Forget reform and go for growth, Reserve Bank governor Glenn Stevens tells National Reform Summit

RBA governor Glenn Stevens and Treasurer Joe Hockey at the National Reform Summit on Wednesday. Photo: Louie Douvis Treasurer Joe Hockey, Opposition Leader Bill Shorten and RBA governor Glenn Stevens and others at the National Reform Summit. Photo: Louie Douvis

RBA governor Glenn Stevens, Martin Parkinson and Peter Harris, Productivity Commission chairman, at the National Reform Summit. Photo: Louie Douvis

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Ordinary Australians don’t relate to calls for reform emanating from politicians but they do want economic growth to create new jobs, grow prosperity, and provide long-term financial security for their families, Glenn Stevens has told policy makers in Sydney.

However the Reserve Bank governor acknowledged that focusing on growth was no populist option and would mean squaring up to the kind of hard political challenges that both the current government and the opposition have shown no appetite for.

The call for growth came as Mr Stevens repeated his concerns that the Australian economy had entered a long-term plateau, in which trend growth is significantly lower than Treasury and therefore government forecasts assume.

In arguably the most significant contribution to the National Reform Summit, which has brought together business, union, community, and policy leaders, from around the country, the central banker said for economic restructuring to be embraced by voters it needed to be framed in terms of its end-stream benefits for people.

To that end, he told the high-powered gathering that “the general public is much more likely to grasp, intuitively, a conversation about growth”.

“Growth in jobs, in incomes, in their standard of living, wealth and prosperity. Better allocative efficiency [productivity], if we could secure it, would doubtless add to growth. That growth is worth having.”

Productivity enhancement – generally regarded as doing more with less – was a recurrent theme from contributors at the day-long summit that was billed as an attempt to revive the much-vaunted policy and political consensus of economic summits of the the 1980s under then prime minister Bob Hawke.

But with Australian politics and public discourse now more polarised than any time in living memory, rivalling the spirit and outcomes of the 1980s affair was always a high bar to clear.

Mr Stevens said industrial relations reform could not be ignored forever.

“There is no avoiding the need to have the right labour market arrangements. The question is how to have suitable rules that offer basic fairness, but with minimum adverse effects on enterprise, employment, and the scope for free agents to come together in ways that mutually suit them – and that grow the economy. Whether we have that balance right is a question you might address,” he told delegates.

While the Abbott government continues to talk up the economy’s prospects, and the prospects of deficit reduction, Mr Stevens’ contribution provided a sobering reality check, sounding the alarm again about the limits of monetary policy – altering interest rates – to support confidence and spark stronger economic expansion.

“Growth is important and for a while now there has not been quite enough growth,” he said bluntly.

“Growth rates have mostly started with a ‘two’ for a while now, despite the lowest interest rates in our lifetimes, banks able and willing to lend, and measures of consumer and business confidence generally about average – notwithstanding what we keep reading in the media.

In a gentle rebuke to those advocating for a bigger slice of a shrinking pie for the disadvantaged, Mr Stevens said the best answer was to unshackle the economy “because distributional issues surely get easier with growth but much, much harder in its absence”.

“Reasonable people get this. They also know, intuitively, that the kind of growth we want won’t be delivered just by central bank adjustments to interest rates or short-term fiscal initiatives that bring forward demand from next year, only to have to give it back then. They are looking for more sustainable sources of growth. They want to see more genuine dynamism in the economy and to feel more confidence about their own future income.”

He called on business and think-tank policy developers to address themselves more directly at sustainable growth.

“How do we craft a credible, confidence-enhancing, narrative about growth? That’s actually what ‘reform’ is about: making things work better for higher income and wellbeing. If there are some things of substance that you could agree on, it would be a step forward.”

But if consensus was the goal, it seemed elusive with speakers from each side of the political spectrum largely arguing their standard positions.

Speaking on a session on fiscal policy, and what many delegates acknowledge is a “structural” deficit where high permanent spending cannot be paid for by permanent revenue, Australian Financial Review editor Michael Stutchbury called for greater ambition to address a deficit that will not be erased until 2020 at the earliest and probably not even then.

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