It’s been a while since an Australian prime minister remained upright long enough to take off the training wheels.
So we can be forgiven for expecting something more substantial than the flim-flam Anthony Albanese offered the nation on Friday in what was billed as a keynote speech on his second-term agenda.
Grey-haired readers will remember John Howard confidently striding back into office in 1998 and striking a tax reform agreement with the premiers as a prelude to introducing the GST. Some might recall Bob Hawke’s gleaming eyes in 1984, illuminated with the zeal of a reformer, pledging to reduce government spending and lower labour costs to allow businesses the chance to make a profit.
History will record that Albanese returned with an ill-defined commitment to do something to improve productivity.
When pressed on what that something might be, the PM didn’t seem to know. The policies would emerge from a two-day summit in August.
“What we’re trying to do is to have an adult conversation,” he told Andrew Clennell at The Australian’s Economic Outlook forum on Friday.
“I think it was Confucius who said, ‘If you think you’re the smartest one in the room, you’re in the wrong room.’ ”
There is no record of Confucius saying such words, nor much hope among Confucian scholars that any will emerge.
Confucius was a Zhou Dynasty philosopher, not a modern motivational speaker delivering epithets on Instagram.
Nor is there any record of Hawke arriving at the two-week taxation summit 40 years ago this week with a roll of blank butcher’s paper and marker pens looking for ideas.
He came with a 440-page white paper on tax reform, proposing to widen the tax base and alleviate pressure on income tax by taxing capital gains and fringe benefits.
He also included a proposal for a 12.5 per cent goods and services tax, which languished in the too-hard basket until Howard came along.
In the Prime Minister’s defence, he is right to point out that productivity began slowing long before he entered office.
Indeed, declining productivity is a challenge in most developed economies – though not all – with Portugal, Ireland and the US standing out as exceptions.
Yet the exceptionally sharp decline in productivity in Australia over the past three years has not escaped the notice of international economists.
An IMF report published in December noted with alarm a 3.7 per cent fall in labour productivity in 2022-23, one of the steepest drops on record. The IMF attributes this to weak business investment – particularly in non-mining sectors – as well as economic rigidities.
The unmistakable warning is that structural factors are driving up the costs of labour, resources and capital.
Yet none of this was acknowledged on Friday by the PM, who painted a picture of an economy rich with natural advantages, a “standout destination for international investment … a partner and provider of choice to the Indo-Pacific”.
The chief executive of Australia’s largest superannuation fund might beg to differ. AustralianSuper’s Paul Schroder told Friday’s forum that for every dollar flowing into funds, 70 cents is invested overseas. “If you run a national business in Australia at the moment, you have about 100 different taxes you have to pay,” Schroder said. “How stupid is that? So why don’t we fix that?”
Fair point. Reducing the corporate tax rate would encourage investment that lifts productivity.
Lowering income tax would reduce the cost of labour. Removing levies on heavy emitters and internal combustion engines would reduce the price of energy.
Yet the PM showed no appetite for taxation reform, nor would he acknowledge its central role in improving productivity.
There was no mention either that increasing energy costs in pursuit of net zero might be driving businesses offshore, or that pro-union workplace laws might increase the cost of labour.
The consequences of erecting barriers to companies that simply want to turn a profit have emerged in the latest ASIC data on business insolvencies. They record a sharp increase in bankruptcies in 2024-25, to a level well above that of the Covid years.
The pain is concentrated in small and medium-sized enterprises, particularly in the construction, retail and service sectors. Cost-of-living pressures have softened consumer demand.
“Other Services” – a catch-all for personal services, dry cleaners, repairers and small transport operators – also registered a sharp rise in exits, typically a sign of struggling sole traders and microbusinesses. The picture is clear: Australia’s business environment for small and medium-sized enterprises has become more difficult, more costly and less forgiving. It does not bode well for Labor’s promise of a “future made in Australia”. Manufacturing’s contribution to the national economy halved from 12 per cent at the start of the century to 6 per cent in 2020.
In 2024, it was 5.9 per cent – hardly an auspicious sign that manufacturing is heading home anytime soon.
Missing from Albanese’s speech was any evidence that his government is prepared to dip into its substantial pool of political capital to tackle the challenging task of microeconomic reform, let alone acknowledge, as Hawke did, the imperative of reducing government spending.
Productivity is the most consequential economic challenge of our times. It was the invisible force unleashed by Hawke’s and Howard’s economic reforms that delivered three decades of unparalleled prosperity.
Today, with productivity in decline, the economy is running with decreasing momentum. If millennials and Gen Z have reason to feel depressed about the future, it’s not because their parents have ignored the threat of global warming. It’s because we’ve been defying the laws of economics for the past decade or more.
In truth, the Albanese agenda is not the blank slate he claims it to be, as his speech made clear. He promised more of the big-government, economic petrification that characterised his first term.
There is no indication he has learned from his mistakes, nor any acknowledgment that external circumstances might have changed – and that his government must adapt. In short, there is no sign of the moral character that emerges in prime ministers – one who genuinely approaches challenges with an open mind, free from political dogma, and prepared to make trade-offs in pursuit of the national interest.
There are three ways to learn wisdom, as Confucius is reliably recorded to have written: “First, by reflection, which is noblest; Second, by imitation, which is easiest; and third, by experience, which is the bitterest.”
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