Address to Morgan Stanley Australia Summit, Sydney

We acknowledge the Gadigal people and thank Morgan Stanley and everyone convening us here in Sydney. I’m very grateful for this opportunity to talk about our economy and Budget in the midst of all this global upheaval. But first I want to pay tribute to Steve Harker, for 18 years such an essential part of this business.

From the shopfloors of the union movement to the Reserve Bank to Morgan Stanley and the boardrooms of the world – From rugby league to the Future Fund – And all the time and money that he and Linda put into health research – Steve was genuinely one of a kind, a favourite son of Sydney, a proper Australian original. I knew and admired him and, like many of you, I’ll miss him.

Macro context The world Steve departed was volatile and unpredictable, the global economy a dangerous place, but his country was better placed and better prepared than most and that’s not always recognised. We do have an inflation challenge in the near term and a longstanding productivity challenge, but we also have some very substantial strengths. Like faster through the year growth than all the major advanced economies, except one.

Employment over the past 4 years has grown more than twice the G7 average and around 5 out of every 6 jobs were in the private sector. Participation is higher, and gross debt as a share of the economy lower, than all of them. Wage growth has been above 3 per cent for 15 consecutive quarters – the longest run in more than 15 years.

At the end of last year Australian living standards in the OECD data were growing faster than all the G7 and the OECD average. Since mid‑2022, household net worth in Australia has increased almost 30 per cent. And between 2022 and 2024, Australia had the second largest increase in net financial wealth in the OECD.

We already have the fifth lowest gross debt in the G20, and next year we will have the third strongest budget position. We are the 11th lowest taxed economy out of 38 in the OECD, and have the 6th lowest government spending to GDP. But perhaps the biggest standout strength in the Australian economy is business investment.

Four years ago business investment was very weak It was just 11.3 per cent of GDP– the lowest since 1993. Now it’s 12.9 per cent – the highest in a decade and at levels above the mining investment boom in the early 2010s. A big driver of this has been increased capital expenditure.

CAPEX grew 6.5 per cent in the March quarter – 6 times the median expectation and the fastest since 2012. Data centres have been a big part of that story, but only one part of our strong performance. The forward outlook has also improved.

For this financial year and next, CAPEX has been revised up at every estimate and is expected to be around $200 billion. CAPEX performance was a key reason why private demand dominated GDP growth in the National Accounts released last week. Private demand has now contributed more to growth than the public demand for 6 consecutive quarters.

In March, private demand contributed 0.9 percentage points to growth, and public demand made almost no contribution. While business investment has been a standout, there were also solid contributions from households and dwellings. Dwelling investment has grown for 9 consecutive quarters.

Annual trend building approvals are growing around 10 per cent. Consumption is growing by 2.5 per cent, above the 10‑year average. Overall, March quarter growth was 0.3 per cent, to be 2.5 per cent higher through the year.

This is very solid in the circumstances. It puts us in good stead in a difficult global environment. Yet despite all of our very substantial advantages we understand our people are still under pressure and that’s made worse by the war in the Middle East and the long tail that will follow it.

We know 2026 will be a difficult year in the global economy and we see that in our own forecasts. This is the largest oil supply disruption on record. A billion barrels of seaborne oil supply has already been lost since the Strait of Hormuz closed only 3 months ago.

The Brent oil price is 30 per cent higher than before the conflict. And prices in the futures market remain above the pre‑conflict price until 2030. Just last week the OECD took stock of the impact of all this on the global economy.

They are expecting global growth to slow from 3.4 per cent last year to 2.8 per cent this year. The war is weighing on growth here too, softening our labour market and pushing up prices, first in fuel then more broadly. Treasury expects inflation to peak around 5 per cent in the coming months and then ease to the middle of the target band in the middle of next year.

Resilience and reform So looking across the economy, our challenges fit into 2 main categories. The intersection of inflation, productivity and our economy’s speed limit. And the intersection of the housing market, the tax system, and what that means for younger people, in particular.

The Budget we handed down a month ago tomorrow is carefully calibrated to confront both sets of challenges simultaneously, combining a big effort on resilience and reform. Not because those are contradictory impulses but because reform is the essential path to resilience over time. You can see this combination in energy markets.

Australia has the best of both worlds, as a net energy exporter making meaningful progress on cheaper, cleaner, more reliable sovereign energy at home. While there have been global factors, the progress we have made on renewables helps to explain why electricity and gas prices have had a more muted reaction to the current conflict compared to the Ukraine shock.

In the Ukraine shock, domestic gas prices increased 400 per cent, the National Electricity Market had to be suspended and manually administered because it hit its maximum price ceiling, and retail electricity bills for the coming year (DMO) rose by up to 19.7 per cent. In this Iran shock, domestic gas prices have been 20 per cent lower than they were a year prior.

