Thanks Tom for the introduction, and to the board, sponsors and journalists for this welcome opportunity to be back again at the Press Club today.
We begin by acknowledging the customs, culture and elders of the Ngunnawal people.
And by thanking all of you – including parliamentary colleagues who’ve joined us, key members of our economic team, and everyone backing up from Anthony’s speech here just last week.
I know that to hear from the Prime Minister and the Treasurer 8 days apart, at the same forum, is unusual – but it’s deliberate.
It’s a chance to flesh out the points he made about economic reform, why it matters, and why it’s our focus.
In our first term we stabilised and strengthened our economy, got inflation down, got real wages up, kept unemployment low and improved the budget position.
In important ways we outperformed our peers.
We should be proud of that, but not satisfied with that.
When you look around the globe at all this extreme volatility it would be misguided to assume it’s temporary, when it reflects deeper currents.
So much of the democratic world is vulnerable because governments are not always meeting the aspirations of working people.
We have a responsibility here and an obligation.
A responsibility to rebuild confidence in liberal democratic politics and economic institutions – by lifting living standards for working people in particular.
And an obligation to future generations to deliver a better standard of living than we enjoy today.
That’s really why productivity matters, why budget sustainability matters, why resilience in the face of global turmoil matters –
It’s why reform matters.
And it’s why I want to speak with you today about our government’s approach to economic reform this term.
Reform which is progressive and patriotic, in the PM’s words – and practical and pragmatic as well.
Reform from the centre, in a world of polarising and unsettling extremes.
And methodical reform, which is considered and collaborative and ambitious.
Focus on delivery
This begins with delivering the substantial commitments we took to the election.
This obsession with delivery has guided my post‑election briefing and reading –
And the conversations I’ve had with Steven Kennedy and Jenny Wilkinson.
As the PM made clear here, delivering our commitments in housing and energy and across the board is the best place to start – but it’s not the limit of our ambitions.
They’re a foundation not a destination.
We have a mandate to deliver the policies and plans we took to the election, and a duty to build on them.
And the best way to work out what’s next, is together.
Our economy
Australians have achieved so much in our economy these past 3 years, but there’s more to do.
Let’s not talk this down or talk it up.
Let’s just put our progress in its proper perspective.
We’ve come a long way, we’ve got a lot going for us, we’re better placed and better prepared than other countries –
But some of the pressures on our economy and budget are intensifying rather than easing.
It’s not just possible to acknowledge both these things at once, it’s imperative.
Inflation is down substantially and in a sustained way, interest rates have been cut twice and markets expect more – but people are still under pressure.
We’ve made this progress on inflation at the same time as we’ve maintained very low unemployment.
This is unusual if not unprecedented compared with our peers, and our history of dealing with inflation shocks.
To deal with inflation in the 1970s, unemployment breached 10 per cent. In the 90s, 11 per cent.
Instead, our first term saw faster jobs growth than any G7 economy, and the lowest average unemployment of any Australian Government in the last half century, while inflation fell considerably.
No major advanced economy has combined unemployment in the low 4s with inflation under 2.5 and 3 years of continuous growth.
We know this welcome progress in the national aggregate data doesn’t always translate into how people are feeling and faring in local communities.
But real wages are growing again.
And the past 9 months are among the fastest 3 quarters of real per capita income growth in 15 years.
Private demand contributed all the GDP growth in March and that’s good, but that growth was still subdued.
The level of business investment is now at a 12‑year high, it’s grown every year of our government, but we need it to grow deeper and faster.
Dwelling investment has gathered pace, it was 10 times stronger in the last quarter than the quarterly average of the last 10 years – but we still need to build more homes, sooner.
Consumer sentiment is up 8 points since September, recovering since the middle of last year – but off a low base.
We delivered the first 2 surpluses in almost 2 decades, found $100 billion in savings, engineered the biggest nominal improvement in a budget in a parliamentary term, took meaningful action on structural pressures – but the job is not finished there, that work is ongoing.
All this progress we’ve made is not accidental it’s deliberate, but it’s gradual.
Responsible economic management has played a role – cutting taxes, boosting wages and restoring real incomes, repairing the budget, fighting inflation.
We have made the right calls but there’s more to do.
To deliver higher living standards for our people we recognise 3 blunt truths:
Our budget is stronger, but not yet sustainable enough.
Our economy is growing, but not productive enough.
It’s resilient, but not resilient enough – in the face of all this global economic volatility.
Global volatility
The international environment and the global economy will be the main influences which shape and constrain our choices this term.
This month the World Bank warned global growth is on track to be close to its weakest in nearly 2 decades.
