Blueprint for growth must be practical and affordable

The news that taxpayers will be soon paying more to service the national debt than on the National Disability Insurance Scheme underlines the need for paying down debt as soon as possible and tight budgeting. Since Labor won office in May last year, the 13 interest rate rises, imposed by the Reserve Bank of Australia board to dampen inflation, have burned a hole not only in household budgets but in the government’s coffers.

On Wednesday, the Mid-Year Economic and Fiscal Outlook will reveal that the commonwealth will be on the hook for an extra $80bn in borrowing costs over the coming decade.

Jim Chalmers, predictably, is blaming the “Coalition’s wasted decade” for “the fastest-growing expense in the budget”. That argument, conveniently, overlooks the cost of the Morrison government’s stimulus programs such as JobKeeper during the pandemic (when the then opposition argued for even more generous measures). For several decades, unfortunately, governments on both side have courted popularity with heavier spending than was needed. The budget surplus, which has been banked rather than spent, is an important shift in the right direction. Anthony Albanese, the Treasurer and the government deserve credit for not spending extra tax and resources receipts to meet the demands increasingly placed on government.

They need to maintain that determination. Ahead of MYEFO, Dr Chalmers has mapped out reform priorities that would ensure middle Australia and industries are “beneficiaries not victims of the big changes and challenges and chances before us”. While scant on specifics, modernisation and economic reform are important priorities. Writing in The Australian on Tuesday, Dr Chalmers says the government is focused on the long term, as laid out in our Intergenerational Report and in the white paper on jobs and opportunities, in addition to fighting inflation, restoring wages growth and repairing the budget.

Dr Chalmers, undoubtedly, wants to get Labor back on the front foot after a series of problems and bad political weeks that have cost the government support. Modernising supply chains and trading relationships, unclogging the infrastructure pipeline, revisiting competition settings through the Competition Review, investing in critical minerals, and overhauling the immigration system are all important priorities. The blueprint outlined by Dr Chalmers, however, is not without substantial risk to taxpayers, especially in relation to renewable energy. Everything the government does is about making the economy more modern, he writes: “We are modernising its energy system, by expanding the Capacity Investment Scheme.” That expansion, however, raises disturbing questions. Its cost to the budget is being kept under wraps under commercial-in-confidence provisions. Three weeks ago, Energy and Climate Change Minister Chris Bowen announced that the plan was to underwrite a fivefold increase in new government-backed renewables capacity. The goal was to deliver enough battery, wind, solar and pumped hydro generation to replace coal-fired and thermal power sources. Given the breadth of that undertaking, taxpayers are entitled to know about the cost and its likely impact on the budget, debt and interest repayments. At the COP28 conference in Dubai, Mr Bowen has doubled down on his vision. “If we are to keep 1.5C alive, fossil fuels have no ongoing role to play in our energy systems, and I speak as the Climate and Energy Minister of one of the world’s largest fossil fuel exporters,” he said. “We don’t need to phase out fossil fuel emissions. We need to end the use of fossil fuels in our energy systems.’’

Paul Keating – the subject of Dr Chalmers’ doctoral thesis – advised the government last week to be brave, take policy risks and pursue bold reform. That approach, the Hawke-Keating years showed, has much to recommend it. But it needs to be pragmatic and the costs must add up to build prosperity, without plunging the nation deeper into the red. As keeper of the purse strings, that is one of Dr Chalmers’ most important challenges, especially in relation to the energy transition.