Jim Chalmers, the Australian Treasurer, opened a comprehensive round table discussion on building economic resilience. This thoughtful event kicked off a transformative three-day agenda focused on turning our nation’s promising new priorities into meaningful reforms for our nation’s economy. Convened by Allegra Spender, the highly influential event brought together some of Australia’s top economists to discuss proposals to weatherproof Australia’s economy in an age of global uncertainty.
One thing is certain—these discussions could not come at a better time. Australia is experiencing breaking inflation, inflationary pressures internationally and a re-rise trajectory for debt that should deeply alarm. The theme of the first day was chosen on purpose by the conveners—“economic resilience.” This decision created an environment where attendees could dive deep into complex economic questions without the distraction of partisan politics.
The theme of economic resilience is still alive and well, and pretty much universally accepted. In the days ahead, the round table will boldly confront the more controversial topics. They look forward to debates about tax reforms and potential service cuts. This promise creates fertile ground for a robust discussion of Australia’s fiscal direction.
Ideas for Reform
The round table brings together a rich mix of proposals to strengthen Australia’s economic resilience. Universal child care is one of the most popular proposals to emerge as a signature reform, though. As Prime Minister Anthony Albanese nears the end of his first year in office, this vision has received a renaissance. This new initiative is considered to provide meaningful support for families in ways that may promote increased workforce participation among parents.
Company tax is another major area of focus. On the job-killing side, this issue has emerged as the top priority of the business lobby — including many economists. Recent debate has implied that Australia’s company tax rate, currently at 30 percent, is higher than many of our global comparators. Many of the participants support lowering this rate to create a more competitive climate for businesses to operate in.
Greg Kaplan highlighted a critical disparity in the current tax system, noting that wage earners face a higher tax burden than asset owners who benefit from various deductions and discounts.
“The absolute worst case you can be in is to earn all of your income as an employee working for somebody else.” – Greg Kaplan
This observation serves as a perfect metaphor for the urgent need for more comprehensive tax reform. Equity and fairness should be fundamental to our tax system.
Taxation and Economic Growth
Economists are again lining up with new ideas to promote growth. The Productivity Commission has recently proposed a new 5 percent cash flow tax. This step would further diversify their revenue streams.
Ken Henry, widely regarded for his fiscal prudence, highlighted the need for many courageous and uncompromising steps in tax reform. And knowing that, he has been a true believer that big changes are needed to protect produce and ensure success.
“This is the lesson I take from Australia’s tax reform adventures of the last 40 years. If it’s going to be successful, it’s going to have to be big.” – Ken Henry
As this discussion continues, questions about the concept of budget neutrality become a flashpoint. Jim Chalmers was unequivocal that any reform package advanced during the round table should be budget neutral. In an ideal world, he would like it to be budget positive too. This requirement is an important acknowledgement of the government’s commitment to prudent fiscal management in the context of large, ambitious reforms.
Miranda Stewart added to the conversation with a critical eye on our welfare patchwork. She made the case that “targeted” payments serve as a disincentive to earn more income. This approach creates an unfortunate disincentive for people who want to make their financial lives better.
The Road Ahead
As discussions continue, all participants have an eye to the larger macroeconomic state of play in Australia. But as many recent assessments have noted, Australia’s current debt levels are quite low by international standards. The runaway course of this debt presents dire obstacles that we must not ignore. Finally, productivity growth is often cited by economists as the key long-term determinant of improving living standards all over the country.
In a recent speech Andrew Leigh, Australia’s minister for human services, identified new potential for productivity increases powered by the rise of artificial intelligence. His observations point to a growing consensus among economists. They want to show others that by embracing technology, they can make a big impact on their long-term economic plans.
As Aruna Sathanapally noted during the discussions, there is a clear tension between maintaining service expectations and managing tax rates effectively.
“If we want to find a magic way to have Australian-level service expectations and remain being a low-taxing country, I’d love to know what it looks like.” – Aruna Sathanapally
She drove home the need to make tough calls on taxes and services. Lastly, she claimed that higher taxes may be a foregone conclusion.
“But my starting proposition is we’re going to have to think about higher taxes or we’re going to have to think about taking chunks out of our service expectations.” – Aruna Sathanapally
