‘Stakes are too high’ to avoid economic reform: Jim Chalmers

Treasurer Jim Chalmers has put tax reform back on the table, declaring that the Government has a “mandate for change”, despite not taking tax reform to the election.

Dr Chalmers said the Government was focused on delivering the policies on health, housing and energy it presented to voters, and with inflation defeated, “had an obligation” to focus on “what comes after that”.

Labor has pinpointed Australia’s stagnant productivity and structural budget repair as the key challenges of its second term, and ahead of the Government’s upcoming productivity roundtable, Dr Chalmers said that any attempt to address those issues would require “crucial” tax reform.

“No sensible progress can be made on productivity, resilience or budget sustainability without proper consideration of more tax reform,” Dr Chalmers said.

“This is all about testing the country’s reform appetite, and I am willing to grasp the nettle. I am prepared to do my bit. The government is prepared to do its bit.”

But in perhaps a sign its reforms to the superannuation sector, spearheaded by the easing of concessions and the taxing of unrealised capital gains on balances of $3 million, had not caused political blowback, Dr Chalmers highlighted the importance of “intergenerational justice” as a policy north star.

“Australia has to recognise that this is genuinely a defining decade. The decisions we make in the 2020s will determine the sort of living standards and intergenerational justice that we have in the decades to come,” Dr Chalmers said.

While Dr Chalmers said he has an “open mind” when it comes to reform suggestions, Labor would have taken note of its success with the youth vote in its landslide victory at the last election.

According to Kos Samaras, pollster at Redbridge Group, young voters represented the largest and fastest-growing voting bloc, while women had also flocked to Labor.

This cohort is “volatile, culturally diverse, values driven and economically anxious, one that expects serious answers on housing, inclusion, climate and fairness,” Mr Samaras said.

Budget sustainability at risk

Dr Chalmers said the long term pressures on the budget, driven in part by an ageing population that would reduce the tax base while requiring greater care, and a global shift away from demand for fossil fuels as the world adopts renewables would be exacerbated by a requirement to bolster the country’s defence spending.

While the Treasurer said he wanted to avoid the ‘rule-in-rule-out game’ that dominated media speculation on policy, he did admit he changes to the Goods and Services Tax were “not a view that I’ve been attracted to historically”.

“We genuinely want to hear people’s ideas. I suspect people who represent the interests of the states, might raise (the GST) with us about that, but my view, personally, hasn’t changed,” Dr Chalmers said.

Dr Chalmers was quizzed on both the carbon tax and the Petroleum Resource Rent Tax but would not be drawn on either beyond his expectation they could come up at the Government’s 25-person Productivity Roundtable to take place from 19 to 21 August in the cabinet room.

He said it will consist of a mixture of government, business, union and civil society representatives, and experts, with the attendees to be addressed at the open by Productivity Commission Chair Danielle Wood. Reserve Bank Governor Michele Bullock had also been asked to brief attendees.

Treasury would begin accepting submissions shortly, and Dr Chalmers said, and called on interest groups to ensure they address the national interest rather than sectoral needs, were at a minimum budget neutral but “preferably budget positive”, and be “specific and practical not abstract or unrealistic.”

“The stakes are too high in our economy, the opportunity is too substantial, to waste this term or waste our time.”

He also called for an end to the “cancerous” back and forth between vested interests and attempts by the media to stifle a broader conversation by trying to pin down policies in advance.

“Limiting ourselves to ruling things in or out forever has a cancerous effect on policy debates.

“It can rob an informed and modern country like ours the flexibility and maturity to respond to big challenges,” Dr Chalmers said.

“A related problem is that too often, the loudest calls for economic reform in the abstract come from the noisiest opponents of actual reform in the specific.

Let’s see what we can do together if we reset and renew the national reform conversation.”

Dr Chalmers said he had not ruled out including the Opposition in the discussions, “surprised” to hear they had expressed “some interest in attending.”

“Whether they’re inside the room or outside the room, I think there’s an important role for the opposition, and not just in the Senate, but in terms of the direction of the country. We don’t pretend that we’ll be in government forever.”

Focus on productivity

Dr Chalmers speech coincided with new research from the Productivity Commission that showed the picture had worsened in the March quarter, with labour productivity declining 1.0 per cent over the year and remaining flat in the quarter, the third consecutive year of decline.

It is of increasing concern, with the PC suggesting the ability to extract more output per worker had contributed 80 per cent of national income growth over the past 30 years.

Now at its lowest level in 60 years, the decline in productivity since 2014 is costing $11,000 per person per year, according to economic think tank e61.

Since COVID, with public sector hiring dominating jobs growth, private firms have struggled to compete for workers.

Four in five new jobs since COVID have been government sponsored, mainly in health, aged care and childcare — sectors that are difficult to measure for output and often yield lower productivity gains. At the same time, business investment in productivity-enhancing assets like machinery and R&D has slowed, compounding the stagnation.

Labor has spent the recent windfall from elevated commodity prices following the invasion of Ukraine and is now forecasting ongoing deficits of $30 to $40 billion a year over the next four years and likely beyond the decade.

National debt is expected to pass $1 trillion, with interest payments the fastest growing line item in budget expenditure.

Dr Chalmers said the government has brought annual growth in NDIS spending down to around 8 per cent, meeting its target ahead of schedule. Aged care reforms are expected to save around $11 billion over the next 11 years.

Business groups have called for a cut to the company tax rate to 25 per cent, boosting business investment through higher asset write-offs, and reducing red tape via faster project approvals and clearer rules for small business.

Australian Chamber of Commerce and Industry chief executive officer Andrew McKellar said serious discussion on tax reform is both timely and necessary.

“Our tax system is outdated and increasingly a drag on productivity. Reforming it is essential to driving investment, boosting economic resilience, and lifting living standards.

“It is entirely possible to improve the efficiency of the tax system while maintaining budget sustainability. Better targeted spending and smarter tax settings can deliver stronger outcomes for business and the broader economy.”