‘Can’t afford not to’: Deloitte urges government to commit to major reforms

Deloitte Access Economics’ latest Business Outlook predicted an incoming ‘tug of war’ between economic growth and inflation for the remainder of 2026, as inflation pressures loom and questions of capacity constraints abound.

Stephen Smith, Deloitte Access Economics partner and report author, said the government needed to act quickly on reforms, given its “thumping majority” and the sluggish state of the economy.

“What is clear is the need to improve the supply capacity of the Australian economy. The supply side is the key to lifting productivity and sustainably raising the pace of economic growth,” he said.

“This task is urgent. Sagging productivity growth is groaning under the weight of unmet reform proposals, including on the tax system, regulation, federal-state financial relations, energy policy, skills, housing and technology.”

Deloitte added that Australia’s economic recovery risked being derailed by tighter monetary policy, predicting that the next cash rate move would be down, not up. A February rate hike would be “premature,” it said, as it wasn’t yet clear that the economy had hit its speed limit in terms of capacity constraints.

The report predicted that Australia’s economy would grow 2.1 per cent in 2026, driven by household spending and still robust government demand, before accelerating to 2.3 per cent in 2027.

Inflation was expected to remain above-target through the first half of 2026 before dissipating without any further rate hikes being needed. Deloitte foresaw the RBA being on hold until an August 2026 rate cut.

The pace of expansion would depend on the volume of investment and the rate of productivity growth, which has remained stubbornly below historical averages, Deloitte noted.

Smith said that reform would be necessary to ensure that Australia didn’t bump up against its economic ‘speed limit,’ where additional growth would spark inflation and necessitate interest rate hikes.

In a November 2025 speech, RBA deputy governor Andrew Hauser warned that Australia’s economy could be “boxed in” by its own capacity constraints, leaving little room for further interest rate cuts without significant improvements to productivity growth.

Deloitte has also previously called for tax reform to address intergenerational equity concerns, productivity growth and the ongoing budget deficit.

In combination, their proposals would result in lower personal income and company tax rates, compensated for through a higher, broader GST, reductions to the capital gains tax discount and the introduction of an inheritance tax.

Smith said that despite abundant reform ideas over the past 25 years, there had been a shortage of political will to embark on ambitious reforms that would inevitably create both winners and losers.

“The natural opportunity to unveil major reform intent is the Federal Budget, due to be handed down on 12 May. The Government will no doubt be weighing its political capital and questioning whether it can afford to make substantive policy decisions,” he said.

“For the sake of the economy, it can’t afford not to.”