Allegra Spender (Wentworth, Independent) Share this | Link to this | Hansard source

I move:

That this House:

(1) notes that the:

(a) Consumer Price Index rose 3.8 per cent in the 12 months to December 2025, up from a 3.4 per cent rise in the 12 months to November 2025;

(b) Reserve Bank of Australia (RBA) warned last year that the Australian economy could not sustainably grow faster than 2 per cent without running into inflationary pressure;

(c) RBA has downgraded Australia's medium term productivity growth forecasts to just 0.7 per cent, per year; and

(d) Government undertook an economic reform roundtable with progress made on areas including nuisance tariffs and environmental approvals; and

(2) calls on the Government to:

(a) introduce stronger impact assessments, scrutiny and executive accountability for identifying and discontinuing costly and ineffective regulation;

(b) rein-in Government spending, reinstate fiscal rules, reform the Charter of Budget Honesty and make ministers and departments more accountable for blowouts in budget measures;

(c) identify how technology and artificial intelligence can support better provision of public services and government effectiveness; and

(d) recalibrate Australia's patchwork of climate and industry policies to a framework that transitions the economy at the lowest cost.

Australians really saw with a heavy heart the increase in interest rates last week and the increase in inflation in the past couple of months. This is of real concern to all Australians. The big question is: what do we do about it? I'm making the argument that we need to have stronger action on spending restraint. The government needs to step up on this. But, long term, we also need much more powerful action on productivity reforms if we are going to permanently address what we are seeing right now, which is that, if the economy starts to speed up, inflation will pick up and then the interest rates will have to go up again.

There was a bit of a debate between the major parties last week on whose plans were worse for the economy and under whose circumstances spending would go up more. Everybody is partly right. But the truth is that where we are right now is not where we need to be. Spending needs to be addressed in its own right on the basis that it has grown far too fast. It's now at 26.9 per cent, which is the highest percentage of GDP for many years outside of the pandemic. That public sector spending is not consistent with a strong private growth economy given the current issues with productivity in the economy.

So what can we do on spending? First is bringing in those fiscal rules and reinvigorating the Charter of Budget Honesty, which has been ridden roughshod over by both the major parties for a period of time. We need to have a set of rules that basically say, 'You can't grow government spending faster than the long-term growth rate of the economy.' Then it is about the difficult choices in pulling back government spending and making sure that, for every dollar we spend, we're actually getting the best possible outcome.

A big area I see this in is infrastructure spending. The government has a pipeline of over $100 billion, with $32 billion overspent at the moment because of the confluence of public-sector and private-sector demand. Frankly, a whole bunch of those projects don't even have a strong business case to back them in the first place. I'm someone who has really significantly backed climate change policies, but they have to be done on a lowest-cost basis. For instance, the EV fringe benefits tax is an area where I think we should be pulling back, because there are cheaper ways of lowering carbon in our economy than through that tax.

Then the other question is: how do we make better outcomes with every dollar that we spend in the public sector? This is where the government has been very slow to move on using, for instance, AI and automation to better deliver public services. It took them 3½ years to give us an AI plan, which I've read, and it is not very good on the detail. Frankly, this is the opportunity to deliver better outcomes for the community without putting more pressure on government spending. I think this is the area where the government really needs to be much, much, much more ambitious.

Then it really comes down to how we help the private sector and the non-market sector drive productivity over time. The problem with driving productivity is that it's not a fast turnaround. I respect that the government has done some important work on things like the nuisance tariffs, the passing of the environmental laws and construction codes. Those are all useful things that the government has done. But it takes time to move productivity along. Again, that means going faster and harder and recognising that these benefits will take time.

This is an area where the government has said it will step up, in reforming regulations and measuring effectiveness in terms of regulatory burdens on business. But it's been around six months now since the productivity roundtable, and we're no closer to having concrete measures of how the government is going to do this. I haven't seen any stronger incentives for the government, in putting in the system, to say, 'This is how we're going to make it easier for people to do business.' It has to translate into real-world action on the ground. There's a lot of goodwill. I believe there's a lot of desire to do the right thing, but there's got to be pressure and a drive that we haven't yet seen from the government to really make a difference in these areas.

