TIM WILSON: Australia’s economy is on shaky ground because Labor has ignored the warning signs for too long

The foundations of the economy Labor built have been shaking for four years, and the Albanese government can’t say there weren’t warning signs when the economic earthquake hits.

A recent tactic after seismic economic events is Labor MPs writing essays to spin history.

Kevin Rudd pioneered an essay blaming capitalism for the GFC to unshackle his promise to be an “economic conservative” and bring back big government, and send Australia into debt.

Wayne Swan took a swipe at vested interests but strangely missed the cashed-up union cartel surrounding the Labor Party, and the CFMEU.

After COVID, Jim Chalmers made his case for values-based capitalism and a care economy.

Spin can revise the history of a crisis, but it cannot prevent one.

Since the end of the Howard government Australia has followed the folly of populist progressive policy put into practice which has left Australia exposed.

It started with heavy regulation of the evil banks, to the adoption of quantitative easing rather than making tough Budget decisions and expanding compulsory savings from the super money tree into industry super funds.

With global bond markets and private credit sending tremors, Hemingway’s quip is revealing itself that financial reality comes “gradually, then suddenly”.

Labor’s obsession with garnishing wages in favour of superannuation now means trillions are accumulated in funds that have branded themselves as delivering superior performance.

The problem is their boasts are dependent on financing overpriced projects commissioned by State governments and carrying liquidity risk by holding unlisted assets whose values may not be realised.

During COVID some funds struggled with liquidity when faced with redemptions. That Canadian pension funds are now exiting Australia is an omen of the trajectory.

APRA is now sounding the alarm, and recently asked super funds about their exposure to Metrics Credit Partners after the $40 billion private credit fund froze redemptions from its $6 billion unlisted asset fund.

It wasn’t the first time. MA Financial has capped redemptions from its property fund, and Centuria Capital has also frozen redemptions following its exposure to the collapse of the Bathla property group.

Textbook financial advice says you shouldn’t concentrate risk, yet this is precisely what over-regulation of banks has done across their book and pushed higher risk investments into non-bank lenders.

If private credit-financed asset values fall, that will quickly cascade into the rest of the economy.

And what has been imposed by this goose of government has also indebted the gander.

For the decade after the GFC, cheap credit has washed through economies off the back of quantitative easing, compounded by low interest rates during COVID.

In response, governments, households and investors built their finance strategies on the back of cheap credit. Assets were refinanced to chase yield, and governments borrowed. It turned a surplus Budget position to a projected $1.25 trillion debt by the end of this decade.

Bond markets are now wobbling. But it is not the first time. After COVID there was a repricing of debt. And there was a sharp spike in yields in the final quarter of 2004 over the size of the US deficit.

Yet governments have not changed their budget strategy. The US government deficit has continued to grow, and if the Democrats take control of both houses in November it is likely to get worse.

As America’s Treasury Secretary Scott Bessent has discovered, markets no longer hold US government debt sacrosanct.

Australia is no different; we just lack the standing of a reserve currency.

Markets do not issue press releases announcing that the good times are over. They just reprice risk.

The Albanese government continues to spend at 40-year highs, without a crisis or pandemic to justify it. In the recent Intergenerational Report they’ve projected deficits for the next 40 years. They have no fiscal strategy to speak of.

Bond markets have taken note. When the Albanese government came to office Australia’s 10-year bond yields were around 3.3 per cent. In the last Federal Budget they were assumed at 4.8 per cent. In recent weeks they have got to 5.4 per cent.

That amounts to a 2-point increase, and the reason the Parliamentary Budget Office has concluded that “public debt interest payments remain the fastest-growing” area of spending in the Budget in the medium term.

Individually each of these problems is concerning. It is the effect of them compounding that is terrifying, as well as the Albanese government’s denial of the drivers.

Treasurer Jim Chalmers said recently “we have seen bond yields pick up since the beginning of the war in Iran, and they pick up when conflict escalates”, completely ignoring the broader trend over the past four years.

Ignoring the problem is a pattern. The Treasurer has blamed interest rate rises on Iran, even though underlying inflation has been above the RBA’s target since July 2025, and bombs didn’t drop until February 2026.

If the financial music stops, political spin won’t salve financial markets. They just reprice the risk of debt. And that creates a huge problem in private credit and public debt, and will impact retirement savings too.

There are no easy answers. It starts with setting a Budget strategy with clear fiscal rules and getting it back toward balance to minimise exposure to the rising cost of public debt.

We need transparency in super funds that are legally obliged to act in their fund members’ best interests, not their union owners, and that includes managing risk.

As well as practical reform to remove a lot of over-regulation that has stopped banks lending so risk in the economy can be spread, not concentrated.

The most important step is the simplest: acknowledging Australia has a problem, so we take the steps to address it.

Tim Wilson is shadow treasurer