Labor must harness tough times for lasting reform

Jim Chalmers has been open with the Australian people about the economic challenges now faced, due largely to factors and forces beyond our control. But he has missed an opportunity to deliver a wake-up shock like Paul Keating’s famous “banana republic” speech in 1986 that helped to kickstart a decade of micro-economic reform. Instead, the Treasurer has sought to put too much of the blame for our current predicament on to the Morrison government and has failed to offer a micro-reform agenda that does not involve more government spending in the form of extended childcare, cheaper medicines and taxpayer-funded training, and the heroic claim that a push to renewable energy will lead to cheaper energy prices.

No doubt the high debt levels inherited by Labor are central to its worries, as higher interest rates caused by rising inflation will dramatically increase the amount that must be found each year to service borrowings. But Dr Chalmers did not acknowledge that the extraordinary circumstances of the pandemic were responsible for the high debt, or that in opposition Labor had campaigned for the government to borrow and spend even more. Rather than blame its predecessor, it is time for the Albanese government to stop acting like an opposition and recognise that it now owns the agenda and will be held accountable for outcomes.

The starting point is the revised Treasury forecasts that expect inflation to peak at 7.75 per cent in the December quarter this year, falling to 5.5 per cent by the middle of next year, 3.5 per cent by the end of 2023 and back within the Reserve Bank’s target range at 2.75 per cent by the middle of 2024. As a consequence, gross domestic product growth in 2022-23 has been revised down to 3 per cent, and is expected to slow further in 2023-24 to 2 per cent. The wildcard is what happens in the global economy, for which the International Monetary Fund has painted a gloomy outlook, and in China, our biggest trading partner. Having campaigned on a platform of higher real wages, Dr Chalmers says this now is unlikely to happen until at least 2023-24. To succeed, the Albanese government must deliver on its promise to govern in the mould of the reformist Hawke-Keating and Howard administrations. This must include a focus on growing the economic pie rather than on how it can be spent. There are worrying signs Labor may not be able to resist the demands of the union movement, not least being the haste to neuter the Australian Building and Construction Commission.

Union demands for unsustainable wage increases remain a real threat, as would giving them too much power in a promised workplace review and possible restructuring of the Reserve Bank board. The Business Council of Australia has put forward a recipe it says can help make the Jobs and Skills Summit in September an economic circuit-breaker, providing an opportunity to push ahead with the long-term structural resets needed to drive investment. Chief among them is a critical reshaping of the industrial relations system and salvaging of the enterprise bargaining system that can allow workers and capital to share the fruits of improved productivity in the workplace.

The good news in Dr Chalmers’ address to parliament was that the economy remains fundamentally strong, with the final budget outcome for 2021-22 likely to show a dramatically better-than-expected outcome. Dr Chalmers expects government payments to be about $30bn higher across the forward estimates than was forecast pre-election because of inflation and wage expectations. But the pressures that are building as a result of global factors, including inflation and supply constraints, are for Labor alone to manage. This was Dr Chalmers’ chance to rein in expectations as he frames an October budget and build support for structural reforms for the long-term benefit of the nation.