The Australian
22 May 2026
Nation
Politics
‘Man who wasn’t there’: the Jim Chalmers project
Big on buzzwords and economic contradiction, Jim Chalmers is the opposite of reformist treasurers Paul Keating and Peter Costello. He delivers rhetoric as debt rises and productivity stalls.
HENRY ERGAS
The difficulty with talking about Jim Chalmers is working out whether there is anything to say. A dedicated follower of fashion on a scale worthy of the Kinks’ famous song, he has careened from buzzword to buzzword, thought bubble to thought bubble, without once skipping a beat.
One moment it is the new-style industry policy associated with Italian economist Mariana Mazzucato; the next, “putting values at the forefront of how our economies work” – which values, and how they are to be reconciled, tactfully left unexplained.
Then comes “Australia’s first national wellbeing agenda”, heralded as “not just the beginnings of a new economic model” but as “democratic reform itself” – only to vanish almost at once, unmourned and unremembered, clearing the stage for the “social purpose economy” and a succession of slogans each more nebulous than the last.
Beneath this ceaseless rhetorical reinvention lies a vacuum where a governing economic philosophy ought to be, reducing economic policy to a sequence of rebranding exercises in search of an animating principle. Missing is any serious account of how the Australian economy is to reckon with its past, navigate its present or secure durable prosperity for the future. Filling the void instead is a politics whose only consistency, amid a mass of contradictions, lies in ever-higher spending and ever-rising taxation.
Keating and Costello
It is, no doubt, true that Paul Keating and Peter Costello were master craftsmen of the slogan. But their enduring phrases were never substitutes for thought; they distilled into memorable language an entire economic, social and political conception of the world, and gave impetus to the sweeping reforms that conception entailed.
Each in his own way read a perilous fiscal position as far more than a mere gap between what the government raised and what it spent. That imbalance was the visible symptom of distortions that threatened to entrench low growth for decades.
Curing those pathologies demanded not merely public support but public understanding; and the rhetoric of economic policy became the instrument that brought that understanding into being.
Keating’s “banana republic” warning, delivered on May 14, 1986, was the apotheosis of reform rhetoric, yet it was hardly alone in the pantheon of political explanation. Rarely in Australian history has an overall vision of the nation’s challenges, and of the right and wrong ways of meeting them, been stated more forcefully than in Keating’s speech to the Fabian Society in late 1987.
The precise date was of the utmost significance: November 11, anniversary of The Dismissal, by then the highest of Labor’s holy days. Speaking to an audience of the truest true believers, gathered to eulogise their patron saint, Keating was unambiguous: the Whitlam government had been a disaster. To repeat its economic policies would not solve Australia’s mounting problems. It would spell the nation’s doom. And it would condemn the ALP to losing its working-class base and forfeiting its capacity to govern.
An entirely new course was needed: one that would not merely restore fiscal balance but build an economy able to thrive in an increasingly competitive world.
That called for a sweeping program of reform, pursued at a pace and on a scale rarely seen in Australian politics: from the floating of the dollar on December 12, 1983, to the signing of the Competition Principles Agreement on April 11, 1995, as Keating’s term in office approached its end.
Fiscal policy, on both the spending and taxation side, stood at the centre of that program, as did the all-encompassing fiscal consolidation that gave tangible form to its broader aims. That was, of course, by no means Keating’s work alone; it could not have succeeded without the tireless dedication of finance minister Peter Walsh, and the support of like-minded colleagues.
The results were striking at the time; in retrospect, more striking still. What matters is not simply that net commonwealth debt fell by 6.3 percentage points of GDP between 1984-85 and 1989-90, from 10.3 per cent to 4.0 per cent. And while net debt can greatly understate the macroeconomic risk public indebtedness creates (because the offsetting assets are highly illiquid), the reduction reflected a genuine fall in the burden that debt imposed.
But more remarkable yet – even measured against the major fiscal consolidations undertaken elsewhere in the advanced world over those years – is that the improvement came entirely from greater discipline on the expenditure side.
The share of taxation in GDP did not rise; it fell. What did the hard yards were the hundreds of decisions – some large, many very small – that stripped wasteful spending from programs swollen by years of accretion. To impose that discipline when unemployment, at the consolidation’s outset, stood at 8.3 per cent took extraordinary political courage.
Political courage was equally central to the fiscal consolidation Costello undertook from 1995-96 through to 1999-2000. It is easy to forget that unemployment, at the tightening’s first steps, stood at 8.5 per cent – higher even than under Keating. The chorus from the left, and from many economists, bellowed that fiscal consolidation in those conditions would prove disastrous; and it only grew louder and more insistent once the Asian financial crisis erupted in July 1997.
