society of Australia and Summer School Professor at the University of los Andes in Bogota, Colombia.
Neville, I don’t think it’s factually correct to say that protection was greater after the 1974 changes which followed the 25% tariff cut. It was greater in the areas in which quotas were introduced – which was cars and TCF – I don’t think anywhere else. (By way of aside, car quotas were introduced following a motion of a young backbencher, the Member for Blaxland – PJ Keating, but I digress). But the tarrif cuts held elsewhere and so the end result was lower net trade barriers than would have existed without the tariff cut (though of course this meant greater disparities of assistance in manufacturing – but still lower disparities across the whole economy.) And those quotas would have been introduced in any event one would have thought, as the industries had the political muscle and there were mass sackings. They were also ‘temporary’ quotas which were cemented in place by the incoming Liberal Government who kept them there until they were dismantled by the ALP government. From memory that didn’t happen until 1988 and not really as a result of any political courage. The exchange rate had collapsed in 1986 and the import share of cars had roughly halved.
When you speak of a “structural deficit that emerged in 2009” surely it emerged much earlier as the Howard Govt started doling out almost all of the tax dividend from the mining boom in tax cuts and one off give-aways.