Prime Minister Anthony Albanese shocked Australia by securing an historic win in Saturday’s election. Now the question is whether he’ll use that mandate to push through tough measures to overhaul the nation’s economy..Australia: $5 billion race to build Brisbane’s Olympics-ready airport.For years, previous administrations have shied away from tackling politically difficult issues such as removing tax incentives for investment property and cutting red tape to improve housing supply. After winning a majority in parliament with the strongest mandate since World War II, Albanese’s centre-left government now has the best chance in years to take the hard steps economists have called for to ignite growth..The need to act is becoming more urgent as key pillars that drove Australia’s expansion in the past few decades start to unravel, including China’s massive demand for minerals. S&P Global Ratings warned last month that Australia’s prized AAA sovereign rating is at risk if election campaign pledges result in larger structural deficits, debt and interest costs..“The strong result means they are almost certain to get a third term and can have more confidence implementing reform policies that may be less popular initially but will produce longer-term benefits,” said Jonathan Kearns, previously a senior official at the Reserve Bank of Australia and now chief economist at money manager Challenger Ltd. .Data centre boom: US, UK, China, EU, Australia, Germany, Canada, Japan, India, Malaysia, Philippines, Pakistan, and more power the surge.“They know where to start,” he said, citing a number of past reviews of the tax system and productivity performance that are still “lying on the shelf.”.Whether Albanese will take action, however, is unclear. Care agendaHis victory speech on Saturday night focused on the government’s care agenda — strengthening the free healthcare system, wiping out student debt and offering universal childcare subsidies. That’s in addition to extending energy relief and providing financial assistance to first-home buyers. The prime minister will also be absorbed by the economic turmoil triggered by US President Donald Trump’s global trade war. .“Quite clearly, the bond market will be asking questions how this spending will be paid for,” said Prashant Newnaha, a senior Asia-Pacific rate strategist at TD Securities. “The election outcome should push yields higher but more so at the long end to reflect the fiscal position.”.Indeed, yields on the policy sensitive three-year government bond rose 5 basis points to 3.38% on Monday with traders expecting the Labor administration’s big spending to continue. The Australian dollar hit a fresh five-month high of 64.81 US cents..Control over SenateIn an interview with Australian Broadcasting Corp. on Sunday, Treasurer Jim Chalmers said the government remains “ambitious” but warned that any major reform agenda will be tempered by the fact that “nobody will control the Senate,” or the upper house of parliament. There, Labor will need the support of the opposition or minor parties to pass legislation..Labor’s first-term priority, Chalmers said, “was primarily inflation without forgetting productivity. The second term will be primarily productivity without forgetting inflation.” .That’s a strong signal that the treasurer is prepared to take on battles to lift Australia’s productivity performance, which is among the weakest in the developed world..Albanese’s government had struggled during its first term with sticky inflation, high interest rates and a housing crunch that’s fueled record prices. Economic output per person declined for seven consecutive quarters through 2023 and much of 2024, a sign of falling living standards..The government sought to soothe those concerns with additional tax cuts and rebates in a pre-election budget in March, measures that analysts say provided only a short-term sugar hit to the economy. .“Significant economic reforms doesn’t seem to be a part of their agenda,” Diana Mousina, deputy chief economist at AMP Ltd. “And the budget position does make them a little bit constrained.”.Tax reformsOn taxes, the last major reform, a 10% goods and services tax, was implemented by a centre-right government a generation ago in July 2000. Since then, there have been attempts at change, including a mining tax in July 2012 implemented by Labor. However, that was repealed two years later after a massive campaign against it by resource companies followed by a change of government..Since the mining tax, both sides have shied away from attempting further reform. While more thoughtful members of the ruling Labor party and opposition Liberal-National Coalition acknowledge the current mix isn’t sustainable, there have been no major attempts to tackle it because it’s so easy to mount a political campaign against it..At the heart of the problem is how Australia raises revenue. It relies much more heavily on individuals’ income tax than other developed world countries. A frequent suggestion, including from groups like the OECD, is that Australia should increase the revenue it generates from indirect taxes like the goods and services tax, and cut income taxes to boost incentives..Government spending has surged since the pandemic to record highs, and is forecast to reach about 26-27% of annual gross domestic product over the three years to June 2028. That compares with a long-term benchmark of 22.5%. In contrast, total revenue is forecast at around 25% of GDP in the period, leading to structural deficits. What.What economists say.“Australia’s election outcome has the potential to deliver a boost to confidence,” while “policy continuity could bolster the prospective upswing in non-mining business investment, and drive a pickup in the housing market.”James McIntyre, economist.For now, economists, including those at Goldman Sachs Group Inc., say they’re leaving their forecasts for the fiscal impulse, GDP growth and interest rates unchanged. They expect the central bank to cut its key rate later this month to 3.85%, with a further two cuts likely by December, according to a Bloomberg survey. .Falling rates may give the government some fiscal flexibility for wider reform, said Eliza Owen, chief economist at property consultancy Cotality. .“It’s early days, but the election-night address from the prime minister indicated a departure from culture wars and identity politics, and a focus on the fundamental concerns for households, such as housing, education, health care and child care,” Owen added.