Jim Chalmers’ federal budget speech decoded

You heard what Jim Chalmers said but what did he really mean? We’ve parsed the jargon — and found some surprising omissions.

Artwork: Emilia Tortorella

You heard what Jim Chalmers said but what did he really mean? Graham Lloyd cuts through the jargon to explain what the budget means for you.

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WELCOME TO REALITY

Jim Chalmers: I acknowledge the Ngunnawal people here, and the Yagara and Yugambeh back home. Voice lesson learned.

Graham Lloyd: An acknowledgment that is short and familiar, and not too deferential. Unlike the first year of the Albanese government, Jim Chalmers is not going to be distracted from the main political game.

A SHARED BUDGET JOURNEY

JC:Speaker – This budget builds on the progress we’ve made, together. It’s a plan to help with the cost of living, with two new tax cuts, and higher wages, more bulk billing, and more help with electricity bills, cheaper medicines, and less student debt. And it’s a plan to build Australia’s future, with more homes, new investments in skills and education, competition reforms and a Future Made in Australia. 

GL: Dr Chalmers is letting voters know the government shares their pain. The political imperative is to make the financial discomfort a joint endeavour, not the government’s fault. To further soften the blow the Treasurer provides a shopping list of spending measures   carefully targeted to cover the widest possible spread of the most aggrieved. The sleight of hand is that unlike voters, the government has not been doing it tough. National income from higher tax collections and higher-than-expected commodity prices is up. Numbers of public servants and wages are rising strongly. So is government spending and debt. This has been a story of private sector austerity. 

THE POSITIVE SPIN

JC:Our economy is turning the corner. Inflation is down, incomes are rising, unemployment is low, interest rates are coming down, debt is down, and growth is picking up momentum. On all these fronts, our economy and our budget are in better shape than they were three years ago.

GL: Left unsaid is the fact that the budget is back in deficit, and interest rates have only been cut by 25 basis points after a gruelling escalation throughout the term of the government. Much of the reduction in headline inflation has been due to artificial measures including the energy bill rebate. The jury is still out on whether global inflation is still back under control or whether the Reserve Bank will continue to cut the cash rate in the near term.

UNCERTAIN TIMES

JC:This budget is our plan for a new generation of prosperity in a new world of uncertainty. This is a responsible budget with five main priorities: Helping with the cost of living; strengthening Medicare; building more homes; investing in every stage of education, and; making our economy stronger, more productive and more resilient.

GL: Jim Chalmers points to factors outside his control for any failure to perform. His main points are political priorities dressed up as what he calls a new generation of prosperity. Cash giveaways for electricity, health and subsidised housing fall heavily on the spending side of the ledger. A stronger, more productive and resilient economy sounds good but Dr Chalmers’s speech is too short on detail to be convincing.

TAX CUTS

JC:Our plan to rebuild living standards starts with cost-of-living help and wages growth. It includes more hip-pocket help for households: two new tax cuts for every taxpayer; more energy bill relief; increasing wages and reforming non-compete clauses; more bulk billing and cheaper medicines; student debt relief, and; a fair go for families at the checkout and farmers at the farm gate.

GL: With an election in the wings, Dr Chalmers is being strategic. Cuts at the lower end of the tax scales allow the government to challenge any tax reform promises the   opposition may be considering. But the plan does not deal with the bracket creep that will quickly swallow any gains at a household level, which in these cuts amounts to about $10 a week. However, like the unwinding of the stage three tax cuts, this provides the government a platform to talk about giving everyone a tax cut without doing the hard job of reforming tax scales to incentivise reward for effort. It is a wedge for the opposition that will work against meaningful tax reform.

ELECTRICITY REBATE

JC:Electricity prices went down 25 per cent here last year but they’re still putting pressure on households. Tonight, we’re providing $1.8bn more energy bill relief.

GL: This is Dr Chalmers attempt to make a silk purse out of a sow’s ear. Electricity prices are a major financial problem for households, businesses and the government. The claimed reduction of 25 per cent is an attempt to deal with the fact the government has been unable to deliver its election promise to cut power bills by $275 a year. The 25 per cent reduction claimed by Dr Chalmers has been almost entirely due to a government subsidy on power bills. Without that, any reduction in electricity prices was marginal, with further steep increases expected under the new default market price due to take effect this year. Energy bill relief shifts the cost of the faltering energy transition from bills to the government balance sheet. It does not deal with the core problem of rising electricity prices. On this score, Dr Chalmers was largely silent in the budget speech.

FUTURE MADE IN AUSTRALIA

JC:In this budget, we are investing more than $3bn to support the production of Australian-made green metals, like aluminium and iron.

