Surviving Donald Trump among key challenges for next Federal government, says AMP’s Shane Oliver

Australia’s next Federal government will need to make the economy as “strong as it can be” in a bid to survive US President Donald Trump and his erratic polices, according a top economist.

AMP chief economist Shane Oliver on Tuesday said Mr Trump’s tariffs risked US and global recession, direct taxes on Australia’s exports and therefore less demand, as well as increased geopolitical threats.

There’s also pressure for Australia to deregulate and cut taxes, and ramp up defence spending.

“This means making the economy as strong as it can be — so driving a bigger pie should be the key focus,” Dr Oliver told clients in a note.

The next government will also need to boost productivity to improve living standards, with cost of living pressures top of mind for voters.

Boosting poor productivity — the main driver of decent real wage growth — requires tax reform, deregulation, competition reform and improved education.

While the Government has been “lucky with a nearly $200 billion revenue windfall . . . much of this has been spent contributing to the surge in public spending leading to higher than otherwise inflation and interest rates”.

“Structural spending pressures around the National Disability Insurance Scheme, health, aged care, defence and public debt interest are now taking the budget back into deficit when public debt is already high,” Dr Oliver said.

“They need to be checked and/or offset by savings elsewhere.

“Tough decisions will be needed as we can’t just keep relying on an ever-high tax burden on millennials and Gen Z to pay for things”

Dr Oliver added the relatively modest difference in economic policies between the Coalition and Labor suggested minimal impact on investment markets if there was a change of government.

“The main risk for investment market mat come if neither side win enough seats to govern, forcing a reliance on minor parties or independents, further delaying productivity reforms and in the case of a minority Labor government forcing it down a less business-friendly path.”