The spending frenzy by federal and state governments is putting the country’s long-term credit rating at risk and setting up future generations for failure.
Post-pandemic complacency has pushed the country into a deeper financial hole, undermined the fight against inflation and kept interest rates higher for longer.
If the mid-year economic and fiscal outlook released on Wednesday is Jim Chalmers’ final budget announcement, the Treasurer heads to the election defending a decade of deficits and higher spending.
Migration, labour market and resources booms that helped line federal budget coffers are projected to fall away, while revenue streams like tobacco, gas and company tax takes have been dramatically downgraded.
The Albanese government’s budget management has shown it is more fearful of political backlash than making tough decisions to rein in spending and create new and responsible revenue streams.
If global economic conditions deteriorate as expected, and in the absence of additional revenue or reining in structural spending growth, the budget blowouts will get worse. When you add Labor’s off-budget funding to the mix, business leaders and economists are spooked by spending and debt levels.
Amid record public spending and ballooning bureaucracies, Chalmers earlier this month said the private sector must take the lead. He said federal and state governments can’t “replace private growth and private investment with public investment”. “We’ve made it very clear that the medium-term future of growth in our economy needs to be private-sector led. We acknowledge that as growth recovers in our economy, the best kind of growth is private-sector-led growth,” he said.
Representing the country’s biggest employers, the Business Council of Australia, Australian Industry Group and the Australian Chamber of Commerce and Industry were scathing following the MYEFO release. BCA chief executive Bran Black said increasing government spending “will hamper a private-sector-led recovery, which is critical to easing cost-of-living pressures”.
AiGroup chief executive Innes Willox said: “The inexorable increase in government spending on public servants and social programs is destroying the national bottom line. The rising spending is also putting pressure on inflation and interest rates.”
ACCI chief executive Andrew McKellar warned that Australia was “running a two-speed economy … we’re seeing the private sector sort of bouncing along the bottom (with) very slow growth … the public sector is going through the stratosphere, and I think that that’s part of the problem.”
Opposition Treasury spokesman Angus Taylor also linked higher spending, debt, taxes and inflation with “higher interest rates for longer”. “Labor has turned a $15.8bn surplus into $143bn of deficits, with no plan to return the budget to balance for a decade.” The use of words like “slippage”, “unavoidable” and “automatic” to defend spending is going to fall flat for Chalmers. If Labor believes in its policies and budget approach, it should just own its spending agenda. After three budgets, Chalmers can no longer blame the Coalition. The budget position laid bare in the MYEFO is a snapshot of a second-term Labor government. The combination of Labor’s $25.1bn in “unavoidable and automatic spending”, and a secret $5.56bn election war chest, has fuelled a $21.8bn deficit blowout to 2027-28.
While fudging the books to claim a slightly lower deficit in the 2024-25 election year, the MYEFO showed that deficit forecasts across the forward estimates have increased from $122.1bn to $143.9bn since May. Chalmers’ spin focused on Labor’s good budget management in lowering a $28.3bn deficit to $26.9bn in 2024-25 and trimming net debt over two years.
The MYEFO documents show the numbers are marginal at best. Across four years, Treasury has increased net debt projections in 2026-27 and 2027-28. Gross debt will hit $1.16 trillion within three years. While the budget is projected to return to balance by 2034-35, risks underlying the long-term forecast mean it can’t be taken seriously.
For many inside government, the mid-year budget update will press home that there is nothing to gain from handing down a fourth budget on March 25. Chalmers’ surplus achievements are now replaced with Coalition attacks focused on “deficits forever”.
Cost of nearly 60 goods and services explodes
Gas and insurance all jumped by more than 30 per cent, while spare car parts, postal services, tobacco and a variety of food – including fruit – rose by 20 per cent or more.
Grazier outrage as axe falls on $40m carbon credit plan
A method that generated the country’s fourth highest number of carbon credits, worth about $40m, has been suspended, leaving the beef industry fuming.