Era of Jim Chalmers in, gospel of Paul Keating out: Treasurer heralds new economic orthodoxy in budget

Jim Chalmers’ third budget will take Australia down a new economic path from the ‘orthodoxy’ embraced by Labor and Coalition governments since the 1980s.

Treasury Secretary Steven Kennedy and Treasurer Jim Chalmers in his office at Parliament House in Canberra. Picture: Martin Ollman

Jim Chalmers’ third budget will take Australia down a new economic path from the “orthodoxy” embraced by Labor and Coalition governments since the 1980s, promoting a bigger role for government as Treasury forecasts a looming slowdown in private-­sector investment growth.

Acknowledging Labor’s shift away from the small government and less interventionist approach backed by the Hawke and Keating governments, the Treasurer said he would preside over a “new growth model for a new generation of prosperity”.

Next Tuesday’s budget will use a combination of direct public funding, new business incentives, tax breaks and streamlined ­regulations to turbocharge ­booming private sector investment and drive Australia’s net-zero transition.

“I think the world has changed and the orthodoxy is changing with it,” Dr Chalmers told The Australian in a pre-budget ­interview. “The big risk is that we’ll be left behind. And I think if we were to ignore the opportunities of the global net zero transformation, that would be an egregious breach of our generational responsibilities.”

In embracing a new economic orthodoxy, the Treasurer said it was not “a repudiation of the past; it’s building on the past.”

Dr Chalmers will pull multiple levers – including foreign investment rule changes, subsidies, new housing measures and co-investment with super funds – to unleash a flood of private capital into the economy.

While traditional mining companies remain a major driver of business investment and capital expenditure, Dr Chalmers’ new growth model will be anchored by government intervention in priority industries through Anthony Albanese’s Future Made in Australia agenda.

Treasury budget forecasts show soaring business investment volumes, fuelled by the post-­pandemic investment binge, will continue growing but at a slower rate. Real business investment is projected to grow by 5.5 per cent this financial year, 1 per cent in 2024-25 and 2 per cent in 2025-26. Total business investment in 2025-26 is expected to hit $305.7bn, capping six years of consecutive growth.

Growth in Australia’s capital investment pipeline, which is ­expected to exceed levels achieved during the mining boom, is being driven by higher non-­mining investment including ­renewable energy projects. Treasury assumes new infrastructure and industrial construction projects will fuel business investment across the country.

Dr Chalmers said that ­although investment had recovered strongly since the 2022 ­election, the government was not complacent “because much more will be needed to fund and finance the future”. With non-mining investment projected to hit $137.3bn in 2024-25 and total business investment growing every quarter under Labor, Dr Chalmers said the budget focused on “ensuring we secure the investment our economy and our country desperately needs to grow”.

“A big focus of the budget will be on attracting private capital but also about how we better absorb and deploy it, which will include a focus on skills, approvals and our broader investment settings,” Dr Chalmers said.

“Public investment is important but only part of the story, which is why these forecasts for private investment are so encouraging. Investment is key to succeeding in this defining decade.”

The Treasurer is positioning Labor’s Future Made in Australia as the vehicle to attract more ­private investment “rather than replace it”.

“We’re playing a role there, but most of the heavy lifting when it comes to the hundreds of billions of dollars that we’ll need in capital as a country to make the most of this big chance is going to come from the private sector,” Dr Chalmers said.

Ahead of unveiling his third budget and expected second surplus, Dr Chalmers warned that unless Australia could develop a new growth model for the economy, taxpayers would need to accept slower growth, reduced living standards and lower wages.

Despite a clear focus on cost-of-living relief and housing measures to shield Labor’s pledge to build 1.2 million new homes by 2029, the budget will reflect the government’s “generational responsibilities” anchored by Australia’s net-zero transition.

Dr Chalmers acknowledged that Future Made in Australia, which is funnelling taxpayer funds into solar panel manufacturing, quantum computing and critical minerals, was creating a new economic “orthodoxy”.

“If you fast-forward two and three and four decades … people will look back on this ­period and they’ll judge us on whether we made the most of this opportunity so many other ­countries would like to have been dealt,” he said.

Amid a weakening labour ­market following the record post-pandemic jobs surge, the budget forecasts unemployment to rise from 3.9 to 4.5 per cent by mid-2025. Treasury expects employment will grow by 2.25 per cent in the year to June 30, faster than the 1.5 per cent projected in the December budget update.

Reserve Bank governor Michele Bullock and Westpac chief executive Peter King have said the unemployment rate, which the RBA predicts will reach 4.2 per cent by the end of this year, would need to hit the mid-4s before rates are cut.

As economists argue that any new commitments must at least be offset elsewhere in the budget to avoid adding to inflationary pressures, Department of Finance figures reveal the upcoming budget will include $1bn in savings linked to Labor’s pledge to slash funding of consultants and contractors.

Finance Minister Katy Gallagher, tasked with leading Labor’s “waste and rorts” audit following the 2022 election, said the budget included $27.9bn in savings and reprioritisation. More than $22.5bn is funding reprioritisation under the government’s $85bn Defence Integrated Investment Program.

Senator Gallagher, who claims $77.4bn in savings and reprioritisations since the election, said budget efficiencies helped reduce gross debt and eased inflationary pressures.

Strengthening compliance in the childcare subsidy program will generate an estimated $441m that will be reinvested within the education portfolio, while improving Service Australia’s back-office functions will allow $193m to be redirected to frontline services. A further $3.8bn in “savings and reprioritisations” will be revealed in the budget.

Opposition treasury spokesman Angus Taylor accused Dr Chalmers of being “better at delivering spin than substance”.