Opinion
In two months’ time, Jim Chalmers will deliver his fifth budget.
It will not only be his most important or the most important since 2014, but the most important this century.
A confluence of issues – poor productivity across the past 20 years, a budget in structural decline for almost the same length of time, a tax system that punishes workers and rewards asset collection, spending pressures that will only continue to grow, how the future of younger generations is being stolen by older ones – have all landed on Chalmers and Finance Minister Katy Gallagher.
Throw in demographic pressures, the rise of AI and the war in Iran, and it’s a veritable potpourri of economic and fiscal challenges.
Almost all of these have been well known – in some cases, for decades. But as governments have come and gone, little has been done or achieved in fixing them.
Now, right now, is the time to deal with most if not all of them in a co-ordinated manner.
Past failure has been driven both by political ineptitude and the ideological unwillingness of prime ministers and treasurers to take on the problems in front of them and the nation.
This year, however, one impediment has been effectively wiped away. The scale of Anthony Albanese’s 2025 election victory means not only does he have control of the House but in the Senate he can build coalitions on the left (with the Greens) or the right (with the Liberal and National parties) to turn plans into action.
That leaves the biggest impediment: the ability or willingness of Chalmers and Albanese to drive desperately needed reform.
Both know the economic and budget problems – which are directly responsible for flatlining living standards, creating anger among young people at a housing market that seems rigged against them, and fragmenting political discourse – cannot be ignored any longer.
May 12 is their now or never moment.
It’s been a long, long time since this country has seen a government announce, bed-down and implement major economic change.
Many voters would remember the late 1990s, when Peter Costello and John Howard completed their comprehensive overhaul of the budget and the nation’s tax base.
While the centrepiece of that reform was the GST, it was accompanied by substantial cuts to both personal income tax (the threshold for the top marginal rate was lifted from $50,000 to $60,000) and the company rate (reduced to its current rate of 30 per cent).
The GST meant a host of terrible state taxes were axed.
It was real, substantial tax reform that helped the Australian economy, its residents and its businesses prosper.
These changes weren’t just about budget repair – they were aimed at improving the economy’s operation.
Before that, you have to go back to Paul Keating’s reforms of September 1985.
“Today we are taking the hard decisions, confronting the issues and embarking upon a very substantial reform to the Australian national economy,” he declared in a speech to parliament that month.
Keating wasn’t lying.
Even now, the breadth of those changes – company tax, personal tax, dividend imputation, capital gains tax, fringe benefits tax, measures to tackle tax evasion, pension reform – is gobsmacking.
The reforms of 1985 and 2000 stand out not just because they were large, but the fact that they were successfully implemented.
Since then, examples of such success are much harder to find.
In 2010, fresh from surviving the global financial crisis, Wayne Swan embarked on tax-led economic reform.
It was that budget that contained plans for the resource super profits tax that would pay for lower taxes on interest, a huge investment concession for small mining companies, a cut in the overall company tax rate (which started earlier for small firms), a standard deduction for workers and a $500 payment to low-income earners to top up their super.
A monumental act of political bastardry by the resources sector and the lack of political spine within the Rudd (and then Gillard) governments gutted the proposals and what they offered the entire economy.
Four years later, Joe Hockey used his first budget to repair the nation’s finances. There were two problems – almost all of it was from cutting the spending side of the budget (which directly affected millions of low- to middle-income earners), and Hockey and Tony Abbott had promised during the 2013 election that many of the cuts would not be made.
Neither Hockey nor Abbott had the political ability to sell their product, which has gone down in history as the worst budget this century.
Since then, there’s been tinkering around the edges. But as treasurers (and prime ministers) fiddled, the economy and tax base have been burning.
Which brings us to May 12, when Chalmers will stand up in the House of Representatives to deliver the budget.
He has already said it will contain savings measures (a must for a budget groaning under too much spending).
It will also feature productivity measures, with ideas taken from last year’s economic roundtable and Productivity Commission recommendations on everything from corporate tax to subsidies for electric vehicles. Some of the nation’s top economists had a day-long chat with Chalmers last week, in another sign the treasurer is shopping around for ideas.
But with the budget two months away, the time to translate ideas into fully costed policy is rapidly narrowing.
The government’s expenditure review committee will soon start making final decisions. Chalmers will have at the back of his mind the overriding message he wants to deliver.
These are the themes of his first four budgets: “building a better future”, “stronger foundations for a better future”, “cost-of-living help and a future made in Australia” and “turning the corner together”.
Chalmers, the Albanese government and the Australian economy need something much braver and bolder.
Shane Wright is a senior economics correspondent.
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