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About a year ago, a new book called Abundance was all the rage among Labor people in Canberra. Treasurer Jim Chalmers was particularly taken. It was being passed around the cabinet table, he said.
Written by rock-star progressive American journalists Ezra Klein and Derek Thompson, the book borrows from right-wing thinking to outline a new agenda for the left. In the technological era, they suggest, progressives should drop rules and regulations so that housing and energy can be made cheaper, and we can invent more of what we need to make things cheaper for working people.
“The fascinating thing I found about Abundance was basically, even if you have quite a progressive outlook, we’ve got to stop getting in our own way,” Chalmers said in June last year. “We want good things to happen, we’ve got to stop strangling good things from happening. I think that’s very, very compelling for us.”
Skip ahead to winter of this year and Labor is speaking in triumphalist terms after passing a budget which had redistribution, not growth, at its core. The AI revolution will be the biggest test of Labor’s commitment to ending scarcity, but more on that later.
Its changes to negative gearing and capital gains tax will reduce housing supply by 35,000, per the budget’s forecasts. Those estimates say that construction subsidies will outweigh the effect of the tax rises. A fall in home building in the March quarter shows existing supply incentives haven’t yet worked, however. Expanding the CGT change to all asset classes has created widespread, if at times hyperbolic, warnings about a chill in investment.
The pivot from growth to a more traditional Labor focus on equity became clearer this week. Several data points painted a bleak picture of the economy. The OECD revealed real wages had fallen 5 per cent over the past five years, among the worst results of the club’s 38 members.
Deloitte said Australia was on track for the first consecutive years of sub-2 per cent growth since the early 1990s recession. Australia’s underlying inflation rate is also the equal highest of any developed nation.
It’s less surprising in this environment that Pauline Hanson is riding such a big wave. This masthead’s Examine newsletter cited research showing that in more than 350 elections around the world since 1948, populist parties succeed when inflation runs hot. Higher prices create a general sense of unfairness and hostility.
The point of Abundance was to create a new, pro-worker model for centre-left policies that lets progressives feel comfortable letting the market do its thing. It was an antidote to the failed redistributive policies of Labor’s centre-left counterparts in Britain and France in recent decades. Government still played a key role in the Abundance model; this wasn’t pure Milton Friedman.
A minority of Labor MPs in caucus, particularly younger ones, are worried that Anthony Albanese has given up on market reforms that are important to segments of Labor’s voter base.
Nobody suggests Chalmers has an easy job here. Far from it: his is arguably the most difficult gig in the cabinet. His boss isn’t known for his interest in economic policy and Albanese’s allies don’t mind seeing Chalmers come unstuck. Western nations’ inability to find an economic system that can deliver improved living standards for the middle class has been one of the key drivers of the crises in democratic politics of those countries since the GFC.
But the government needs better answers when confronted by the forecasts we saw this week. International factors cited by Chalmers are part of the story but not all of it. Can Labor find a fresh model for growth that can avoid Australia turning into a permanently sclerotic nation where people feel more and more glum?
After toying with Abundance, elevating Future Made in Australia and flirting with a few other economic ideas, Albanese and Chalmers have not landed on a strategy to grow the pie. It’s one thing to struggle to find true north on its economic vision in a more complex world full of trade-offs; it’s another to take your eye off the ball.
Chalmers’ productivity package in the budget, which cuts $13 billion in compliance costs, was laudable. But the government has no forecasts on whether it will increase the productivity rate. Environmental reforms could also yield results. Ultimately, though, Labor used its super-majority to rejig the housing market – a worthy cause – and bring in more revenue, not on a genuine attempt to reduce taxes on workers and create an efficient system that reduces inflation.
It’s difficult to see Albanese spending another fistful of political capital on a pro-growth budget as the next election nears. That means the nation may be locked into its current settings.
Artificial intelligence is an area where Labor has shown more liberal instincts. Albanese recruited tech-minded MP Andrew Charlton, kind of the government’s Abundance spirit animal, to steer Labor’s approach away from regulation and towards investment. A boom in data centre investment is propping up GDP growth, though the tech sector’s claim that Australia can turn into an AI superpower should be treated with scepticism.
Charlton is now being tested by a combination of union pressure and community anxiety about data centres. One Nation has little care for sound public policy and has jumped on the NIMBY bandwagon opposing the building of data centres. Unions will use Labor’s national conference this month to ask for more power over the AI rollout.
Just like in the quest to rein in public spending or make the care sector more productive, Labor’s enmeshment with the union movement will probably make it harder to find the magic recipe for dynamism.
Hanson’s power in Canberra will put even more pressure on Labor to offer sugar hits such as wage subsidies. These make voters feel good in the short run but fail to create a sustainable economy with lower inflation and interest rates.
The government has emerged feeling victorious and dismissing opponents as “barely coherent” after a hard-fought and genuinely historic budget. With legislation passed, voters will realise the sky hasn’t fallen in, and they’re not paying any more tax each week. Some first home buyers will feel like the tax measures have got them into a home. A moribund opposition somehow squandered its opportunity to steal votes from Labor.
But the prime minister may not be quite so chipper if in two years’ time, its policies are viewed to have contributed to the almost inevitably sluggish economy with stubbornly high prices: particularly if the masses of Australian home owners feel poorer after a house price slump.
Paul Sakkal is Chief Political Correspondent. He previously covered Victorian politics and won a Walkley award and the 2025 Press Gallery Journalist of the Year. Contact him securely on Signal @paulsakkal.14.Connect via X or email.From our partners
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