I have been covering budgets for half a century and the Chalmers 2024 budget is unique. It has been designed to reinforce other government actions and the combination will transform the fabric of Australian society, creating big winners and losers.
Major winners will be created as the government splashes money into critical minerals, renewable energy, green hydrogen, social housing, infrastructure, cyber security and “made in Australia technology” like quantum computing.
Also winners are parts of defence and those that can suck rewards from the NDIS and child care honey pots.
Prior to the budget the government stipulated that selected critical minerals will be among the growth areas of the economy and the budget confirms that strategy. Investors get rewards in those areas but nowhere else.
In previous budgets benefits were widespread across an industry rather than selected winners.
Across the nation, those that are out in the cold may find the temperatures very low.
As I explain below, banks and supermarkets are in danger of facing the cold, irrespective the lower interest rate forecasts.
Australia is on the edge of a massive copper mining boom, led by BHP in South Australia. Copper is as much a strategic mineral as the chosen areas and the government’s investments like green hydrogen are high risk – that’s why government money is needed.
What the government should be doing is working with BHP to accelerate copper investment. The Anglo takeover strategy is separate but is also a back-up in case our government and unions play hardball. Copper should be the good news mining story in the budget but like big areas of Australia it may get caught in the 700-page industrial relations legislation.
The impact of that legislation dampens budget optimism as it towers over vast areas of the nation – led by family businesses – and helps explain why business investment in the budget is so low.
In addition, government policy dictates that wages rise faster than prices so enterprises that don’t have pricing power must either slash profits, retrench staff or invest in new equipment to lift productivity.
The looming crisis for many smaller enterprises that are out in the cold became serious when, six weeks before the budget, the government recommended a four per cent rise in Fair Work’s base pay. And the budget’s money spraying at carers will further lift community wage pressure.
Yet the budget forecasts a wage price index growth of only 3.25 per cent — a huge difference from the government requested four per cent rise.
Of course, in 2023-24 there was a similar pattern. My understanding is that part of the 2023-24 pattern was created because large areas of family business held back prices in 2023-24 which impacted their profitability. They can’t do it again and they will need to retrench or raise prices.
Family business dominates employment so if there is widespread retrenchments then the government’s budget employment numbers will be challenged. And if they can lift prices it will challenge the lower inflation budget forecasts.
The budget indicates the family businesses will not invest large sums to improve productivity.
What the government actually needs is for a Fair Work increase base pay at level lower than what the government asked for.
A good illustration of how Australia works in this environment is the construction industry. The CFMEU has achieved base wage rises of 6 to 7 per cent for the next three years – about twice the government’s estimated 2023-24 CPI increase.
Queensland set the pace by attaching a series of horror work practices to those big wage rises which have exploded the cost of commercial construction (that’s one reason why the original Olympics plan became unaffordable).
Around the nation skilled building workers are being sucked into this CFMEU pay bonanza so skyrocketing the costs of the social housing and other government-inspired developments including the build-to-rent towers.
A person on $80,000 a year in the home building area can switch to infrastructure and receive $200,000 a year and work at a much easier pace. The government is planning to spend money to help infrastructure for housing but that expenditure will use the high cost, low productivity labour which will quickly spread to nearby houses.
When it comes to dwelling contracts, small operators will be required to have CFMEU-trained union representatives on staff.
Inevitably the cost of building dwellings will explode and that means the banks cannot make new loans because bank lending risks are regulated.
The big losers in this part of the budget’s structural fabric are therefore first home buyers and banks (led by the CBA), who want to gain new housing loan customers.
The winners are union-approved organisations that build or supply materials to government backed infrastructure and buildings.
While those with mortgages might be struggling with repayments, they will soon realise that to replace their dwelling will cost much more than the dwelling is worth. This will underpin the value of houses and apartments.
Among the big winners in recent years have been Woolworths and Coles, who have been able to squeeze suppliers and pass on higher costs. The budget documents include a lengthy reference to the inquiries into supermarkets pricing. That’s a warning to shareholders in Woolworths and Coles that given we have an election they may end up out in the cold.
In my view they need to undertake a major review of their total operations and invest to lower costs and spread that benefit among suppliers and customers and shareholders.
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