This paper discusses some of the major economic challenges facing the re-elected Australian Government: budget repair, fiscal reform, productivity growth and housing. It finds that many of the government's fiscal and policy problems are unlikely to resolve without decisive reform. The paper argues that the government must now take fiscal discipline, productivity growth and housing supply seriously.

The paper highlights three fundamental flaws in the government’s medium-term fiscal outlook: the understated scale of deficits due to off-budget spending; the inappropriateness of deficits during a period of strong economic conditions; and a reliance on unrealistic assumptions, such as unchecked income tax bracket creep and no new spending. Tax reform can promote productivity growth if the emphasis is on tax changes to improve incentives rather than to redistribute income.

It finds restrictive planning laws as the chief cause of Australia’s high house prices and rents. 

Key recommendations

• Review the design of programs particularly in the fastest growing social programs of recent years – the NDIS, health, aged care, education and child care.
• Use the savings from lower government spending to support tax reductions or reforms such as indexation of tax brackets to end bracket creep.
• Review and rationalise the myriad regulations that impose costs on businesses and reduce productivity and overall economic activity.
• Redirect infrastructure spending to remove bottlenecks to private-sector construction and accelerate the $3 billion New Homes Bonus.