Economic leadership is about making the hard policy decisions (meaning unpopular with the electorate) that are for the good of the country, even if it means taking something away from those with a vested interest. Part of that inevitably involves our political leaders educating the electorate as to why such policy changes are good for the country and inevitably, in their own best interest in the longer run.
A few examples of powerful economic leadership spring to mind. Cutting tariffs and opening the Australian economy to international competition was criticised for being anti-Australian jobs, for letting foreigners come into Australia and send the profits they make here back home.
Thankfully these arguments were confined to the fringe of society and the economic leadership at the time, mainly from Treasurer Paul Keating, showed that the competition these economic policy reforms would bring would smarten up the efficiency and productivity of local firms and that the foreign investment into Australia would see thousands of jobs created for Australians.
Keating did a great job leading society through these changes and he frequently pointed out examples where the extra competition lowered domestic costs and therefore prices for local consumers. Jobs were created as a result of the inflow of foreign investment and real wages of all workers rose. The fact that the Australian economy is now into its 23rd year without recession, with low inflation and low interest rates a permanent feature of the Australian economy and with living standards among the highest in the world, is due at least in part to these reforms.
The other example of economic leadership come in the late 1990s when Prime Minister John Howard successfully lead the debate and policy change for the introduction of the good and services tax. Only five years before Howard took the GST to the 1998 election, Opposition leader John Hewson had lost an election advocating a GST. It was seen as political poison, even though most, if not all, economists could see the benefits to the economy and budget from having a GST and lower taxes elsewhere.
Amid strong and sometimes ferocious opposition, Howard ran a strong campaign on why tax reform and a GST in particular were good policy. His leadership crafted the community mood and he was able to highlight how the revenue from the new tax would allow other taxes to be reduced and there would be money for the government to ensure pensioners and others receiving government benefits were fully compensated for the new tax.
The leadership from Howard at that time did yield worthwhile tax reform to the point where no one is seriously advocating the removal of the GST simply because it is part of a sound tax policy structure now prevailing in Australia.
Of course, there can be poor economic leadership which generally means a populist opposition captures the public mood and pits it against serious and meaningful reforms. The recent debates over the next round of tax reform, the mining tax, the price on carbon and even the return to budget surplus are the mess they are because no political leader was able to use their power to advocate change and bring the bulk of the population along with them.
It seems clear that the electorate does not mind having to pay a bit more tax or having some government services restricted if, and it is a big if, they can be shown that the changes are fair and in the country’s long run interest. Tariff cuts, competition changes, tax reform, superannuation, floating the Australian dollar are all massive economic changes that could have easily been put in the too hard basket.
But thankfully there was strong economic leadership in the ideas and debate over those issues and there is no doubt that Australia is all the better now for having seen those reforms come through.
Let’s hope we see more strong economic leadership now and in the years ahead. It will be for the benefit of Australia if we do.