The 2024 budget is a magnificent pre-election budget, but it contains a series of high-risk assumptions which could very easily unravel if Anthony Albanese waits until May 2025.
The 2024-2025 budget is a high-spending exercise which appears to have been against the view of treasury, and the inflationary impacts of this spending will gather momentum in 2025 and by next May they will be very apparent. The extra money in the system will create a buoyancy at the end of this year and early next year.
The inflationary side effects will come later and will also be masked by the subsidies. It's crazy to hold an election when the subsidies are about to end.
It's unlikely the Reserve Bank will reduce interest rates on the basis of the temporary power and other subsidies. If there is a late-2024 rate cut then it's a perfect election time and, if there is not, then the prospect is still there.
At present, the opinion polls have the two parties very close, and Australians don’t like early elections.
But, this budget looks like it has been prepared by a cabinet which understands what could happen in 2025, and so presents a smorgasbord of benefits extending to most people in the community.
This is the sort of thing you do when you are planning an election. It is not the sort of thing politicians usually do if they are going to wait 12 months before calling a poll.
Among the specific May 2025 dangers for the government are:
• The 3.25 per cent wage rise assumption is one of the key pillars in the reduction of inflation forecast, which the government is using to fan the idea of interest rate cuts. If Fair Work accepts the government’s recommendation and in a few weeks awards a 4 per cent wage rise starting July 1 there is little chance the government’s low 3.25 per cent wage index rise will be achieved. But, the inflationary impact of those higher wages will not be felt until 2025.
• The government is pulling down inflation with subsidies across the board. If the government waits until May these subsidies will be on their way out and inflation will be set to return and will become very apparent to the electorate.
• Major deficits are forecast for subsequent financial years, so unless there is a big iron ore price rise there will not be the ability to hand goodies out in preparation for a May 2025 election. The goodies have been handed out a year early, which underlines the need for an early election.
• The huge looming rise in commercial construction costs will seep into home construction costs next year.
• The ‘Made in Australia’ campaign and the backing of critical minerals and green hydrogen are high-risk commercial strategies. If the government waits until May, then the risks involved in these strategies will become much more apparent as other countries are heading in similar directions.
• The US is full of uncertainty, particularly in 2025 when there is a risk Donald Trump will become president, which could create considerable problems for an ALP government. Neither Trump nor Joe Biden carries US certainty and are part of the US risk profile of waiting until May.
• At this stage, the horrors of the industrial relations bill are not fully understood, and in particular those working as casuals don’t understand their current 25 per cent cash premium could end. The full implications of a union representative being in every enterprise creates a nightmare for family businesses. The restrictions to the gig economy will harm a great many people.
The industrial relations legislation is not due to be operational until August 26, and it would be very easy using regulations, lack of action and other means to make sure there are no fundamental changes for anyone in 2024.
But, in 2025 the horrors will become much more apparent, so it is not a good time to have an election.
To defend themselves, the Coalition will of course point out all the above points.
One of the greatest weaknesses in the ALP’s position is homeownership is being taken away from a generation of people to be replaced by rentals.
The Coalition is uniquely placed to make it possible for those in their twenties and thirties to buy dwellings, and would need to be a cornerstone of their policies.
The fact Chris Bowen has now embraced gas as an important part of the renewables aims, plus the power subsidies, curbs a Coalition energy attack, but overall government energy policy will still leave openings for the Coalition.
And, there is, of course, the migration mess and the rise in boat arrivals as a result of the mistakes in handling detainees.
But, a 2024 election win is a much easier task than winning an election in 2025, when Tuesday’s budget will start to unravel.
More Coverage
Hear hear: NSW Libs deputy’s video chat a wheely bad idea
If you’re a former roads minister then ignorance of the law isn’t a solid defence for zooming, or more precisely using FaceTime, behind the wheel despite a history of being chauffeured.
Plug pulled on $750m green hydrogen plant
A $750m green hydrogen project in South Australia has been quietly shelved, adding to a string of projects failing to move beyond a feasibility stage.
It’s now the day after the budget, and the dust has settled. The smarter operators in the ALP government will already realise the safest course to adopt will be to call an early election in late 2024 or early 2025.