Treasurer wades into river, risks letting economy sink

Running for office, Anthony Albanese and Jim Chalmers made themselves a small target. When mentioning past governments they cited the successful economic legacy of the Hawke-Keating era. In March, Mr Albanese even promised to reform the economy in the same fashion as Bob Hawke and John Howard. Concepts such as building “a better capitalism, uniquely Australian’’, creating “a new, sustainable finance architecture, including a new taxonomy to label the climate impact of different investments’’ and “reimagining and redesigning markets’’ were not shared with voters. Those intentions, all involving the normally inefficient embrace of big government, are set out by the Treasurer in an essay, Capitalism After The Crises, in The Monthly. Like Kevin Rudd’s essay in the same journal 14 years ago, which called for a new era of social capitalism and blamed the global financial crisis on policies of free-market fundamentalism, the hallmark of Dr Chalmers’s essay is intervention.

This is in keeping with the government’s instincts to date, which have brought the re-regulation of industrial relations, including multi-enterprise bargaining and plans to encroach on working conditions in the gig economy and of non-unionised transport workers. Labor has dipped into consolidated revenue to subsidise aged-care workers’ pay rises. If the gas and resource industries have not got the message yet about increasing sovereign risk from market interventions, including price caps on coal and gas, Dr Chalmers’s opus puts it beyond doubt.

Just over three months from the May budget, he is promising radical change this year. In 2023, he announces in the essay, “we will create a new, sustainable finance architecture including a new taxonomy to label the climate impact of different investments’’. Investments that do not meet the low-carbon agenda, presumably, will be penalised. The strategy, Dr Chalmers says, “will help investors align their choices with climate targets, help businesses that want to support the transition get finance more easily, and ensure regulators can stamp out greenwashing’’. In his determination to pick winners with a focus on pet projects that please the progressives, the risk is that investment in “non-approved” projects, such as in the coal and gas industries that pay the bills today, will move elsewhere, putting an even heavier burden on to consumers least able to afford it. The government has shown it is prepared to subsidise power prices and fund low-income earners to swap gas appliances for electric, in line with a demand from the Greens to pass its energy bill. But it is under financial pressure. It needs to avoid subsidies that would fuel inflation and slow budget repair and debt repayment needed to position the nation for the next financial or health crises. Those issues get scant attention in the essay.

Dr Chalmers wants to expand “impact investing’’ in the social purpose economy such as aged care, education and disability. He envisages “effective organisations with high-quality talent’’ offering “decent returns’’ and demonstrating a social dividend. Such undertakings “find it hard to get investors’’, he says, and “the market framework that would enable that investment in effect doesn’t properly exist’’. Market intervention to facilitate such lending would involve risk. In the aged-care sector, we reported three weeks ago, seven in 10 nursing homes are running at an average ­loss of $21.29 a bed a day. Investors seeking profits, the basis of a market economy, would be inclined to look to other investments, including overseas, if opportunities were more favourable.

At a time when the economy needs profitable companies to provide revenue and jobs amid rising inflation, interest rates and recession predicted for much of the world this year, the word “profit’’ is mentioned just once in Dr Chalmers’s 6000-word treatise. And that is in relation to “values-based capitalism’’, and regulatory frameworks that ensure capital creates value for investors also generating public value. Dr Chalmers may be trying to position himself as a future Labor leader. In an era of more rational debate, however, this essay could come back to haunt him. Its inspiration is a quote from Greek philosopher Heraclitus, sent to him by a journalist. Heraclitus’s words, “No man ever steps in the same river twice. For it’s not the same river, and he’s not the same man”, are salient, Dr Chalmers says, with the world experiencing its third crisis in 15 years. What worked in the past would not necessarily work now, he says. True. But we’ve been down this river before. And when governments pick winners it usually leaves the economy up a creek.