Warm heart is no substitute for economic discipline

Jim Chalmers has outlined his vision for big government with a hard head and warm heart to do away with the idea that society is made up of what Joe Hockey famously called “lifters and leaners”. The Treasurer used a receptive audience at the Brotherhood of St Laurence 2023 Sambell Oration to double down on the need for transformational government, something he outlined in a much criticised essay, Capitalism after the Crises, in The Monthly in February. In the essay, Dr Chalmers floated the need to reimagine and redesign markets to create “a better capitalism, uniquely Australian” and “a new, sustainable finance architecture, including a new taxonomy to label the climate impact of different investments”.

In his Sambell Oration, Dr Chalmers outlined how the Albanese government was already working to “renovate our institutions” and “measure what matters” with a new wellbeing framework. He said the harsh criticisms of his Monthly essay had exposed the dispute at the heart of economic debate in Australia. This was between those who believed the “fossilised fallacy” that our economic and social objectives must be in conflict, not concert, and those who rejected it.

The Albanese government, he said, was a government of hard heads and warm hearts fighting through the inflationary pressures with responsible economic management that underpinned targeted cost-of-living relief. It was implementing long overdue innovations to reverse disadvantage, working with people in place, and intervening in the housing crisis after a decade of waste and neglect.

In the next few weeks Dr Chalmers plans to release Measuring What Matters, Australia’s first national wellbeing framework to track things such as the health of our people, the state of our environment, how much time people spend at work, at home, with their kids, in traffic, and whether people feel connected to each other. According to Dr Chalmers, “this will help us to track our journey towards a healthier, more sustainable, cohesive, secure and prosperous society that gives every person ample opportunity to build lives of meaning and purpose”. This will be followed by a new intergenerational report and an employment white paper to give a road map “for a more inclusive, dynamic labour market that makes the most of people’s talents”. Along the way, Labor is “restoring and reforming” institutions such as the Reserve Bank of Australia, the Productivity Commission and the public service.

At some point, the Chalmers doctrine inevitably must collide with reality. Part of that reality is that social reforms such as housing are being held hostage by the Greens in a hostile Senate and the big tick the Treasurer has given the Albanese team for fiscal restraint is challenged by the numbers. As Judith Sloan wrote on Tuesday, spending is still rising and it is not sufficient for the government to claim monetary and fiscal policy are working in the same direction; they clearly are not. At the time of the May budget, spending for last financial year was estimated to be $632bn or 24.8 per cent of gross domestic product. This financial year it is expected to be $682bn, a real increase of close to 4 per cent from the previous year and making up 26.5 per cent of GDP. The budget spending figures don’t include the off-budget spending such as the Rewiring the Nation and the National Reconstruction funds. And across the four years of the forward estimates, in the final year spending is expected to be $764bn – an increase of close to $150bn compared with the Coalition’s last full year in office. Spending on the totemic policy for compassionate government, the National Disability Insurance Scheme, is running out of control and the responsible minister, Bill Shorten, appears only half committed to reducing the rate of growth.

The expected announcement, possibly later this week, of a replacement for RBA governor Philip Lowe will provide another signpost to where things are heading. Dr Chalmers reportedly is considering overturning recent convention to appoint a new head from the public service rather than from within the RBA. The last time this happened was when Paul Keating appointed Bernie Fraser, who oversaw interest rates of 17 per cent to produce the “recession we had to have”. Dr Chalmers’ unconventional views and policies may contain within them some equally nasty surprises.