Ten thoughts on the federal election results

Well, it's a wrap: as widely expected, Labor won a second three-year term, increasing its majority from 77 to what looks like at least 85 seats.

Labor also looks set to increase its share of the Senate by a few seats to 28, meaning it will be able to pass legislation with only the support of the Greens (11 seats), instead of also having to deal with independents like David Pocock this time around.

The biggest losers were the Liberal National Party (LNP), which notched up the lowest primary vote in its history, losing a dozen seats in the House—including leader Peter Dutton's—along with a handful in the Senate.

An unthinkable result only a few months ago, but the political winds sure can shift quickly!

Anyway, I have some thoughts on what happened and the outlook from here. Please keep in mind that I'm an economist not a political analyst, so I'm probably wrong—i.e. take everything that follows with a large grain of salt.

1. This was not a vote of confidence

Labor's primary vote increased by around 2% to 34.7% of the total, yet its share of the House rose by around 10%—such is the nature of our preferential voting system and its ability to determine marginal seats.

But such a small swing is not a resounding vote of confidence in your government. The Australian public aren't happy with how the last three years went, and they're not that optimistic about the future.

The Albanese government was much too slow to pivot on inflation, and with its big spending growth and repeated cash handouts, you could argue that it never really did. If it wants any chance at a third term, it needs to improve its policy-making by developing a better feel for the country's economic pulse.

2. Trump cast a long shadow

The largest swings were towards independents like the Teals (+3.1%), and away from the LNP (-4.0%).

Some of that was from the LNP's own ineptitude. As a friend said to me, it's hard to win an election when your biggest policy idea is 25 cents off fuel. But the shift away from the LNP was also due to the spectre of US President Donald Trump, which helped flip the outcome of this election and the recent Canadian one in favour of the left-of-centre moderates.

3. The Liberals need to find their Menzies

The Liberal Party is having an identity crisis. Throughout the election campaign, leader Peter Dutton and his colleagues struggled to differentiate themselves from Labor, earning them the title of Labor-lite.

The rhetoric was to attack Labor's 'reckless' spending. The reality was to match it at every step, culminating in the election-eve release of costings that showed a worsening of the budget deficit over the next two years under a LNP government.

The plan to repair the budget with a Future Generations Fund, which involved borrowing and spending money while structurally weakening the Budget, is peak Yes Minister!—it's deeply unserious, and the electorate knew it.

Do the homework and come up with an actual plan. Not a John Hewson-style 650-page policy document that not even he could explain to voters, but something that would resonate with a modern-day Robert Menzies, who formed the party from the ashes of the disastrous 1949 campaign promising "a true revival of liberal thought".

4. The Teals are here to stay

The Teals have some good ideas and also many bad ones. Their ongoing success comes at the expense of the Liberal Party, which needs to win these seats back if it's ever a chance govern again.

That means rediscovering its economically conservative values and perhaps finding some new socially progressive ones, such as Peter Dutton's election-eve backflip to legalise vaping—a final act that reeked of desperation rather than consideration.

The Labor majority in this Parliament means that the Teals will again be lame ducks. However, all six that were contesting re-election retained their seats (Kylea Tink's seat was abolished and she retired), and with Nicolette Boele ahead in Bradfield, they may soon hold as many seats in Greater Sydney as the Liberals.

5. The time for fiscal excess is over

We only have three-year political cycles in Australia, so voters tend to be much more critical of incumbent governments once they have served two or more terms. The collapse of Labor's support in the pre-Trump 2.0 period shows that voters were not at all sold on the Albanese government's performance, which effectively relied on good luck and bracket creep to balance the books.

That needs to change. Australia's debt to GDP is still low by global standards but it's growing quickly, and its economy is not like most peers: it's a small, open economy that's heavily dependent on a handful of boom/bust mineral resources for revenue.

Maintaining a low debt to GDP ratio is effectively a diversification plan: we don't know when the next crisis is going to come, but when it does, we should have the fiscal capacity to ease any adjustment process, preventing a large fall in living standards.