The government is also unwilling, it seems, to really, properly look at industrial relations reform. It has changed a lot of industrial relations in the last three years. There are many benefits to workers, but there have been no assessments of the relative cost to productivity and how to find the right balance there. I think this is where, if the government is serious about productivity, it could go back to the PC and say, 'Assess IR on the basis not of ideology but of benefits to workers, costs to productivity and how we get the right balance.' It is an area where I do want to see the government, frankly, be more ambitious. Finally, it is making sure that governments give quick answers to businesses, because agencies like the ATO and others take a long time to deliver answers. That is a problem for the government, for the productivity of businesses.

Rebekha Sharkie (Mayo, Centre Alliance) Share this | Link to this | Hansard source

Is the motion seconded?

Kate Chaney (Curtin, Independent) Share this | Link to this | Hansard source

I second the motion and reserve my right to speak.

Claire Clutterham (Sturt, Australian Labor Party) Share this | Link to this | Hansard source

I thank the member for Wentworth for her remarks, and I share her view that supporting the private sector, as the beating heart of productivity in this country, is vital. The economy, including productivity, cost of living and growth, is central to the Albanese Labor government's agenda. Increases to productivity and growth are what this government's policy initiatives are directed at, as is providing help and assistance with the cost of living to Australian families.

It is clear that inflation rates are higher than desirable, and we do not shy away from that. It is also clear that inflation is lower than its peak and significantly lower than when we came to government, but, history aside, it is still too high. Inflation and what drives it is not linear. It's not black and white. It's not one thing or another. It's a mix of fluid and ever-changing factors that need to be constantly monitored and adapted to. Factors like the time of year, private demand, climate, the labour market, global challenges and government policy all play a role in the ingredients that make up the inflation cake. Sometimes one factor plays a bigger role, sometimes smaller. It's not linear, and it's not as simple as saying, 'Just cut this,' 'Just do that,' or, 'Just change this.' The current data shows that our inflation challenge is a mix of temporary factors, like the end of energy rebates and an increase in travel costs over the summer, and persistent pressures in areas like housing. This combination underpins the fact that inflation doesn't always moderate in a straight line. The mix of factors are relevant and present, but they do not necessarily matter to the millions of Australians, myself included, with a mortgage, who will need to manage the 25 basis point increase. Families and businesses will be impacted, and many will have to make difficult decisions.

A decision may be widely expected, but it is still a decision that has impact. We are aware of this impact. The government understands that many Australians are still under pressure and that responsible cost-of-living relief remains important. That cost-of-living relief includes tax cuts for every Australian worker. In addition to the first round of tax cuts, Australian taxpayers will receive a further two rounds of personal income tax cuts from 1 July this year. A new thousand-dollar instant tax deduction will be introduced from the 2026-27 financial year, which taxpayers will be able to claim instead of individual work related expenses.

The government's healthcare and education initiatives also fall under the umbrella of cost-of-living relief, because every policy this government introduces is underpinned by a laser-sharp focus on economic management. The cheaper medicines initiative, which began on 1 January this year and which reduced PBS medications to just $25 per script or $7.70 for concession card holders, was not just about healthcare. It is about easing the economic conditions for the average Australian household. Free TAFE, grants for apprentices and 20 per cent off all forms of student debt—university, TAFE, VET and apprenticeships—is not just education reform. It is economic reform for the individual beneficiary and their household.

Cheaper child care provides more children access to early education, but it's not just about access to early education; it is an issue of economic management. Pay rises for early childhood educators are about recruitment and retention into this vital industry, because we know that we need more highly skilled early childhood educators to educate the children of other skilled professionals if that is what they choose for their children. Education is the driver of this initiative, but it is not the only consideration. Enabling access to the paid labour market for parents so that they can contribute to the economy is a key and deliberate aspect of this initiative.

These economic initiatives are being prosecuted in parallel with structural budget repair. MYEFO illustrated that the Albanese Labor government has found more than $114 billion in savings and that the budget is in fact $233 billion better off than when Labor came to government. There is less debt in every year of the forward estimates because of the policy decisions that have improved the bottom line. Finding savings and embarking on restructures of government programs to deliver efficiency gains will always be preferrable to reducing services, increasing taxes or cutting important areas like Defence spending, something that forms a critical part of government spending and which we simply cannot afford to reduce.

