Australia’s longest serving finance minister, former WA Liberal senator Mathias Cormann, warns Australia is drifting in the wrong direction, saying the only cure for the cost of living squeeze is an “economy that produces more for every hour worked”.
In a major address to the Centre for Independent studies on the Gold Coast on Saturday, the now secretary-general of the Paris-based OECD, will argue that short-term sugar hits like cash handouts, energy rebates, price caps and protection will not make for a better and more competitive Australia.
“Australia is drifting in the wrong direction,” Mr Cormann says in his speech.
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He says Australia must be more productive.
“Cash handouts and energy rebates put money into an economy that is not producing more, so prices rise to meet them, and the bill lands on the budget and then on the taxpayer, Mr Cormann says.
Mathias Cormann, secretary-general of the Organisation for Economic Cooperation and Development (OECD), during the International Economic Forum Of The Americas (IEFA) Conference of Montreal in Montreal, Quebec, Canada, on Monday, June 8, 2026. The event gathers world leaders and decision makers from government, business and academia to discuss topics ranging from the economy and global leadership to sustainability, energy and innovation. Photographer: Graham Hughes/Bloomberg Graham Hughes Credit: Graham Hughes/Bloomberg
“They buy a quarter, not a decade. Price caps lower the price and shrink the supply, so the shortage shows up as a queue, a waiting list or a blackout instead of a bill.
“Protection raises the price of everything a tariff touches, which is everything, and sends the bill to every farmer, miner and family in the country.
“And simply legislating a pay rise without actually producing more does not raise real wages. It raises prices.
“The pay packet gets bigger in nominal terms but buys the same, or less. Australia tried it in the 1970s, and real wages fell.”
Mr Cormann says finding real solutions to raising productivity was the key.
“There is only one thing that has ever reliably and lastingly lifted what Australians can afford, and widened what their children can reach, and that is producing more for every hour we work,” Mr Cormann says.
“Everything else is either borrowed from the future or taken from someone else.
Neither Australia’s personal income tax system nor its company tax system is internationally competitive or growth-friendly enough today.
“And what is borrowed from the future is borrowed from precisely the children we say we are doing it for.
“Productivity is not an economist’s abstraction. It is the cost-of-living policy.
“It is the opportunity policy.
“It is the only one there is that works reliably over the long run.”
Mr Cormann says there are significant economic benefits by lifting productivity.
“The Productivity Commission estimates that restoring productivity growth to its historic average would make Australians at least $14,000 a year better off by 2035,” Mr Cormann says.
“Two hundred and seventy dollars a week, for every Australian, not from a handout but from an economy that works better.
“Set that against the alternative we are living here now – a decade in which productivity growth ran at a quarter of its historic pace, and which, not by co-incidence, real wages went nowhere and then went backwards.”
But he warns that mainstream parties must not fall into the trap of adopting the “populist” policies of others – in an apparent dig at One Nation.
“Mainstream parties that respond to a populist surge by adopting its economics do not recover their voters,” Mr Cormann says.
“The evidence for that is now extensive, from Britain to France to Germany, where mainstream parties that borrowed the insurgents’ agenda shrank while the insurgents grew.”
Mr Cormann says “arbitrary caps” on migration numbers, for example, is not the answer.
“More Australians now say the intake is too high than at any time in twenty years, and the reason they give, overwhelmingly, is housing.
“That concern is legitimate. Population grew at twice the pace of home-building for three years. And even looking back further – housing, infrastructure and services have invariably not kept pace with population growth boosted by immigration.
“But the answer is to fix what made it legitimate: housing supply, infrastructure, services and the composition of the intake, not to shrink the country.
“Because the evidence is clear. OECD research across Australia’s regions finds that where more migrants arrived, employment among Australian-born workers grew faster, not slower, with no measurable effect on their wages.”
Mr Cormann says “no single lever” will increase productivity.
But he says a “rebalance” of the tax system should be one of those levers.
“Rebalance the system away from taxes on work and enterprise,” Mr Cormann says
“Neither Australia’s personal income tax system nor its company tax system is internationally competitive or growth-friendly enough today.
“The numbers make the case. Taxes on income supply more than 60 per cent of Australia’s revenue, against about 35 per cent across other OECD countries.
“The GST rate is half the OECD average, on barely half the base. And stamp duty is the most damaging tax in the federation.
“End the reliance on bracket creep by indexing thresholds and fund it honestly through a broader consumption base and more efficient taxation of land and property.”
Mr Cormann says encouraging artificial intelligence technology in Australia was “the biggest productivity lever of our lifetime”.
“Make Australia the easiest place in the region to deploy artificial intelligence, through pro-innovation regulation, data access and energy for the data centres already lifting growth,” he will say in his speech.
“The productivity dividend from AI will go to the countries that adopt fastest, not to those that regulate first.
“So apply the laws Australia already has, through the regulators it already has, rather than building a standalone AI regulator.
“Treat data centres as national infrastructure with a twelve-month approvals clock.
“Open government data by default. And get the technology into small businesses, hospitals and classrooms, where the productivity gap is largest.”
