OECD latest to call out spending

The Albanese government has lost the support of local and international economists for its claim to having been working with the Reserve Bank of Australia to meet the inflation challenge. The latest scorecard was delivered on Thursday by the OECD, which urged the federal government to take steps to address the nation’s structural budget position by putting in place “tangible measures” to slow the runaway growth in the cost of the National Disability Insurance Scheme. Without urgent attention the NDIS will continue to be a ticking bomb at the heart of the federal budget. The OECD has also warned of the dangers of the rise in interventionist industry policy across the developed world as being counter to the national interest. The Albanese government has embraced the trend towards greater state involvement, including tax breaks, subsidies and industry protection under the banner Future Made in Australia. Jim Chalmers says the plan will be a key feature of the federal budget.

The OECD warnings coincide with a now widespread belief among economists that the Albanese government has failed to restrict spending, making the RBA’s inflation challenge more difficult. They are compounded by fears that the government’s Future Made in Australia agenda will be a repeat of failed industry protection policies of the past and will have long-term negative implications for the economy. Early indications, including the awarding of billion-dollar taxpayer contributions, first to solar panel manufacturing and then to quantum computing, can only add to those concerns. More broadly, KPMG has concluded that fiscal policy has been out of alignment with monetary policy ever since the RBA started lifting interest rates, the same time Anthony Albanese came to power. KPMG estimates government spending has accounted for 55 per cent of the growth in the economy between 2022 and 2023. This is exactly the opposite of what has been required and puts the lie to claims by the government that its focus has been on managing inflation and the much discussed cost-of-living crisis.

Voters are being made aware of the disconnect between the rhetoric and reality. Rather than cost of living, the Prime Minister was distracted throughout 2023 on the failed voice referendum. Rather than building an internationally competitive industrial sector, the government has been preoccupied with limiting the flexibility of businesses struggling with energy shortages and higher costs. Industry groups increasingly are saying federal government changes to industrial relations laws are working against its housing and other economic policies. Modelling for the Housing Industry Association shows that any potential benefits from Labor’s housing measures would be wiped out entirely by a combination of government changes to workplace laws, labour shortages and a resurgence of raw materials inflation. These are all hard realities for a Treasurer who says he wants to invent a new way of doing business. But they are a reality check that must jolt him back to the basics of prudent spending and budget restraint.