New year resolutions for the Treasurer

27 January 2026 | Danielle Wood

Did you sign up for the gym this month? Perhaps you cancelled your Uber Eats account? It is the season of new year’s resolutions – the time when many of us commit to eating better, exercising more and getting off our phones.  

Treasurer Jim Chalmers should make a different kind of resolution: it’s Australia’s economy that needs to get into shape. Unlike the rest of us, he can’t afford to let this new year’s commitment slip off the radar by Easter.  

Australia’s productivity growth has been sluggish over the past decade, growing at about a quarter of its 60-year average.  

When productivity is growing slowly, it lowers the “speed limit” for Australia’s economy, reducing the wages growth that can be sustained without an inflation break out. It stalls economic progress and squeezes households.

Turning the trend around won’t be easy. Productivity is influenced by the pace of innovation and technological change, and the risk appetite and dynamism of businesses. These things are, at least to some degree, outside of government control.  

That doesn’t mean the treasurer is off the hook.

Just over twelve months ago, the government tasked the Productivity Commission with five inquiries, in order to identify the reforms most needed to lift the efficiency of the Australian economy along five key objectives. These “five pillars” were to create a more dynamic and resilient economy, build a skilled and adaptable workforce, harness data and digital technology, deliver quality care more efficiently, and invest in cheaper, cleaner energy and the net zero transformation.  

In December, the government released the Commission’s findings from those inquiries. Like any good training regime, the reports set out achievable but meaningful goals that the government can start working toward right away.  

So where should the treasurer start to ensure a healthier economic outlook in 2026?  

His first challenge is to unlock productivity gains from new technologies.

Artificial intelligence is the most significant of these. Although there’s considerable uncertainty in the estimates, the Commission’s modelling suggests AI could deliver a $116 billion boost to Australia’s GDP over the next decade, worth about $4,400 per person.

We want Australian business to adopt these tools, but we also need to manage the risks.

This means striking the right regulatory balance. The government made a good start late last year when it announced it will not pursue an AI-specific regulatory regime, but will amend existing laws and frameworks to address potential harms. This work will continue in 2026 with the oversight of the new AI Safety Institute.  

In addition, Australians will need support to increase skills, retrain and move into new or different roles as AI changes the workforce.  

That will require a more flexible higher education system that can support people throughout their careers. For a start, the government should work with higher education institutions to make it easier for students to get credit for subjects they’ve already studied, reducing the time and cost of getting a new qualification.

High-quality work-related training can also improve workers’ digital readiness and productivity. The government should address Australia’s low rates of work-related training in small and medium businesses by trialling a new voucher system. Improving management and digital skills would be a good place to start.  

Our future workforce needs to be AI-ready, so the government should also focus on schools. A national approach to sourcing high-quality lesson materials and educational technology such as tailored Generative AI tools would boost essential foundation skills for students in areas such as maths and reading, as well as digital literacy.  

Next on the treasurer’s list should be lifting private investment.

There’s growing evidence that Australia has a problem with business dynamism. Fewer new businesses are being started, fewer firms are innovating and fulfilling their productivity potential, and workers switch jobs less often than they used to.  

Perhaps most concerningly, non-mining private investment is down 3 percentage points as a share of GDP since the global financial crisis.  

When investors are slow to chase gains, take risks and enter markets, productivity suffers and the economy stagnates.  

There are lots of reasons the private sector may have lost some vigour in recent years, but Australia’s corporate tax system doesn’t help.  

The commission found Australia’s high corporate tax rate deters investment, stifles risk-taking, and limits competition from foreign investors and companies.  

Our solution is a budget-neutral package that is better geared towards investment.  

It works by pulling two levers in the tax system. First, we propose a cut to the headline corporate tax rate for all firms. Then we suggest applying a net cashflow tax of 5 per cent on all firms, which pays for the headline rate cut, while creating stronger incentives for investment than the existing corporate income tax.  

The result is a system favouring companies that spend more on things such as research and development, and equipment upgrades, while almost all companies would face lower effective tax rates. The exception would be large firms with relatively low levels of investment.

The commission estimates the scheme would result in a $10 billion uptick in investment by companies, an increase in labour productivity of 0.5 per cent, and a $13 billion increase in GDP.

There are other ways the treasurer could reform corporate tax to provide an even larger boost to investment, productivity and GDP – but the budgetary costs easily run into the billions.  

This year, his challenge – should he choose to accept it – is to manage those trade-offs and get Australia’s business and academic communities to agree on a way forward. No small task.

Just as important as “big bang” tax reform is the cumulative impact of what might seem like much smaller decisions of government. Complex regulations, slow approval processes and onerous reporting requirements build up over time and stifle economic activity. Tackling this should be the third task on the treasurer’s “to do” list this year.

During the course of our inquiries, businesses told the Productivity Commission that their regulatory burden has increased. They’re right. The number of restrictive terms in federal laws and regulations has risen in the two decades to 2020. Australia has slipped in global rankings such as the World Bank’s Ease of Doing Business index and the OECD’s Product Market Regulation index over a similar period.  

The National Construction Code has stretched to more than 2000 pages. Regulatory complexity has contributed to the fact we build fewer houses per hour today than we did in 1995.  

Despite Australia’s commitment to net zero, the average wait time for a decision on building a windfarm is now over nine years in New South Wales.  

In the care economy, not-for-profit providers are subject to literally hundreds of pieces of legislation and regulation, with one provider reporting that they spend up to $200,000 a year meeting their audit and accreditation requirements.

Regulation is important to protect against social and environmental harms, but it’s not costless.

When regulatory hairballs are making it harder to deliver the things we need most – more homes, more clean energy and high-quality care services – it’s a sign that we haven’t always got the balance right. The Productivity Commission found that politicians and regulators have a strong incentive to regulate, and to undervalue the costs of a regulatory change. A tendency for regulatory tunnel vision has allowed a pile up of requirements that make sense in isolation, but not necessarily as a whole.  

That’s why in August last year I called on the government to adopt a “growth mindset” when it comes to new regulation.  

The first step is for federal ministers to adopt a whole-of-government statement on regulation that sets out concrete actions to reduce regulatory burdens. Just like announcing your new training regime on Instagram, the statement is a commitment device to build healthier habits – a way for members of government to be accountable to their own better angels.

Targets are also useful as a commitment tool. That’s why the commission has suggested the government aim for a $10 billion reduction of net regulatory costs by 2030.  

Getting there will take work. Cabinet ministers will need to assess regulatory proposals with the same level of rigour and scrutiny they apply to budgetary measures.  

The Office of Impact Analysis, the agency that currently oversees appraisals of proposed regulatory reforms, should have more independence from government via statutory protections and the appointment of an independent statutory commissioner.

And the government should commission independent reviews of regulatory burdens in specific sectors such as housing and telecommunications, and specific policy areas such as corporate and not-for-profit reporting requirements.

Pulling Australia’s sluggish economy off the couch won’t be easy, but the treasurer isn’t starting from scratch. Last year he identified the issue and called in the coaches for a three-day Economic Reform Roundtable – which looked at issues as diverse as tax, education and skills, competition policy, technology adoption, energy policy and settings in the care economy.

It’s right to start broad. Governments are going to have to do a lot of things across a lot of fronts if we are to have any hope of turning the trends around. That’s why I’ve often described the reform process as a “game of inches”. Just like a new year fitness transformation, it’s slow, it’s sometimes painful, and the gains take time to arrive.

Despite the challenge, the ideas are out there on what the treasurer can realistically do to get the economy moving again.  

It will just take a little resolve.