Jim Chalmers has just on a month left before he delivers what will be his make or break budget. Thanks to the election timing, it will be his only opportunity this term to take any of the bold reform steps the nation needs to support an ageing population from a shrinking tax base.
Chalmers’ first budget (after a May election) last October was just a warm-up act. The budget he delivers in May 2024 will be written to secure a second Labor term sometime in the ensuing year.
So, if the doctor is to prescribe the medicine we need, this budget is the opportunity.
It will be difficult, so difficult that it’s unlikely to see any reforms which rein in public spending or grow tax collections.
Measures to mitigate rising living costs will be the feature of this budget, particularly for those feeling the pain of rising mortgage rates, energy prices and general increases in the grocery bill.
The Treasurer’s modest attempt to collect a thimbleful of extra revenue from the bucketloads that support the superannuation system show just how hard reform is – particularly if it even vaguely appears to affect retirement incomes.
While rising wages will, in the medium term, help boost income tax receipts they will not be enough to keep up with the demands the cost pillars of energy transition, ageing (through the health, pensions and aged care systems) and national security impose on future budgets. And then there is the NDIS which is exceeding any cost expectations Chalmers or his then colleagues in Treasurer Wayne Swan’s office had when they launched the scheme.
The unfortunate truth for Jim Chalmers is that the times may not favour him or his natural desire to be a reforming Treasurer who delivers both prosperity and wellbeing. Hopefully, times will come to favour him.
The International Monetary Fund forecasts for the world economy do not bode well in the short term for this hope. Based on its updates last week, you would have to say that growth at best will be sluggish over coming years and there will be an ongoing challenge to simply repair government balance sheets, let alone use them improve living standards for those most in need.
Australia is in a better position than most. By IMF forecasts, our net debt will be topping one-third of Gross Domestic Product over the rest of the decade (about triple what it was when Chalmers was working on budgets for his old boss Wayne Swan). But this is still spades below the giant economies where debt and GDP are unhealthily close to parallel.
As I’ve noted before, this government is not short of big reviews which will influence economic and social outcomes – and we will see the impact of some of them over this budget period.
Both the reviews of defence and migration should hit the decks over coming weeks. Defence, you can be sure, will drive the nation towards extra spending (with budget impact). On what we know, it also puts us in the challenging position of being militarily at odds, although not in open conflict, with our biggest trading partner, China.
Migration may contain the seeds of hope. While socially troubling for some, the fact is that population growth from immigration fuels economic growth and, indeed, may be the salve Chalmers or his successors need if they are to revive our national economic success. But are they up for increasing the migrant intake?
You can be sure by now, however, that most of the budget measures will be locked in. And Chalmers’ focus will turn to how to sell the government’s biggest policy setpiece. Can he match the pizazz of Paul Keating who pitched his 1988 budget as the one “that brings home the bacon” or the chutzpah of Peter Costello who encouraged Australians to “have one for the country” in response to his 2004 budget baby bonus? (And some of us did).
Handouts to stop the needy falling further behind don’t have the same allure but they are what is needed for now. It will take another term of government, which right now looks a certainty, for the doctor to deliver anything more ambitious.
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