Electricity futures prices have remained stable, and retail electricity bills for next year (DMO) are going down by up to 20 per cent. In 2025, 43 per cent of Australia’s electricity was from renewable energy and batteries are a big part of the grid this time around. In 2025, there was a 260 per cent increase in home battery sales and 233 per cent in large‑scale battery capacity.

Australia is now the third‑largest utility‑scale battery market in the world. Our work to secure affordable gas and the announcement of a gas reserve is also helping to keep domestic gas prices as low as possible. Prices quadrupled in the months after Russia invaded Ukraine in 2022 but they’ve been stable since the conflict in Iran began.

Productivity Energy markets are a very important focus of our government but just one part of a very broad and ambitious reform agenda in a Budget which includes a productivity package, tax reform and budget repair. Inflation ticked up in the second half of 2025 because when we saw a welcome recovery in the private sector, we also came up against our speed limits on growth.

This was another major motivation for our productivity agenda. An agenda with 3 goals: making it easier to build, easier to do business and easier to invest and innovate in this country. From incentivising investment and innovation through the tax system, to slashing red tape where we can.

We’re cutting 1,000 tariffs, building a single national market, improving the efficiency of government and accelerating approvals. Simplifying building regulations with mandatory standards, building more homes, making skills recognition work quicker and easier, unlocking the vast opportunities from AI – Making big investments in R&D and innovation, strengthening the super performance test, bolstering our new Investor Front Door and Special Investment Vehicles, and getting more regulatory reform through the parliament.

The productivity package is estimated to reduce regulatory costs by $10.2 billion each year, boost long‑run GDP by around $13 billion a year, and promote $400 million more R&D investment by young firms each year. As the Budget papers make clear, the tax reform package in the Budget complements the productivity package. But those tax reforms begin with an even simpler truth: there’s a generational crisis in this country, in housing.

The major problem lies at the intersection of the housing market and the tax system. A policy mistake in 1999 has helped create a quarter century where house prices and incomes have decoupled. That truth, once acknowledged, then provides a binary choice: whether to do something about it or not.

Whether to let a broken system endure or try to fix it. Whether to try and level the playing field for first home buyers, or leave it tilted steeply against them. Whether to take the easier road politically but make it harder for people for longer, as a consequence.

Leaving things exactly as they are would lock more and more young Australians out of the housing market forever. Doing something takes courage because it invites scare campaigns. But doing nothing would have consigned another generation to a broken status quo, and that’s unacceptable.

There are political costs attached to doing something, but there are economic and social costs attached with doing nothing and they matter more. And having made that decision to act, the imperative is to not then replace one distortion with another. That’s why we haven’t limited our CGT changes to housing, because it’s better to apply the discount in a more neutral way.

Budget Statement 4 on page 187 makes it very clear that our reforms are good for productivity. There are 3 reasons for this: First, our reforms will remove distortions and improve the investment allocation across the economy. Second, the reforms support new and growing businesses at the critical points in their life cycle.

Third, by providing tax relief to workers we can help boost labour supply. Allocative efficiency The tax reforms are motivated by allocative efficiency, a core tenet of economics which is about getting investment flowing to where it is most productive. Institutions like the RBA and Bank for International Settlements have drawn a link between the allocation of capital and productivity growth and the OECD has shown that tax policy settings can alter the efficient allocation of capital.

This speaks to the challenge we must confront in our economy: a tax system that funnels investment into established housing at the expense of other important parts of our economy. The answer to 2 decades of weak productivity growth can’t be another couple of decades of the status quo in tax. Productivity averaged 2.2 per cent in the decade before the Howard government changed the capital gains tax but was just 1.1 per cent in the decade to 2020.

Tax wasn’t the only factor driving our productivity performance, but Howard’s changes certainly didn’t help. Since the changes were made in 1999, the proportion of Australians with shares has declined by almost 20 per cent. And since 2019, up to 90 per cent of investor lending has been for existing housing.

Treasury analysis finds that the 50 per cent capital gains tax discount has typically overcompensated investments in detached housing. By comparison, it has been about neutral for Australian shares on average, which means sometimes it has undercompensated and other times overcompensated. Returning the system to an accurate adjustment for inflation fundamentally corrects for these distortions.

It means investors are taxed more fairly on their real return. That’s why the likes of UBS and others have said our package should rebalance incentives towards investments like shares. If the reforms only applied to residential property, and a flat discount continued to apply to shares, this could perversely funnel more investor money into existing housing because it could leave property investors better off than investors in shares during times of high inflation.

Likewise, different flat discounts across different asset types, would still see us be stuck in an arbitrary world with investors undercompensated or overcompensated depending on returns. That’s why a key design feature of these reforms is that they apply broadly and neutrally across assets. This encourages investment decisions for economic reasons rather than tax outcomes, which will support productivity over time.

RBA evidence for that, cited in the Budget, finds that just reallocating capital within industries to the most productive firms in the 2000s could have increased GDP by ¾ of a per cent, or about $1,000 per worker, by 2017.2 That’s before accounting for any impacts of reallocation between sectors or, perhaps more importantly, from existing housing to other productive uses.

