Make-or-break moment for Albanese’s second term
There are no guts, no glory for Jim Chalmers in this make-or-break moment for Australia.
Jim Chalmers got “dacked” this week after a Treasury official forgot to redact the contents page on a Freedom of Information disclosure to the ABC. The material exposed was the department’s incoming brief for Labor’s second term, with an outline of issues the government must contend with in the coming three years and beyond.
The Treasurer got his “red book” early morning briefing on the Sunday after election day from then Treasury secretary Steven Kennedy. There can’t have been much in it to alarm the incumbent, save perhaps the real-time reading on the effect of Donald Trump’s trade wilding of friends and foes
Among a list of usual suspects, the brief advised Chalmers that tax hikes and spending cuts were needed to get the budget in shape. There was also – stop the presses – a heads-up that the 1.2 million homes target would not be met.
As MPs and senators prepare for the opening of the 48th federal parliament on Tuesday, the biggest surprise about the inadvertent microdosing of information was the claim from the career-long comms-neurotic custodian that he was “pretty relaxed” about the release.
Not sure if this qualifies as an example of Productivity Commission chief Danielle Wood’s plea for a “growth mindset”, but well played, Treasurer. This is a new side to the Canberra habitue. In any case, the message to officials is clear: disclosure doesn’t hurt, fewer blanket redacts spice up Policyville and a Public Service Medal is in the mail.
The pomp will give way to the real hustle of this term, which Anthony Albanese has declared will be delivering on election promises, keeping the ship steady and lifting the run rate on economic reform. Specifically, it’s about making Australia more shock-resistant, fixing the budget and raising productivity growth, with the private sector setting the pace.
If the Prime Minister is serious about his interlinked missions to transform the economy, he’ll ditch the policy modes of the first term and search for ways to craft better solutions, based on research, data and consent; explain the trade-offs to the public; and see them through to implementation. Labor has more misses than hits on all these fronts.
Albanese’s first order of legislative business is the 20 per cent reduction of Higher Education Loan Program or student loan debt, announced last November. The policy arrived out of the blue but looks like a Biden-era retread fashioned to extract electoral mileage from debt-laden Gen Zs and millennials in the frontline of the living-cost crunch. Economists condemned the move as a subsidy to the university-educated from those who are not.
Labor claims the $16bn write-off will make student loan repayments fairer and ease the living-cost squeeze; the capping of indexation (to the lower of either growth in wages or consumer prices) will cost another $3bn. It also raised the minimum income threshold for repayments from about $54,000 to $67,000.
Around 70 per cent of three million people repaying a student loan are aged under 35. Students and graduates will see an average of $5500 wiped from their HECS debt. But if fairness or accelerating debt repayment was the aim, Labor’s policy falls short.
As Jack Buckley and Matthew Maltman write in an e61 Institute research note this month, similar individuals who studied the same degree at slightly different times receive very different levels of debt relief. As well, most of the benefits will go to those with very high lifetime earnings, such as doctors, lawyers and dentists.
While the e61 economists do not endorse a student debt cut, they claim a tweak would significantly reduce unfairness and help more people clear their debts faster by cutting each debt holder’s balance by an equal flat-dollar amount of about $5500 (rather than cutting one-fifth of each individual’s balance).
Yet as a vote catcher, the proof is in the two-party preferred in our capitals, where students and younger workers are concentrated. Labor won two seats from the Greens in inner Brisbane (and a big swing in Ryan) and deposed the minor party’s former leader Adam Bandt in Melbourne, while holding off a strong challenge in Wills in the inner north.
Another policy mess was the February 2023 surprise to double the tax rate (from 15 per cent to 30 per cent) on earnings of superannuation balances above $3m. It has yet to become law but Chalmers is working with the Greens to clear its passage in the Senate.
