In his recent essay for The Monthly, Treasurer Jim Chalmers laid out his blueprint for abandoning the neoliberal era of "supply-side" economics, to a new concept of "values-based" capitalism. The question remains: whose values?
Central to his thesis in the essay, 'Capitalism after the Crisis', is that throughout the Global Financial Crisis (GFC), COVID-19, and the Ukraine war, our major policy frameworks – particularly central bank interest rate targeting – were ‘shown to be so inadequate’ and ‘couldn’t explain why investment stalled and growth slowed’.
He laments that in the aftermath of these crises – which revealed weaknesses in our economic frameworks – our 'mental models for most economic decision-making have been unchanged’. He intends to develop new frameworks that ‘put values at the forefront of how our economies work’.
The "well-being" budget
Central to this plan is a promise for well-being budgets, popularised by New Zealand’s Labour Party.
New Zealand's Treasurer Grant Robertson describes these budgets as such:
‘The [New Zealand] Labour Government is committed to achieving its policy goals using a well-being approach... To do this, we are looking beyond traditional measures of success, such as Gross Domestic Product (GDP), to broader indicators of well-being.’
GDP has long been used as an indicator of economic success because it usually leads to improving material conditions of a population. But our economic measurements should be tools that indicate to us how successful we have been at achieving desired social outcomes, rather than the means by which we intend to achieve them.
This approach was reiterated in Chalmers’ essay.
‘Last year’s October budget sketched our approach to measuring what matters… by tracking a range of outcomes broader than, but not instead of, traditional measures of economic strength.’
‘What matters’, Chalmers says, is ‘an orderly energy and climate transition... a more resilient and adaptable economy’ and ‘growth that puts equality and equal opportunity at the centre’. While this all sounds well and good, we are yet to see convincing examples of Chalmers’ ‘carefully constructed markets’ that ‘efficiently and effectively direct resources’ to achieve these three goals.
Safeguards mechanism reform
The Albanese Government has already announced a series of new projects to develop new renewable energy infrastructure and has increased Australia’s 2030 emissions reduction target from 26-28% to 43%. However, they have not ruled out approving new fossil fuel projects. The major, market-oriented reform we have been promised are changes to the safeguards mechanism in the latter half of 2023.
The proposed reforms include gradually reducing the baselines by 35% by 2030 and new ‘safeguard mechanism credits’ for businesses that operate below their baseline which could be sold to other companies that are operating above their baseline to avoid penalties.
These reforms are welcome and will certainly help reduce our industrial emissions, however, they only address ‘scope 1’ emissions – that is to say – emissions produced by company operations. They do nothing to address Australia’s primary role in the climate crisis, which is not as a user of fossil fuels, but as a supplier.
While there have been disruptions in coal export volumes due to trade restrictions by China, which have now been lifted, Australia’s fossil fuel export sector continues to drive emissions growth worldwide.
When we export our fossil fuels to be used for the production of goods that we import, we are just as complicit in any emissions produced in the process as the country of origin.
Prime Minister Anthony Albanese has ruled out measures to reduce our coal exports, saying it “wouldn’t lead to a reduction in global emissions” because it would be replaced with “coal from other countries that’s likely to produce higher emissions”.
Domestic gas reserve
Chalmers’ references to a ‘resilient and adaptable economy’, indicate a desire to strengthen supply chains and diversify industry so we can absorb shocks such as the war in Ukraine which has put significant pressure on inflation, resulting in real wages falling back to 2011 levels.
This is simply incongruent with the Albanese Government’s decision not to implement a domestic gas reserve on the east coast, in light of Treasury forecasting a 56% increase in retail electricity prices and 44% in gas prices over the next two years, at the same time that Australia’s liquefied natural gas exports are the highest on record.
The Government has instead opted to impose a price cap on wholesale gas contracts of $12 per gigajoule, despite the average price from 2011-2020 being half that.
This solution – while mildly addressing windfall profiteering in the sector – does nothing to make our economy ‘resilient’ or ‘adaptable’. It leaves the Australian gas supply in the hands of multinationals that are not democratically accountable. It leaves us less responsive to crises, not more.
Stage three tax cuts
Lastly, ‘equality and opportunity’. The stage three tax cuts, which were passed with the support of the Labor Party in opposition, represent a significant flattening of the tax system, with 75% of the benefits going to the wealthiest 25% of taxpayers. Now, in government, they have refused to abolish or make any alterations to it.
Under the legislation, all taxpayers who earn more than $200,000 a year will receive the maximum saving of $9,075. All federal parliamentarians will receive this maximum rate. Analysis from the Australia Institute shows that for every dollar of the tax cut women receive, men will get $2.60. It is clear that making our tax system less progressive will not lead to reduced inequality. It will harness our taxation system to subsidise the wealthy and increase the tax burden on low-income households.
Overall, Chalmers’ recognition of the economic and political challenges facing Australia is astute, however, he stops short of providing precise and convincing solutions.
While his level of intellectual candour is welcome, a Treasurer still within his first year of government will have plenty of opportunities to show Australians how his ideas work in practice.
Lachlan Newland has worked in the Public Service for five years and is studying a Bachelor of Economics at Macquarie University.
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