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Labor’s budget confirms the election priorities of the energy transition, housing and cost-of-living support, while securing a second consecutive surplus. Its targeted spending is intended to avoid a rebound in inflation. By Karen Barlow.
Chalmers targets second Labor term with strategic budget
Jim Chalmers’s third budget has set the election parameters with ambition, aspiration and the big ask of government: cost-of-living relief for struggling households.
The Treasurer has engineered, with a federal election less than a year away, the first back-to-back surplus in nearly 20 years, offered $3.5 billion in across-the-board energy bill relief, and backed Anthony Albanese’s innovation and investment vision for a Future Made in Australia with a $22.7 billion package over 10 years. Overall the budget added more than $7.8 billion in new cost-of-living support.
The centrepiece of a likely second-term agenda relies on tax incentives to open the door for business and energy investment and to support and drive local manufacturing.
“This is a budget for the here-and-now and it’s a budget for the decades to come,” Chalmers told parliament.
Asked during the budget lock-up about the inflation challenge, he said the task had been to show restraint while “people are hurting.”
The big spending will come, however. There are many billions of dollars placed in the budget’s outward years, some of which can be found in an expanding contingency reserve for miscellaneous needs such aged care wages subject to Fair Work cases.
One of the few surprises after extensive pre-budget announcements is the $3 billion for services for veterans and the freezing of the maximum price of medicines under the Pharmaceutical Benefits Scheme for everyone. For pensioners and concession card holders, all PBS medicine costs will be frozen for five years.
Finance Minister Katy Gallagher told The Saturday Paper that the government is providing a “very honest picture” of the cost of delivering services, also known as “unavoidable spending”, such as pensions, aged care and the NDIS, in the budget.
Trouble is ahead for the local and global economy, with Treasury pointing to flat global growth and a weakening Australian economy over the mid-term. Growth is forecast to be just 1.75 per cent this financial year and 2 per cent next.
There’s also a forecast softening of the labour market, meaning more Australians could end up out of work, though not at pre-pandemic levels.
“I want Australians to know that despite everything coming at us, we are among the best-placed economies to manage these uncertainties and maximise our opportunities,” the Treasurer said in his budget speech.
Tax cuts for all were also locked into the budget, with the amended stage three tax cuts.
The energy bill relief is $3.5 billion over three years for a $300 rebate for all households and $325 for one million eligible small businesses.
As tipped for renters, in the coming key election battleground of housing, $1.9 billion will be spent to increase the maximum rates of Commonwealth Rent Assistance by an extra 10 per cent, on top of last budget’s 15 per cent lift.
Could these offerings drive up in inflation and make, for example, power bills worse? Chalmers insists it is “meaningful help”, while the budget papers note energy bill relief and rent assistance will directly reduce headline inflation by 0.5 of a percentage point in 2024-25.
The third Albanese Labor government budget is forecasting a surplus of $9.3 billion for 2023-24 to follow the prior year’s $22.1 billion surplus. It is largely on the back of much higher-than-expected tax payments from Australian workers and companies.
The Coalition, which delivered back-to-back deficits over nine years, regards the excess revenue as a “windfall surplus”, saying a structural surplus is needed.
As revealed in the budget, the horizon is redder. The deficit projected for 2024-25 is $28.3 billion, up more than $10 billion on what was expected in the December budget update. And for 2025-26, it is $42.8 billion – another increase over the $35.1 billion forecast in December.
Gross debt is down for this financial year to $904 billion and it won’t hit a trillion dollars until 2025-26.
https://www.youtube.com/watch?v=XIi10B_mmoU
One of the key government spending figures is the $1.12 billion in the column for “decisions taken but not yet announced and not for publication”. It rounds out to $6.67 billion over the next four years.
It is less than the $3.2 billion in the last budget, or $7.8 billion over the entire budget, squirrelled away in May for either security reasons, commercial sensitivity or a need for maximum impact at some other time.
What is clear is that Albanese is eyeing “ a better future” as the nation transitions to clean energy.
The Future Made in Australia innovation drive has been revealed as a $22.7 billion package, made up largely of tax incentives to “attract and deploy” investment and transform the economy.
Among an array of measures, there’s to be a $7 billion critical minerals production tax incentive, a $6.7 billion hydrogen production tax incentive, and the development of a “single front door” for “transformative” investment.
There is also $1.7 billion for a Future Made in Australia Innovation Fund and significant focus on batteries, renewable hydrogen, quantum computing, critical minerals, green metals and low carbon liquid fuels.
“That is the big reform piece in the budget,” Chalmers told The Saturday Paper, while stressing there will be protections built into the system to stop any abuse of taxpayers’ money.
But for all the talk of powering the transition to net zero there is nothing in the budget for residential electrification.
There’s $1.9. billion in loans offered to help build 40,000 social and affordable homes on top of the national housing agreement with states and territories, as well as the previously announced $1 billion to house women and children fleeing domestic violence.
All up, much of the new spending is hard to see. The government is more than happy to highlight that it has found $27.8 billion in savings and reprioritisations over four years.
The budget papers show $11.7 billion worth of new policy decisions and $32.5 billion over five years.
When it comes to new revenue to pay for it, however, the papers show just $2.2 billion this financial year and $8.1 billion over five years. Some $1.3 billion in tax receipts over five years has been forgone thanks to the stage three tax cuts.
Chalmers paints the budget as an offering of “relief and reform”, a fine balancing act in difficult times for many households.
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