Federal budget 2025: Labor’s cradle-to-grave push may bury bottom line

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Jim Chalmers may not have reinvented capitalism but he has progressively redefined voter expectations of cradle-to-grave entitlements.

In his fourth budget, the Treasurer has supercharged the so-called care economy plus added in a little booster shot of cash to defray household and business energy costs.

In the shadow of the pandemic, Anthony Albanese’s “no one held back, no one left behind” election-night vow in May 2022 looked modest when the budget was in surplus, interest rates were at rock bottom, and we were reducing debt.

But the Prime Minister’s makeover of Australia’s welfare state is now being funded by borrowed money.

The budget papers detail higher pay for aged-care nurses and a boost to benefit payments, as well as more spending on the National Disability Insurance Scheme, aged care and childcare, “as more recipients access government services and funding is provided to meet pay increases for critical workers”.

In the coming financial year, social welfare spending will eat up $291bn, or more than one-third of the entire federal budget.

That’s been fairly steady for years, but the components can vary when unemployment is higher than average.

Add in $125bn for health expenses – such as the big-ticket areas of pharmaceuticals and Medicare services – and Canberra’s spending on this ever-growing sphere of employment and subsidy commands 53 per cent of federal expenses.

To put that $416bn care economy in context, that’s more than four times the likely combined annual turnover of Coles and Woolworths supermarkets.

These spending trends on the care economy were under way during the previous administration, due in part to societal ageing, but also a pandemic shock to mindsets by leaders and citizens that has put state intervention back in vogue.

Canberra has got bigger and more expensive to run, with spending increasing by 26 per cent in nominal terms over four years.

Since 2021-22, the last year the Coalition was in office, federal spending on childcare subsidies has increased by 64 per cent.

Aged-care services spending has jumped by almost 80 per cent.

Spending on assistance to people with disabilities, including the NDIS, is up by almost 50 per cent, from $61bn to $91bn over the four-year period.

Of course, inflation has been driving up the cost of everything.

The government often claims that it faces “unavoidable” cost rises in these areas.

Given benefits payments are indexed, and those on income support need to be insulated from price shocks, inflation drives up spending.

But the nature of social welfare has been transformed.

What was once a highly targeted system of direct transfers for pensions and unemployment benefits has become a new social order where taxpayers fund in-kind demand-driven services, such as aged care, childcare and the NDIS.

These services are among the fastest growing areas of the federal budget and have been a driver of the post-Covid employment miracle.

The downside is that productivity is not only difficult to measure in the social welfare sphere, it also is a drag on national productivity growth.

The social welfare step-change not only costs taxpayers, it is a drag on growth in material living standards and raises the pressure on the private sector to keep innovating and producing more from our precious labour and capital.