Labor urged to resist pre-budget cash splash in favour of banking $12bn revenue windfall

Hardworking taxpayers will boost Labor’s budget bottom line by as much as $12 billion, as economists urge the government not to squander the “lucky” windfall on a pre-election cash splash.

The “people power” of hardworking taxpayers will help boost Labor’s budget bottom line by as much as $12 billion, as economists urge the Albanese Government not to squander the “lucky” windfall on a pre-election cash splash.

Keeping a lid on inflation and banking the extra income from higher than expected tax receipts and mining export prices should be priorities for the March 25 budget, even as experts acknowledge the process could prove a “waste of time” if Labor loses the election due in May.

Economist Chris Richardson says both parties are seeking a mandate to be mediocre on budget reform. Picture: AAP Image/Lukas Coch

Economist Chris Richardson said it was still unlikely Labor could achieve a surplus, but saving what he forecast to be about $12bn in extra revenue would almost halve the $26.9bn deficit projected for 2024-25 and also support the Reserve Bank to cut rates further.

However with an election looming, Mr Richardson said he expected the government would instead offer sweeteners to voters in key seats.

“The raw politics of ‘oh look we have a third surplus’, versus your electorate gets a new bridge, library, swimming pool or car park, well I suspect that voters are going to be more swayed by the specifics of a car park than a general surplus,” he said.

Treasurer Jim Chalmers has delivered two budget surpluses, and is expecting a smaller than forecast deficit in this third year. Picture: NewsWire / John Gass

Mr Richardson said both Labor and the Coalition appeared to be seeking a “mandate to be mediocre” as neither have floated any plans to pull the budget out of the red long term.

He also warned there was “no magic pudding” where Australians could get both direct cost of living support and interest rate cuts.

“You can get extra money from a Reserve Bank and rate cuts or you can get extra money from a government and an opposition bribing their way to an election win, but you can’t get extra money from everything,” he said.

Mr Richardson said a widely anticipated extension of the $300 energy bill subsidy for every household alone was the equivalent of about half an interest rate cut in terms of the inflationary impact.

AMP Head of Investment Strategy and Chief Economist Dr Shane Oliver says he expects more spending ahead of the election. Picture: NewsWire / John Appleyard

AMP chief economist Shane Oliver said just as the Morrison government handed down a March budget in 2022 only to lose the election in May, Labor’s efforts this year might be a “bit of a waste of time”.

“Budgets take a lot of effort … but unfortunately it could all be academic, because if Labor loses the election then the Coalition will want to do their own budget at some point,” he said.

Mr Oliver said he expected revenue upgrades of between $10bn and $12bn, but feared the budget would be “more about politics than economics”.

“I don’t think we’ll see good policy, I think we’ll see bad policy in the form of more government spending,” he said.

Cost of living remains a concern for voters, but government spending risks delaying further interest rate cuts.

Employment and Workplace Relations Minister Murray Watt said Labor would take a “similar approach” this budget to past years.

“Expect a continuation of the responsible economic management that we’ve displayed in the last couple of years, a tight rein on spending, but also providing cost of living relief where we can to support Australians,” he told ABC.

“We’ve demonstrated that we are prepared to make hard decisions around spending.”

A spokesman for Treasurer Jim Chalmers said the treasury and finance departments were not expecting “anywhere near a surplus” this budget, “but the deficit for this year is already smaller than what we inherited”.

“We’ve delivered two surpluses in our first two years and are on track for a much smaller deficit in our third compared to what the Liberals left us,” he said.

The government will also be counting the cost of Tropical Cyclone Alfred, with the full extent of the damage bill still unknown as flood waters continued to wreak havoc in south east Queensland and northern NSW over the weekend.

Originally published as Labor urged to resist pre-budget cash splash in favour of banking $12bn revenue windfall