Economy is the issue that Albanese must address

The Reserve Bank of Australia has sounded the alarm and signalled the hard part of taming inflation is still to come. This is a warning to the Albanese government that it urgently must correct what is wrong with its approach to economic management. RBA acting assistant governor (economic) Marion Kohler said weak productivity and booming population growth were working against the central bank’s inflation-busting efforts. Warning of a bumpy road ahead, Dr Kohler said domestically sourced inflation had been widespread and slow to decline. For borrowers, this raises the spectre of interest rates being higher for longer, and for the Albanese government it suggests the cost-of-living crisis will chase it all the way to the next election.

First and foremost, the government must resist the urge to do any further unnecessary damage. This requires that it listen to outgoing Future Fund chair and former treasurer Peter Costello, who has warned against raiding the sovereign wealth fund that is already falling short of meeting its main objective: to fund commonwealth superannuation liabilities. It also must recognise, as the RBA and Mr Costello have warned, that the surge in the number of foreign students and temporary workers presents an enormous adjustment for the economy, increasing demand for housing at a time of high rental market and housing stress. The Albanese government cannot walk both sides of the street on this issue by stoking demand with immigration while failing to tackle the state-imposed restrictions of high development costs and restricted supply. The government also must admit that it has overshot on its ambitions to reform the nation’s industrial relations laws in ways designed to deliver to the trade union movement at the expense of business.

It must act immediately to assist ordinary taxpayers who are being mugged by bracket creep, which delivers more of their earnings to government via income tax. As Adam Creighton wrote on Monday, bracket creep undermines national competitiveness and encourages unnecessary government spending. Tackling bracket creep and boosting competition in the economy are the reasons the Albanese government must deliver the stage three tax cuts in full. It also should follow the US Internal Revenue Service and index tax thresholds every year for inflation. The task for government to get its economic house in order is urgent.

Nowhere is this more the case than in the renewable energy transition. Energy security has been compromised by overly ambitious targets that have little prospect of being achieved. Government carefully must assess whether the trillions of dollars that will be needed in future represent a misallocation of capital, away from what could be more productive enterprise.

Meanwhile, the National Disability Insurance Scheme is still expanding at an unsustainable pace, and the outlook is for a an overhaul of environmental laws that will only increase green tape and make it harder for business. Farmers finally are starting to push back against the onslaught of regulation and competition for prime agricultural land that is implicit in the renewable energy rollout.

It is not too late to take stock. The government must harness the austerity signal from the inflation fight to get its own spending under control and pull back on the overly ambitious infrastructure plans of heavily indebted states. Instead, the approach being taken by a first-term Labor government has been to expand the public service and reward it with big pay increases, turbocharge immigration, slug ordinary taxpayers with bracket creep, increase everyday costs through a challenged renewable energy transition, hit our biggest export earners for super profits and persevere with industrial relations changes that will make the productivity challenge only more difficult.