Albanese is rejuvenated, but his biggest threat might be his Treasurer
The success of the government’s aspirational reform agenda hinges on the relationship between Anthony Albanese and Jim Chalmers.
Anthony Albanese is a rejuvenated leader who appears to have learned a fundamental lesson from his government’s first term. If there was a single and primary mistake, it was a failure to identify, define and adequately articulate a destination.
In the end it was the Coalition’s inability to do the same that saved Labor.
The Prime Minister doesn’t intend to make the same miscalculation this time, having sought to establish from the outset a key political and economic benchmark by which he must now also expect to be judged; namely, the productivity-driven restoration of living standards.
Speaking on Friday at the annual Australia’s Economic Outlook event in Sydney – hosted by The Australian and Sky News – Albanese outlined his second-term economic vision to modernise the economy. He says he seeks to reconnect with business leaders critical of his first-term government’s industrial relations laws and reform agenda around taxation and productivity.
“From big employers to the millions of small businesses right around Australia, our government wants you to be able to resume your rightful place as the primary source of growth in our economy,” he said.
Built into this proposition is an inevitable struggle. Albanese has political capital to spend to achieve what may be unpopular policy outcomes for some groups in the community. Jim Chalmers has even more enthusiasm for reform.
The tension in this relationship between the Prime Minister and his equally ambitious Treasurer will determine how far Labor is prepared to go on economic change.
This is one of the more compelling stories of Labor’s second term. From the outset, there is potential for an acute internal clash of personalities in the pursuit of competing political legacies.
Labor’s new agenda hinges on the maintenance and strength of the relationship between Albanese and his Treasurer, a dynamic not too dissimilar to that of Bob Hawke and Paul Keating in government.
While Albanese rightly claims credit for the election win, despite his low approval ratings, supporters of Chalmers are quick to point out privately that the election was won on an argument over the economy and that it was Chalmers who constructed the podium.
Chalmers now seeks to move quickly in nominating productivity and the tax system as the fulcrum for future reform using the macro-economic levers of government and the micro-economic pedals of business. But it will be the Prime Minister who decides how far Chalmers will be allowed to go.
There was a reason none of this was mentioned before the election. Productivity is poorly understood. The Albanese-Chalmers endeavour is paramount for two reasons. Economic policy drift is no longer an option for Australia. And if Albanese is to take the nation on a reform journey, he needs to define where he intends to go.
The first two months of the post-election phase have offered little scope for a reinforcement of Labor’s extraordinary victory, with Iran and Israel, Donald Trump and China dominating the political landscape.
But Albanese’s language is already more intentional. He is also sending a strong signal to those who refused to believe the electorate would have the pluck to expand his political authority so demonstrably. He won’t forget the doubters.
Explicit in his pledge to pursue economic reform beyond his election platform, testing his mandate, is the corresponding promise to restore the living standards for Australian households that were so rapidly and deeply eroded during his first term.
Global events, and Australia’s role in them, will inevitably become a feature of the political cycle for the entirety of this term. Albanese will spend almost all of next week in China before the 48th parliament sits for the first time in a little more than two weeks. But this is when the showpiece of Albanese’s domestic political agenda, this promise of bravery in the pursuit of economic reform, will begin to come under sharper scrutiny.
Albanese has already sought to stamp his authority on the economic agenda, having appointed former Treasury secretary Steven Kennedy as director-general of the Department of Prime Minister and Cabinet. In his first address to the National Press Club following the election, Albanese announced that he had directed his Treasurer to convene a productivity roundtable.
The subtext in this statement is the posture Albanese is seeking to establish.
Within a week, at the same forum, Chalmers, with equal subtlety, sought to ensure that Albanese shared equal ownership of the outcomes.
“The decisions we make in the 2020s will determine the sort of living standards and intergenerational justice that we have in the decades to come,” Chalmers said in response to a question following his address.
Restoring living standards and the fiscal position are the stated ambitions. They are now the political benchmark as well, with Chalmers and Albanese both having identified productivity gains and tax reform as the only vehicles for this ambition.
