Tax reform key to ‘productivity promise’, says Deloitte

Deloitte has revealed the Australian economy is set to strengthen over the remainder of the year despite challenges in the global economy, yet reform is needed to “realise the promise of productivity”.

The June 2025 edition of the Business Outlook highlighted Deloitte’s prediction of economic growth in Australia to accelerate from 1.3 per cent in 2024–25 to 2.1 per cent in 2025-26, before lifting to 2.4 per cent in 2026–27.

Cathryn Lee, Deloitte Access Economics partner, said that while the global economic and geopolitical environment was becoming increasingly fragile, there were still reasons to be optimistic that Australian economic growth would strengthen over the rest of the year.

“An important combination of lower inflation, declining interest rates, rising real wages, solid government spending growth and a robust labour market is expected to provide the basis for a gradual improvement in domestic economic fortunes in the near term.”

It was noted that economic growth had “hit some speed bumps” at the beginning of 2025, such as Cyclone Alfred, other weather events and a decrease in government investment which had constrained growth, yet the outlook remained positive.

Lee said Deloitte was expecting a strong lift in dwelling construction activity throughout 2026 as the sector improved, backlogged projects were worked through and reforms to planning regulations and zoning across multiple jurisdictions began to take effect.

Despite the positive outlook, Australia’s failure to undergo significant tax reform over the last 25 years has led to the loss of “dynamism and competitive edge”.

Stephen Smith, Deloitte Access Economics partner, said major sectors in the economy were dominated by a very small number of large firms, supported by an economic system that kept barriers to entry high, causing productivity and real wage growth to slow.

“In this context, it is no surprise that the proverbial pet shop galah is talking about the need for reform. After a poll at which the Labor Party was returned with a significant, expanded majority, the possibility that the economic policy might finally become more ambitious has come to define the post-election zeitgeist,” Jones said.

“To its considerable credit, the federal government has leaned into the discussion. Successive speeches at the National Press Club by the Prime Minister and the Treasurer, and the announcement of a looming productivity roundtable in the Cabinet Room, have raised hopes of meaningful change.”

According to Deloitte, the firm has long advocated for significant tax reform with tax changes such as increasing the rate of GST, compensating households in the lowest two income quintiles for the effect of the higher GST on the cost of living, flattening the personal income tax schedule and reducing the capital gains tax discount from 50 per cent to 33.33 per cent.

Lee said the Treasurer’s speech at the National Press Club made clear that ‘consensus support’ for policy change was required.

“Given almost every meaningful reform would inevitably create both winners and losers, achieving a consensus may prove an impossibly high bar. That would be a deep disappointment after the government has stoked anticipation for change,” she said.

“Deloitte’s reforms would be accretive to the federal budget and grow the economy. That is, modelling demonstrates that tax reform can be positive for the economy, positive for the budget and positive for Australian people.”

“That is why the Treasurer’s promise to approach reform ideas from a ‘practical, pragmatic and problem-solving middle ground’ has the potential to be so significant.”