Angus Taylor lays foundation for Coalition’s economic overhaul
Amid a pre-election warning about the growth of the care economy, Angus Taylor vowed to drive productivity growth through lower taxes, spending and regulation.
The Coalition has issued a pre-election warning about the growth of the care economy as it vows to drive productivity by returning to the economic model championed in the 1980s through lower taxes, spending and regulation.
Opposition Treasury spokesman Angus Taylor has used a major speech to declare the nation is at a similar crossroads to the one faced 40 years ago when the Hawke government began deregulating the economy, declaring the “consequences of getting it wrong will burden our future generations as much as the current one”.
While not being specific about the Coalition’s economic policies, despite pressure to do so from Labor, Mr Taylor said a Dutton government would reintroduce a tax-to-GDP cap, slow the yearly increase in spending to below economic growth and target a structural budget balance in the “medium term”.
He also flagged a slashing of business regulations, easing rules on the financial services sector, unwinding some of Labor’s workplace reforms while declaring the Coalition would lower taxes with the first priority being on wage earners and small businesses.
Declaring the nation needed a more “realistic economic framework” to deal with the challenges of the 2020s, Mr Taylor warned that the embracement of Keynesian-inspired spending to stimulate growth was contributing to inflation and doing nothing to enhance productivity.
Jim Chalmers has credited Labor’s spending with saving the nation from a recession, but Mr Taylor said government stimulus was the wrong approach to deal with the looming economic slowdown because “today’s challenges” were driven by structural and not cyclical problems.
“The traditional government response to an economic malaise is to stimulate demand,” Mr Taylor said, delivering the Warren Hogan memorial lecture at the University of Sydney.
“Slowdowns are typically assumed to be cyclical, not structural. But that is the wrong answer for today’s challenges. Structural challenges on the supply side are now hurting us badly.
“Restoring our living standards can only come from an expansion of the productivity capacity of the economy.”
Mr Taylor’s speech came after UBS Asset Management bond veteran Tim Van Klaveren warned that interest rate cuts had been delayed due to the cost-of-living support delivered by state and federal governments.
“We have both state and federal governments, particularly Queensland and Victoria, who are spending more than the RBA would like, which is creating demand in the economy and has kept inflation firmer than it otherwise would be,” Mr Van Klaveren said.
With Queensland voters heading to the polls in nine days, and elections in Western Australia and at a federal level scheduled for the first half of 2025, Mr Van Klaveren added that any additional pre-election spending threatened to further undermine the RBA’s inflation fight.
“The reality is that any new government that does come in will have to act a lot tougher on fiscal policy and spend accordingly,” he said.
Commonwealth Bank chief executive Matt Comyn said Australia was facing a “higher for longer” inflationary environment, as he revealed the bank had handed out 132,000 tailored hardship packages in the past year. He said the economy was “still absorbing the shocks of the past few years”. While inflation was falling, it remained persistent.
In his speech, Mr Taylor said central banks and treasuries across the western world were blindsided by inflation spikes after Covid because they were reliant on “new Keynesian models” that were not adequate at “predicting inflation or delivering structural growth in prosperity”.
Mr Taylor took a shot at the inflation forecasts delivered by former Reserve Bank governor Philip Lowe and Treasury secretary Steven Kennedy, who he lumped among the “economics profession and policy advisers (that) have got it so wrong”.
“The idea that inflation was largely immune to surging demand had become a feature of most economic models, including at central banks,” Mr Taylor said. “But our old enemy from the 70s and 80s had not gone away. Inflation had just been in hiding, only to come back with a vengeance.”
With nearly two-thirds of jobs created under the Albanese government coming in taxpayer-supported “care economy” sectors including health, disability and aged care, Mr Taylor said this was adding to productivity problems. He said there had been “no labour productivity growth in the care economy for 20 years”, with productivity growth in the market sector outstripping it by 17.5 per cent since 2000.
“Rapid growth in public spending is crowding out private sector activity and investment at a time when the supply side of our economy is constrained,” Mr Taylor said. “The majority of employment growth is coming from the non-market sector, where there is direct public employment or jobs indirectly funded by governments, while market sectors are experiencing skills shortages.”
The RBA has attributed a surge in government spending – expected to hit a record 28 per cent of GDP by the end of 2025, according to Westpac – as one of the reasons why it does not expect underlying inflation to return to its 2 to 3 per cent target band until mid-2025. Mr Taylor committed to a different approach should the Coalition form government, focusing on “getting the basics right” across five key areas of reform: fiscal management, regulatory reform, and housing, energy and tax policies.
On regulatory changes, Mr Taylor vowed that the Coalition would advance plans to wind back “productivity-draining” requirements across environmental approvals, climate reporting, workplace relations, and the corporations act. “These initiatives risk reallocating resources from generating economic activity to responding to government departments and creating unnecessary conflict,” he said.
Businesses were spending more time on compliance than strategy and investment, he said.
He also flagged easing financial services sector rules.
“We run the risk of becoming under-banked, under-insured, and under-advised at a time our ageing population will demand more financial services, not less,” he said.
Flagging changes to tax settings, Mr Taylor said the Coalition would strive to reduce the income tax burden on families and young Australians but was scant on specifics. Backbench Liberals and Nationals have pressed the shadow cabinet to promise generous income tax cuts at the next election, as the benefits of the stage three tax cuts are unwound due to bracket creep.
ADDITIONAL REPORTING: DAVID ROSS
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