A perfect time for political pain before gain

Reserve Bank governor Philip Lowe at a parliamentary economics committee hearing on Friday. Picture: AAP

Covid-19 may have derailed the Big Australia population express, but it has fast-tracked a shift to Maxi Canberra.

The nation’s emerging social compact is for more federal spending on aged care, disability services, childcare, health, defence and infrastructure.

What we haven’t figured out is how to pay for our growing list of wants, what programs to ditch or how we are going to conjure more output from our machines and workers.

On Friday, Reserve Bank governor Philip Lowe’s blunt message was one of tough love for struggling families and the political class: pain now, gain later.

The Albanese government’s first budget is a little over five weeks away and its expenditure review committee has been ­focused on making room for Labor’s election promises and easing strains on households from an expected 8 per cent rise in consumer prices this year.

The pain the RBA is delivering from higher mortgage costs and falling home values is to make people spend less and stave off a greater community scourge.

High inflation, what is it good for? Absolutely nothing, according to Lowe.

Listen to me, the RBA chief ­intoned: inflation robs savers, distorts business decisions, worsens inequality and eats into family ­incomes.

The prize for beating inflation, via a few more cash rate rises, is within our grasp: full employment and rising incomes.

But Canberra needs to play its part by getting the budget under control, sooner rather than later. It won’t be easy, but there’s rarely been a better, or more pressing time, to start fiscal repair.

The income we receive from exports buys more imports than ever, unemployment is at a near five-decade low of 3.5 per cent and the economy grew by 3.6 per cent in the past year.

Yet we are facing a decade of budget deficits, a soon-to-be $1 trillion debt and demands for higher social and military spending, all the while making an economy-wide transition to cleaner energy.

Strictly speaking, Lowe has no business sticking his nose into fiscal policy, but what happens with taxing and spending does concern him while at the controls of day-to-day demand management.

Jim Chalmers wants a national conversation about the tough policy choices the nation faces and needs as many “thought leaders”, such as they are, on board.

After his October 25 debut, which the Treasurer says will be “workmanlike”, he has perhaps another three budgets before the next election due in 2025. May beckons.

The L-A-W $243bn over nine years stage-three tax cuts, starting in 2024, will be an arena for bitter conflict.

But as long as the debate is economically literate, the government can leverage a frank discussion about reforming a leaky, unfair system that asks wage and salary earners to do the grunt work to pay for this new and growing compact.

Anthony Albanese may have inherited big government from the previous tenants, but he sure as hell believes in its power to open doors of opportunity.

Canberra’s footprint won’t be shrinking under Labor. Within a few years, bracket creep will be taking a hefty chunk out of pay packets.

As Treasury Secretary Steven Kennedy has urged, we need a tax system “fit for purpose” to pay down debt, enhance incentives, and fund the lifestyle the community desires.

Even the rhetorical wit underpinning that ambition, and a host of other necessary economic reforms, has been beyond our major parties for a long time

In this multi-brained, mixed-up riot of a parliament there are swirling agendas. But after years of rancour and policy stagnation, there may never be a better chance for Canberra’s players to seize the moment for the long-term common good.