Australian industry groups have urged the federal government must ramp up efforts to boost productivity after Treasurer Jim Chalmers delivered a bruising update to the nation’s economic outlook.
Soaring inflation, mounting budget pressures, and predictions of languid real wage growth all dominated Jim Chalmer’s long-awaited update on the Australian economy, delivered Thursday.
The parliamentary address confirmed earlier predictions of a gloomy downgrade to the pre-election forecast.
It served as a “wake-up call” for the economy and the nation’s lawmakers, Australian Chamber of Commerce and Industry chief executive Andrew McKellar says.
“While exposing existing vulnerabilities, these challenges represent an enormous opportunity for government to make bold, productivity-enhancing policy commitments,” he said.
Pointing to the government’s long-feted jobs and skills summit, set for September, McKellar says the nation’s leaders should champion a “revitalised and ambitious agenda for reform”.
“While we must not underestimate the challenges of building consensus, business is ready to play its part,” McKellar added.
The industry group has previously suggested efforts to boost workplace participation amid a severe skills shortage should take precedence at the summit.
A revitalised focus on “new skills, new technology, and new infrastructure” is needed, says Tanya Barden, CEO of the Australian Food and Grocery Council.
As inflation drives up the cost of pantry essentials and eats into the bottom line of grocery producers, Barden says the nation should take the opportunity to invest in new sovereign manufacturing capacities.
Australia has the potential to “steer our way through this difficult period”, Chalmers said, saying the nation can build an economy capable of withstanding significant challenges.
Part of the new government’s plan is to oversee “a National Reconstruction Fund to make us more self‑reliant”, Chalmers said, reflecting on Labor’s proposed $15 billion pledge to boost Australian manufacturing.
But not every aspect of Chalmers’ speech was so optimistic.
Facing up to the House of Representatives on Thursday, Chalmers revealed the Treasury predicts the Consumer Price Index will rise to 7.75% in the December quarter, squeezing the budgets of small businesses and households alike.
The annual inflation rate has already hit 6.1%, surpassing the pre-election 2021-22 forecast of 4.25%. Now, Chalmers said the Treasury expects inflation of 5.5% in 2022-23, up from the pre-election forecast of 3%.
Inflation will only moderate to 2.75% in mid-2024, Chalmers said.
Supply-side shocks like pandemic-induced shipping delays, worker absences, and the impact of flooding, are all at play, Chalmers said.
“Our high inflation is primarily but not exclusively global,” Chalmers said. “It will subside but not overnight.”
One factor not driving Australia’s inflation rate is wage growth, he added.
The Treasury still expects wage growth for 2021-22 to remain at around 2.75%, Chalmers said, in line with its earlier estimates.
“Inflation is high and in the near term will get higher — but the primary cause of this is not higher wages — nowhere near it,” he said.
“We don’t have an inflation problem because workers are earning too much or because we are in some kind of a wage‑price spiral.”
In one of the more optimistic elements of his address, Chalmers suggested Treasury forecasts nominal wage growth of 3.75% this year and next, compared to prior estimates of 3.25%.
Yet the “harsh truth” is that “households won’t feel the benefits of higher wages while inflation eats up wage increases, and then some”, he said.
Treasury only expects real wages to climb from 2024 onwards.
Reflecting on the increasing cost of interest on government debt, Chalmers reiterated his position that the government will make “hard decisions” when it unveils its budget in October.
The federal government has already indicated a project to modernise the business registry system is a billion dollars over budget, and the nation’s new leadership is yet to introduce laws codifying a small business tax offset program the Morrison government expected to cost more than $1.5 billion.
With those challenges ahead, Chalmers closed his speech with a hint of optimism.
“We have it within us to stare down these threats, steer our way through this difficult period, and seize the opportunities of this new age,” he concluded.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
