Treasurer Jim Chalmers says the economy is not meeting our needs

And right now, the view is not good.

Although pay packets are getting bigger as employers fight to retain staff and fill vacancies, any gains are being quickly swallowed up by inflation, which hit 7.8 per cent in the December quarter.

Aside from the immediate challenge to bring inflation down, Dr Chalmers says there is a bigger question to be asked about the way the economy is working and whether it needs to change.

He argues that it does.

"If people don't feel like their living standards are being lifted and don't have a sense of security and well being then the economy is not delivering as we need it to," the Treasurer says, speaking on the Australian National University's Democracy Sausage podcast.

"If people who work hard cannot provide for the people they love and get ahead then the economy is not working for them."

But despite rampant global inflation, climate change-fueled natural disasters, the war in Ukraine, China's growth stumbles and the mounting COVID death toll, Dr Chalmers is upbeat about the nation's prospects.

"The reason I am so optimistic is that I think we have a really big chance here. There is a window of opportunity to make capitalism more closely align with our values," he says.

There is no doubt that in the past 15 years many comfortable assumptions about the way markets and economies work have been called into question.

The global financial crisis exploded the myth that left alone, markets could self-regulate while the pandemic showed governments are crucial to managing and coordinating responses to major health and economic challenges.

In a 6000-word essay published in The Monthly magazine, Dr Chalmers argues that, despite the evidence, successive governments, here and abroad, have stubbornly clung to outdated notions about markets, the economy and government that have served us poorly.

"The old mental models ... couldn't explain why investment stalled and growth slowed when interest rates were low, and they offered no solution to the much higher inflation and interest rates that followed ," he says.

In his essay, titled Capitalism after the crises, Chalmers sets out his vision for a different approach built upon the understanding that there is more to individual and community wellbeing than growth alone.

Though financial security is important, the pandemic was a reminder of how fundamental health is.

"You can't have a healthy economy without healthy people and healthy communities," he says.

Dr Chalmers has championed the idea of a wellbeing budget and is preparing to deliver a Measure What Matters statement in mid-2023.

He says the statement will identify between 20 and 25 indicators of wellbeing, including not just gross domestic product, wages and unemployment but also environmental degradation, mental health outcomes and, possibly, homelessness.

"What we measure directs our action," the Treasurer says, and adds that tracking these measures over time will show what is working, what isn't, and make for more informed decisions about how to raise living standards, improve intergenerational mobility and broaden opportunity.

This is not just about economics but also the health of Australia's democracy.

People need to share in the benefits of growth if democracy is to remain strong, he says.

Although inflation surged late last year to its fastest pace in three decades, the government and the central bank think it is at - or close to - its peak and ease gradually during this year. At the same time, wages are accelerating.

Hopes that the slowdown in China may not be as deep as feared six months ago has add to the brighter outlook for the economy, given that the north Asian economy is the country's biggest export market.

The chances are good that Australia will, yet again, dodge a recession despite the likelihood of economic contraction in many other parts of the world.

"But Australia can do more and do better than just batten down the hatches in 2023 or hope for the best," Dr Chalmers says. "We can [set ourselves up for] 30 years of prosperity that are stronger, broader and more sustainable than the last".

To achieve this he identifies three objectives: an orderly energy and climate transition, a more resilient and adaptable economy and growth centred on equality and equal opportunity.

The first is ambitious and the latter two sound nebulous.

But in his essay the Treasurer provides a more detailed prescription on how to achieve these goals.

It will involve strengthening institutions, redesigning markets and co-investment by the government and private sector.

Dr Chalmers has already embarked on the first measure by instituting a review of the Reserve Bank of Australia and flagging a 'renovation' of the Productivity Commission.

Having well-functioning and robust institutions is part of the "scaffolding" needed to build the economy the Treasurer wants Australia to have.

This is in part because, he says, they will be overseeing regulations that ensure private sector capital creates value that meets the need of both investors and the community.

The idea of more effective regulators might give some in business heart palpitations, but the Treasurer argues this doesn't have to be the case.

"We want to change the dynamics of politics towards a system where Australians and businesses are clear and active participants in shaping a better society," Dr Chalmers says.

"Governments and investors can be partners, not protagonists."

He wants business to partner with government and labour in designing markets that deliver on societal goals as well as satisfying investors.

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Dr Chalmers refers to energy markets as an area where the government will soon be turning these ideas into action.

He says the government plans this year to create what he calls "a new sustainable finance architecture" for the clean energy sector which will include a rating system to help investors assess the climate impact of different investments.

Over time the Treasurer wants similar changes expanded to encompass areas like climate-related risks and biodiversity goals.

Dr Chalmers also wants to encourage greater cooperation and coordination between the public and private sectors, and cites the Clean Energy Finance Corporation as a model.

He says the Corporation has been "a great success" by partnering with investors to direct capital to where it can have the greatest impact.

Already the government has expanded this investment model to housing through the creation of the Housing Australia Future Fund and to electricity infrastructure through its Rewiring the Nation initiative.

Partly this co-investment approach is the creature of necessity.

Dr Chalmers admitted on the Democracy Sausage podcast that the government faced significant budgetary constraints that limited how much it could fund some of its policy goals.

"After being in Opposition for a decade there is a lot of pent-up ambition and not all of it is cheap, so...you have to think creatively and innovatively about how you achieve these objectives," he says, and mobilising private capital through co-investment is a way of doing this.

Australia's experience with public-private partnerships, though, has not always been a happy one.

Such partnerships have most often been used to help finance toll roads, and early last decade the were a string of failures of such projects, including the Brisbane Airport Link and Sydney's Lane Cove and Cross City tunnels.

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