Australia is no longer lucky
THE LANDSLIDE win on May 3rd for the Australian Labor Party, led by Anthony Albanese, the incumbent prime minister, was the party’s best election performance since the second world war. It was also the worst faring ever for the main opposition, the (conservative) Liberal-led coalition. By May 8th, ten seats in the 150-seat House of Representatives remained undeclared. But Labor had won at least 90 seats; the coalition had bagged only 40 (see chart).
A few months ago the coalition was savaging Labor over the cost of living and high immigration. But an anti-Trump bump turned Mr Albanese’s fortunes—as it made Mark Carney’s in Canada. Both left-leaning politicians faced candidates borrowing from Donald Trump’s populist antics.
The Liberal leader, Peter Dutton, stoked anti-woke culture wars and extolled the American president. It backfired. Dismay has grown among Australians at Mr Trump’s trade wars, and they no longer trust America as a security partner. Mr Dutton’s campaign was hobbled by unforced errors. The Liberal Party lost votes across every demographic—women, urbanites, migrants—except those over the age of 60. Mr Dutton even lost his own seat.
Australians voted for stability and Mr Albanese’s dullness became an asset. They did not vote for stasis, however. Australia’s problems are both economic and geopolitical. China’s once-insatiable appetite for Australian iron ore, copper, coal, meat and wine has slowed sharply. Australia’s economy grew by just 1.3% in 2024, the slowest rate (apart from during the pandemic) since the early 1990s. Now Mr Trump’s tariffs of 10% on Australian steel and aluminium may prove the precursor of other trade storms. Australia’s priority, says Jim Chalmers, the treasurer, is managing the economic risks arising from tensions between America and China.
The task is made harder by a soggy economic performance. Across social, economic and environmental indicators, Australia has fallen behind its peers in the OECD, a club of mainly rich countries. Over ten years disposable incomes per person have risen by just 1.5%, compared with 22% on average in other wealthy countries.
Mr Chalmers is right to make boosting productivity his priority in the second term. Productivity growth is slower than at any time in the past 60 years. Not counting Australia’s mining sector, private business investment is at an all-time low. Meanwhile, the proportion of women who work full-time is among the lowest in the OECD; many women are deterred by high income taxes and the cost of child care. And thanks to onerous regulations and too few workers, it takes twice as long to put up a house as it did three decades ago. Australia must improve productivity, Mr Chalmers says, by investing in people, improving competitiveness and embracing new technologies such as AI.
One big problem stems from tax-relief policies that encourage Australians to put too much of their money into housing. Baby-boomers have built enormous wealth doing this, but home ownership among the young is falling, as house prices climb to all-time highs. Labor is unlikely to abolish tax breaks for housing (fearing baby-boomers’ wrath). So building more houses may be Australia’s best shot at fixing the housing crisis. Labor promises to work with state governments and private developers to ease zoning rules and build 1.2m homes over five years.
Mr Albanese’s government also promises to move Australia’s energy mix towards more renewables. Climate policy, especially a carbon tax, has been the most polarising issue in Australian politics over the past two decades, toppling three prime ministers. Had the coalition, when in office in 2015, not scrapped a carbon price, Australia would be collecting A$70bn ($45.2bn) more each year in revenue, says Ross Garnaut, an economist. In its first term Labor legislated to cut emissions to zero by 2050 or earlier. But integrating solar and wind projects into Australia’s ageing electricity grid is slow-going.
Given tensions between America, Australia’s historical supplier of security, and China, the biggest buyer of its exports, Australia badly needs to make itself more robust, in security as well as in economics. Mr Albanese has promised to raise defence spending from 2.1% to 2.4% of GDP. Key priorities include acquiring nuclear-powered submarines through AUKUS, a defence pact with America and Britain; enhancing long-range strike capabilities; and upgrading military bases located in northern Australia.
During Mr Albanese’s first term, Australia steadied its tumultuous relations with China, while also deepening ties with Japan, India, South-East Asia and Pacific islands. The country is more prepared than it was five years ago, argues Rory Medcalf of the Australian National University, but has a long way to go. For Mr Albanese, election-night euphoria has fast given way to the reality of hard slog ahead. ■