Chalmers champions productivity, urges tax reform

Treasurer Jim Chalmers has cast productivity as the government's chief priority, with budget sustainability and resilience also among its key focuses but made the case that sensible progress can't be made without proper consideration of more tax reform in a speech at the National Press Club in Canberra yesterday.

Productivity, he said, which is too often regarded as "a cold, almost soulless, concept," is a problem that's been with Australia not for a couple of years, but for a couple of decades.

He noted that in the decade leading up to the pandemic, productivity growth was just half the rate seen two decades earlier, and that the 2022 election coincided with the largest quarterly drop in productivity in nearly half a century.

Treasury identified four contributing factors: the economy lacks dynamism and innovation; private investment hasn't lifted enough to deepen Australia's capital base; skills aren't abundant enough or matched well to business needs; and the changing industrial base, including growth in services - where productivity is harder to find.

However, he warned that there are "few quick wins or instant gratification" in the grind for productivity growth, just as budget reform remains a "hard and contested" arena.

He noted that during COVID, government spending was almost a third of our economy, which he said was brought down to a quarter - but has now settled slightly higher than that.

He also pointed out that the tax-to-GDP ratio is lower now than under John Howard and Peter Costello, "much lower than the old cap," and around 2-3% lower than spending.

At the same time, Australia's population is ageing, meaning more retirees and proportionately fewer working-age Australians.

"Tax is one of many ways our three primary economic challenges are related..." he said.

"And now is the best time to work out the next steps."

To that end, Chalmers said that the reform roundtable he's convening in August, which was announced by prime minister Anthony Albanese last week, will set out some guiding reform principles and next steps to advance the agenda well beyond the roundtable itself.

He committed that the government wouldn't approach the roundtable from an ideological standpoint, but from a "practical, pragmatic and problem-solving middle ground."

But he also said that he wants to encourage its participants, which will be drawn from a "small and focused" group, to "build broad coalitions on changes that cross the aisle."