Global oil prices had slumped almost 20 per cent since their mid‑January peak until last week, when they spiked more than 10 per cent when the Middle East flared again.
It’s a perilous moment there and that means even more perilous times for the global economy too.
Before last week, the IMF’s trade uncertainty index was already 7 times higher than 9 months ago.
It’s now higher than during the GFC, most of the pandemic, and the inflation spike that followed.
In April, the VIX global volatility index averaged higher than during COVID.
There are opportunities as well as risks in all this volatility for Australia.
Since Liberation Day, Australian shares have outperformed US ones.
And the US bond yield curve has become much steeper than Australia’s.
These are normally signs that investors are becoming more wary of the US and more attracted to Australia’s stable markets.
A lot of this volatility we’re seeing masks more fundamental changes in the way the world conducts its business.
The rules and ideas that made up what we thought of as the global order are being re‑written.
This is the fourth economic shock now in less than 2 decades, a near permanent state of upheaval.
Where shifts in energy, industry, demography and technology shape the bigger backdrop.
In this world of churn and change we like our chances.
But only if we make our economy even more resilient.
By securing capital and shoring up supply chains –
Building more partnerships in our region and diversifying our trade –
Modernising our economy and maximising our advantages.
Three priorities
The best defence against global volatility and the best way to lift living standards is with a more productive economy, a stronger budget, and more resilience.
It’s why I’ll organise this term, my time, and our team – consistent with these 3 highest priorities.
It’s why in the aftermath of the election the PM and I discussed and agreed the economic roundtable I’m convening in August.
It’s not to retract or retrace the steps we took in the first term but to renew and refresh our reform efforts.
Not because we won a big majority –
But because we have a big opportunity –
And because we embrace this big responsibility.
Productivity
Productivity is our primary focus.
Too often it’s seen as a cold, almost soulless, concept – when it’s really the best way of making people better off over time, creating more opportunities, making our economy and our society more dynamic.
By now our shortage of productivity growth is well known and broadly understood.
Almost every comparable country has the same challenge.
Our own productivity problem hasn’t been with us for a couple of years, it’s been with us for a couple of decades.
In the 10 years before the pandemic, productivity grew only half as fast as it had 2 decades earlier.
The 2022 election coincided with the largest quarterly fall in productivity growth in almost half a century.
In last month’s Incoming government Brief, Treasury identified 4 key reasons why:
Firstly, our economy is not dynamic or innovative enough.
Secondly, private investment has picked up, but not by enough to make our capital deep enough.
Thirdly, skills aren’t abundant enough or matched well enough to business needs.
Finally, our changing industrial base and the growth in services – where productivity is harder to find, and where traditional measures don’t account well for quality.
This was one reason Treasury reduced its long‑run annual productivity growth assumption by a fifth in 2022, in line with the 20‑year average at the time.
Today’s 20‑year average is closer to 0.8 per cent, which partly reflects the end of the COVID productivity bubble and the recent strength in jobs growth.
There are other sectoral challenges too, including in construction.
Compared to 30 years ago, half as many homes are built per hour, and construction times have increased.
The solution to these challenges is not to torch workers’ rights and benefits.
Lifting productivity is about empowering workers and making the most of our human capital.
Teaching and training them to adapt and adopt technology.
Unlocking innovation, investment and dynamism to lift the potential of our people and their economy.
Making it easier to start or run a small business, faster to get approvals, and simpler to trade – without reducing standards.
Boosting competition and dynamism so that there are more jobs on offer at top performing firms of all sizes.
There’s a role for government in getting the settings right, getting regulation right, targeted interventions in key areas like the energy transformation and housing.
But businesses need to step up too and invest in new technologies, more efficient operations, and skills.
We’ve encouraged a broader approach to productivity that goes beyond the old, tired and formulaic fights.
That’s why we agreed a 5 pillar productivity agenda with National Cabinet based on the analysis in the Intergenerational Report and focused on:
- Creating a more dynamic and resilient economy.
- Investing in the net zero transformation.
- Building a skilled and adaptable workforce.
- Harnessing data and digital technology.
- And delivering quality care more efficiently.
We’ve made substantial progress on all of them.
- Overhauling our merger and foreign investment regimes.
- Better designing and informing our capital markets and reforming the payments system.
- Cutting around 500 nuisance tariffs.
- Revitalising National Competition Policy.
- Starting a $900 million National Productivity Fund.
- Introducing the Capacity Investment Scheme.
- Modernising our electricity grid.
- Seizing the opportunities from net zero with a Future Made in Australia.
- Helping business digitise with a bigger, better NBN and through the Digital ID.
- Reforming the care sector to be more efficient.
