AARON PATRICK: Australia should go for broke to fix deteriorating economy

If you thought times were tough, wait. They are about to get even worse, according to a top economic consultancy.

Deloitte Access Economics, which has been charting Budget ups and downs for almost four decades, today published a grim report that demonstrates what happens when governments give up.

Economic growth will slow this financial year from 2.3 per cent to 1.3 per cent, factoring in the effects of inflation, according to the consultancy. If the prediction comes to pass, the economy will make history, but not in a good way.

Growth looks likely to limp along almost as slowly as the early 1990s recession, a downturn that set back a generation of young people at the time, who are now middle-aged, by making it harder for them establish careers and build their wealth.

Many forces are pummelling the economy, from punitive American tariffs to wild swings in energy prices and inflation. But politicians, State and Federal, have largely abandoned the hard work of economic reform that could and should make Australia richer.

In the three months ended March 31, the economy grew 0.3 per cent. As Deloitte Access Economics points out in today’s edition of its Business Outlook, after factoring in the higher population, the economy shrank. This financial year, after factoring in taxes, the average Australian’s income will fall 0.6 per cent.

The situation should be treated as a national crisis, in the same way that fighting global warming has become a priority at the federal, state and even, in some cases, the local government level.

Instead, Treasurer Jim Chalmers, who likes to boast Australia has one of the strongest economies in the world, offered up this talking point: “We’ve got a big economic agenda to grow Australia’s economy, boost productivity and address inflation while we also help first-homebuyers and roll out vital cost-of-living relief like tax cuts, higher wages and more paid parental leave from this month.”

Putting aside the assertion that raising taxes on investors is good for growth, it is hard to argue running a budget deficit, increasing welfare, enlarging the public service and offering low-end tax cuts that have already been absorbed by inflation is not a “big economic agenda”. But Dr Chalmers’ list of jobs is just not making Australia richer.

Political consequences

When interest rates were low, coal, iron ore and gas prices high and workers streaming in from overseas, it was easy for governments to pretend the economy was in great shape.

Now, a lack of investment in housing, infrastructure and energy has been exposed by the global economic turmoil.

Pumping more people into the economy hid underlying problems, including overly high income taxes, too many workplace rules and slow approvals for new factories, mines, apartment buildings and other large projects.

The consequences can be seen in opinion polls as well as economic statistics. One Nation’s surge past the Coalition suggests that many Australians are no longer prepared to accept high immigration while their finances are deteriorating.

It was not like the Albanese Government did not know it had a problem with productivity, a term that refers to the economy’s efficiency, which economists see as the primary way people become wealthier.

Promises, promises

The day after the Labor Party triumphed in last year’s election, Dr Chalmers appeared on the ABC’s Insiders program and raised expectations the time had come for serious economic reform.

“The best way to think about the difference between our first term and the second term . . . (is) the first term was primarily inflation without forgetting productivity, the second term will be primarily productivity without forgetting inflation,” he said.

Many Australians believed him, and waited for anything that might make Australia better off. There were no shortage of problems to fix, including in health care, welfare, education, industrial relations, corporate regulation and taxation.

This is what happened: the focus of the second term, through this year’s Budget, became about raising taxes following spending increases that began in the first term.

The productivity problem, with the exception of responding to a chronic housing shortage, was mostly ignored. Fighting inflation was mainly left to the Reserve Bank of Australia.

The result will be another year of falling living standards, a problem that is the Federal Government’s core responsibility. If the latest forecasts don’t provoke a national debate about what to do, what will?