No government can subsidise its way to resilience, notwithstanding the avalanche of smarty-pants commentary decrying “neoliberalism” in recent times. More hard choices will be needed.
The 2026 budget wears Australia’s economic security and resilience challenges on its sleeve. Indeed, it almost luxuriates in them.
Households are being smashed by cost-of-living pressures. Inflation is up, growth is down. Conflict in the Middle East has unleashed the world’s third major supply chain crisis in six years.
The rules-based order assumptions that have underpinned Canberra’s policy outlook for decades hang by a thread. Great powers are resorting to economic warfare in a new age of weaponised interdependence.
Yet, based on his grin, Treasurer Jim Chalmers seems inclined to channel Malcolm Turnbull’s giddy enthusiasm from a decade ago that there has never been a more exciting time to be alive.
The budget’s turbulent backdrop helps explain the Albanese government’s elevated focus on national resilience. Earlier dalliances with reforming capitalism and making Australia a renewable energy superpower have quietly receded from view.
All roads now lead to shielding Australians as much as possible from global volatility. Greater self-reliance is the new black. Even more starkly, funds are being repurposed from dreams of green hydrogen and mass-produced batteries and solar panels to the boring necessities of diesel and urea.
How should we assess this new resilience and economic security agenda?
There is obvious merit in the budget’s immediate responses to the Iran war and the energy crisis. The previously announced $10 billion-plus fuel security package will expand Australia’s onshore fuel reserves to ensure at least 50 days of fuel supply and storage of diesel and aviation fuel, with $3 billion earmarked for a government-owned fuel reserve. The bringing forward of more than $6 billion in concessional capital to help businesses deal with supply chain disruptions is also a sensible move.
Off-budget expenditure is off the leash despite an economic vista of “shock, after shock, after shock”
Looking further afield, the government can point to solid efforts to unlock Australia’s strategic advantage in critical minerals, even if they are yet to bear much fruit. The decision to focus the new Critical Minerals Strategic Reserve on a few priorities – antimony, gallium and rare earth elements – is a good one.
Last week’s Australia-Japan economic security declaration opens the door to greater risk-sharing with trusted partners. And encouragingly, there is budget funding for Treasury to provide a “dedicated economic security and sector assessments function to inform policy responses to global shocks and emerging economic threats”. Not quite the National Economic Security Agency I’ve advocated for the past year, but a solid start.
Still, we should not get carried away. The budget locks in higher spending, greater reliance on personal income tax, structural deficits and growing public debt. Off-budget expenditure is off the leash despite an economic vista of “shock, after shock, after shock”, to quote Michele Bullock.
Australia still lacks a durable policy framework for dealing with geopolitical disorder and economic fragmentation. The prime minister’s rhetoric gives the clue. Vague goals like “making more things here” slosh around with spending, badged loosely under the umbrella of social cohesion.
Without clear policy guidelines, the Albanese government’s resilience agenda is prone to soft economic nationalism and what the British journalist Robert Shrimsley aptly calls “kiss-it-better-government”. The overriding tactical objective is to stay one step ahead of the domestic political grievance curve, with the government at least seen to be doing something.
Basic pillars of resilience
A more rigorous approach to resilience would do two things.
First, it would place greater emphasis on Australia’s ability to respond and adapt to shocks of various kinds. This takes us closer to what mainstream economists regard as basic pillars of a resilience framework: macroeconomic stability, strong fiscal buffers and flexible markets.
On this score, cuts to the NDIS – should they materialise – will arguably be the biggest resilience contribution in the budget, even though they come far too late. The productivity package of regulatory reform also scores well. More’s the pity, the Albanese government remains impervious to evidence that shocks are more persistent in countries with rigid labour markets.
Second, what the prime minister might call a fair dinkum approach to resilience would set stronger guardrails for industry support. There is still too much spraying of taxpayers’ dollars on businesses that need to stand on their own two feet. As Productivity Commission chair Danielle Wood noted in these pages last month, scattergun industry policy reduces our resilience.
No government can subsidise its way to resilience, notwithstanding the avalanche of smarty-pants commentary decrying “neoliberalism” in recent times. More hard choices will be needed with industry policy geared to a dangerous, shock-prone world and less to net zero. Meanwhile, we’ve barely scratched the surface in bringing the private sector more systematically into the tent on economic security and supply chain resilience.
The Canberra impulse to return to business-as-usual when the Middle East crisis passes must be resisted. Greater resilience calls for a permanent watch on budget discipline and productivity-enhancing structural reform to ensure our economy is flexible, adaptable and ready with fiscal firepower when future shocks arrive.