The Albanese government’s economic roundtable has concluded, sparking discussions about the potential for sweeping reforms in the coming years. While such changes could be beneficial, the approach taken will be crucial. It’s important to remember that the “golden era” of economic reform in the 1980s and 1990s, often lauded for its transformative impact, also had significant drawbacks.
Recent praise for the reforms of the 1980s and 1990s overlooks some of the negative outcomes that emerged. These reforms, while instrumental in shaping modern Australia, also led to scandals that necessitated royal commissions into sectors like banking, aged care, and the controversial robodebt scheme. Changes to the labor market during this period contributed to the rise of underemployment and precarious work, raising questions about the long-term impacts on workers.
The Impact of Economic Reforms on Inequality
The introduction of inflation targeting in the early 1990s has had lasting effects on asset prices, with property values reaching socially destructive levels. The Reserve Bank of Australia’s focus on controlling consumer prices by restricting wage growth has made housing unattainable for many younger workers. The rush to privatize critical infrastructure in the 1990s also raises questions about the wisdom of transferring natural monopolies and oligopolies to private interests.
In 2000, US economist Brad DeLong, speaking at the Reserve Bank’s annual conference, highlighted the increase in inequality resulting from these reforms. He noted that while Australia had become a poster child for neoliberalism, the resulting inequality in income and wealth could undermine the reform project over time.
“Over the past decade or so, the country of Australia has been an effective poster child for neo-liberalism… However, the burst of productivity growth in Australia in the 1990s has been accompanied by a widening of inequality in income and wealth.” — Brad DeLong
This observation has proven prescient, with young Australians expressing anger over housing affordability, environmental degradation, and intergenerational inequities in the tax system. Research from the Reserve Bank shows a gradual increase in the share of income paid to capital owners since the 1970s, with a corresponding decline for workers.
Underemployment and the Labor Market
Professor Bob Gregory from the Australian National University voiced concerns at the same 2000 conference about the failure of Australia’s economy to create full-time jobs post-reform. The number of full-time workers had only marginally increased after a decade, highlighting the issue of underemployment, where individuals are employed but desire more hours.
The social consequences of casualization and precarious work are well-documented, affecting individuals’ ability to rent, save, and plan for the future. Banks and landlords are often reluctant to engage with those on unstable incomes, exacerbating financial insecurity.
“Many good things have happened, but… there seems to be perhaps a little too much optimism and also perhaps an unwarranted degree of satisfaction with the 1990s outcomes.” — Professor Bob Gregory
Gregory predicted a shift in policy focus towards “supply side” issues, which materialized as the government increased pressure on the unemployed, culminating in the infamous robodebt scheme. This approach, part of a “new paternalism,” made financial support for the unemployed increasingly conditional, leading to significant social and legal repercussions.
Looking Forward: The Need for Thoughtful Reform
The Albanese government now faces the challenge of addressing the anger of young Australians, exacerbated by the COVID-19 pandemic and surging property prices. Researchers at the Per Capita think tank highlight the ongoing impact of severe wage stagnation from 2012 to 2022, while economists warn of “intergenerational inequity” in the tax system.
Treasurer Jim Chalmers recently acknowledged the need for serious tax reform, emphasizing the imperfections in the current system through an intergenerational lens. However, he also cautioned against immediate major changes, recognizing the potential for unintended consequences from any large-scale economic reform.
“I think our tax system is imperfect, and one of its most troubling imperfections is best seen through an intergenerational lens.” — Treasurer Jim Chalmers
As Australia contemplates its next steps, the lessons from the past remain crucial. The “golden era” of reform, while pivotal, serves as a reminder of the complexity and potential pitfalls inherent in economic transformation. Thoughtful, inclusive policy-making will be essential to ensure that future reforms benefit all Australians, rather than exacerbating existing inequalities.
