The fight Chalmers has to have

It’s a mark of Australia’s obsession with the state of our budget that we have this strange pre-Christmas tradition of the Mid-Year Economic and Fiscal Outlook. The numbers it contains this year are a gift for any treasurer: stronger revenues and smaller budget deficits.

Who could want more? For a start, the millions of Australians struggling with the cost of health and childcare, most of whom couldn’t care less about the performance art of economic policy.

The good news for Jim Chalmers in the MYEFO stems mainly from the inability of economists anywhere, including Treasury, to accurately forecast the future. Because wages grew slightly faster than was expected back in May, income tax receipts are up $15 billion. And because the world price of gold, iron ore and other commodity exports remained high, an extra $4.3 billion in company tax made its way to the budget bottom line. In the scheme of the budget-obsessed Australian media, the forecast errors that this time fell Chalmers’ way will take a lot of political pressure off the treasurer, and a little off the Reserve Bank of Australia.

Only an economist can say this, but in the scheme of our $3 trillion economy, these billions are literally a rounding error. That said, the revised budget deficit, equivalent to a tiny 1.3 per cent of national income, will provide a huge sigh of relief for the Treasurer.

Economists know the interaction between the budget deficit and inflation is complicated and nuanced but, like anything else in politics, there is no nuance when it comes to economic policy. And with a press gallery and opposition who believe budget deficits are the main cause of inflation, delivering a slightly smaller deficit as inflation begins to rise is the Treasurer’s manna from heaven. Had the forecast errors fallen the other way, this week’s headlines would have screamed, “Labor’s deficit to drive interest rates higher”. It wouldn’t be true, but nor was that old line that the carbon tax would increase the cost of a leg of lamb to $100.

But there’s the rub. While Jim Chalmers has done a good job of managing the small stuff the opposition cares about, it’s obvious that Australians need a treasurer thinking much bigger than “what would Sussan Ley say about that?” Our 40-year preoccupation with the size of the deficit has made us blind to the scale of the opportunities we face.

“Will ‘landslide’ Labor use their majority to do something big or will they keep hoping for small wins from the budget forecasters while presenting a shrinking target for the shrinking Liberals to attack?”

According to the pinko lefties at the World Bank and the International Monetary Fund, Australia is one of the lowest taxed countries in the developed world. Likewise, when our public debt is compared with our national income, the Albanese government is one of the least indebted governments in the world.

While it’s true our public debt is approaching $1 trillion – and this will no doubt alarm many – the MYEFO reminds us that debt represents barely a third of our GDP. And, of course, that debt is backed not just by hundreds of billions of dollars’ worth of gold, shares and holdings of foreign currencies but by all the physical assets belonging to the Commonwealth, ranging from highways and houses to office towers and satellites. Just as you can’t say whether someone with a $1 million mortgage is rich or poor without asking how much they earn and what assets they own, it makes no sense to suggest a country is broke without knowing the value of all its assets.

Australia is rich. The average income per person is the 12th highest in the world, and despite our small population we are the world’s 15th biggest economy. Despite this, our business community remains determined to keep this one of the lowest taxed countries in the world, which makes those of us who rely on public schools, public hospitals and public transport feel poor.

If Australia decided to leap from being a low-tax country to imposing the average tax rate of OECD countries, we would collect an additional $132 billion a year. If we wanted to copy the Norwegians by all but scrapping higher education fees, private health insurance and private schools, and amassing an enormous sovereign wealth fund, Jim Chalmers would need to collect an additional 10 per cent of GDP, or about $292 billion a year.

We could collect an extra $292 billion in tax and we still wouldn’t be the highest tax country in the world. But we would be in line with the country with one of the best health, education and welfare systems in the world, while also being one of the most productive economies. But who would aspire to that when we could copy the United States instead?

We aren’t supposed to think big. The whole point of reporting on the budget deficit twice a year and talking about debt and deficits so much is to make Australians feel so poor and fearful that things might get worse that we have no time to wonder why we can’t have nice things like they do in France, Germany or Norway.

Voters around the world want change. They want their governments to admit there are problems and commit to fixing them. Voters want governments to make their lives better and they have lost patience with waiting for the benefits of other people’s pay rises to trickle down to them.

Low-income voters in the US were so scared of the Democrats’ promises of more glacial change that they literally thought Donald Trump was a safer bet. In the United Kingdom, Labour’s determination to use a landslide victory to justify cuts to welfare and public services so spectacularly misread the mood that Nigel Farage is riding high in the polls, even though a majority of UK voters now think Brexit was a bad idea. There are clear lessons for Australian Labor.

Good policy, it’s often said, is good politics. Given the clear evidence that privatised health and education has failed in the US, and that the publicly funded option is a success in Europe, it should be obvious that more and better public services would drive both productivity growth and swing voters Labor’s way. Labor’s first-term energy supplements pushed inflation down and their vote up. They should double down on that approach and make childcare and dental care free. It would lower inflation and inequality all at once.

Where would the money come from? Apparently there’s no such thing as a free lunch – but in Australia there is. Jim Chalmers has already managed to convince voters for the first time in decades that Labor is the better economic manager, according to the latest Australian Election Study. If he now wants to have a greater impact than Paul Keating, then there’s just one fight he needs to have: with the biggest rent seekers in the country. He needs to make foreign-owned export gas multinationals pay for our gas.

More than half the gas exported from Australia is given away free. What little revenue is collected by the petroleum resource rent tax is dwarfed by HECS-HELP repayments – but no one expects to see the head of the student union barging into the prime minister’s office and demanding a better deal for young people.

MYEFO delivered Jim Chalmers some small wins, but becoming the most significant treasurer in generations demands a lot more than waiting around for small windfalls. He needs to pick a big fight and build the allies he needs to win it.

At the last election Peter Dutton proposed a tax on gas exports, a move now supported by One Nation, steel manufacturers BlueScope, Weld Australia, the ACTU and the Greens. Conservative voters hate that we are giving our gas away free to foreigners, progressive voters hate that we are bailing out the fossil fuel industry and the union movement wants cheap energy to support Australian manufacturing jobs.

Never before has a big simple idea had such broad support and such narrow opposition. That doesn’t make it inevitable, however.

Will “landslide” Labor use their majority to do something big or will they keep hoping for small wins from the budget forecasters while presenting a shrinking target for the shrinking Liberals to attack?

Anthony Albanese is not known for taking on big fights, but his massive election win makes his small agenda increasingly
hard to sell.

Like so many treasurers before him, Jim Chalmers has to walk the fine line of being the prime minister’s loyal lieutenant, while letting his colleagues know he is raring to deliver the kind of reform that makes being a backbencher seem worthwhile.

Of course, the gas industry will spend heavily, threatening that if they have to pay more tax, they will stop building new projects. For those Labor backbenchers and voters keen to see real climate progress, and the back of the gas industry, that prospect sounds less like a threat and more like a cherry on top.

The $18 billion question is who in Labor wants to be the first to grab the opportunity.

This article was first published in the print edition of The Saturday Paper on
December 20, 2025 as “The fight Chalmers has to have”.

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