Squiz Shortcuts - A new era of economic reform?

Your Shortcut to… A new era of economic reform?

The 2025 federal election has been run and comprehensively won by Labor, and already, Treasurer Jim Chalmers has outlined his vision for what he says should be a new era of collaboration and compromise from politicians, unions, and business leaders for generational economic reform. It’s a big statement that you might find a bit challenging to connect with… So in this Squiz Shortcut we’ll outline:

• what the issues are

• and how the Albanese Government might go about reform…

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Why is economic reform on the cards?
Treasurer Jim Chalmers recently made a case for it at the National Press Club, saying it’s needed to boost our lagging productivity, take pressure off the budget and build economic resilience. And if it sounds daunting, it might help to remember that we’ve done this before… Back in the 1980s and 90s, we had 2 waves of really transformative economic change, starting with the Hawke-Keating reforms.

What did they do?
In the 80s, a Labor Government led by Bob Hawke and Treasurer Paul Keating floated the Australian dollar, deregulated the banking system, cut tariffs, and brought in the Prices and Incomes Accord with the unions. These were huge changes - and the overarching goal was to open up Australia's economy to the world.

Can you explain that a bit?
So, floating the dollar meant that its value was set by supply and demand on the foreign currency market rather than it being set by the Reserve Bank, and deregulating our finance system removed a lot of government controls around banking and allowed foreign-owned banks to operate in Australia which created more competition. 

What did they negotiate with the unions?
The other big change was working out a deal with the unions so that they’d ease off on asking for wage increases in exchange for a ‘social wage’ , meaning the government would look after workers by investing in programs like Medicare, superannuation, welfare support and infrastructure. Those reforms really modernised our economy. And then another major change happened under the Liberal PM John Howard and his Treasurer Peter Costello…

What happened under Howard and Costello?
They introduced a 10% Goods and Services Tax (the GST). It reformed the tax system and helped fund the states and territories to carry out the public services we rely on… Long story short, both periods of reform were about making fundamental structural changes to how the economy worked. And looking back on them today, they are generally seen as periods that set the nation up for decades of economic growth and prosperity… 

Got it, so what's actually wrong with our economy that needs fixing?
For one thing, our productivity (how much economic output we get per hour of work) has slowed to 0.6% per year from 2017 to 2024 compared to 1.6% over the previous 2 decades. In real terms, if productivity grows at 2% per year, living standards roughly double every generation. If it only grows at 0.6%, it takes over a century for that doubling to happen. And what that means is your kids might not have the opportunity to be better off than you.

Is it just a local problem?
No, it's happening globally - but Australia's situation has some specific features like declining investment in new technology, weak competition in some sectors, and what they call ‘capital shallowing’ - which basically means workers don't have enough modern tools and equipment to be productive.

What do we need to do?
The Grattan Institute, one of Australia's top economic think tanks, argues that we need more investment in research and development, better infrastructure, and reforms to make the economy more competitive.

OK, what else is a problem?
Budget sustainability is the next big issue. Basically, government spending is growing faster than the economy can support long-term, and that's putting pressure on everything else. In his Press Club speech, Chalmers listed 6 major structural pressures: health and hospitals, defence spending, aged care, the NDIS, early childhood education, and debt interest payments. And the other reason Chalmers gave for reform was the need to build economic resilience. 

What does that mean?
Basically, the world has become much more unpredictable, and Australia needs to be able to handle disruptions caused by things that crop up unexpectedly - think, the supply chain delays caused by COVID-19, or the imposition of US tariffs, or shipping lanes being threatened by conflicts. We’re exposed to those kinds of external shocks because we're so trade-dependent, so building resilience is important. And there are other budget pressures too…

In what sort of areas?
In areas like housing, where wealth gaps are opening up because affordability near job centres is a problem, ensuring we don’t go broke transitioning to clean energy sources, and immigration, which can boost growth, but also adds strain to housing and infrastructure. 

So… it’s a lot
Yep, and all of the issues are interconnected… Low productivity growth means slower income growth, which makes housing less affordable, which creates political pressure for more government spending on support, which worsens the budget problem. Meanwhile, external shocks can disrupt all of this.

OK, so what does Chalmers want to do about it?
First up, he’s announced a productivity roundtable for mid-August. It will be held in the Cabinet Room of Parliament House and it’ll be limited to 25 people around the table. The idea is to get business leaders, union heads, economists, and policymakers talking to each other about the challenges…

Who’ll be at the table?
RBA Governor Michele Bullock will be there, along with ACTU secretary Sally McManus, and Business Council of Australia chief executive Bran Black. The Australian Council of Social Service head Cassandra Goldie will be there too, as will the Coalition’s Treasury spokesman Ted O'Brien - that’s notable given the Coalition boycotted the last jobs and skills summit held by the Albanese Government, so it’s a sign that new leader Sussan Ley is prepared to take a more collaborative approach. 

What will it focus on?
Chalmers emphasised those 3 core issues which we’ve just gone through: productivity, budget sustainability, and economic resilience. And he's been pretty clear that tax reform is central to all three. He said "I think it would be unusual if I said to the country, we're going to have this big national reform conversation about productivity, sustainability and resilience, but nobody's allowed to talk about tax".

That could be tricky
It sure could… Making changes to tax is a politically charged issue, and Chalmers is trying to walk a fine line. He says "we don't see that as an opportunity to walk back on some of the things that we're already committed to" - so the government’s election promises, like the unrealised gains tax on super balances over $3 million, are still happening. 

Could it include discussions about the GST rate?
Yep. Chalmers said "I suspect the states will have a view about the GST. It's not a view that I've been attracted to historically. But I'm going to try not to get in the process of shooting ideas between now and the roundtable." So he's not ruling it out, even though he's sceptical.

Why is there an appetite for GST reform?
Economist Saul Eslake is one who’s pushing for GST reform - he’s pointed out that Australia's GST contributes only 12.5% of total tax revenue, compared to an average of 20.75% in OECD - or Organisation for Economic Co-operation and Development member nations. But there could be political challenges to that, because tax reform doesn't exactly have a great track record in Australia.

Besides tax, what other reforms are on the table?
The Productivity Commission is releasing interim reports across what they call ‘five pillars’ - economic dynamism, skills, care, technology, and energy transition. And one thing to look out for ahead of the Round Table will be an address by the Productivity Commission Chair Danielle Wood titled "Growth imperative: How to fix our productivity problem". She’ll deliver that just before it.

What about helping businesses by cutting red tape? 
Chalmers is trying to be more nuanced about this. He talks about the need to "cut red tape without lowering standards" and focuses on things like environmental approvals, and infrastructure delivery, for example. 

Is there political agreement on these issues?
There’s bipartisan agreement that productivity needs a boost. We mentioned O’Brien’s attendance at the roundtable, and another thing to note is the Coalition has appointed Senator Andrew Bragg as Shadow Minister for Productivity and Deregulation. So experts and commentators say they’re encouraged that there appears to be recognition across politics that these are genuine challenges.

Bring on the ideas
As Chalmers puts it: "If we fail, it won't be from a shortage of ideas – but from a shortage of consensus". As for whether any concrete proposals emerge that have broad support, and how the Albanese Government handles the politics when specific interest groups realise they might be worse off under any changes - they are big questions to be answered.

So we’re on the right track?
We’re off to a productive start.

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Watching: Here’s a link to Jim Chalmers’ address to the National Press Club about the federal government’s second term economic agenda if you’d like to hear it for yourself...

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