Labor will be forced to 'raise taxes quite significantly' or cut spending if productivity stalls, Ken Henry declares

Sky News AU

16-07-2025

Labor has been warned it will be forced to hike taxes quite significantly if productivity continues to stall as the Albanese government powers on with its second term economic agenda.
Former Treasury secretary Ken Henry faced the National Press Club on Wednesday where he weighed in on the economic challenges facing Australia.
Mr Henry, who authored a highly recognised white paper on tax reform in 2010, warned Labor that lagging productivity would mean the government will be forced to either hike taxes or cut spending.
It comes as Labor faces growing fiscal pressures on the budget such as the ballooning NDIS and demands for Australia to increase defence spending.
'If the budget is to meet these growing spending pressures, then we've got two options: We either increase taxes as a share of GDP, or we grow the economy faster,' Mr Henry told National Press Club on Wednesday.
He said the slump in productivity that continues to plague Australia's economy would force the government to find revenue elsewhere.
'Over the decade of the 1990s, average productivity growth was 2.31 per cent a year,' Mr Henry said.
'Over the past 25 years, it's averaged 0.98 per cent a year. That's a pretty fundamental difference.
'If we continue on that trajectory … we will have no option but to raise taxes. And quite significantly, by several percentage points of GDP ... or cut spending.'
Mr Henry also voiced concerns about the Environment Protection and Biodiversity Conservation Act (EPBC) during his address, which he said needed an overhaul to boost productivity.
'I can think of other reforms to boost productivity. Some even harder, though none more important. And if we can't achieve environmental law reform, then we should stop dreaming about more challenging options,' Mr Henry said.
He argued changes to legislation are critical for Labor as it wants to balance environmental concerns with ambitious projects, including delivering 1.2 million new homes and continuing with the Future Made in Australia plan.
It would also mean changes to laws surrounding mining and critical minerals projects.
'The Australian government has an ambition to massively increase critical minerals exports and downstream processing here in Australia,' Mr Henry said.
'This means more mines, new industrial facilities, and more pressure being loaded onto broken EPBC project assessment and approval processes.'
Labor is considering a raft of changes to boost productivity.
The nation's economy will take centre stage at the productivity roundtable in August where leaders across business, economics, politics and unions will come together.
A coalition of 28 businesses and industry groups have listed overhauling the EPBC as a major priority.
Australia's enormous superannuation sector, alongside major industries including artificial intelligence and manufacturing, will also come under the microscope.