- Teaching and training Australians with Free TAFE, the universities accord and fairer schools funding.
- And revitalising our core economic institutions.
It’s not often recognised but our first term reforms respond to about two-thirds of the directives in the Productivity Commission’s 2023 5‑year review.
As we start our second term, more work is already underway.
As part of our National Competition Policy agenda, we’re abolishing non‑compete clauses for most workers –
And introducing national occupational licensing, to increase worker mobility across borders and reduce costs and regulation.
Getting rid of non‑competes is expected to add $5 billion each year to our economy, and expanded licensing reforms could add another $10 billion.
Just this week I sent our draft NCP implementation plan to states and territories, to keep it progressing.
We’re expanding our Right to Repair reforms and adopting safe overseas standards to reduce regulation.
And working to attract more investment to deepen the capital base of our economy.
Our Future Made in Australia agenda is part of it –
But also strengthening, streamlining and speeding up project approvals.
After our first term, more than double the rate of foreign investment approvals and 50 per cent more environmental approvals are now being processed on time – but again there’s more to do.
That’s why we’re standing up a Single Front Door to help get major transformational projects off the ground more efficiently.
We’re using Jobs and Skills Australia to deliver a more responsive labour market, so we have the right skills mix for the industries of the future.
We’ve also sought PC reports on more reforms under each of the 5 pillars, due soon.
And I’ll work with Tim Ayres and Andrew Charlton on AI and the digital economy to capitalise on the huge gains on offer, not just set guardrails.
We want to get the best out of new technology and investment in data infrastructure in ways that leverage our strengths, work for our people and best manage impacts on our energy system and natural environment.
Better regulation, cutting red tape without lowering standards, has an important role to play as well, with reviews underway of the National Electricity Market and gas markets, and reforms to the EPBC Act.
The Strategic Review of R&D will be delivered by the end of this year and that will guide us too.
We will also continue to work with states and territories on the future of road user charging.
All of this represents a big agenda on the supply side of our economy.
None of these reforms are simple.
All of them require sustained, collective effort and will take time to show up in the data.
If you think of the Hilmer reforms of the 90s, that involved changing more than 1,800 laws and regulations, and rebuilding markets from the ground up.
There are few quick wins or instant gratification when it comes to productivity growth.
Budget sustainability
The Budget is another area where reform is hard and contested and the benefits not always immediate.
We know this from the substantial progress we’ve made addressing the structural challenges we inherited.
During COVID, government spending was almost a third of our economy.
We got that down to a quarter and now it has settled slightly higher than that.
A big reason for that is the care economy, but that’s not the only reason.
Of the 6 biggest structural pressures on the Budget, 4 are care‑related:
Health, the NDIS, aged care, and early childhood education and care.
And 2 are not:
Defence, and interest costs.
We are making very good progress on the NDIS, aged care and interest costs.
Spending is growing more sustainably now in those 3 cases and more substantially in the other 3.
Our Budget improvements have helped us avoid more than $60 billion in interest costs.
We’re on track to meet our NDIS growth target of 8 per cent a year.
And our aged care reforms will save around $11 billion over the next 11 years, while delivering much better care and choice.
There is a productivity dividend from making our Budget more sustainable.
Fiscal stability and regulatory certainty give businesses the confidence and clarity they need to invest.
This relies on sustainable revenue to fund our priorities and pressures, at the same time as our revenue base is evolving.
Tax to GDP is lower now than under Howard and Costello, much lower than the old cap, and around 2–3 percentage points lower than spending.
At the same time our population is getting older, which means more retirees and proportionately fewer working age Australians.
The global net zero transition will also reshape our revenue from resources.
This evolution in our revenue base is one of the reasons tax reform is so crucial to budget sustainability – on top of restraining spending, finding savings and working on longer‑term spending pressures.
But tax reform is bigger than just managing the difficult balance between spending and collecting.
It’s also about lifting productivity and investment.
Lowering the personal tax burden and increasing the rewards from work.
Creating a more sustainable, simpler system to fund vital services.
And improving intergenerational equity.
Tax reform in our first term was methodical and it was sequenced but it was still substantial:
- Personal income tax reform to cut rates, lift thresholds, return bracket creep and incentivise participation.
- A standard deduction to simplify tax returns.
- Tax breaks for small business and build to rent.
- Production tax incentives for critical minerals and hydrogen.
- Reforms to the PRRT and multinational taxes to make big companies pay a fairer share.
- And our proposal to make superannuation tax concessions more equitable and sustainable.
Reform roundtable
No sensible progress can be made on productivity, resilience or budget sustainability without proper consideration of more tax reform.
I don’t just accept that I welcome it.