With hindsight, it is tempting to regard the outcome as inevitable: the depreciation of the Australian dollar boosted export competitiveness and helped the economy ride out the regional shock. But with the crisis reverberating across the region, that outcome was anything but obvious at the time.
Yet despite the headwinds, the scale of the consolidation exceeded even that achieved under Keating, cutting net debt by nearly 10 percentage points of GDP. It set in train an extraordinary reversal: net debt fell from 18.1 per cent of GDP in 1995-96 to negative net debt — that is, positive net assets – of 3.4 per cent of GDP by 2007-08, an unprecedented fiscal turnaround of 21.5 percentage points.
Yes, the start of the mining boom helped; but if we have learned anything since then, it is that windfalls are even easier, and far more enjoyable, to squander than to bank.
The achievements were, in both cases, as politically consequential as they were economically profound, setting Australia up for a long stretch of growth in productivity and living standards. That they reflect well on the governments that secured them goes without saying.
But they also mirrored a broadly shared understanding of how the economy worked – an understanding forged in the school of hard shocks Australia had endured over the preceding decades.
There is no doubt whatsoever that what came to be known as “the Treasury line” played a pivotal role in articulating the central elements of that understanding – and in drilling them, mercilessly, into the political process.
As early as 1966, Treasury’s survey of the Australian economy argued that durable growth was best ensured by “working towards a flexible economy in which resources can flow to their most productive uses”.
Barely a year later, as pressures on public spending mounted, it stressed that “what the public sector takes the private sector cannot have”.
And while, in the private sector, “the incentive to make profits tends to direct scarce capital to its most efficient uses”, the disciplines capable of sensibly guiding public expenditure “do not exist or exist only in rudimentary form”.
Systematically developed in the Treasury Economic Papers that began appearing in 1972, that critique soon extended to the dangers of governments trying to pick winners – or, stupider still, to prop up losers.
“Once a government assumes political responsibility for an industry’s future”, Treasury warned, “two things happen: the government cannot allow that industry to fail, and its managers and workers are consequently spared the disciplines of selling their product on its merits.”
The inevitable result: “a highly inefficient economy and reduced national welfare”.
To believe those failures could be remedied, when the chickens came home to roost, by still more economic tinkering was a foolish illusion: “for no amount of manipulation can transform a non-competitive, inflexible and sluggish economy into one which can generate strong economic growth”. What was needed was radical reform – reform at the root.
It would be fair to say that Treasury prosecuted those convictions with a tenacity bordering on fanaticism. Reporting in 1976, the Royal Commission on Government Administration – while allowing that “it would be surprising if Treasury were a popular department” – found that Treasury was seen as “too privileged, too powerful, too prone to substitute its own values for those of other departments, ministers and the government itself.”
Worse still, wrote Graham Freudenberg, Gough Whitlam’s speechwriter and confidant, in his memoirs, Treasury invariably “presented its advice on an all-or-nothing, take it or leave it basis” — “and if its first advice was rejected, it presented no other”.
But that, surely, was the point: a willingness to state the unpleasant facts of life, and a steadfast refusal to bend with the political winds by veiling hard truths behind a protective fog of weasel words and childish make-believe.
As John Stone put it, shortly before becoming Treasury Secretary at the start of 1979, “one had better cling to some simplicity” if facts were ever to prevail over wishful thinking.
There were, in short, two essential ingredients in the eras that laid the foundations of today’s living standards: strong treasurers, determined to make their mark, willing to break with the mistakes of the past – including, perhaps especially, those of their own side – and prepared to take hard decisions; and an equally powerful analytical framework that, to borrow Abraham Lincoln’s famous words, enabled them both to “know where we are, and whither we are tending” and to explain that direction, plainly and persuasively, to the Australian public.
Therein lies the problem – for Chalmers shows neither the strength nor the insight. Nothing makes that plainer than his failure ever to address, let alone confront, the economic policy errors of the Rudd-Gillard-Rudd era. Keating savaged Whitlam’s economic record; Costello was merciless towards that of the Fraser government. Far from shirking the confrontation, both seemed almost Freudian in their determination to kill the father – or, more charitably, to wring hard lessons from inherited failure.
