Comment

Paul Bongiorno
Making sense of the budget

Jim Chalmers is no stranger to the dynamics and pitfalls of federal budgets. He has worked on 16 of them in and out of government – as a staffer, adviser, shadow minister and finally, this week, at the helm himself. On Tuesday, in delivering the first Labor budget in almost a decade, he turned convention on its head.

Most obviously, he presented his fiscal reckoning just five months into the government’s term and well ahead of the traditional May scheduling. The treasurer was firmly of the view he couldn’t wait another seven months to tell Australians the true state of the economy. Prime Minister Anthony Albanese agreed.

Sounding more like Jeremiah, the prophet of doom, Chalmers told the nation “the global economy teeters again, on the edge – with a war that isn’t ending, a global energy crisis that is escalating, inflationary pressures persisting and economies slowing – some of them already in reverse”.

Opposition Leader Peter Dutton scoffs at the pessimism. He believes “Grim Jim” is confecting an alibi for failing to deliver the promised relief to Australians on cost-of-living pressures, particularly electricity. Dutton’s sidekick, Angus Taylor, is equally dismissive, saying Labor offered no caveats when it promised to reduce Australians’ power bills. There was a 2025 delivery date on that promise but nobody is pretending it can be delivered.

The Ukraine war, however, is no figment of the treasurer’s imagination. If voters are angry at their rising energy costs, their ire would better be directed at Vladimir Putin. According to Treasury analysis, retail gas prices will rise by more than 20 per cent in the next two financial years. Electricity will be hit even harder: 20 per cent this financial year, 30 per cent the year after.

Treasury notes that “Commonwealth and state government actions to accelerate the uptake of renewables and modernise the grid are expected to put downward pressure on wholesale electricity prices over time”. The trouble is “over time” is scant consolation for people on low and fixed incomes, pensioners and self-funded retirees, who need relief now.

The treasurer says he is looking at “regulatory reforms” in both the electricity and gas sectors. Direct market intervention to keep retail prices down would certainly be welcomed by domestic and commercial consumers, although some in the industry are already crying foul. Whether that means Chalmers is prepared to put price caps on energy isn’t clear. Midweek he did not rule this out.

Chalmers acknowledges electricity is the major contributor to our galloping inflation. On Wednesday, the Australian Bureau of Statistics released the latest result for the September quarter. At 7.3 per cent, it was at the high end of market expectations. Chalmers says it is in line with his budget’s forecast that inflation will hit 7.75 per cent by the end of the year. We are seeing the biggest cost-of-living increase in 30 years.

The treasurer bristles at suggestions the inflation spike is virtually a broken election promise. He told the National Press Club that everything in his budget was able to provide cost-of-living relief without working against the Reserve Bank’s efforts to reduce inflation through higher interest rates. Economist Warren Hogan says the treasurer got that right by producing a budget that was “fiscally neutral”.

Chalmers says rising costs inflict “a hammer blow on Australians, particularly vulnerable Australians”. He says inflation is “public enemy No. 1, it is our highest priority, it’s going to get worse before it gets better, but it will get better”.

How Labor deals with these challenges across its term, with three more budgets to come before the next scheduled election, is now the $181 billion question. That’s the accumulated total of deficits forecast across the four years of the forward estimates. Net debt as a percentage of the economy is predicted to be a record 28.5 per cent by 2025-26.

The opposition and some in the commentariat are highly critical of the treasurer for not coming up with a bolder plan to confront the dire challenges he so eloquently describes. Dutton disingenuously says Labor has no plans. By that he must mean no plans he likes. Or, more contentiously, the treasurer doesn’t have a magic wand to instantly solve problems, many of which were created or left unaddressed in the nine years of the recently departed Coalition government.

Chalmers warned his naysayers that his budget would be a no-frills “bread and butter” exercise. There would be no Keating-like highwire act. What we got was a foundation for something to happen in May. Anthony Albanese is a much more cautious prime minister than many expected. He is no leftie firebrand, and it will be interesting to see how far he is prepared to let Chalmers go addressing the daunting task of matching revenue and spending.

Albanese sees the budget as keeping faith with the electorate. It did deliver his big-ticket promises: almost universal childcare subsidies, expanded paid parental leave, cheaper medicines, wage bargaining reforms and jobs and skills initiatives. Unlike other first budgets all the way back to the Bob Hawke and John Howard governments, and later Tony Abbott’s, this effort did not trash promises in the name of fiscal responsibility.

Still, there is every indication this was a strategic position to consolidate trust in the electorate before the government undertakes what it thinks will be necessary to put the budget on a more sustainable footing. Chalmers says he doesn’t think this can wait until the next term. 

The treasurer is constrained by Albanese’s no new taxes promise, ruling out previous Labor reforms to expensive concessions and sticking with the even more costly and unfair stage three tax cuts due in 2024. But the shift is on. Chalmers says “the days of pretending that we don’t have structural pressures on the budget are over”. He says, “The nation does need to contemplate how we trim spending, how we show budget restraint and whether we have got the best tax system that we can have.”

Albanese appears to be on the same page. On the Today show he danced around questions about raising taxes. He said the government had fulfilled the commitments it had given, and if tax increases were on the agenda beyond multinational tax rises, they would have been in the budget. But he did not rule out rises in future budgets. He said, “It’s a bit silly to ask a question about future budgets after we hand down a budget.”

Equally intriguing is the way the treasurer has answered questions about the stage three cuts. No longer a simple “our position hasn’t changed”, twice in different interviews he has put them in the context of welcome tax relief for lowerincome earners. He says “they kick in at $45,000” and that’s important to the Labor government. On budget night he added a rider: “It’s important that people get some tax relief when the budget can afford it.”

The budget papers are forecasting the deficit to get bigger in the years ahead, reaching $44 billion in 2024, when the legislated tax cuts start, rising to $51.3 billion the following financial year, and pushing net debt to near-record levels. Compounding the case against the affordability of the stage three cuts, and adding to their economic risk, is the fact that inflation is forecast to still be above the Reserve Bank’s target of 2 to 3 per cent.

Chalmers’ answers have not precluded the possibility of amending the legislation. He said when they “kick in” but didn’t say when they might “kick out”. This could lead to options of retaining the 37 per cent bracket, rather than flattening the scales between $45,000 and $200,000, and still give the “bracket creep” relief the treasurer says he is also intent on.

On Thursday night Dutton had his half-hour in prime time, delivering his first budget reply speech. He seized on Labor’s increasingly shaky promise to deliver power bill relief. Cost of living is always a sensitive political issue and he has been gifted an opportunity.

Dutton told his party room “Labor has no answers for what is the No. 1 issue for Australians”. He also said there is plenty of time for him to develop policies to take to the next election. But he is committing to delivering “a strong economy and fiscal responsibility”. There are no clues on how he can do that with any consistency while also attacking Labor’s spending cuts and accusing the government of being high-taxing.

Oppositions are attracted to magic pudding or voodoo economics. The Albanese government has no such luxury. No wonder Chalmers was almost Churchillian in his budget speech. The treasurer said Australians know “there are hard days to come and hard decisions to accompany them”.

Dutton may call him “Grim Jim” but you don’t make a call to arms like the treasurer did in his budget speech unless you have to. The seriousness of the task was clear to anyone listening: “Getting through this period stronger than we were before will rely on the best of our character – our resilience, our pragmatism, our co-operation and our confidence, and above all our belief in each other.”

This article was first published in the print edition of The Saturday Paper on October 29, 2022 as "First time’s a Chalmers".

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