If Labor fails in this task then its re-election chances in 2028 will be slim, especially if the Liberals get their act together.

6. End the culture wars

In its first term, the Albanese government pursued divisive, costly—economically, politically, and socially—cultural wars, with the failed half-billion-dollar Voice referendum serving as the centrepiece.

In opposition, Peter Dutton spoke positively about Trump (pre-Liberation Day), initially adopted many of his culture war policies such as banning work from home, and continued to positively associate with people who went full-MAGA, such as senator Jacinta Price and billionaire mining magnate Gina Reinhart.

The Clive Palmer-backed Trumpet of Patriots Party, which campaigned heavily on cultural issues, won zero seats. It's high time both sides of politics give it a rest and start paying more attention to the issues that people really care about.

7. Chris Bowen should be put to pasture

Labor campaigned well, and they were able to nullify the LNP's attacks on what has been a calamitous three years of energy policy by successfully keeping energy minister Chris Bowen completely out of the spotlight.

But the recent events in Spain showed how precarious a high-renewables share grid can be for a country. I've written frequently about the diminishing returns to renewables investment and how it can destabilise a grid when its share of total generation gets high enough. The costs of such instability are not modelled in any of the government's work.

So, as it did with the sensible gas backflip, now is the perfect time for Labor to quietly abandon its completely arbitrary 82% renewables share target. If Chris Bowen needs to be put out to pasture for that to happen, so be it.

As with the country's precarious fiscal situation, if Labor fails to change its ways in the energy space then this will be prime territory for a renewed Liberal Party to attack in three years.

8. A referendum on nuclear power

I know that nuclear power wasn't technically voted on, but Peter Dutton championed the idea throughout his leadership and now he's no longer a politician. Make of that what you will.

I personally think Dutton's approach was the wrong one—as he so often did, he eschewed traditional Liberal values and ignored the natural move towards energy decentralisation by adopting a big-government asset ownership model—so it's a real shame that nuclear will die along with his political career.

With nuclear still illegal in Australia because of a shady backroom deal done back in 1998, any of the advances that are being made on small modular reactors—which may one day prove to be excellent, carbon- and pollution-free alternatives to gas fired firming plants in a renewables-heavy grid—will be out of reach for Australians.

So, there's a reasonably good chance that we're all going to be worse off and less economically competitive in the coming decades because of Dutton's missteps in this space.

9. The immigration backlash will grow stronger

Both major parties took cuts to immigration to the election, reflecting the shift in median voter sentiment on that issue. Those cuts have already happened, with the data showing that the stock of temporary visa holders in Australia has been flat for a year now.

However, this has now become such a hot potato issue given how it intersects with housing and other policy areas that our governments have messed up over the decades that I suspect we'll get an overreaction, which will come at a cost—the biggest losers will be the university sector, labour-intensive businesses, and anyone hoping for lower taxes (fewer workers plus an aging population—do the maths).

10. My unsolicited advice won't be taken

We've read Jim Chalmers' 6,000-word economic manifesto. We've seen Albanese's vision for a Future Made in Australia.

What's missing from both is anything about how to improve productivity, fix the country's structural budgetary issues, or achieve meaningful reform that will remove the self-imposed constraints preventing everything from affordable housing to technological progress.

But in three years, Labor will have no excuses. This is now their economy, and voters will judge them for it.

That means the time to do something meaningful is now. But my prediction is that this Labor government will mistake its good fortune at the ballot box as a vote of confidence, carrying on its merry way.

In fact, I don't believe that this Labor government even cares about fiscal sustainability or productivity-enhancing reform. So, now that it has to deal only with the Greens, I expect even more damaging policy to be passed, such as the tax on unrealised superannuation gains (not indexed for inflation, of course) and whatever else they've been holding onto for a possible second term.

I'd love to be proved wrong. But there's a reason why people say that a leopard doesn't change its spots.

Have a great day.