Australia needs an independent body of national economic affairs

Comments on Michael Costa “Budget honesty now for the future”, 22/05/2009, http://www.theaustralian.news.com.au/story/0,25197,25518784-5015664,00.html

Irrespective whether it is Malcolm Turnbull’s parliamentary budget office, or it is Michael Costa’s intergenerational budget office, what is needed is a national economic body that is independent from the government of the day and be accountable to all Australians, possibly through federal parliaments. It should be funded with the same degree of security as federal politicians’ wages and salaries. Its key staffing should be appointed either independently, or half by each of the main political parties.

There are several key issues that such a body is needed to look after. Firstly, intergenerational equity should be a consideration of this independent body. This is a long term issue but a very important one, given that population aging is a pressing issue. However, any research needs to take into account that Australia has been an open country with significant immigration that differs from many other industrialised countries as well as some developing countries. This growth pattern and characteristic of the Australian population cannot and will not follow the same assumptions used in other countries in terms of population aging and structure. More realistic assumptions need to be made.

Secondly, such an independent economic body can stand above both Treasury and RBA to bring together fiscal and monetary policies together into consideration, and provide independent advice or at least opinions as to what macroeconomic policies mix is the most appropriate at the time. This issue has been hidden for too long in many countries, although not in economics theories. The theories point out to use both policies to such an extent to produce the most desirable outcomes in terms of interest rate, government spending, taxation, outputs, employment and prices. So this area should be an important task for such an independent overarching national economic body.

Thirdly, the body can provide independent economic forecast periodically and also prior to government budget time. Its forecast can be compared to Treasury’s forecast that is generally used by the government of the day to underpin its key budget assumptions. Either this body’s forecast or Treasury forecast will be necessarily always good, but they provide people with alternative and authoritative benchmarks for analysing key economic assumptions used in the budget.

Fourthly, because the nature and characteristics of Australian intergovernmental financial relations, such a body can and should provide independent advices on government finance, taxation, expenditures and services holistically. Yes, it is incomplete to only focus on the budgetary affairs at the federal level, if it can change its position by either reducing or increasing funding to the state governments, or changing government service obligations between different layers of government.

Of course there can be other key economic and economic governing issues such as government regulations that the independent body can examine and provide its own opinions at the arm’s length from the government of the day, such as the regulations governing the communication sector in Australia. This can provide some sort soft constraints to government behaviors, so they need to consider very carefully before they change/introduce/reduce regulations.

To conclude, there is badly a need for an independent and overarching economic body in Australia to improve government policy making, to look after a number of important economic affairs for the Australian public. The government of the day, irrespective which political persuasion, in conjunction and consultation with all the other main political parties, should take urgent actions to create such a body. The earlier such a body is created and operated, the better the Australians welfares will be.