Labor’s profligacy is draining our sources of prosperity and talent

Treasurer Jim Chalmers unveiling the mid-year budget update in December. Picture: Martin Ollman/NewsWire

It is a new year but it is clear Australia is still headed in the wrong direction.

In just 2½ years, our economy has hit the wall. This is remarkable speed on any reckoning.

No amount of spin or unfounded optimism from Jim Chalmers will restore our prosperity without a change in direction. But the good news is there is a better way. We know that because we’ve seen it before.

Households and small businesses are under unprecedented stress. Rising prices and interest rates and income tax payment have outpaced incomes, shattering our standard of living. Small businesses are in a financial crush with a deadly combination of reluctant customers and rising costs.

The collapse in Australian household disposable incomes is unprecedented and unparalleled by any peer countries. For the first time we have seen seven consecutive quarters of household recession. The Albanese Labor government has no pathway to dig us out of this hole. Indeed, on its own failed economic plan, the lost disposable income won’t be restored until the end of the decade.

Worse, the International Monetary Fund has warned there is real risk of inflation and interest rates staying higher for longer without genuine fiscal discipline.

The problem for Labor is this isn’t your garden variety downturn driven by a slump in demand.

The economy has hit the wall, writes Angus Taylor. Picture: Getty Images

For Labor governments, rent-seeking lobbyists and Canberra bureaucrats, an economic downturn is an excuse to spend taxpayers’ money on pet projects to boost demand. Labor has committed to record levels of government spending with job creation driven almost entirely by taxpayers’ money.

In reality, our economy is constrained on the supply side. Our economic potential has collapsed with labour productivity going backwards by almost 6 per cent since Labor came to government.

That means we need to work 6 per cent more hours to produce the same as when Labor came to power or expect an equivalent drop in real wages.

Not surprisingly, many Australians are choosing to work second jobs or extra hours to make up the gap. Some are choosing to crack open the piggy bank and dig into savings, but that is not a pathway to prosperity. It is just a Band-Aid on a bullet wound.

With constrained supply, throwing money at the problem just worsens inflation and crowds out private sector activity. Businesses cannot produce more so they raise prices or give up.

Record levels of insolvency tell this story. But this Treasurer – like Labor treasurers from the past – has only one tool in the tool kit: spend more. That is completely the wrong instinct and only will impede the Reserve Bank’s job of sustainably reducing homegrown inflation and interest rates.

The Treasurer’s only claim to credibility was windfall surpluses but with commodity prices falling (a bit) and spending rising (a lot) we have red ink as far as the eye can see and a deficit this year of $27bn, worsening in future years.

This isn’t the first time we have seen an economy simultaneously thwarted by slow growth and rising prices.

During the 1980s and ’90s we saw the solution to a similar problem. Put simply, it means restraining spending growth and freeing up the supply side of the economy. The way to do that is to fight sclerotic regulation and bureaucracy.

Former treasurer Peter Costello. Picture: Jane Dempster

First, we must re-establish the fiscal guardrails first put in place by Peter Costello but abolished when Labor came to government. That means growing the economy faster than spending to rebalance the underlying budget. It means delivering lower, simpler, fairer taxes.

That is why we have opposed more than $100bn of wasteful government spending committed by Labor in this term of government including 36,000 new Canberra-based bureaucrats, a failed referendum, and housing and manufacturing policies that aren’t delivering homes, factories or energy supply.

The Coalition has already committed to ongoing and increased thresholds for accelerated depreciation for small businesses and to abolishing Labor’s odious unrealised capital gains tax on superannuation.

Second, we must unleash the aspiration and enterprise of Australian businesses and households. By rolling back excessive regulation, red tape and monopolisation of key sectors we can get our economy growing again. Labor’s new climate reporting is a typical example of regulatory overreach – way beyond peer countries – and that’s why we’ve opposed it.

Most important are those sectors that enable others: energy, construction and financial ser­vices. That means freeing up the construction sector from criminal links and abuse of power. The Coalition has committed to deregistering the CFMEU and re-establishing the Australian Building and Construction Commission to have a tough cop against untoward abuse of a crucial sector by union officials.

It means freeing up the fuel sources we use to deliver reliable, affordable and sustainable energy to households and businesses. Getting rid of the moratorium on nuclear and freeing up gas supplies to serve Australians are at the top of the list.

We need to reinvigorate our financial services sector, re-establishing quality advice and streamlining regulation. That will ensure easier access to finance for investment and for a better financial. There is a better way, but after three failed budgets and no sign of a change in direction, the upcoming election is when Australians will get to make their choice.

Angus Taylor is opposition Treasury spokesman.