By EDITORIAL
In its statement, the RBA noted that trimmed mean inflation – its preferred measure for determining rates – remained too high at 3.4 per cent, which was well outside its target range. But a period of prolonged economic uncertainty, it said, might cause growth to be lower.
The key to breaking that malaise is productivity, requiring a reboot of tax, industrial relations and economic policies. As RBA governor Michele Bullock said after Tuesday’s decision, productivity was “important for growing the economy and for wage rises. With a medium-term productivity forecast of just 0.7 per cent per year, the economy could not grow much faster than 2 per cent and wages could not rise by very much.”
Unemployment officially edged up to 4.5 per cent in April – its highest level since Covid – after the economy lost 18,600 jobs in a month. More concerning, as Nick Cater wrote on Tuesday, is the alarming shift, especially among Gen Z (born between 1997 and 2012), towards welfare dependence. The largest increases are in programs that tend to lead to dependency on the state, such as the Disability Support Pension. In April, the number of DSP payments hit an all-time high of 850,000, up 11 per cent from April 2022, just before Labor came to office. Since then, 115,00 more working-age Australians have joined the ranks of the welfare-dependent, with the sharpest growth of DSP payments among the under-35s.
Parent payments are up by 44 per cent and carer payments by 10 per cent.
Against that background, the Albanese government’s policies must be geared to growth, productivity, aspiration, jobs and discouraging reliance on welfare through tightening eligibility. More than a month after the budget, discussions at the Senate inquiry into the changes to capital gains tax and negative gearing suggest policy is on the wrong track. As Thomas Henry reports, Treasury officials were left flat-footed on Tuesday, unable to answer basic questions about the tax overhaul, including revenue windfalls for the CGT and negative gearing policies over any timeframe.
Wilson Asset Management chairman Geoff Wilson told the inquiry that Australia’s prosperity had always depended on a simple idea: that if people worked hard, saved carefully and took considered risk with their capital, they could build a better future for themselves and their families. “This legislation weakens that social contract,’’ he said. Peak accounting bodies also expressed concern.
Supporters of the reforms also question the proposed minimum 30 per cent rate on capital gains. E61 chief executive and former Productivity Commission chairman Michael Brennan and economist Saul Eslake back Labor’s move to an inflation-indexed model of taxing capital gains but both have urged the government to scrap its 30 per cent minimum CGT rate. Property Council of Australia chief executive Mike Zorbas warned the industry was “already taxed like tobacco” and the changes would kill the feasibility of future housing projects. Government overspending at federal and state levels, he said, “has left us taxing the life out of new property projects and existing operating assets at a time of rising capital, rising labour and construction costs”.’
In a telling insight, National Housing Supply and Affordability Council chairwoman Susan Lloyd-Hurwitz said the tax changes were designed more to redistribute wealth than to increase housing supply. Her view reflected Treasury secretary Jenny Wilkinson’s comments: “The changes in the tax elements of the package that were announced in the budget are really a bit more about changing the distribution of housing ownership rather than addressing sort of, in an overarching sense, supply.”
Redistribution is no substitute for growing the economic pie by encouraging hard work and investment. Policy must also discourage working-age people from welfare dependence. Australia needs lifters not leaners, as much now as in 1942 when Robert Menzies coined the phrase.
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Home loan and small business borrowers will be relieved by the Reserve Bank board’s decision to keep interest rates on hold. But they and the rest of the nation have good reason to be concerned about the sluggish economic outlook, poor productivity and increasing welfare dependence, especially of young people who should be aspiring to work and contribute. Jim Chalmers predictably put a positive spin on the situation on Tuesday: “Annual economic growth is faster than almost all of the major advanced economies, unemployment is low, business investment is booming, wage growth is solid and debt is lower than every major advanced economy.” The budget, he said, was “all about cutting taxes for workers, making it easier to get into the housing market and boosting productivity”.