Huge boost to Medicare drives budget’s cost-of-living measures

More than 11 million Australians will gain from a $5.7 billion funding boost for Medicare that aims to lower the cost of visiting the doctor as part of a federal budget that promises to subsidise energy bills, increase rent assistance and expand income support for people out of work.

The spending splurge will cost $24 billion over five years across more than a dozen major initiatives despite the government’s rhetoric about the need for restraint on outlays.

Treasurer Jim Chalmers revealed the spending plans with a crucial claim that the new measures would help end a surge in consumer prices, forecasting headline inflation would fall from a height of 7 per cent earlier this year to 3.25 per cent by the middle of next year.

Pointing to a $4.2 billion surplus this financial year, Chalmers claimed his economic plan would deliver a “stronger economy and a fairer society” even though economic growth is forecast to slow to just 1.5 per cent next financial year.

The brief surplus will be followed by deficits of $13.9 billion next year and $35.1 billion in the subsequent year, sparking debate about tough policy decisions needed to end more than 15 years of structural deficits.

Asked whether he would reconsider the “stage three” tax cuts that were legislated in the last parliament but remain controversial because of their cost, Chalmers insisted he was focused on this year’s budget rather than future decisions to repair the budget bottom line.

Speaking to reporters in a press conference in the budget lock-up, the treasurer revealed that the cost of the stage three tax cuts had swollen to $69 billion over the four years to June 2027, from an earlier estimate of $41 billion.

The tax cuts will cost $21.5 billion in the year to June 2025, the first year the benefits flow to all workers earning more than $46,000 a year.

The Parliamentary Budget Office estimated last July that the tax cuts would cost $243.5 billion over the decade to 2033. Greens leader Adam Bandt has called for them to be scrapped while Grattan Institute chief Danielle Wood has proposed an overhaul to cut their cost by about $8 billion a year.

The healthcare plan will triple the incentives for GPs to offer bulk-billing to patients with Commonwealth concession cards and to children under the age of 16, ensuring face-to-face consultations and most telehealth services will be free for 11.6 million patients.

Stung by soaring energy prices over the last year, the government will also spend $1.5 billion over five years on an energy price relief plan for more than 5 million households, with states and territories expected to match it and bring total assistance to $3 billion.

Treasurer Jim Chalmers and Finance Minister Katy Gallagher.Credit: Alex Ellinghausen

The subsidies will combine with price caps on coal and gas the government unveiled in December to limit the increase in national retail electricity prices to 10 per cent over the year to June 2024, easing concerns over the previous forecast of a 36 per cent increase.

The subsidies will be worth up to $500 for households and $650 for eligible small businesses, but their value will vary by region because the federal government will rely on states and territories to transfer the cash to energy retailers to lower the bills before they reach consumers.

The eligibility will be limited to pensioners, veterans, seniors, concession card-holders as well as recipients of the Carer Allowance, Family Tax Benefit and a range of existing state and territory concession schemes that already offer energy subsidies.

In NSW, Victoria, Queensland, South Australia and Tasmania, the Commonwealth consumer rebate will be worth $250 and will be matched by those state governments.

The Commonwealth rebate will be $175 in Western Australia, the Northern Territory and the Australian Capital Territory, with those governments contributing the same amount.

With the budget papers warning of higher rents for Australians who cannot afford to buy their own home, the government will also increase rent assistance by 15 per cent for 1.1 million households at a cost of $2.7 billion over five years.

In the biggest single measure for the most vulnerable Australians, the government responded to months of pressure over the JobSeeker allowance with a decision to add $40 a fortnight for the unemployment benefit as well as Youth Allowance, Austudy and other income support.

The increase will cost $4.9 billion over five years and will increase the base JobSeeker rate from $693 to $733 a fortnight from September, coinciding with a regular indexation increase that is likely to add another $20 or more to keep up with inflation.

Finance Minister Katy Gallagher said a further boost in the JobSeeker rate for people aged 55 and over, giving them $50 more a fortnight if they have been out of work for nine months, addressed growing concern at the number of older women struggling to find work. This benefit was previously restricted to people aged 60 and over.

With inflation running at 7 per cent, shadow treasurer Angus Taylor has named the cost of living as the crucial test for the government and complained that Labor was spending too much and raising too much in taxes.

A key section of the budget addresses this argument by estimating the headline inflation rate will be 0.75 percentage points lower by June 2024 because of the measures taken to cut energy bills.

The estimate is a pivotal claim when Treasury officials forecast inflation will fall from 7 per cent in the March quarter of this year to 6 per cent in the June quarter this year, followed by a steep decline to 3.25 per cent in the June quarter of 2024, raising the stakes in political debate over the economy if the government misses that forecast.

The Coalition government forecast deficits worth $224.7 billion over the four years to 2026 when it released its March budget before going to the election last year.

Tuesday night’s budget shows an extraordinary turnaround to produce the small surplus this year – the first since 2008 – before a return to red ink in the next year, with the deficits worth $109.9 billion over the four years to 2027.

Total Australian government payments will be $631.4 billion this financial year but will climb to $682.1 billion next year, equivalent to 26.5 per cent of GDP and higher than the levels seen during the stimulus measures of the global financial crisis.

Australian government receipts will be $635.6 billion this year and will rise to $668.1 billion next year, or 25.9 per cent of GDP.

In a sign of the structural deficit that will last for years without policy change, the payments are forecast to be 26.1 per cent of GDP in fiscal 2027 while the receipts will be 25.2 per cent of GDP.

Commonwealth debt will rise from $858.7 billion in gross terms this year to $1.1 trillion by June 2027, with no forecast for long-term return to surplus or a reduction in the gross debt.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.