Albanese and Chalmers have adopted Hawke’s 1983 election clarion call for economic reform by consensus but the zeal for change, as Chalmers has stated, will be checked against electoral tolerance. The Treasurer says he wants to test the appetite of Australians for reform. The risk for Chalmers is hidden in the level of appetite Albanese will have, particularly if things start to get difficult.
The relationship of Hawke and Keating in the early phase was one of genuine and close collaboration before it ultimately descended into open rivalry and hostility.
The relationship of Albanese and Chalmers appears less complex but more aloof. Chalmers is kept at a distance by Albanese’s internal alliance. Deputy Prime Minister Richard Marles, Home Affairs Minister Tony Burke and Foreign Minister Penny Wong are far closer to the Prime Minister than the Treasurer from Queensland. Economist Saul Eslake tells Inquirer the comparisons of the early Hawke-Keating dynamics are relevant and he has cautiously applauded Chalmers for having the ambition to take on what needs to be done.
With the exception of the Howard government’s second term, with the introduction of the GST, reform has been largely absent from the federal landscape.
Chalmers is offering hope that issues that have dragged on the economy like an anchor for the past 2½ decades will be addressed. The caveat is that only by consensus can this work.
And if the August productivity and tax roundtable descends into partisan dispute, what then?
Does Chalmers pursue reform on his own terms, having already identified productivity as the economic priority?
Having now so vigorously pitched it as the solution to a problem that is politically and economically challenging, defeat and retreat are not options for the Treasurer.
The second challenge, as Chalmers himself admits, is the retail difficulty in selling productivity to an electorate that by Labor’s own design has become increasingly dependent on having government underwrite rising household cost pressures.
Chalmers warns of trade-offs in reform. Not everyone will be happy.
As Eslake states: “Real reform only happens in Australia when a first-term government elected on a platform of not doing very much at all then goes to a second term, which history tells it it is likely to win, seeking a mandate for bold reforms.
“The only two examples of that are Howard in 1998 and Mike Baird (NSW Liberal premier) in 2015. And that’s why we haven’t had any reform for so long.
“I would have hoped that Albanese and Chalmers would be doing that in the lead-up to the election in May, but they didn’t because they were the only first-term federal government since (Gough) Whitlam not elected in a landslide and therefore couldn’t afford to take the same risk advocating for something that people might not like.”
Chalmers appears to be behaving like a first-term Treasurer, willing to spend political capital. The final say on this, however, will be Albanese’s.
“If that’s right, I’ll cut Chalmers some slack and applaud him, until I have reason not to,” says Eslake, who started his career in the fiscal and monetary policy division of Treasury during the Fraser years before advising then Liberal Victorian opposition leader Jeff Kennett in the early 1980s.
“The comparison with Hawke is apt,” he says. “He had summits, and the first time he did, he delivered, he opened the door to the deregulation of the financial system in particular. Then when Keating tried it at the tax summit, Hawke threw him under a bus.
“This is the risk for Chalmers, and he knows it. It was the subject of his PhD thesis.”
Chalmers’ statements so far align with this view on the difficulty of reform. And while he insists it is not about personal ambition, legacy reform will be in his thinking, just as social reform – universal childcare – shapes Albanese’s.
“If you tried to work out why a country like ours might spin its wheels on reform, I think one of the reasons for that is because governments have to consider trade-offs and other participants in the national reform consideration might not need to,” Chalmers said in his press club speech. “That’s why I’ve been very, very specific with the conditions that we put on people’s involvement, because there are trade-offs, and often difficult trade-offs.”
This approach was largely absent during Labor’s first term.
The scale of what Chalmers is faced with may not be the same as the Hawke-Keating program but it is as equally significant in its political difficulty and arguably contextually as important if the Australian economy is to be refurbished for the challenges ahead, globally and domestically.
Yet if the fresh battle over what Chalmers claims is a tweak to the tax treatment of high-value superannuation balances worth more than $3m is any indication, the degree of difficulty that lies ahead when far more controversial issues around GST or company tax inevitably arise as a product of Chalmers’ roundtable will be far more profound.
