Following a decisive election victory that secured a majority in Parliament, Prime Minister Anthony Albanese now leads one of the most strongly mandated governments in Australia’s recent history.
While the win puts Labor in a position to pursue long-delayed economic reforms, there remains little clarity on whether the government will pursue major economic reforms beyond its social agenda.
That uncertainty comes as economic pressures continue to build. After years of relying on strong mineral exports—particularly to China—Australia is entering a period of slower growth, with key drivers of its economic expansion beginning to lose steam. S\&P Global Ratings has warned that the country’s AAA credit rating could come under threat if recent campaign promises lead to higher deficits, interest payments, and long-term debt.
The prime minister’s victory speech on Saturday largely focused on social investments, including expanded childcare subsidies, the cancellation of student debt, more funding for healthcare, and cost-of-living relief measures such as first-home buyer assistance and energy rebates. While these pledges aim to ease pressure on households, they raise questions about the long-term fiscal outlook.
Bond yields rose after the election, with the three-year government bond climbing to 3.38% on Monday. Meanwhile, the Australian dollar strengthened to a five-month high of 64.81 US cents.
Despite the momentum from the election, Labor’s ability to pass significant reforms may still be constrained. Treasurer Jim Chalmers noted in an interview with ABC that “nobody will control the Senate,” meaning Labor will need support from either the opposition or minor parties to advance legislation.
“The first term was primarily inflation without forgetting productivity. The second term will be primarily productivity without forgetting inflation,” Chalmers said.
Australia’s economic productivity has been among the weakest in the developed world. From 2023 through much of 2024, the country experienced seven consecutive quarters of per capita economic contraction—a sign of declining living standards. Efforts to offset these trends through pre-election tax cuts and household rebates have been criticised as temporary solutions.
“Significant economic reforms doesn’t seem to be a part of their agenda. And the budget position does make them a little bit constrained,” AMP deputy chief economist Diana Mousina said.
Much of the focus now turns to the tax system, which remains heavily reliant on individual income tax—far more than in other developed economies. Economists and international organisations, including the OECD, have long argued that Australia should shift toward collecting more revenue from indirect taxes such as the goods and services tax (GST), while reducing personal income taxes to improve incentives and sustainability.
Past attempts at structural reform have proven politically difficult. The last major overhaul—a 10% GST—was introduced in 2000. Labor’s 2012 mining tax was repealed two years later following a strong campaign by the resources sector and a change of government. Since then, there have been few serious efforts to revisit the country’s tax settings.
Government spending has increased sharply since the COVID-19 pandemic, and is projected to remain high—at around 26–27% of GDP through June 2028. Revenue is expected to remain lower at approximately 25%, leading to persistent structural deficits.
Economists at Goldman Sachs and other firms are holding their forecasts steady for now. They expect the Reserve Bank of Australia to cut interest rates to 3.85% this month, with further reductions likely by December, potentially giving the government more budget flexibility.
“It’s early days, but the election-night address from the prime minister indicated a departure from culture wars and identity politics, and a focus on the fundamental concerns for households, such as housing, education, health care and child care,” said Eliza Owen, chief economist at property consultancy Cotality.
