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IR reform: sharing the pain and gain

By Nicholas Gruen - posted Thursday, 24 November 2005

With the 30th anniversary of the dismissal, I think of how one of Gough Whitlam’s best policies became a scapegoat. And of how the IR changes might end up being the mother of all scapegoats.

If the economy keeps humming along, I agree with John Howard’s analysis. The IR changes will be like the GST - the object of fear and loathing before their introduction and of collective sighs of relief afterwards - “What was all the fuss about?”

There are other parallels with the GST - a big, iconic, unpopular economic reform. And, by the time it’s legislated: a dog’s breakfast of compromises.


But Howard had to compromise to get his GST changes through the senate. Now with Its control, we get the full four-course dog’s dinner. As the right-of-centre labour market economist Professor Mark Wooden puts it, the changes are driven too little by ideology rather than too much.

Shot through with exceptions and transitional provisions, the legislation’s explanatory memorandum on how it will replace today’s “complex and costly regulatory burden” is over 565 pages and 3,851 explanatory paragraphs.

For all the rhetoric about the dearth of safeguards for workers, most workers will be fine if unemployment keeps falling. Businesses scrounging around for labour - and poaching it from each other - is the best protection workers can get.

But what if the economy turns nasty? An electorate in pain is an electorate bent on finding a scapegoat - or as Wayne Goss put it in 1995, an electorate waiting on the porch with its baseball bat.

As Malcolm Fraser showed Gough Whitlam in 1975, tariff cuts make great scapegoats. Most job losses in 1975 actually came from the recession, not tariff cuts. And where tariff cuts did create unemployment, Asian productivity growth and equal pay for women created more.

But, Fraser’s line “jobs not dogma” sure beats “back to inequality” as an election slogan.


To my eyes, the new IR regime looks even better than tariffs as a scapegoat. First, where it took chutzpah for Malcolm Fraser to attack tariff cuts after lecturing us all on the importance of market forces, the ALP will attack the IR changes with real conviction.

More important, in a recession the new IR system will radiate economic pain.

The new Fair Pay Commission could recommend lower minimum wage increases than its predecessor (and will be attacked for doing so even if it doesn’t).

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First published in The Courier-Mail on November 9, 2005 as "Pain will lead to blame".

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About the Author

Dr Nicholas Gruen is CEO of Lateral Economics and Chairman of Peach Refund Mortgage Broker. He is working on a book entitled Reimagining Economic Reform.

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