Jim Chalmers wants an ‘anti-fragile’ and dynamic economy as he prepares a budget in transition

Jim Chalmers has told corporate leaders the economy is ‘not productive enough, competitive and dynamic enough’ and ‘this will cost us it we don’t attend to it’.

Treasurer Jim Chalmers has issued a warning about the economy.

Jim Chalmers has told the nation’s corporate leaders that Australia’s economy is “not productive enough, not competitive and not dynamic enough” and in a declaration of intent said “this will cost us if we don’t attend to it”.

Chalmers believes Australia must become an anti-fragile ­nation, invoking the philosophy of Nassim Nickolas Taleb – that strength and resilience emerge from confronting stress and disorder – saying it is “hard not to see the value in this idea” in the current world.

Addressing the May budget, Chalmers is emphatic: the long-run priorities will be growth and investment. He sees the budget being designed for an economy in transition – the inflation task is still being played out but the emerging challenge is to build the platform for stronger economic growth after the current slowdown.

The Treasurer’s alarm siren is the 2023 Intergenerational Report (IGR) predicting economic growth over the next 40 years will slide to a 2.2 per cent annual average, a sharp slump from the 3.1 per average of the past 40 years with devastating consequences for ­living standards.

Labor’s mission, probably the real meaning of the Albanese government, is to purge and outperform such predictions. Its historical reputation will stand or fall on that test.

In a separate interview with The Australian outlining his thinking, Chalmers said: “We have to decide as a country whether the long-term moderate growth set out in the IGR is acceptable to us. It’s not acceptable to me or to the government that Anthony Albanese leads.

“That’s why we are putting in place new foundations for growth in a world that is very different to what we saw between the end of the Cold War and the start of the global financial crisis.”

Chalmers said “a future of slower growth is not pre-ordained or predetermined”. But the coming decade would pose structural challenges from the transformation in economics, energy and demography and the integration of economics with national security.

Nothing will stop the tougher world that is coming, often branded a polycrisis, with Chalmers saying the art of the future is to seize the opportunities inherent in the transformations. Sounds smart. But how does it work?

In his Chatham House address to the Business Council of Australia dinner last Tuesday night at Parliament House, Chalmers said the “common ingredient” for success in a far more challenging world – “the thing that binds all of this up together, is investment”.

“I want to foreshadow with you tonight that how we attract, absorb and deploy investment will be the big question the budget will seek to answer exactly eight weeks from now. It’s the policy area we spend most time on,” he told business leaders.

In short, Chalmers needs a compact with business. That’s his vision – but this government doesn’t sing from the same song sheet. That is the heart of its character contradiction. Just ask business.

Too many senior ministers are doing the opposite. The central policy co-ordination Chalmers needs, isn’t there. It’s missing.  The challenge Chalmers defines needs an economy that is flexible and mobile, yet Labor loads the economy with more rules and regulation from the ­labour market to the environmental protection.

Chalmers knows that every successful government must understand the age in which it functions. He told The Australian: “As the global economic deck gets reshuffled we are developing a new growth model based on ­energy, industry, resources, supply chains and investment.

“We see no useful separation between economic and national security in a churning and changing world. We don’t just think we can protect Australians from change. We believe we will prosper from it. That’s our calling and our focus in the budget.”

This is a huge ask. By confronting the growth and productivity outlook, Chalmers puts pressure on both himself and his colleagues. The real wage gains and tax cuts that Labor must deliver in the future depend on higher growth and productivity. But shifting the public from its current security blanket and risk aversion requires a virtual cultural revolution.

Chalmers is focused on two concepts: agency and narrative.

Jim Chalmers at Parliament House in Canberra. Picture: NCA NewsWire / Martin Ollman

The Treasurer told business that Australia must exercise its own agency and, to this cause, he seeks to build a narrative – a narrative to win wide acceptance – based on how the world is changing. That direction is capital re­location to the energy transition, technological change, advanced manufacturing, the care economy, supply chains, greater competition policy, skills and training and critical minerals.

Chalmers thinks that when the national conversation is “sane” there are prospects of agreement along these lines. About this stage you see the scale of the challenge facing any re-elected Albanese government. How many of the ministers get it? Chalmers, like Paul Keating, thinks in historical cycles and sees Australia’s evolution against the global backdrop.

Australia thrived in the age of globalisation amid economic reform that ran from the early 1980s to the onset of the GFC in 2008-09.

This was followed by the age of fragmentation dominated by three crises – the GFC, the Covid pandemic and the inflation resurgence spawning populism, autocracy and social disruption. Now, Chalmers argues, we are ­entering a new economic era, the old mantras are less relevant.

Yet the factors driving our economic growth slowdown are pervasive: lower population growth than in the past 40 years, along with reduced workforce participation due to an ageing population and slower long-run productivity growth.

Business will join Chalmers in saying growth at 2.2 per cent won’t constitute a successful country. It will endorse his spirit when he says: “There is tough news in the IGR, that’s the point of it.” The question remains: is the Albanese government up to it?

The country faces a tax system unsustainable because of irresistible spending pressures and weaker economic growth.

Chalmers has to reduce the structural budget deficit yet ­finance productivity enhancing reforms. He must maximise ­opportunities for technological change while managing social disruption. While the government talks up renewables the pace of investment is far too slow running the risk that reliable supply is shut down before new supply is secured.

The coming debate is going to be about growth. The immediate obstacle is getting inflation down, the risk being this takes harsher medicine and a longer time.

Down the track, that just makes the growth challenge more important.

Chalmers reminds that when he talks about being anti-fragile “it’s not about protecting ourselves from a world of churn and change, it’s about prospering ­because of it”.