The warning by ratings agency S&P that the Albanese government and the Reserve Bank are pulling in different directions needs to be the starting point in a wholesale turnaround in economic policy and political rhetoric. As governments spend up and the central bank tries to tame inflation, Jim Chalmers is on the front line. But if living standards are to be protected, major change is needed across all political parties, at all levels of government.
Federal Labor’s 40-year record spending of 26.9 per cent of GDP and the spike in servicing its $1 trillion debt are well known. But as the S&P post-budget wrap showed on Wednesday, the states, especially Victoria and Queensland, urgently need serious fiscal reform as their debts soar.
In a damning assessment, S&P revealed total state interest costs would hit $40bn by 2029, the equivalent of 7 per cent of operating revenue and a doubling of the pre-pandemic measure of 3.5 per cent, as Sarah Elks and Anthony Galloway report. In Queensland, which is facing vast capital expenditure for the 2032 Olympics, David Crisafulli’s Liberal National Party government had overseen a “sharp deterioration” of economic conditions, driven by “ballooning” public spending and diving coal royalties, S&P warned. A month ago, the agency downgraded Queensland’s credit rating from AA+ to AA. S&P sovereign and international public finance ratings director Martin Foo said the Crisafulli government “has not really yet been successful’’ at slowing growth “in the operating expense trajectory”. This would be difficult to reverse quickly without widespread cuts and disruptions to public services, he pointed out. Embarking on that course would require political courage by all parties to neutralise political fallout.
The same is needed in Victoria, which is expected to carry the highest interest burden among states by 2028-29. As Victoria’s debt hurtles towards $200bn, the agency noted it would exceed 220 per cent of operating revenue by 2028-29. At that stage, interest payments would swallow almost one dollar in every 10 dollars of operating revenue.
Across the political landscape, an overarching strategy is needed to scale back the public sector and foster wealth and investment in the productive economy. Current metrics – inflation, overspending and productivity that is “doing nothing’’, as RBA governor Michele Bullock said last week – point to what is needed. Cutting red tape is vital to scale back the government’s footprint and free up the business sector. But after talking a big game at his economic roundtable last year, the Treasurer is yet to deliver. Nuisance taxes have been cut, which is a positive. But as Thomas Henry and Noah Yim report, the Australian Institute of Company Directors is dismayed that red tape continues to grow. Labor was “pruning the garden and at the same time continuing to plant more and more trees”, AICD chief executive Mark Rigotti said. The institute has joined employers in warning that Labor’s plan to hold companies criminally liable for failing to prevent modern slavery in their supply chains would further dampen productivity. So would a new tranche of changes to the Privacy Act and expanded climate disclosures to take effect next year.
As Deloitte Access Economics points out, Australia’s three-decade stretch of uninterrupted growth from the early 1990s to the onset of the Covid-19 pandemic was record breaking. But it is easy to overlook the economic and labour market reforms – which were often controversial and unpopular – by the Hawke-Keating and Howard governments that set the nation up for that golden era. Treasury’s latest intergenerational report shows Australia is at a major economic turning point. It needs courage and the ability to explain why more effective policies, some of them unpopular, are needed. Forty years ago, broad consensus existed on the value of reform. In the current predicament, politicians more interested in easy popularity than good policies are not up to the job.
Federal Labor’s 40-year record spending of 26.9 per cent of GDP and the spike in servicing its $1 trillion debt are well known. But as the S&P post-budget wrap showed on Wednesday, the states, especially Victoria and Queensland, urgently need serious fiscal reform as their debts soar.
In a damning assessment, S&P revealed total state interest costs would hit $40bn by 2029, the equivalent of 7 per cent of operating revenue and a doubling of the pre-pandemic measure of 3.5 per cent, as Sarah Elks and Anthony Galloway report. In Queensland, which is facing vast capital expenditure for the 2032 Olympics, David Crisafulli’s Liberal National Party government had overseen a “sharp deterioration” of economic conditions, driven by “ballooning” public spending and diving coal royalties, S&P warned. A month ago, the agency downgraded Queensland’s credit rating from AA+ to AA. S&P sovereign and international public finance ratings director Martin Foo said the Crisafulli government “has not really yet been successful’’ at slowing growth “in the operating expense trajectory”. This would be difficult to reverse quickly without widespread cuts and disruptions to public services, he pointed out. Embarking on that course would require political courage by all parties to neutralise political fallout.
The same is needed in Victoria, which is expected to carry the highest interest burden among states by 2028-29. As Victoria’s debt hurtles towards $200bn, the agency noted it would exceed 220 per cent of operating revenue by 2028-29. At that stage, interest payments would swallow almost one dollar in every 10 dollars of operating revenue.
Across the political landscape, an overarching strategy is needed to scale back the public sector and foster wealth and investment in the productive economy. Current metrics – inflation, overspending and productivity that is “doing nothing’’, as RBA governor Michele Bullock said last week – point to what is needed. Cutting red tape is vital to scale back the government’s footprint and free up the business sector. But after talking a big game at his economic roundtable last year, the Treasurer is yet to deliver. Nuisance taxes have been cut, which is a positive. But as Thomas Henry and Noah Yim report, the Australian Institute of Company Directors is dismayed that red tape continues to grow. Labor was “pruning the garden and at the same time continuing to plant more and more trees”, AICD chief executive Mark Rigotti said. The institute has joined employers in warning that Labor’s plan to hold companies criminally liable for failing to prevent modern slavery in their supply chains would further dampen productivity. So would a new tranche of changes to the Privacy Act and expanded climate disclosures to take effect next year.
As Deloitte Access Economics points out, Australia’s three-decade stretch of uninterrupted growth from the early 1990s to the onset of the Covid-19 pandemic was record breaking. But it is easy to overlook the economic and labour market reforms – which were often controversial and unpopular – by the Hawke-Keating and Howard governments that set the nation up for that golden era. Treasury’s latest intergenerational report shows Australia is at a major economic turning point. It needs courage and the ability to explain why more effective policies, some of them unpopular, are needed. Forty years ago, broad consensus existed on the value of reform. In the current predicament, politicians more interested in easy popularity than good policies are not up to the job.