Might look like Chalmers is spending like a drunken sailor, but this is what’s really going on

Jim Chalmers has delivered a set of budget numbers covered in red – that’s bad news for Anthony Albanese and also for Peter Dutton.

In the run-up to an election that has to be held within six months, the budget itself confirms the problems that governments of both persuasions have built up over decades and the laws of fiscal arithmetic that they are confronting.

Jim Chalmers has delivered a budget update awash with red ink.Credit: Alex Ellinghausen

After two successive surpluses, the first in 15 years, Chalmers now oversees a budget plunged back into deficits.

They aren’t small ones either. A deficit of $26.9 billion this financial year is sizeable and represents a near-$43 billion deterioration since 2023-24.

But for 2025-26, the treasurer reckons the deficit will expand to $46.9 billion. It would be the sixth-largest budget deficit, in nominal terms, on record.

Chalmers talks about the growth rate of government spending being just 1.3 per cent out to 2027-28. But that hides what’s happening right now. This financial year, the increase is a substantial 5.7 per cent with the lower longer-term rate only achieved with some “courageous” assumptions in a few years’ time.

His complaint that much of this spending is unavoidable has some merit.

The single largest contributing factor to the lift in spending is the GST, which, as a function of how it is accounted, is treated as expenditure. Unless a government wants to upset every premier and chief minister and destroy funding to hospitals, schools and police forces, reducing the GST is a non-starter.

Lifting spending in the care parts of the economy is a necessity.

The recent royal commissions into aged care and veterans, coupled with the inquiries into areas such as childcare, confirmed that for too long, not enough thought had been put into these vital areas that sustain society.

For years, governments short-changed the elderly, old soldiers or the people prepared to care for our children while we went to work. That has to come to an end.

As economist David Bassanese noted, while it looks like the government is spending like a drunken sailor, “the spending is not on whisky and wild times but increased care for some of the most disadvantaged in the community”.

But no matter if the spending is well intentioned or deserving, it’s still spending at a time when the Reserve Bank is trying to get inflation down.

The political buck stops with Chalmers and Finance Minister Katy Gallagher. They are the ones who have to make the choices about what to spend money on and what to cut.

There have been some nips and tucks but nothing that could be described as a serious attempt to rein in spending.

This leads to the problem facing Dutton, his shadow treasurer Angus Taylor and finance spokeswoman Jane Hume.

They’ve talked a big game about government spending, particularly around Labor initiatives such as Future Made in Australia. But the reality, based on the budget, is that the only sizeable and enduring cuts can come in those areas that are politically toxic (such as aged care).

That’s before the Coalition’s own spending initiatives – such as its wild nuclear plan – have even been squeezed into the budget.

Together, the state of the budget, what the community needs and what the community wants, requires a major change to the tax system.

Both sides know the current system, reliant as it is on the nation’s army of wage slaves, is failing the economy and future generations. It cannot continue in its current form.

Chalmers’ budget update revealed a 24 per cent collapse in tobacco excise collections, which had become the fourth-largest source of Commonwealth revenue.

It’s just another sign that the system is failing – from personal tax to business tax to incentives for research and development. And given the budget is built on the tax system, this is a problem for both sides of politics.

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