Jim Chalmers admits his budget is not yet sustainable and depends on productivity growth

Jim Chalmers has vowed to ‘reform from the centre’ to drive productivity growth and fix a budget he admits is not sustainable, as he lays the groundwork for a new economic agenda

Treasurer Jim Chalmers at a press conference at Parliament House in Canberra in May. On Wednesday he will issue a veiled ­warning that global volatility will act as a constraint on adopting proposals that would further ­burden a budget already facing a decade of deficits. Picture: NewsWire / Martin Ollman

Jim Chalmers has vowed to ­“reform from the centre” to drive productivity growth and fix a budget he admits is not sustainable, as he lays the groundwork for a new economic agenda.

Declaring Labor’s election commitments are “not the limit of our ambitions”, the Treasurer will use a major speech in ­Canberra on Wednesday to outline more details on the upcoming productivity roundtable he will chair.

But he will issue a veiled ­warning that global volatility will act as a constraint on adopting proposals that would further ­burden a budget already facing a decade of deficits.

Dr Chalmers will say his approach to ­reform in this parliamentary term will be methodical, collaborative and ambitious.

“Reform which is progressive and patriotic, in the PM’s words, and practical and pragmatic as well,” he will say in an address to the National Press Club in Canberra, according to an extract of the speech.

“Reform from the centre, in a world of polarising and unsettling extremes.”

Ahead of delivering the speech, Dr Chalmers said on Tuesday holistic tax reform would be considered during roundtables involving leaders from the government, business, unions and community groups.

“I welcome tax being an ­important part of the conversation,” he said.

“I think it would be hard to come at these sorts of issues – sustainability, resilience and productivity – without people raising their ideas when it comes to tax.”

Dr Chalmers will use his speech to declare economic reform is needed to address three “blunt truths” about the nation’s fiscal outlook, including that the budget is not sustainable.

“Our budget is stronger, but not yet sustainable enough,” Dr Chalmers will say.

“Our economy is growing, but not productive enough. It’s ­resilient – but not resilient enough – in the face of all this global economic volatility.”

The Albanese government’s policies over the past three years have added a net $112bn to deficits over the forward ­estimates leaving a total of more than $150bn in red ink, while ­federal government debt is likely to hit $1 trillion as soon as September this year.

Ratings agency S & P has already warned that Australia’s AAA credit rating is at risk due to the election spending promises and massive growth in off-budget funds, while the OECD said last month that while state and federal government deficits this financial year were acceptable, governments had to start saving future revenue windfalls.

Paving the way for an agenda beyond what was promised to voters at the May poll, Dr Chalmers will label election commitments as a “foundation, not a destination”. “We have a mandate to deliver the policies and plans we took to the election, and a duty to build on them,” Dr Chalmers will say.

He will say a stronger budget and a productive economy would be “the best defence against global volatility”.

“Productivity is our primary focus,” he will say. “Too often it’s seen as a cold, almost soulless, concept when it’s really the best way of making people better off over time, creating more opportunities, making our economy and our society more dynamic. By now our shortage of productivity growth is well known and broadly understood.”

Treasury has identified four key issues with productivity: a lack of innovation and economic dynamism; a lack of private investment; skills shortages; and an imbalance in the economy weighted too heavily to services. Business leaders and economists are demanding changes in taxation and planning approvals in housing and energy as the key path to lifting productivity.

“So much of the democratic world is vulnerable because governments are not always meeting the aspirations of working people,” Dr Chalmers will say. “We have a responsibility here and an obligation. A responsibility to rebuild confidence in liberal democratic politics and economic institutions – by lifting living standards for working people in particular. And an obligation to future generations to deliver a better standard of living than we enjoy today.

“That’s why productivity matters, why budget sustainability matters, why resilience in the face of global turmoil matters. It’s why reform matters.”

The productivity roundtable will be held in the cabinet room at Parliament House with meetings of up to 25 people, making it smaller than the mammoth Jobs and Skills summit. The guest list is yet to be finalised.

With business groups and unions likely to push for expensive items such as corporate tax cuts and training and investment incentives, The Australian understands the government will add to the structural budget issues.

Warning there will be constraints on what reform can be achieved this term, Dr Chalmers will say that Australia will be hit by slowing global growth. “The international environment and the global economy will be the main influences which shape and constrain our choices this term,” he will say.

“This month the World Bank warned global growth is on track to be close to its weakest in nearly two decades. Global oil prices had slumped almost 20 per cent since their mid-January peak until last week, when they spiked more than 10 per cent when the Middle East flared again.

“It’s a perilous moment there and that means even more perilous times for the global economy too.”

But he will say capital may be more attracted to Australia in an uncertain world.

“Since Liberation Day, Australian shares have outperformed US ones. And the US bond yield curve has become much steeper than Australia’s,” he will say. “These are normally signs that investors are becoming more wary of the US and more attracted to Australia’s stable markets.”