Today, business leaders and policy-minded economists are wondering whether the Labor treasurer will develop a serious plan. They want him to succeed, to revive waning productivity, lift real wages and improve living standards.

Sobering wake-up calls

Australia received sobering wake-up calls last week from two profound authorities. The Productivity Commission and former Treasury secretary Ken Henry noted that the Albanese government needs to get bolder. Both were instrumental in the Hawke-Keating and Howard government reform era.

Australia was transformed from a potential “banana republic” in the 1980s to a “miracle” economy by the 2000s, while dodging recessions overseas and with its productivity growth temporarily outpacing the global frontier in the United States.

Prosperity was underwritten by slashing tariffs, floating the dollar, opening up to foreign financial institutions, privatising government-owned entities such as Commonwealth Bank, CSL and Qantas, linking wage increases to productivity via enterprise bargaining, repairing the budget, establishing the National Electricity Market, boosting competition, and tax reforms.

The tax list included cutting personal and company tax, introducing dividend imputation, capital gains tax and fringe benefits tax, establishing the goods and services tax and abolishing wholesale sales tax.

But the two-decade reform era has been followed by 20 years of largely living off its fruits and luck from the China-driven commodities boom.

Today, the Albanese government needs an agenda to grow the economic pie for everyone and to fund Labor’s social agenda.

So far, Chalmers seems more interested in incrementalism.

Reducing the income tax burden on wage-earning workers should be a core Labor value, as Keating has argued.

Henry said the government is yet to outline a “credible” medium-term fiscal strategy to return the budget to balance.

There appears to be little appetite to fix a tax system that Henry says “fails every test”. It undermines economic growth, is unfair against younger generations, punishes innovation, denies people opportunity, and fails to efficiently raise revenue for government services, Henry says.

To be sure, a centre-left government does not necessarily have to embrace all rationalist economic ideas such as increasing consumption taxes and reducing tax on business investment.

These are hardly radical proposals, given they have been supported by the International Monetary Fund, the Organisation for Economic Co-operation and Development, and Henry.

Broad range of tax reform

Nevertheless, there is a range of tax changes that a social democratic political party could pursue.

An earned income tax credit for low-income earners (effectively a negative income tax) would incentivise work for people transitioning from welfare and increase workforce participation.

Reducing the income tax burden on wage-earning workers should be a core Labor value, as Keating has argued.

Levelling the taxation of savings and investments through a uniform rate on capital gains, bank interest, rental income and, perhaps, trust distributions would remove tax-driven distortions and make the system more equitable.

There is also a case for easing the tax burden on wage earners who will pay more for aged care, healthcare and disability support, which requires much more spending discipline.

On the revenue side, there is an arguable case to toughen up the petroleum resource rent tax oil and gas profits. Treasury is conducting a review ahead of the May federal budget.

Such a move would have more merit than gas price caps and the proposed permanent “reasonable price”, which will undermine investment in gas during a very challenging energy transition.

The failure to implement a resource rent tax on iron ore and coal profits during the China boom was a missed opportunity. Chalmers’ former boss Wayne Swan attempted a mining tax and carbon price, but the execution and politics were poorly handled against a vicious industry campaign.

It didn’t include Henry’s recommendation of a lower 25 per cent corporate rate for non-miners.

There may also be a case for reducing some tax concessions for superannuation, trusts and capital gains.

But Chalmers seems tempted to individually pick these sorts of measures off, like the rushed tax on superannuation balances over $3 million.

Piecemeal measures won’t be enough

If the government continues with piecemeal plugs to leaky revenue holes, he will end up playing a game of whack-a-mole.

As one concession is closed down, well-advised people will shift their assets to other tax-effective structures. Tax advisers are talking about shifting their wealthy clients’ super to tax-exempt US life insurance annuities, while avoiding tax under the US-Australia tax treaty that Congress is unlikely to change any time soon.

Politically, cherry-picking will risk losing political capital, and the government may become more cautious about systematic changes.

As Henry warned from his experience advising Swan on the resource super profits tax, isolated and “incremental” tax changes gives “a lot of well-armed people only one target to shoot”, and “it will take a pounding”.

“No amount of incrementalism is going to meet our fiscal challenges, far less turn around two decades of declining average living standards,” Henry says.

Policymakers must avoid looking at the budget like a line-by-line accountant, and see the budget and tax system as levers to boost the economy, lift productivity and improve living standards.

Upon releasing the five-year Productivity Commission report, Chalmers noted that Labor was already working on “more than two-thirds” of the 29 reform directions in the Advancing Prosperity report.

Small-target policies

I doubt that means two-thirds of the 71 recommendations – which would be super impressive.

The government is acting on childcare subsidies, paid parental leave, TAFE and university places, migration, digital and technology skills, upgrading the NBN and investing in clean energy.

These were largely small-target policies designed in opposition to win the election, or are akin to typical government housekeeping measures. It is not game-changing productivity agenda.

To be fair, there is some significant work being undertaken by ministers. Climate Change and Energy Minister Chris Bowen’s safeguard mechanism, if passed by parliament, will impose a carbon price on big industrial emitters. Business will have a carbon price signal to make long-term investments. Bowen’s challenge is to impose this carbon price while also ensuring there is enough gas supply to keep energy supply reliable and affordable.

Home Affairs Minister Clare O’Neil is cleaning up the migration system to streamline the entry of skilled migrants to Australia, which will be good for workforce skills, productivity and the budget.

More initiatives are required, particularly to offset workplace regulations that the commission, Reserve Bank and e61 institute have cautioned about.

As shadow treasurer last year, Chalmers ridiculed the Coalition’s lack of response to the commission’s previous Shifting the Dial productivity report.

“Australians can’t afford another decade like the last, defined by economic complacency and productivity sliding backwards, which makes it more difficult for hardworking Australians to actually get ahead,” he said.

He was right. Australians deserve more economic ambition.