Deregulate or perish

The enormous increase in public spending, together with the collapse of public revenues, have resulted in unprecedented deficits this year and next.

Not only will the budget record a twelve figure ($189 billion) deficit; public debt at the federal level alone is expected to soar to $850 billion, with the prospect of $1 trillion in public debt in the near future not at all a far-fetched prospect.

While fiscal restraint will eventually play an important role in managing the numerator of the debt / GDP ratio, it is action on the denominator (nominal GDP) that will allow governments to successfully manage debt of this magnitude.

This means both increasing inflation and generating economic growth.

This is not as easy as it sounds. The economy has been stifled by more and more regulations in recent years. If Australia and the world went through a period of deregulation in the 1980s and 1990s, it has gone through a reverse period since 2008.

It’s surprising that this massive increase in regulation has not really been credited as a major factor in the global decline in economic growth and productivity since the global financial crisis.

Business investment, other than a spike in the early 2010s, has fallen precipitously over the past decade, following two decades of steady growth.

Key business enablers — like the banking and energy sectors — have seen near-constant regulatory intervention in this period.

In the medium to long term, by far the biggest contributor to economic growth is productivity.

And when it comes to productivity, one of the biggest drivers is deregulation.

There are some areas where deregulation will deliver economy-wide benefits. Most notable among these areas are industrial relations laws, and planning and zoning restrictions.

However, to deliver on the promise of deregulation requires the hard work of going industry by industry, sector by sector, and removing or improving the regulatory impediments in those industries and sectors.

If we want productivity to grow, and businesses to invest — and we undoubtedly do — then we simply must commit to improving the business environment.

This is an edited extract of an opinion piece published in the Canberra Times as No, we can’t just print more money during COVID-19