There are some signs of progress, but last week's RBA decision shows that more progress is required. Therefore, progress in this respect and progress in respect of the economy will be the focus of the government's agenda in this year's budget and beyond.

Kate Chaney (Curtin, Independent) Share this | Link to this | Hansard source

Last week the Reserve Bank raised the official cash rate from 3.6 to 3.85 per cent in response to rising inflation. Raising interest rates makes borrowing money more expensive, so businesses and households spend less. This is a blunt instrument that the RBA uses to cool the economy. This is bad news for many Australians, because higher interest rates directly increase the cost of living, particularly for households with mortgages, small businesses carrying debt and rents whose landlords have to pass on their increased mortgage costs. For millions of people it means higher repayments, less disposable income and tougher decisions about everyday spending.

Raising interest rates works largely by hurting poorer and more vulnerable households first. Wealthier households without mortgages or living on savings can continue spending, while those already living on the edge are forced to cut back on spending, which is ultimately how higher rates slow the economy. Annual inflation is now at 3.8 per cent, above the RBA's formal target range of two to three per cent. Inflation matters because it erodes our standard of living, particularly for households whose incomes don't keep pace with prices. Right now, there's ongoing political debate about what has caused the recent inflation pressures. The Treasurer points to strong private sector demand—that is, households and businesses spending more. The opposition points to high levels of public or government spending. In reality, both played a role, and finger pointing does little to solve the problem for your average Australian.

What matters now is what we do about it, and it's time for some serious ambition on economic reform. The government can put downward pressure on inflation in a few different ways. One response is reducing government spending. Spending is at its highest level since 1988 other than during the pandemic, and the government needs to reinstate fiscal rules and make ministers and departments more accountable for the blowouts in budget measures. Another approach is improving the efficiency of government spending. Government should be focused on delivering government services more efficiently so we get better bang for our buck and there's an opportunity to do this with our climate and industry policy. In the absence of a market based carbon price, support for decarbonisation relies on ad hoc subsidies and grant programs that often lack transparency, encourage rent seeking and fail to drive economy-wide adjustment. A carbon price combined with targeted industry policies such as R&D incentives and workforce transition support would provide a far more efficient framework, replacing piecemeal interventions with clear economy-wide signals.

The most important way to address inflation sustainably is lifting productivity, or working out how to make more goods and services with fewer resources. With high productivity, increased spending leads to more output. With low productivity, it leads to higher prices. It's like the speed limit on the economy. Productivity is also the main driver of rising living standards over generations. We live better than people did a century ago not because we work harder but because we produce far more with the same amount of effort. As Paul Krugman famously said, 'Productivity isn't everything, but in the long run it's almost everything.' That's why it's concerning that the RBA has downgraded its medium term productivity growth assumption to just 0.7 per cent per year. In the nineties and the early 2000s, growth above two per cent was common and supported rising wages and living standards. Today, a lower productivity ceiling weighs directly on incomes and opportunity. Improving productivity is difficult, but we've had a productivity roundtable that's not yet delivered results, and the Productivity Commission released a five-year report in 2023 that included recommendations on how to improve productivity in education, migration, workplace relations, technology, business dynamism, the Public Service and decarbonisation. These remain good ideas.

Reducing unnecessary regulation is an example that's critical. A typical small business must comply with thousands of pages of federal, state and local rules. Regulations are easy to add but hard to remove, and, over time, they accumulate. Our complicated workplace relations regime is a prime example of this. In the construction industry, productivity has gone down over the last 30 years. The government should be ambitiously simplifying our workplace relations system to improve productivity. Ambitious tax reform also matters. Australia relies heavily on taxing labour income even as the working age population shrinks. Shifting the tax base away from penalising work and investment would support productivity and long-term fiscal sustainability.

Australia's inflation challenge cannot be solved by interest rates alone. Only by expanding the economy's productive capacity can we stabilise inflation. (Time expired)

Rebekha Sharkie (Mayo, Centre Alliance) Share this | Link to this | Hansard source

There being no further speakers, the debate is adjourned and the resumption of the debate will be made an order of the day for the next day of sitting.