The Treasurer insisted from the get-go it was a “modest change”. He’s right that super has been used by the wealthy for estate planning rather than its central purpose of a dignified retirement. Yet a 10th-order issue is in lights for the wrong reasons, not least because of its flawed design (namely treatment of unrealised capital gains and lack of indexation). The sales job has been as disingenuous as strikes against it.
This is a naked tax grab, not reform, as Chalmers avers; it will not, as alarmists claim, destroy Superannistan, imperil venture capital or impoverish young workers in 30 years when they retire. This creeping beast of a wealth tax (and who can say what it will look like in the twilight of Gen X) may offset the burden of personal income tax during the working lives of millennials and Gen Z. Yes, we need to reform super tax concessions and end the tax-free holiday for boomers.
Like student debt relief, this episode does not light a path to a good outcome. Winning an election with the super slug still on the books does not add lustre to a dud policy or process, end to end.
Still, let’s not throw in the towel. As former Reserve Bank governor Guy Debelle told the Australian Conference of Economics, there has never been a better time for experts to step up; by explaining trade-offs in economic reform, such as the impact on the losers and compensating them, we can get better results.
According to Debelle, one of the big advantages today, compared with the reform era of the 1980s and 90s when he was starting out, is “we have big data plus amazing computational power”. Rather than getting bogged down in the esoterica of theory or petty gripes, practitioners should use these new tools and their voices to “reinforce the fundamentals of economics”.
“Someone needs to explain why we’re putting these policy reforms in place,” Debelle told the ACE last week. “We’re not just doing them for the hell of it. We’re doing them for a reason, and that requires leadership, and some chunk of that leadership should be coming from the economics profession.”
The prelude to the economic reform roundtable on August 19-21 convened by Chalmers has been fast and furious. Opening up space for policy proposals from the community and retired econocrats, as well as allowing a thousand lobbyists to bloom, has enlivened debate. The findings from the PC’s “five pillars” reviews will inform the sessions in the cabinet room. Submissions have zeroed in on tax reform, including highlighting distortions in the GST and uncapped superannuation concessions.
An argument against lowering the company tax rate by the Commonwealth Bank has put the nation’s largest enterprise at odds with peers, some of whom have argued for a uniform 25 per cent rate (and 20 per cent for small businesses). “We believe there are other priorities which should lead the productivity reform agenda,” CBA claimed.
In its submission, the bank outlined some give and take, arguing targeted investment incentives could be funded by reducing concessions that apply to nonproductive parts of the economy. “We now need to catalyse the next wave of tax reform debate, which should include the appropriate levels and role for consumption and wealth taxes, for distributional fairness, and for incentivising productive activity in the economy,” CBA said.
While Labor has stumbled, it would be churlish not to note extenuating circumstances, such as the big inflation, regional conflicts, market turmoil and Donald Trump’s tariff abandon. Or that there is a prime example of evidence-based reform that may have slipped under the radar.
In the March budget, Chalmers announced a ban from 2027 on non-compete clauses in work contracts for those earning below $175,000. Labor says it will improve aspiration, job mobility, competition and dynamism – and raise annual incomes for affected workers by about $2500.
The lessons of a slow reform grind are detailed by e61 chief executive Michael Brennan and OECD head of growth, competitiveness and regulation Dan Andrews in Inflection Points, a new online journal. While there’s a deal of policy and legislative work ahead, the authors argue the banning of non-competes is the culmination of “detailed research and evidence gathering, public advocacy and coalition building”.
Brennan and Andrews run through the roles of ministers, public servants, global experts, policy commentators, the Australian Bureau of Statistics and the nonpartisan, not-for-profit e61, where I work as an adviser and Andrews did the initial heavy lifting on research and outreach before returning to the Paris-based think tank.
“If there is a consistent tone or dominant sentiment that runs through this story, it is optimism about our ability to make change,” the economists write.
We’ll soon learn just how deep is the nation’s well of optimism and judge the creativity of policy elites. Not least, this term will lay bare the mettle of a government to back the evidence, communicate its intentions, build consensus and see things through.
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