The Treasurer is already becoming isolated over his super changes, earning a rebuke not only from Keating, who has called for it to be indexed, but now too the ACTU. Chalmers declares he is not for turning on the issue, arguing it was part of the mandate of Labor’s election victory.
Albanese’s language has at times been less conclusive.
A fresh point of reference appears to have emerged from a new economic tome doing the rounds of Canberra, Abundance: How We Build a Better Future by American veteran journalists Ezra Klein and Derek Thompson, which Chalmers has identified as offering new thinking on old politics and the great global challenges. If Chalmers is serious about his intentions, it will mean casting off old progressive models that have guided Labor’s past economic model. This will require him to take on rigid factional philosophies within his own party, some of which would still have appeal for Albanese.
One of the big drivers of productivity gains he seeks will be through further deregulation. But with Labor having added to this burden in its first term, Chalmers cannot avoid the reality of serious and deep renovation of the regulatory environment. There will be pushback internally on this.
Despite still wearing the scars of the jobs summit following the 2022 election, the business lobby is taking Chalmers at his word in offering a non-ideological and open-minded approach to productivity despite the quarantining of industrial relations from the process.
The Business Council of Australia has convened a working group of 28 associated business and industry groups to present a united set of options to Chalmers in August. It will seek accord on reform through four priorities: deregulation; research and investment; planning approval; and tax.
“One thing you can be sure of is there will be no joint communiques this time between the business groups and the unions,” a senior business leader says, in a signal that there remains deep suspicion within the sector. The Coalition under new leader Sussan Ley has signalled it will be a less belligerent and oppositionist proposition. This is the territory Ley is already trying to stake out as a point of difference from the Dutton era.
The productivity roundtable, which the opposition will be included in, will test this resolve.
A Labor insider says Albanese will put a priority on maintaining his dominance and prosecuting the domestic agenda through the parliament that will be a much simpler landscape for the government, with several pathways available through the Senate for legislation.
“It’s a much simpler parliamentary landscape,” the insider says. “There are more pathways through the Senate, legislating with the Greens, the Coalition or the crossbench. I think you will see early steps from Albanese to maintain momentum.”
The pace will be different. Albanese will seek to set the agenda from the outset and not allow events to dictate the politics. There will be a premium on more astute and sharper political management. The experience of the first 2½ years of his first term will have been seared into Albanese’s frontal lobe.
Albanese also remains privately indignant about the unwillingness of the media to believe before the election that he could have taken Labor to victory in its own right. He regards it as a personal insult to his political abilities and judgment. Yet few could have predicted how poorly the Coalition would have performed.
This doesn’t deny an inescapable fact that will likely guide Albanese’s political approach to Labor’s second term in office.
The greatest lesson from the near death experience Albanese was facing at the end of 2024 is that he will need to be clearer about what the destination is under Labor for its second term.
All governments become unpopular eventually. But the pace and scale of how quickly unpopular Albanese’s administration became during the first two years in office was as dramatic as it has ever been for Labor in a first term.
The failure of the voice referendum highlighted if nothing else a devastating failure of political management. Labor’s two-party-preferred vote as measured by Newspoll fell almost seven percentage points from its post-election high in July 2022 to the end of 2024. This was the sharpest decline for Labor in government, eclipsing even the political cost of the calamity that stained the 2010 Rudd-Gillard period.
What happened at the beginning of 2025 to arrest it and ultimately turn the tables is now well documented. Albanese was assisted by the Coalition’s own collapse and the unwelcome intrusion of Donald Trump on to the Australian domestic landscape.
It represents what is also one of the greatest political recoveries of all time.
For Albanese, both the early rejection of his government demonstrated in the published polling and Labor’s spectacular revival serve as reminders of how acutely the political landscape can shift and just how quickly it can turn against a government. It could easily happen again.
This means Albanese is likely to approach this second term with an inherent contradiction. While he may seek to leverage Labor’s dominant political position to demonstrate greater ambition for economic reform, he may do so with a greater degree of caution.
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