Budget will draw a stark contrast between economic and political agendas

Opposition Leader Peter Dutton with shadow Treasurer Angus Taylor. Picture: NewsWire / Nikki Short

Whatever message of optimism Jim Chalmers seeks to inject into Tuesday’s budget, there is one undeniable number in the papers already that will tell a contrasting story.

No form of denial will obscure the reality that government spending over the past three years has become unsustainable. Or as one economist has described it: “obscene”.

Surely this budget would have, in ordinary times, been a catalyst for restraint. This is unlikely. And this is Chalmers’ challenge. Entrenching dependency might have political appeal but will leave the underlying structural problems unresolved.

The Australian Industry Group’s pre-budget submission shows combined federal and state government spending rising by 7.9 per cent to $953bn for 2023-24. This level was so disturbing, according to economist Saul Eslake, that he was provoked into calling for the re-establishment of the Loans Council to put a lid on state profligacy.

No such mechanism has existed for the commonwealth, however, beyond the tolerance of taxpayers when they become voters every three years.

Since the mid-year budget update, the Albanese government has added an estimated $10bn to the bill. And the election campaign hasn’t even officially started. MYEFO pointed to total government spending rising a further 5.7 per cent this year.

“Federal spending is forecast to peak at 27.2 per cent of GDP in 2025-26, the highest level since the economic reforms of the mid-1980s,” says the Ai Group submission.

While it acknowledges the levels of federal and state spending had underwritten growth in a weak economy, with the private sector in recession, the party can’t go on forever. This sort of spending has serious implications for a “durable” economic recovery. Eventually there will be a reckoning over the balance sheet. As the Ai Group report says, this will ultimately result in higher taxes, public sector cuts or simply more debt to manage the structural deficits.

The Coalition has attracted criticism, internally and otherwise, over the past two weeks for being underdone on a detailed fiscal and economic response. Yet there is a fundamental, defining difference in the two approaches that would be more apparent to people had Peter Dutton put more punch into the fight. The budget, and the Opposition Leader’s reply, should bring this contest into a much sharper focus. Beneath the surface, the question for voters is whether the answer to cost of living is more government and more state dependency or an empowering of the individual and businesses to do the job.

The Treasurer has made rhetorical commitment to a private sector-led recovery. Yet he stands accused of crowding out investment.

Dutton’s gambit, as his Treasury spokesman Angus Taylor has begun to describe it on his marginal-seat tour, is that people would prefer “a hand-up rather than a handout”. This is based on a belief that Australians will vote for a model to get out of the mess driven by them rather than an endless cycle of government dependency. Again, this is a gamble by the Coalition, which will deliberately design its campaign as built around a limited number of big announcements consistent with a smaller role for government in contrast to Labor’s almost daily handouts.

And it is not confined to the household economy. Labor has embraced a model of corporate welfare that has extended the tentacles of big government even further. The latest example of the conflict between Chalmers’ private sector clarion call and state intervention is the Transgrid capital raising for the construction of the HumeLink transmission project. Despite being oversubscribed, the government through the Clean Energy Finance Corporation took a $1.9bn stake in the venture. The complaint from the private sector was it was happy to finance the entire thing. No need for government handouts.

It has since gone unremarked that, following last year’s budget, which unveiled Labor’s Future Made in Australia plan, Dutton quickly moved to reject it. The principle was that he wasn’t going to get into the business of handing out billions of dollars to billionaires. Internally this raised eyebrows, as it did in the commentariat. A similar response was evident when the Coalition opposed Labor’s gas price caps. Remember those? The rationale was that they weren’t going to work. Dutton was eventually proven right.

Underlying these decisions was a principle that Dutton is applying more broadly to the role of the state versus private enterprise. This is why the accusation that Dutton has played a small-target approach to the election is dubious.

Flagging $100bn in spending cuts and slashing the public service by 36,000 have painted targets all over his back.

There have been some big calls, including the above, which have provoked accusations that the Liberal leader is being too ideological. Had Dutton landed on the wrong side of the voice referendum there would be someone else now leading the Coalition to the election.

Dutton has resisted advice from some colleagues that he needed to approach the contest with more pragmatism on issues and policy contests that defined the broader contest, which essentially comes down to the role of government in the economy and society. Yet he has been politically pragmatic when needed, matching Labor’s Medicare and health spending being the most obvious.

While the Coalition campaign is driven largely by a strategy to present the election as a referendum on the performance of the Albanese government, the budget will provide Dutton the opportunity to articulate what is at stake in this contest. And he will need to leave voters in no doubt as to what the new Liberal mission is.

Voters could be forgiven for assessing the current jousting as a tale of two campaigns and the unexpected budget. Anthony Albanese nods to Labor’s safe ground of health while Peter Dutton trumpets the perils of criminal citizens. Both leaders sing to their base while Chalmers scrambles to get the numbers in for a budget he never thought he’d deliver. Welcome to election 2025, a discombobulated fantasy world that for most Australians has probably dragged on too long already.