With Labor’s super-sized majority, it’s time to go big, Australia

The electorate has rejected the failed, pessimistic Little Australia marquee Peter Dutton traded under, as well as the limitless freebies of the post-apocalypse Greens. The main game will be elsewhere for a long, long time – meaning the PM has a golden opportunity.

Prime Minister Anthony Albanese has won a big majority ahead of the 48th parliament.

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Among the golden opportunities Anthony Albanese is now free to pursue is a bigger Australia. The nation doesn’t need more government but a better and bolder one if we are to avoid being held back or left behind by global competition.

The Prime Minister ascendant is unlikely to be pushed to go harder or faster than the resting pulse of his first term. Why run when you can walk and still win big? Unless there is a crisis, incrementalism is the essence of this Labor show, which is a comfort to older cabinet souls and a frustration for those yet to make their mark.

To deal with endemic deficits and rising debt, we need a bigger economy; one that’s more efficient, with fewer barriers to competition, business investment and innovation. We’ll need more homes, babies and ambitious, courageous and curious political leaders. Right now, with the world closing in, more is more.

The electorate has rejected the failed, pessimistic Little Australia marquee Peter Dutton traded under, as well as the limitless freebies and op-shop economy of the post-apocalypse Greens. The Liberals and their franchisees look like they’ll spend the next three years talking about themselves. Let’s occasionally check in on the vanquished, as kindness demands, but the main game will be elsewhere for a long, long time.

Labor not only has a country to run but also has to revitalise our operating model to master a fragmented global trading system and deteriorating security outlook, as well as reconcile an ageing society, expanding entitlement culture and stagnating living standards.

Former Treasury secretary Ken Henry senses voters would like to see “a bit more ambition, a bit more courage, a bit more innovative thinking” from leaders. “I don’t regard myself as a political pundit or anything like it,” he told podcaster Joe Walker four days before the election. “But I do think that Australians want to see politicians do big things. Not terrorise them, no, but nevertheless do big things and then understand why, and be brought along on the journey.”

Former Treasury secretary Ken Henry. Picture: Mona/Jesse Hunniford

Australia’s economy is underperforming. It’s producing 3 per cent fewer goods and services than pre-Covid projections, due in part to the monetary squeeze to break inflation. GDP growth is in a rut, and uncertainty due to US trade provocations means investors and consumers will be less likely to make major outlays. In its latest forecast, the International Monetary Fund trimmed by one-quarter Australia’s growth in 2025 to 1.6 per cent; Treasury’s forecast in the March budget was GDP growth of 2.25 per cent this year and next.

How do we lift our growth rate? For the past two decades, the policy conversation focused on the “three Ps”: population, participation and productivity. In a nutshell, to maximise national income – or living standards – you want as many productive workers as possible.

That does not mean migration at the unsustainable levels of the two-year post-Covid catch-up, when almost one million foreigners settled here. While the Coalition called it a “Big Australia policy by stealth” it falsely claimed this rebound was stopping young Australians realising the dream of home ownership. The rush has ended.

Based on Treasury’s latest estimates, the population by the end of June will be 241,000 smaller than was expected in the Coalition’s budget update in December 2019. Across six years, the nation will have added 186,000 more migrants than forecast but the natural increase has come in short by 427,000 (almost entirely due to a 19 per cent plunge in the cumulative number of expected births).

There was a net outflow of migrants during the pandemic. Picture: Flavio Brancaleone/NCA NewsWire

Labor panicked in the face of a record number of foreign students, workers and backpackers who would not go home. There are 380,000 here on a bridging visa (awaiting an immigration decision, a one-third increase across the past year. The number of working holiday-makers is up by 22 per cent in 12 months to 224,000.

The Albanese government has cracked down on dodgy colleges, ended Covid-era work rights, cut slightly the planning level for permanent migration, outlawed visa hopping, and is trying to stem the number of foreign students coming here (it hasn’t been able to institute student enrolment caps but may try in the new parliament). Still, at the end of March there were 673,000 foreigners here on student visas, the same level it was a year earlier, perhaps to get ahead of the informal caps; there were also 222,000 foreign graduates, an 11 per cent increase on March 2024.

Labor has put visa reform on hold; some believe this is sensible given the “toxic politics” of the migration debate, with policy reduced to downward bidding on numbers, rather than implementing reforms announced in December 2023. It has been a missed opportunity to repair a dysfunctional system that impairs growth, productivity and the talent we should be attracting.

Plainly, we need more homes; a migration boom and fewer babies change the housing equation. The Coalition did nothing during the migration pause to address supply, while stoking demand for renovations in its ill-conceived HomeBuilder scheme. Each month as building approval numbers roll in, Labor’s five-year target of 1.2 million new homes looks forlorn.

Recent migration, permanent and temporary, has failed to bring in skilled construction workers. Housing Industry Association chief economist Tim Reardon says that of the 166,830 people here on a temporary skilled worker visa, only 4229 were in home building trade occupations. “Reforms to skilled migration, including a dedicated construction visa, are needed to attract skilled tradespeople from overseas during cyclical peaks in activity,” Reardon says, noting acute worker short­ages despite the two weakest years of new home starts in more than a decade.

