Anthony Albanese has gambled spending restraint against the slimmest of tax cuts, using the budget as a launching pad for a political and historical contest over economic management and cost-of-living relief.
The Labor leader is determined not to lose the argument to Peter Dutton, sacrificing budget control for populism. This is a calculated political project.
Having tried to steal the Opposition Leader’s thunder on income tax relief, the Prime Minister has revealed the lengths Labor is prepared to go to stay in office.
The relief is ruthlessly political. It delivers the smallest amount of cost-of-living relief possible. But it still comes with a significant cost – another $17bn to the budget over three years.
Labor is now borrowing further from the future to buy an election, ignoring calls for spending control and delaying repair to the budget even further to achieve it.
The budget the Prime Minister didn’t want to have has been retrofitted to lay the foundations for Labor’s second-term campaign agenda.
And Jim Chalmers has used it to maximum political advantage. It challenges Dutton now not only to match tax relief but to go considerably further.
The consequence of this is an economic document and political thesis constructed around a belief that rhetorical optimism will triumph over substance and authenticity.
The government has abandoned fiscal caution despite its recognition of the extreme global uncertainty, while Albanese has revealed the depths of his political resolve.
This approach has simply exposed a lack of ambition for a return to budget balance in the foreseeable future.
This is a significant shift in the optics of what should be a primary mission for both sides of politics.
Not only is there not a credible pathway to returning the budget to surplus again within the next decade, there is an absence of urgency and determination to make this the underlying fiscal and economic objective.
Chalmers and Albanese appeared almost dismissive of this as an aspiration in the lead-up to the budget.
“It remains to be seen,” Chalmers said on Monday of a return to surplus.
The budget papers now suggest this will be 2035-36 – a year later than forecast just six months ago.
This can’t be a credible forecast in the light of the global uncertainty the Treasurer suggests will buffet the economy.
But this does not appear to be the government’s concern.
Government spending will peak next financial year at 27 per cent of GDP. This is the highest non-crisis spending year since the 1980s, representing a 6 per cent annual rise.
There are heroic assumptions that this will be halved to a 3 per cent rise the following year. But it will remain above 26 per cent for the years following. This is unsustainable considering the unknowns in the global economy and the Trump effect.
This represents a troubling reassessment of the political environment by a government that believes voters are no longer as spooked by debt and deficits as they once might have been.
It puts at risk the restoration of prosperity for all Australians.
The decline in Australia’s living standards over the past three years has been the sharpest and deepest in more than 50 years.
Of all the indicators of economic health, this stands out as a measure of not just the federal budget but the household budget.
Tuesday’s forecasts and assumptions provide little confidence that living standards will be returned to pre-2022 levels before the end of this decade, even with the tax cuts that Chalmers himself admits are modest – and largely because the numbers used to derive this index were not included in Tuesday’s budget.
Despite Chalmers talking to the productivity problem, with two equally modest measures, the budget forecast continuing weak productivity growth.
This will not only be a drag on growth but a barrier to an improvement in living standards.
These forecasts – which at 1.2 per cent are optimistic – remain unchanged on the MYEFO forecasts.
Hence opposition Treasury spokesman Angus Taylor’s claim that this will have been a “lost decade”.
Chalmers maintains that the economy is genuinely turning the corner. And in the face of global pressure, this makes Australia exceptional.
The new mantra is “prosperity in times of uncertainty”.
Yet what Labor offers is a model of perpetual dependency that has more in common with historian Geoffrey Blainey’s description of the spirit of Australia more than 200 years ago than any time in the more recent past.
Blainey charted the shift in political mood following the depression of the 1890s, which until then had been built around a national ethos that people should work hard and save for their old age – “should they live that long” – and not ask government for handouts.
The hard times changed all that. People in the cities turned to government and the growing power of the trade unions to improve their life.
“Left-wing liberals and mainstream Labor tried to outbid each other,” Blainey says of that time.
“Election day became an auction … and election promises came to be seen mistakenly as the vital determinant of average Australians’ standard of living.”
The argument remains unchanged today. A political contest between the umbrella of government or incentives to prosper.
Australia’s approach lent too far one way, in favour of the umbrella, which inevitably led to a decline in living standards as the balance was broken between shielding people and encouraging them.
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