There was no shortage of lessons to draw from the Rudd-Gillard-Rudd misadventures: a so-called stimulus package, 60 per cent of which was spent when the economy faced not collapse but overheating, with purely wasteful projects such as school halls crowding out productive investment; a government that promised a swift return to surplus on some 500 occasions while delivering a sea of red ink; and the final farce, in which Wayne Swan’s immortal opening to his 2012-13 budget – “The four years of surpluses I announce tonight …” – mutated, in Chris Bowen’s hands, from a much-heralded $2bn surplus into a $30bn deficit in a matter of days.
Yet instead of saying, as his formidable predecessors did, “never again”, Chalmers – wrapping the vacuous in the impenetrable – has recycled, almost word for word, the most self-congratulatory rhetoric of that era, while faithfully reproducing all its central errors.
From 2020-21 to 2022-23, Josh Frydenberg cut government spending by an extraordinary 7 per cent of GDP, largely by letting pandemic-era programs expire. Chalmers, then speaking for the opposition, warned again and again that unemployment would surge. Instead, it dropped to well below today’s level. And thanks largely to those cuts in outlays, net commonwealth debt fell by more than 9 percentage points of GDP.
Given the buoyant economy he inherited, Chalmers could readily have built on those foundations, genuinely advancing intergenerational equity by lightening the debt burden handed to future generations. Of that, there has been no sign whatsoever, despite revenues that have grown by 22 per cent. With outlays surging by even more, net debt has risen from 19.1 to 19.9 per cent of GDP – and not even the government expects it to fall before 2029-30.
The effect has been to stoke inflationary pressures at the worst possible time. Long experience, Treasury stressed as early as 1977, shows that “control of inflation is fundamental to the achievement of every other economic policy objective”. Chalmers has so thoroughly ignored that lesson that the Reserve Bank has been driven to complain, in public, that his fiscal policy is making its own task harder and more costly.
Lost its way
But Chalmers’ is not merely an economic policy that has lost its way; it is a policy perpetually at war with itself.
Chalmers vaunts economic efficiency; yet off-budget spending, which was already too high, has more than doubled under his watch, almost all of it undermining that very goal. The “energy transition” is, he says, a “golden economic opportunity”; yet billions are being spent trying to keep afloat the economic fabric it is ruthlessly destroying.
Jim Chalmers arrives to deliver the 2026 budget at Parliament House on May 12. Picture: Getty Images
Jim Chalmers arrives to deliver the 2026 budget at Parliament House on May 12. Picture: Getty Images
Home ownership is held out as a promise to younger Australians; yet the government is simultaneously driving interest rates higher and housing supply lower – with virtually every well-informed observer expecting the latest changes to reduce housing starts and push home ownership further out of reach.
No amount of rhetorical “mush, slush and gush”, as Winston Churchill once called it, can paper over those contradictions. Nor are they mere teething problems: they are the symptoms of a single underlying condition – the loss of any sense of direction. And there is every reason to fear that they are aggravated by a Treasury which, having abandoned “the Treasury line”, is itself mired in intellectual confusion.
The overall result has been to prolong Australia’s economic malaise, with productivity growth all but grinding to a halt. A single comparison captures the magnitude of the failure: had Australia matched the US’s rate of multifactor productivity growth over the two decades to 2022, Australian per-capita income would now be roughly $14,000 higher – enough to eliminate more than two-thirds of the commonwealth debt burden owed by each man, woman and child.
But the damage Chalmers is inflicting does not stop there. Both Keating and Costello made the economy not merely more productive but more resilient. Without the reforms of the Hawke–Keating era, the exchange-rate depreciation that shielded Australia during the Asian financial crisis would never have triggered the extremely rapid supply response that in fact followed.
Equally, Costello was entirely correct to argue in his 2006 budget speech that eliminating net commonwealth debt had insulated Australia against the vulnerabilities created by the financial shocks endemic to a globalised economy – an insulation that helped the country weather the global financial crisis.
At a time when uncertainty is intensifying and disruption becoming routine, Chalmers is doing the exact opposite: leaving Australia less productive, not more; less able to compete with the world, not more; and, above all, less able to weather the gathering storms. In the end, that is the true measure of the man: he is the man who wasn’t there.
Henry Ergas
Henry Ergas
Columnist
Henry Ergas AO is an economist who spent many years at the OECD in Paris before returning to Australia. He has taught at a number of universities, including Harvard’s Kennedy School of Government, the University of Auckland and the École Nationale de la Statistique et de l’Administration Économique in Paris, served as Inaugural Professor of Infrastructure Economics at the University of Wollongong and worked as an adviser to companies and governments.
@HenryErgas