Budget reveals ‘big state’ interventionist mindset

A day after the Albanese government’s first budget, the announcement of 7.3 per cent inflation for the September quarter, the highest since 1990, raises pressure on the Reserve Bank to further lift interest rates next week to contain it. It will also add to union demands for bigger pay rises to reverse the slide in workers’ real wages.

The increase underlines the importance of the government reducing the deficit and national debt. Productivity growth will be the key to further boost taxation revenue and minimise increases in unemployment, which is expected to edge up to 4.5 per cent in 2023-24, adding to welfare costs. Maintaining business activity was the economy’s salvation during the pandemic and it remains critical. While Jim Chalmers recognises the importance of increasing productivity to grow the economy, the budget had few references to bolstering business investment, confidence and activity. In an energy-rich nation, it offered no assurances about containing power costs.

The Treasurer’s speech and the budget papers suggest the Albanese government’s movers and shakers are interventionists at heart, more inclined to rely on central planning and heavy social spending to drive growth and prosperity rather than getting out of the way, deregulating industry and unleashing the power of private enterprise aspiration. After heavy intervention in the energy market in favour of renewables, which has left households and businesses facing a 50 per cent increase in electricity and gas prices in two years, the government has announced plans for a large-scale intervention in housing. The budget outlines plans for a public-private Housing Accord between federal, state and territory governments, industry and investors, including superannuation funds. The aspiration is to build one million new homes in five years, from 2024 to 2029. Far from being driven by market efficiency, the scheme, if it works, will have a heavy welfare component. As a start, Dr Chalmers envisages taxpayers funding 10,000 affordable new homes to be delivered through “an ongoing funding stream to help cover the gap between market rents and subsidised rents, making projects commercially viable’’. Viable with taxpayer subsidies, that is, in an industry where prices and rents routinely fluctuate.

The budget confirmed a trend that was clear during the election campaign. Labor favours the idea that heavy social spending on paid parental leave, childcare and education are investments in productivity. They are, but they are not the only factors. At a time of skills shortages, these measures have been endorsed by business. The Australian Chamber of Commerce and Industry welcomed expanded paid parental leave and cheaper childcare as “economic reforms that will promote stronger opportunity and gender equality’’ and encourage workforce participation. Businesses also strongly value skills training.

For the sake of individual and corporate taxpayers, however, the government’s footprint in the economy must not be allowed to grow unchecked. The budget has left that impression, unfortunately, with further major spending promised in aged care and other service sectors. Labor has shown little interest in reining in spending in one of its priority areas, the NDIS, which Dr Chalmers describes as “fundamental to our values’’. The budget forecast the cost of the NDIS would reach almost $52bn a year by 2025-26, up from $44.5bn in the last Coalition budget. More alarmingly, he told the ABC on budget night that the scheme would cost “hundreds of billions of dollars’’ over the next 10 years. While 555,000 people currently have an NDIS package, that number is projected to reach more than 850,000 by 2030. Economist Chris Richardson says the government “will need to look at repairing the national social compact, which is taxing workers and companies to look after the needy, because we have been consistently underestimating the costs of support’’. A fundamental shift, possibly around eligibility and fees charged by service providers, should form part of the review called by NDIS Minister Bill Shorten.

On the opposite side of the revenue-spending equation, the government cannot indefinitely ignore the problems created by the nation’s uncompetitive 30 per cent corporate tax rate. It is one of the highest in the OECD – apart from those of Colombia, Mexico and Portugal – and significantly higher than those of our main trading partners and comparable nations. Reducing that rate, in future, would send an important, confidence-boosting message to business and investors. Between now and the May budget, however, industrial relations will be the key determinant of business confidence.