Surviving Donald Trump among key challenges for next Federal government, says AMP’s Shane Oliver

Australia’s next Federal government will need to make the economy “as strong as it can be” in a bid to survive US President Donald Trump and his erratic policies, according to a top economist.

AMP chief economist Shane Oliver on Tuesday said Mr Trump’s tariffs risked US and global recession, direct taxes on Australia’s exports and therefore less demand, as well as increased geopolitical threats.

There’s also pressure for Australia to deregulate and cut taxes, and ramp up defence spending.

Highlighting the challenges for the next government, Dr Oliver told clients boosting productivity to improve living standards should be a key priority, with higher cost of living pressures top of mind for voters.

Boosting poor productivity — the main driver of decent real wage growth — requires tax reform, deregulation, competition reform and improved education.

“A good place to start would be to cap public spending as a share of GDP as it’s been exploding and crowding out somewhat more productive private sector activity,” Dr Oliver said.

Another concern for voters is housing affordability, which has been deteriorating for decades and affecting productivity and intergenerational equity.

The Labor Government is focused on trying to build 1.2 million new homes by 2029, while the Coalition is promising to invest $5 billion in housing infrastructure and cut permanent migration by 25 per cent.

While the Government has been “lucky with a nearly $200 billion revenue windfall . . . much of this has been spent contributing to the surge in public spending leading to higher than otherwise inflation and interest rates”.

“Structural spending pressures around the National Disability Insurance Scheme, health, aged care, defence and public debt interest are now taking the budget back into deficit when public debt is already high,” Dr Oliver said.

“They need to be checked and/or offset by savings elsewhere.

“Tough decisions will be needed as we can’t just keep relying on an ever-high tax burden on millennials and Gen Z to pay for things”

It was anticipated last week Prime Minister Anthony Albanese would call the Federal election for April 12 but ex-tropical Cyclone Alfred in Queensland and northern NSW scuppered those plans.

The latest date the next Federal election can be held is May 17.

Dr Oliver added the relatively modest difference in economic policies between the Coalition and Labor suggested minimal impact on investment markets if there was a change of government.

“Trump bumps will likely continue to dominate,” he said.

“The main risk for investment market may come if neither side win enough seats to govern, forcing a reliance on minor parties or independents, further delaying productivity reforms and in the case of a minority Labor government forcing it down a less business-friendly path.”