Treasurer Jim Chalmers’ “solid and sensible” budget is not so much good or bad as incomplete. It hints at “hard decisions” to be made but doesn’t make them. It tells us times are tough and getting tougher – which we already knew. What we don’t know is what the government plans to do about it. We were told some things, but one big gap remains.
Chalmers said the budget’s priority was to provide cost-of-living relief. No, not directly – its true focus is on reducing the budget deficit so that the Reserve Bank won’t have to raise interest rates as much to control inflation.
But the big fall in this year’s deficit – made possible by the greater tax revenue from higher export prices – isn’t expected to stop the deficit rising the following year.
And although the budget does include measures that will cut costs for some families – for childcare and prescriptions – these are election promises, not newly announced moves.
The budget’s biggest bad news is that the cost-of-living squeeze is now expected to continue for another two years, with price rises continuing to outpace wage rises. And even when the squeeze stops, real (inflation-adjusted) wages will be a lot lower than they were before the pandemic.
Strangely, the budget’s best news is that the economy’s rate of growth is forecast to slow to just 1.5 per cent in the year to June 2024.
What sounds bad is good when you remember the growing likelihood of a global recession. While most rich economies will go backwards, we should only slow down. Our rate of unemployment is predicted to rise just a bit from its near 50-year low.
World recessions mean we earn less from our exports. They don’t necessarily drag us into recession, as our earlier run of almost 30 years without a recession demonstrates.
Still, a forecast is only a forecast, not a guarantee. The main factor determining if we too end up with negative growth will be whether, in its efforts slow the rate of inflation, the Reserve Bank accidentally raises interest rates more than needed.
This is the BNPL budget – buy now, pay later. Labor bought an easy return to government by promising lots more spending on better government services, while also promising not to increase any taxes – apart from on wicked multinationals – and not to interfere with the already legislated stage three income tax cuts, due in July 2024.
This budget is Labor’s payment for the election it bought. But, as with BNPL schemes, payment comes in four instalments. This is just the first of the four budgets the government expects to deliver before the next election.
Chalmers says it’s “a beginning of the long task of budget repair, not the final destination”.
True. Another way to put it is that this is only the start of his Dance of the Four Veils. In the end, all will be revealed. But right now, we’ve been shown little.
Chalmers keeps saying he wants to “start a conversation” about what services we want government to provide, and how we should pay for them.
A few weeks ago, he got the conversation going by entertaining whether, in the light of all that’s transpired, the stage three tax cuts are still appropriate.
But his boss Anthony Albanese quickly closed the conversation down. No decision had been made to change the cuts, he said firmly.
Since the cuts aren’t due for 20 months, there’s no need for any decision to be announced in this budget, or in next May’s budget. Indeed, any decision could be held off until the third veil is removed in May 2024.
Albanese is waiting and manoeuvring until time and circumstance have convinced us it would be better for the promise to be broken. He’d like people marching the streets with banners demanding the tax cut be dropped.
Those hugely expensive and unfair tax cuts would be so counterproductive to all the problems Chalmers is grappling with, I don’t doubt that at a propitious time, a decision to reduce them will be unveiled.
This will set the stage for the final unveiling of the government’s plan to increase taxes after the next election.
Why am I so sure? Because everything the government is doing and saying points to the need for taxes to go up, not down.
Finance Minister Katy Gallagher has slashed away at the Morrison government’s spending on “rorts and waste”, to make room for Labor’s spending promises – not all of which escape a similar label.
But she has also exposed the way her predecessors were holding back spending on aged care, health, education and much else. Add the National Disability Insurance Scheme, defence, and the interest bill, and you see that strong spending growth in coming years will be unavoidable.
Except for the government’s reticence on tax issues, Chalmers is justified in his repeated claim that this is a “responsible” budget. His more debatable claim is that the budget’s first priority was to provide cost-of-living relief.
That claim came with a heavy qualification: that relief had to be “responsible, not reckless … without adding to inflation”. Yes, the adults are back in charge of the budget.
But the government reticence on tax issues is a big exception to its record on responsible budgeting. The huge increases in gas and electricity prices – mostly collateral damage from Russia’s war on Ukraine – that will do most to continue the cost-of-living squeeze on families this year and next are counterbalanced by the massively increased profits of our exporters of fossil fuel.
Labor’s irresponsible election promise to bind its hands on tax changes has stopped it giving hard-pressed households the consolation of seeing most of those windfall profits taxed, and so returned to other taxpayers for use on more deserving causes.
