Chalmers is doing a fantastic job … at ignoring the dire outlook

Chalmers is doing a fantastic job … at ignoring the dire outlook.

We are only in February, but already we have found a political winner of the year: Step forward Jim Chalmers.

The treasurer is politically stronger than at any stage since the 2022 federal election. His delivery is smooth and authoritative. He is excellent at attracting a positive press and eliciting the support of important voices in the media and the business community. He has grown as a parliamentary performer.

There is a reason why Chalmers has seized the political high ground: the Australian economy has performed better than most economists predicted a year ago. Wages are rising and unemployment remains near half-century lows. The government may record another budget surplus in May. Even the national debt increase has been much less than was projected at the height of the lockdowns. The good news has also fuelled a stock market rally.

As far as inflation is concerned, some pundits are speculating that the worst is over and that lower interest rates are coming sooner than expected. Barring an unforeseen shock, the economic signs appear reassuring.

However, probe deeper and things look disturbing.

It’s not just that many Australians continue to experience a fall in living standards. Or that inflation remains higher than most of OECD countries and well above the RBA’s 2 to 3 per cent target range (which means interest rates could be slow to fall or may even rise again).

Our dire outlook has more to do with our productivity drought and runaway government spending programs. The consequences are being masked for now by the rebound from the pandemic, high immigration and a federal tax revenue boom. When these pass, we will see a return to budget deficits and stagnation or decline in living standards.

So what can Chalmers do to stop the rot? You might think that when you are in a hole, you stop digging; and if you’re really smart, you look for more than one way out. But neither the treasurer nor the prime minister understands just how bad things could get in coming years. The IMF’s recent outlook for the Australian economy should have persuaded them. It was a warning to the political class to cut spending and move more of the tax burden away from workers’ incomes, which just dampens incentive, enterprise and growth. Without such an agenda, Chalmers will condemn the nation to the low-aspiration and dismal slow-growth future that last year’s Intergenerational Report highlighted.

Instead, Labor’s plans betray an extraordinary faith in the radical power of government to make a success of every project.

Take workplace re-regulation: new industrial laws to restore union bargaining muscle, increase wages by diktat and crack down on existing workplace flexibilities reflect Labor’s desire to curry favour with the unions, which account for not even 10 per cent of the private workforce. And the recent appeasement of the Maritime Union of Australia just allows the labour waterfront monopoly to impose costs on the economy that punish the rest of the workforce.

All this is a step back to Australia’s old IR club, with its legal protections of union power that preceded the Hawke-Keating prosperity-enhancing reforms of the 1980s.

Or take energy policy. It is one thing to legislate overly ambitious carbon emissions targets; it is another to revert to more interventionist government direction at an open-ended cost to deliver the required investment in large-scale renewables. That will lead to not just further price rises and less reliable base-load power, but, as former Productivity Commission head Gary Banks warns, price controls and other regulatory interventions that will just exacerbate supply side problems.

Meanwhile, in supporting the redistribution of income from the most highly taxed Australians to the less taxed by reshaping the stage 3 tax cuts, the government puts obstacles in the way of the efficiency and productivity Chalmers claims to prize.

Chalmers has simply resorted to a strategy of banking on inflated commodity export prices and income tax bracket creep that will – while it lasts – bring with it rising tax revenues and relief to the national finances. Ponder that: a government that wants to decarbonise the economy relies on the mining and fossil fuel export sector to keep replenishing the coffers. But what happens when the resources boom ends?

The Reserve Bank knows what needs to be done, but no one in Canberra dares to do it: revive the economy through boosting its productive sectors and make the necessary cuts in the major spending programs, such as the unsustainable NDIS and Gonski schools funding that has not stopped classroom performance going backwards. There is no sign that Chalmers is having any success on these fronts – and maybe he is not even trying.

Free-spending budgets might sound reassuring to some people. But the costs will continue to be paid by our children and grandchildren. There is, after all, no such thing as a magic money tree — that growth is a given, that budgets don’t need to be balanced or that money can be borrowed indefinitely to subsidise unlimited spending.

Alas, the Coalition has not come close to recognising the gauntlet Chalmers has thrown down to it. Unless the opposition can discover a radical message of its own to distinguish itself, we should prepare to live under Chalmers’s radicalism for a long time to come.

If that happens – and our living standards further deteriorate – it is not just the political class that is in trouble. All of us will face very dark times indeed.

Tom Switzer is executive director of the Centre for Independent Studies.