Economists say Chalmers won’t follow Keating in delivering major economic reform

Economists say Treasurer Jim Chalmers won’t take up the once-in-a-generation opportunity to follow his mentor Paul Keating in delivering major economic reform.

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Jim Chalmers is set to introduce unrealised capital gains tax after winning a second term and becoming less reliant on minority parties in the Senate, but economists say the Treasurer won’t take up the once-in-a-generation opportunity to follow his mentor Paul Keating in delivering major economic reform.

Despite winning a majority, Dr Chalmers indicated tax reform would not be a priority.

“We took an agenda to the election which was primarily focused on other areas,” he said after his historic win on Saturday.

While Dr Chalmers’ planned unrealised capital gains tax might be easier to get through the Senate, set to bring in $5.5bn in the first four years, other revenue-raising tax changes in areas such as family trusts have been played down.

Saul Eslake, who was a 27-year-old economist when Mr Keating introduced capital gains tax in the Hawke government’s second term, said Dr Chalmers was ­unlikely to tackle “an increasingly inadequate, inequitable and ­inefficient tax system” without leaving the Labor Party open to accusations of “breaking promises”.

“His problem is that Labor has a big mandate for not very much,” Dr Eslake said. “He won’t do anything that he, or Albanese, has explicitly ruled out, like negative gearing. Nor do I expect him to do anything big and bold that Labor hasn’t promised.”

Economist Saul Eslake.

Economist Shane Oliver.

During the last week of the campaign, Anthony Albanese played down tax changes to family trusts, saying: “What we’re looking at is what we’re putting forward at this election campaign”.

The Treasurer, Dr Eslake said, needed to rustle up support for a mandate to make big reforms in a third term.

“If the Albanese government behaves like a first-term government with a big majority, and uses the political capital to articulate the case for an ambitious second- term mandate, in what would actually be a third term, then maybe I will have reasons to be hopeful for the future of this country,” he said.

Shane Oliver, who was a burgeoning economic researcher at AMP during the 1980s, said he did not expect Mr Chalmers to follow Mr Keating and implement significant reforms this term.

“I don’t get the impression that Chalmers wants to be an economic reformer like Keating,” Dr Oliver said. “He has a PhD that was about the politics, not the economics, so I think he just wants to ensure the ‘no one left behind’ philosophy.

“It’ll be all about social equity and less on productivity, and where there is productivity, it’s more about government solution.”

On Sunday, Dr Chalmers said productivity would be the focus of the second term.

“The first term was primarily inflation without forgetting productivity; the second term will be primarily productivity without forgetting inflation,” he said.

Treasurer Jim Chalmers and wife Laura voting in his electorate of Rankin. Picture: NewsWire/Glenn Campbell

Dr Chalmers said he wanted to focus on housing the energy transformation, “making our economy more productive”.

Productivity has been tracking well below the Labor-assumed productivity rate of 1.2 per cent a year. Tax revenues would be $50bn higher each year and annual GDP more than $250bn larger if it had maintained such a rate.

Centre for Independent Studies chief economist Peter Tulip agreed Dr Chalmers was not about to undertake any significant tax reform, and that there were questions around productivity.

“I think it’s a crazy view that bigger reform is tax policy,” Dr Tulip said. “I think there is scope for the government to do more on housing and productivity. Chalmers has flagged the Productivity Commission would come out with important actionable recommendations – I am curious as to what they will be.”

Part of the danger now is that Dr Chalmers does not cut spending or raise new revenue, but just increases debt and hopes for ongoing commodity windfalls. Most economists said there was clearly less pressure on Dr Chalmers to now be fiscally more disciplined.

“I don’t think people care about underlying deficits; it rates about as low as static cling,” Dr Tulip said.

Meanwhile, EY’s Cherelle Murphy said Dr Chalmers did have the attitude toward “bold reform”, like his mentor Mr Keating.

“And with such a strong, increased majority, this is the time to spend political capital and get on with the longer-term reform Australia needs,” Ms Murphy said.

“Bold reforms come with productivity wins and these can pay for big ALP ambitions such as building more homes and ­universal high-quality, low-cost childcare.”