Business cashflows A lot of the post‑Budget debate has focused on the perceived impacts of changes to the capital gains tax that a founder or small business owner might pay one day upon exit. This has ignored that the vast majority of active businesses – over 90 per cent – remain eligible for very significant CGT concessions. And we’ve got a consultation process underway on the arrangements for start‑ups.

The debate has also ignored the $3.5 billion of tax reforms that support business risk taking and investment at the critical points in the life cycle of a business. At the heart of these changes is the decision to permanently reintroduce two‑year loss carry back for companies with a turnover under $1 billion. This achieves 2 key things for businesses: it supports them to make riskier investments and acts as an automatic stabiliser during difficult periods.

Treasury estimates up to 85,000 companies will benefit. Introducing loss refundability for startups complements this reform, because start‑ups don’t have prior year profits to offset. This is estimated to benefit up to 25,000 startups each year.

Loss carry back and refundability go hand in hand with the permanent instant asset write off, which also helps improve business cash flow. The Budget package also expands tax incentives for venture capital by increasing asset caps that will unlock more investment in early‑stage businesses. And the reforms to the Research and Development Tax Incentive include a higher rate for core R&D across both the refundable and non‑refundable offset – providing further cash flow support to our most innovative businesses.

Labour supply and young people The other big motivation is to better align the tax treatment of income from assets with labour. We have already provided tax relief to workers 3 times by lifting thresholds and cutting rates and this package cuts taxes twice more using 2 different mechanisms. Treasury estimates the tax relief we have already provided will boost labour supply by 1.3 million hours per week, helping to expand the supply capacity of the economy.

The tax cuts for workers in the Budget build on this approach, better targeting wage and salary earners. This is a key part of the intergenerational story, because most young people get most of their income from work. That’s why Treasury’s analysis shows if the Budget reforms had been in place since 2000, 90 per cent of young people would have been better off by age 30.

That’s before accounting for the impacts on home ownership. Tax process As we said at Budget time, we do recognise there are some specific issues for small and start‑up businesses with low or zero cost base, and we have been engaged in targeted consultation with these sectors. Shortly I will publish a policy position paper seeking feedback on our proposed approach, consistent with the commitment we made privately before the Budget and publicly in the Budget documents.

Fiscal sustainability Tax reform has received almost all of the attention since the Budget for understandable reasons but most of the heavy lifting on budget repair is actually done by savings, not by tax reform. The Budget is $44.9 billion stronger than the mid‑year update and $264 billion better than what we inherited. Gross debt is $173 billion better than when we came to office, helping avoid more than $70 billion in interest costs.

Gross debt is forecast to peak at 35.8 per cent of GDP in 2028‑29 and be 27.2 per cent by the end of the medium‑term. Our strategy is to find savings, exercise spending restraint and return revenue upgrades. We’ve found almost $180 billion in savings since 2022.

In the last 2 updates, net policy decisions have improved the budget and we’ve returned every dollar of revenue upgrade. This is very rare and very important. Real payments growth averages 1.5 per cent over the 8 years to 2029–30, less than half the 30‑year average.

We also strengthened our fiscal strategy in the Budget. The overarching goal remains reducing debt as a share of the economy over time. But we’ve emphasised the need to return the Budget to balance in a measured way.

We’ve also been clearer about putting downwards pressure on payments to GDP by taking action on structural challenges. The NDIS changes, for example, are proper economic reform. You can see how our approach this Budget has improved the structural position.

Across the medium term, our savings are almost 3 times bigger than revenue measures. Without these structural improvements Treasury estimates the budget position would be 1.3 percentage points of GDP lower and gross debt 7.3 percentage points higher in 2036‑37. Structural influences A more responsible budget is another important buffer in uncertain times.

Especially when the change imposed on us by the world in the near term and the change we choose for ourselves in our policies is all occurring against a much bigger backdrop. When we release the new Intergenerational Report late this year the impact of accelerating change will be clear. We’re in the midst of Fareed Zakaria’s Age of Revolutions , when the economy is changing faster than people can adapt or governments can respond.

That transformation in our economies and societies comes from the energy transition, the technological revolution, demographic changes, global imbalances and geopolitical fragmentation. These are not narrow changes of regulation they are bigger and broader motivations for reform. At risk is a compact between generations.

At its core the very real and legitimate sense that too many people, more people, are at risk of feeling disconnected and disregarded in our economy and therefore in our society. We see around the world the political divisiveness and dislocation this brings. Some here want to import that and replicate that, we reject it and will work hard to avoid it.

Our Budget is not a political strategy because it’s full of hard decisions not handouts, but it is shaped by its circumstances. And all of these pressures – social, political and especially economic – I’m optimistic about the future of our country. When the pace of change picks up so must the pace of reform.

We have so much coming at us but so much going for us. And the reforms in the Budget, as difficult as they are and contentious as they may be, will be worth the political capital we are investing in them. Thank you again.