Tax is one of many ways our 3 primary economic challenges are related and reinforcing:
In each case we know what the problems are –
We’ve made good progress, with more work already underway –
We know we need to do more –
And now is the best time to work out the next steps.
That’s why the reform roundtable I’m convening in August is such a well‑timed opportunity.
The purpose of the roundtable won’t be to dwell on problem definition or to re‑prosecute the policy arguments of the past.
The roundtable will be about shaping the direction for long term economic reform –
Building consensus on national reform priorities for this term of government and beyond.
And setting out some guiding reform principles and next steps to advance the agenda well beyond the roundtable itself.
Participants will have a meaningful and influential role and a proper say.
It’s a genuine attempt to find common ground if it exists, in the service of our shared national economic interest.
We have an open door and an open mind.
We are looking for ideas and for consensus.
We’ll consider any good ideas that we can afford and where there’s enough consensus about the way forward.
The discussions will be held over 3 days, from the 19th to the 21st of August in the Cabinet room, and the PM will kick things off.
The Productivity Commission’s interim 5 pillar reports will be a key input into this discussion, so I’ll ask Danielle Wood to brief the group.
I’ve already spoken to Governor Bullock about participating as well and probably near the start.
It won’t be another huge summit but a small group, with a targeted agenda.
For those who haven’t been inside the Cabinet room there’s only about 25 seats around the table –
So that gives you a sense of how many invitations we’ll issue.
There’ll be a mix of government, business, union and civil society representatives and experts.
And ahead of the discussions we will publish the agenda, key issues and attendees.
There’s a lot of interest in being a part of it and I’m encouraged by that.
But I assure everyone the roundtable won’t be the only opportunity to feed in ideas.
We will ensure everyone has the ability to contribute both before and after these discussions and Ministers will play a key role here too.
Soon we’ll call for targeted submissions, which can be submitted through a dedicated Treasury channel.
We want participants to make contributions that meet 3 important preconditions.
First, ideas should be put forward in the national interest, not through the prism of sectoral, state or vested interests.
Second, ideas or packages of ideas should be budget neutral at a minimum but preferably budget positive overall, taking into account the necessary trade‑offs.
And third, ideas should be specific and practical not abstract or unrealistic.
In return I give everyone this commitment:
We won’t come at this from an ideological point of view but from the practical, pragmatic and problem‑solving middle ground we’re most comfortable on.
A related point, and because the group will be small and focused –
Finding consensus will be everyone’s responsibility.
We want to encourage participants to build broad coalitions on changes that cross the aisle, in the parliament and outside as well.
Not just leaving it to government to get everyone onside.
Collective responsibility
This invites a broader point about reform.
Reform is not just a test of a treasurer or a cabinet but a test of our country.
Not even a core economic team as strong as Gallagher, Leigh and Mulino, O’Neil and Aly can do this on its own.
It’s why I secured Cabinet support on Monday to embed productivity at the very core of our second term.
We agreed a bigger focus on productivity at the Expenditure Review Committee and with the states –
That I’ll ask the PC Chair to brief cabinet ministers on the productivity challenges in their portfolios and seek their input into the 5 pillar reports –
And that I’ll write to regulators across government seeking specific, measurable actions to reduce compliance costs without compromising standards.
And Cabinet ministers agreed to come back to me with ideas to improve productivity in their portfolios before the roundtable, and to host their own consultations too.
Reform environment
To make progress we need an environment conducive to reform not hostile to reform.
That’s where you come in.
We need to be sure there are not just the right constituencies for change but the right conditions too.
We don’t pretend or assume that ideas should be above criticism, on the contrary.
But there are a couple of aspects of this we need to consider together.
Like the ‘rule‑in‑rule‑out game’, in the media.
Of course there are things no sensible government will contemplate, but limiting ourselves to ruling things in or out forever has a cancerous effect on policy debates.
It can rob an informed and modern country like ours the flexibility and maturity to respond to big challenges.
A related problem is that too often, the loudest calls for economic reform in the abstract come from the noisiest opponents of actual reform in the specific.
Let’s see what we can do together if we reset and renew the national reform conversation.
Starting with productivity, economic resilience, and budget sustainability.
Our existing agenda is already broad and ambitious, and we have lots underway already.
But we can do more, and we owe it to people to see if and where there’s appetite.
Let’s see what we can achieve together if we dial up the ambition a bit and dial down the rancour a bit as well.
And if we fail it won’t be because of a shortage of ideas, options or choices.
It won’t be a shortage of courage – but a shortage of consensus.
We have everything we need but that.
But the stakes are too high in our economy –
The opportunity is too substantial –
To waste this term or waste our time.
Thanks and I look forward to your questions.