The housing industry is experiencing acute shortages of skilled workers. Picture: Roni Bintang/Getty Images)

Workforce participation has been a bright note, hitting record high rates for women and the national average (male participation has fallen from 80 per cent in 1978 to just more than 70 per cent). Older women have been the story, due to a structural shift in the labour market as well as the gradual increase from 1995 of the retirement age for women from 60 to 67.

New IMF research suggests there may be a big dividend in what it describes as the rise of the “silver economy”. Healthy ageing – people over 65 having better health outcomes at older ages (especially physical and cognitive function) – will add 0.5 percentage point to average GDP in Australia across the next 25 years.

“Although population ageing poses challenges such as slower growth and increased fiscal pressures, healthier ageing trends offer a silver lining by boosting labour force participation, extending working lives, and enhancing productivity,” the IMF reports.

But, as e61 Institute research has shown, the move to raise participation and lessen the impact of boomer ageing on the pension system can have unintended intergenerational consequences on fertility. “While such policies aim to improve fiscal sustainability and labour market outcomes, they may inadvertently reduce the availability of grandparental childcare, influencing daughters’ fertility decisions,” Pelin Akyol and Kadir Atalay wrote in a February study.

To improve opportunities for younger women, Albanese is committed to a universal early childhood education and care system; a guaranteed three-day a week childcare subsidy begins next January. Labor also scrapped the activity test for parents and established a $1bn fund to build more centres.

As the scale of Labor’s victory sunk in on Sunday morning, Jim Chalmers acknowledged that economic policy had to pivot from providing shelter from living-cost storms to rebuilding the engine of growth. “We’ve got an agenda on productivity, but we can do more, and we will do more,” the Treasurer told ABC TV’s Insiders program.

Treasurer Jim Chalmers and his wife Laura voting at Springwood Road State School in his electorate of Rankin. Picture: NewsWire/Glenn Campbell

He said if Labor’s first term was primarily inflation without forgetting productivity, the second would be primarily productivity without forgetting inflation. Sub-par labour productivity since 2014 has come at a cost of around $11,000 in lost income per person a year according to research by UNSW Sydney and e61, where I work as an adviser. As Philip Lowe has argued, in his former role as Reserve Bank governor and now chairman of the ASX-listed Future Generation Australia fund, most of the ideas for productivity reform are out there, it’s the political will that’s missing.

“Our society has lost the ability to form coalitions to implement difficult things that in the short run will hurt some people but are good for our kids,” he told this newspaper in March. “And we’re now seeing the consequences.”

The latest thinking on the productivity slide points to a decline in economic dynamism, which is how an economy uses and reallocates resources such as land, capital, labour and technology. We have low levels of job mobility, low rates of old firms exiting and new firms entering, and the rise and rise of the care economy, which is labour-intensive and dominated by government provision, funding and regulation. What is Labor’s productivity agenda? Chalmers points to a national scheme for occupa­tional licensing, changes to non-com­pete clauses in work contracts and revival of national competition policy through a fund that incentivises the states and territories to remove regulatory barriers. These are helpful if slow-burn moves.

For instance, Labor’s national licensing plan for electrical trades will improve worker mobility, especially in areas such as home building and the energy transition. The Productivity Commission has estimated the economy-wide gains could be as high as $10bn.

In December 2024 Chalmers asked the Productivity Commission for advice on the five main pillars of productivity: a dynamic and resilient economy; more skilled and adaptable workforce; data and digital technology; more efficient and higher quality care; cheaper, cleaner energy and the net-zero transformation. One of the key challenges will be to boost investment; our capital stock (of machines, tools and software) has not been growing as fast as our workforce, which results in what economists call “capital shallowing”.

High levels of government spending, on services and employee wages and public works, risk crowding out the private sector and pushing up labour costs.

Commonwealth Bank chief economist Luke Yeaman says the government is playing down expectations for bold tax reform, instead highlighting the need to lift productivity through housing and energy initiatives. “That said, a desire to deliver a ‘second-term legacy’ could see more ambitious reforms emerge later in the term,” the former Treasury deputy secretary wrote on Thursday.

Commonwealth Bank chief economist Luke Yeaman. Picture: Martin Ollman/NewsWire

Yeaman says improving our complex planning and approvals processes is a priority. “If left unaddressed, this has the potential to significantly undermine progress on the government’s flagship priorities across housing, infrastructure, the energy transformation and Future Made in Australia,” he wrote.

Deloitte Access Economics lead partner Pradeep Philip says given Labor’s super-sized majority, “there is political capital to be used for an economic purpose”. “The style of the PM is step by step and about bringing business and unions and community groups together, so we should expect to see reform arguments linked to taking the people with him,” he tells Inquirer.

“Growth alongside distribution of that growth is the key. Given the non-indexation of tax thresholds, the opportunity to use this revenue for buying reform is real. There are decent building blocks in place for reform, which is why I’m hopeful.”

Henry played a critical role in the bipartisan revival during the last 15 years of the 20th century. While he doesn’t doubt there are visions for Australia at large, “they lack the sense of urgency”.

Perhaps Labor’s chunky electoral buffer, meaning more time on the clock to see it through, provides the kick to revitalise our growth model. For an ultra-cautious Prime Minister and Treasurer, going big could prove to be beautiful.