The Treasurer wants to lift the speed limit of the economy. But speed without direction is just acceleration toward nowhere.
As the federal budget approaches, the national conversation is settling into familiar grooves: cost-of-living relief, interest rates, deficits, and near-term growth. These matter. But they are not the questions that will determine whether Australia navigates the next decade successfully. The deeper issue is this: what, exactly, are we trying to build?
Not a cycle. A transition.
Australia is not in a typical economic cycle. We are in a structural transition shaped by the reconfiguration of global supply chains, the energy transformation, geopolitical fragmentation — now sharpened by Middle East conflict and its direct impact on fuel and shipping costs — and the rapid convergence of powerful technologies. This is not a temporary disturbance. It is a shift in the conditions under which the economy operates.
In that context, it should not surprise us that inflation is proving stubborn, productivity is weak, and policy tools feel blunt. Interest rates remain a necessary discipline. But they are a demand-side response to what is increasingly a supply-side challenge. The Reserve Bank’s cautious approach since its February 2025 rate cut reflects an awareness of this tension. Monetary policy can moderate the economy. It cannot, by itself, build the productive capacity we need.
Running hard. Standing still.
There is no shortage of activity. Governments are spending heavily on services. Data centre and renewable energy investment is surging — private capex rose 7.8% over the year to December 2025, the strongest annual growth since 2012. Yet for all this, productivity has gone backwards. Labour productivity fell 0.6% in 2024–25. The level of output per worker is roughly where it was before the pandemic. We have run hard for six years and arrived back where we started.
This points to a more fundamental issue. The problem is not underinvestment. It is under-directed investment. Capital is concentrating in narrow corridors — data centres, energy transition infrastructure, property — while broader productive capability languishes. Only 6% of industry leaders cite increasing investment as a key driver of growth, even as nearly half plan to spend more on technology. Firms are optimising within their existing models, not building new ones. Meanwhile, share buybacks and financial engineering continue to outcompete productive capital formation on the ASX.
Left to its own devices, the market will tend to underinvest in areas that are uncertain, long-term, or dependent on coordination across sectors. And in an era of platform economics and network effects, the cost of late entry is rising. Australia risks becoming a consumer of global technology platforms rather than a builder of sovereign capability.
A step, not yet a strategy
A step, not yet a strategyGlobally, policy thinking is shifting. The United States and Europe are increasingly shaping investment through mission-oriented frameworks. Australia’s own Future Made in Australia (FMIA) program — a $22.7 billion commitment to renewable hydrogen, critical minerals, green metals, and clean energy manufacturing — represents a genuine directional step. But it is sector-specific where the challenge is system-wide. A handful of priority industries does not constitute a strategy for the whole economy.
The result is not the absence of a national economic narrative so much as the incoherence of one. There is no shortage of candidates for Australia’s future direction — the energy transition, critical minerals, defence industry expansion, advanced manufacturing. But these efforts sit alongside each other rather than reinforcing each other. Without a connecting story that links economic direction to the lived experience of households and communities, business defaults to short-term returns, policy becomes reactive, and public anxiety grows.
Some will argue, reasonably, that the answer is not more coordination but less friction — simpler taxes, lighter regulation, faster approvals. There is force in this. The burden of compliance and regulation ranks among the top concerns of Australian industry leaders. But removing friction is a necessary condition, not a sufficient one. Deregulation clears the road. It does not set the destination.
What direction looks like
The budget is not just about fiscal settings. It is a signal about national direction. Two things would sharpen that signal considerably.
First, the government should formally respond to the Productivity Commission’s five-pillar reform agenda and adopt it as a coordination framework. That agenda is serious, evidence-based, and sitting unanswered. Left to gather dust, it sends precisely the wrong signal about whether Australia is willing to act on its own diagnosis.
Second, Australia needs a cross-sectoral investment coordination function that connects the dots between FMIA, defence industry, digital infrastructure, skills, and regulatory settings. Not a new bureaucracy. A standing mechanism for strategic coherence — the kind of outcome-led governance that ensures public and private capital pull in the same direction, rather than flowing past each other in parallel.
Australia remains a strong economy. But the conditions that supported past success are shifting, and incrementalism will not be enough. The task is to lift the level of strategic coherence across government, business, and society. It begins with a simple but unresolved question: what are we building?
