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Refocusing the Australian economy

26 February 2014

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Professor Warwick McKibbin is an ANU Public Policy Fellow at Crawford School. Professor McKibbin was a member of the Board of the Reserve Bank of Australia from 2001- 2011. He teaches Modelling the World Economy: techniques and policy implications (IDEC8127).

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Australian governments should be more focused on creating policies that increase Australian competitiveness instead of supporting struggling industries, according to Crawford School’s Professor Warwick McKibbin.

Speaking to Ticky Fullerton on ABC’s The Business on 10 February, the Chair in Public Policy in the ANU Centre for Applied Macroeconomic Analysis (CAMA) and former Federal Reserve Bank board member warned that if the Australian economy is to continue as a global safe haven, government policies should be created with the goal of increasing Australia’s competitiveness in global markets.

“The key point the government now has to focus on [is] really making Australian industry competitive and dealing with the problems [of] structural adjustment and the dislocation of workforces. Not trying to keep industries going but help manage the transition of people from one part of the economy to another,” he said.

“I think where we should be focused on, particularly [in] manufacturing, is not on the price that we sell our products, which is driven partly by the exchange rate, but on the costs with which we produce those products.

“And…in this country, the problem of competitiveness is an input cost problem as much as anything else. So, we should be focusing on efficiency, raising productivity, [and] reducing the cost of doing business.” McKibbin added that despite these concerns, the global community currently sees Australia as a good investment and a functioning economy.

“We don’t have zero interest rates and we don’t have debt to GDP ratios that are exploding,” he said.
“There’s a lot of risk in the world, there’s a lot of potential problems out there and at the moment, Australia’s demonstrated that it can be a safe haven. Not like the United States, but it can be a relatively safe place to put your money,” he said.

While acknowledging the government’s important role in creating policies that lead to a strong Australian economy, he also expressed concern over the way some of those policies have been developed.

“One of the big problems I’ve had with policy in the last five or six years has been [that] policy has been designed with a political motive in place,” he said. “I think it’s up to the Treasury to state very clearly what needs to be done and then maybe the political process won’t start from such a bad position as it did under the previous government and the end of the Howard years when the politics was already decided before we’d had the debate. I would rather have the debate and then let the politicians move things around.”
Full interview here

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