The economy is literally throwing money at Jim Chalmers.
Next week’s budget upgraded revenue windfalls will be significant.
Wage growth, full employment and commodity prices will underwrite what will surely be a surplus in either this budget or the next.
Inflation is helping the Treasurer at the same time as it is punishing everybody else.
But when Chalmers decides to actually bring the budget back into the black on Tuesday night, it will be a political decision as much as an economic one.
The temptation for any treasurer is to claim one when you can. But Chalmers is cautious. In the end he may be persuaded that it might be wiser to forecast a small and substantially reduced deficit this time around and deliver an actual surplus next year – a possible election year – rather than forecast a surplus on paper now and potentially fail to achieve it.
“It’s Thursday morning and we don’t print until Saturday and there are good reasons to be cautious but there will be a substantial improvement this year and an improvement next year,” he says.
Chalmers sees his budget challenge as a mission in three parts, with the guiding principle being unapologetically rooted in “Labor tradition”.
The Coalition would argue this means big taxes and big spending. And there will be that.
But the Treasurer would like to think he is aiming for something closer to a Hawke-era ethos of fiscal responsibility to deliver social equity.
The formula Chalmers is applying will be tax, save and spend.
In a pre-budget interview with The Weekend Australian, the Treasurer nominates cost-of-living relief for the most vulnerable as being the primary purpose of a broader task. He concedes that he can only do this in a way that doesn’t impede the competing demand to arrest the budget’s structural deterioration.
The third element will underwrite Labor’s formula for growth based on massive investments in clean energy.
Make no mistake, the tone of the budget will be heavy on Labor values.
As Chalmers says: “This will be a Labor budget in the best traditions of the Labor Party.
“It will be all about seeing people through and setting Australia up. And that is in the best traditions of Labor.
“What I’m trying to do is to demonstrate that we can do good things for our people at the same time as we show the necessary restraint to improve the budget.”
Chalmers’ budget trap is inflation.
He admits that this, as well as the structural pressures on the budget, are limiting Labor’s ambitions to reshape the economy and broaden its agenda as he would like while constraining the government’s ability to deliver on promises to its core constituencies.
“ … in the longer term our ability to build the type of community and type of economy that we want will be heavily influenced by our ability to fund our priorities and that means putting the budget on a more sustainable footing,” he says.
And while Chalmers wouldn’t put it this way, the inherent message is that Labor’s “people” will have to wait until the budget is back on a healthy trajectory and inflation is under control, for the next down-payment on its social agenda.
“Where (inflation) intersects with what we’re trying to achieve in the budget, we can’t achieve what we want for our people, and our economy and our country unless we first clean up the mess that was made of the budget,” the Treasurer says.
His language implies that the inflation question is prohibiting a Labor government from embarking on more sweeping changes to the social and economic landscape.
On this week’s shock interest rate rise, Chalmers says it just re-enforced the primary pressure on the economy that was driving all the considerations in the budget.
“It didn’t fundamentally change the way we approached the budget but I think it highlighted the inflation challenge in a pretty blunt and brutal way,” he says.
This now should be the overarching consideration in whatever calculus Chalmers applies to the budget position.
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