GL: With electricity prices still rising, the energy transition and net zero are so yesterday. The words environment and climate change did not rate a single mention in the speech. The focus has switched to government investment to promote green metals under a Future Made in Australia. Dr Chalmers is promoting the spending as an investment in the future. But as the green hydrogen experience has shown, not all research bets pay off, and the government finds it more difficult than the private sector to walk away.

CHEAPER MEDICINE 

JC:In every budget including this one, we’ve made medicines cheaper. We’re proud to be investing $793m in women’s health.

GL: Dr Chalmers is reminding voters the care economy has been a top priority for this government. Keeping a focus on cheaper medicine and Medicare allows it to campaign hard in what it considers to be an area of weakness for Peter Dutton. But this is a big and growing cost centre for the budget. The focus on women’s health is a necessary part of the political narrative given both Labor and the opposition are struggling for support among female voters. But the biggest challenge of the care economy, the ballooning cost of the National Disability Insurance Scheme, is largely missing from the speech. There is only a single reference to the NDIS by name. The multibillion-dollar-a-year cost of the NDIS is continuing to increase at a rate of more than 8 per cent a year.

BUILDING HOUSES

JC:New plans for cost of living and health are accompanied by new investments in housing. 

GL: The government is aware a shortage of housing and high prices for first-home buyers represents a political problem. The Coalition has a record of support for the building industry and assistance for first-home buyers. The Greens have identified housing and renters as ripe for political mischief.   Dr Chalmers proposes a $33bn plan to help build 1.2 million new homes by   decade’s end. The government says it will help 40,000 people buy their first home in the next four years. It is looking at new ways to build more houses cheaper, and increase the number of builders, and will ban foreign investors from buying established homes. Debate about negative gearing is wisely left off the table. 

CHEAPER CHILDCARE

JC:We believe every child has the right to an early education. Cheaper childcare is also cost-of-living relief with an economic dividend. 

GL: Dr Chalmers wants parents to know the government is on their side. Childcare is another big part of Labor’s care economy ambitions. He is badging three days a week of subsidised early childhood education and care as a productivity measure. The government is also investing $5bn to expand access across the country and lift the wages of early educators. The Albanese government says it is charting a path to universal early education and care, regardless of a child’s background, or where they live. Missing from the budget is any cost-benefit analysis on whether the economic dividend from the early childcare investment will be worthwhile.

COMPETITION

JC:We’ve created a $900m fund to reward state governments for implementing reforms that promote competition.

GL: The government wants to make it easier for electricians to work across state borders and for workers to change jobs. Dr Chalmers says stopping the use of non-compete clauses for workers is estimated by the Productivity Commission potentially to lift productivity, reduce inflation and improve GDP by $5bn. It could boost wages by up to 4 per cent. Reform is welcome but the reform agenda lacks ambition. It is a far cry from the micro-economic reform agenda of the Hawke, Keating and Howard governments. The task is made more difficult by government decisions to remove flexibility from the workplace through more restrictive industrial relations laws.

DEFENCE

JC:In these uncertain times, economic security and national security are increasingly intertwined. We have invested an extra $50.3bn in defence by the mid-2030s, to help keep Australians safe. It means defence funding will grow beyond 2.3 per cent of GDP by the early 2030s.

GL:Defence is a weak area for the Albanese government and Dr Chalmers is downplaying the fact that the government has no plans to increase defence spending to 3 per cent of GDP, something that our major allies are demanding. This approach has both a financial and political dimension. The government is challenging the opposition to spend more and justify where the money will come from.

SOCIAL SPENDING

JC:We’re repairing the budget without ignoring our responsibility to build a stronger, fairer and more inclusive society. Where more Australians have the chance to contribute to and share our economic success. There’s more money to support veterans and build on the progress we’ve made eliminating the backlog of claims.

GL: Dr Chalmers is reminding Labor’s base that it remains a party that has a focus on the less advantaged. It is a big-government approach that puts welfare spending ahead of the demands of fiscal restraint and balancing the budget. It is an approach that appeals to many traditional Labor supporters but it increases the budgetary risks at a time of global economic volatility. It is all the more reason why the government must get spending on the NDIS under control, where spending is projected to cost taxpayers $230bn over the next four years.

THE BOTTOM LINE

JC:Tonight’s budget is $207bn better than we inherited. Next year’s deficit is $42bn, lower than what was forecast at the last election, and lower than at the mid-year update. In this term, we’ve banked around 70 per cent of tax receipt upgrades.

GL: Dr Chalmers is putting a positive spin on the fact that after two years of unexpected surpluses the budget has gone back into deficit. A saving of 70 per cent of tax receipt upgrades represents a smaller percentage of savings than what was taken to account in the past two budgets. This reflects the fact that commodity prices have slipped and our terms of trade are weaker than they were previously. The bottom line is government spending is continuing to rise strongly. Gross debt will reach $1 trillion next financial year and when off-balance-sheet spending is included, the government spending is $100bn higher than shown in the favoured headline figure.