Budget blueprint of the king of wishful thinking

Jim Chalmers has splashed an extra $21bn in a populist budget that hikes welfare, ­expands bulk-billing and increases rent assistance, piling pressure on the Reserve Bank.

Johannes Leak’s federal budget cartoon.

Jim Chalmers has splashed an extra $21bn in a populist budget that hikes welfare payments, ­expands bulk-billing and increases rent assistance for millions of Australians, piling pressure on the ­Reserve Bank in a high-­inflationary environment.

Amid warnings from economists to avoid a big-spending ­budget, the Treasurer unveiled a $4.9bn increase to the JobSeeker rate, $2.7bn boost to rent assistance, $3.5bn for free doctor visits and a $2bn hydrogen fund, on top of an $11.3bn pay hike for aged care workers, cheaper childcare subsidies and boosted income for single mums.

Delivering his second budget speech in parliament on Tuesday night, Dr Chalmers argued that the Albanese government’s $14.6bn cost-of-living centrepiece package would “take three-­quarters of a percentage point off inflation in 2023-24”.

The budget, which suggests the structural deficit will disappear over the decade, forecasts inflation to fall from seven to six per cent in 2023, before falling to 3.25 per cent next year. After 11 rate hikes by the RBA in the past year, Treasury predicts that inflation will not ­return to the central bank’s target band until 2024-25.

Budget papers show that, of the $20.6bn in new spending since the October budget, more than $12bn will be pushed out the door in 2023-24. Amid projections of a $116bn boost in tax receipts over five years, Treasury has slashed ­almost $126bn from the forecast ­deficits over the forward estimates.

Massive revenue windfalls, of which 82 per cent were banked, helped deliver the nation’s first surplus in 15 years at $4.2bn in 2022-23, slash debt by $300bn over the medium term and save $83bn in interest costs over the next 12 years. However, another balanced budget is at least a decade away, with deficits forecast out to 2033-34.

Tax hikes supporting new spending and budget repair included: slugging gas companies an additional $2.4bn; raising $505m from increasing the passenger movement charge; an extra $1.1bn from the heavy vehicle road user charge; and $3.3bn from higher ­tobacco excise.

Amid fears of a global recession, Dr Chalmers issued a warning that Australia faced strong economic headwinds.

“The global economy is slowing due to persistent inflation, higher interest rates and financial sector strains,” the Treasurer told parliament. “Outside of the pandemic and the global financial crisis, the next two years are expected to be the weakest for global growth in over two decades.

“This will affect us here in ­Australia. Our economic growth is expected to slow from 3.25 per cent in 2022–23 to 1.5 per cent the year after, before recovering to 2.25 per cent in the next. This budget is carefully calibrated to alleviate inflationary pressures, not add to them. In this environment, inflation remains our primary economic challenge. It drives rate rises; it erodes real wages. Which is why this budget is carefully calibrated to alleviate inflationary pressures, not add to them.”

Treasury’s lower inflation forecasts are based on coal and gas price caps introduced in December and the $3bn Energy Bill Relief package – consisting of eight deals between the commonwealth, states and territories – reducing bills by up to $500 while avoiding direct cash payments.

Rich Insight director Chris Richardson predicted the budget could prompt the RBA to keep raising interest rates.

“I had thought that the Reserve Bank was done and dusted but this has notably raised the chance that they will do another swing of the baseball bat,” Mr Richardson said.

“It would be marvellous if it wasn’t inflationary but it will be harder to achieve that.

“It’s an immaculate budget recovery without paying – deficits are skinnier, net debt is soon to head down as a share of national income below pre-Covid levels and the structural budget deficit is set to disappear in the coming decade. All of that without tough government decisions.”

Under the $3.5bn Medicare boost, GPs will provide free ­consultations to about 11.6 million Australians including children, pensioners and concession card holders. About 1.1 million JobSeeker, Youth Allowance and Austudy welfare recipients will receive an additional $40 a fortnight – an increase that falls well short of recommendations from Jenny Macklin’s economic inclusion advisory committee. The age threshold for older Australians receiving a higher JobSeeker payment will be lowered from 60 to 55.

Dr Chalmers said he was ­confident Labor’s cost-of-living measures would not increase ­inflation because they were spread across multiple years and targeted at low-income households and families.

Treasury assumptions suggest lower NDIS payments over 10 years, smaller debt interest payments, higher commodity prices for longer, steady net overseas migration and ongoing surges in tax receipts.

With Labor seeking to drive down NDIS costs, the budget says payments growth in the disability scheme will fall to an average 10.4 per cent over the decade, compared with 13.8 per cent estimated in the October budget. ­Interest payments growth is ­expected to average 8.8 per cent over the same period compared with the 14.4 per cent flagged seven months ago.

Dr Chalmers and Finance Minister Katy Gallagher said they had “made good progress” on lowering the structural deficit but “we haven’t eliminated it”.

“If you look at our fiscal strategy, in the near term … we’re banking 87 per cent of the upwards surge in revenue over two budgets,” the Treasurer said.

“That really is the reason why we’re forecasting a surplus, ­smaller deficits and avoiding so much of the debt.

“But at the same time we’ve been chipping away at the structural challenges too but that’s not mission accomplished there, there’s more work to do.”

Amid internal pressure from Labor MPs and unions to trim or cap stage three tax cuts, which have been estimated to cost about $300bn over the decade, the budget reveals that tax receipts will fall by one per cent when they kick in from mid-2024.

The Australian understands the Albanese government is still considering late tweaks to the stage three tax cuts benefiting middle-to-high income earners before they commence on July 1 next year.

Dr Chalmers on Tuesday revealed the forward estimate cost of the stage three tax cuts was bigger because there was an additional year in the forecasts – “I think in the order … of about $69bn over the course of the forward estimates”.

Opposition Treasury spokesman Angus Taylor said the ­budget was “big spending and big-taxing”.

“Before the election, the Prime Minister promised that no one would be left behind, yet this budget leaves the majority of Australians behind,” Mr Taylor said.

“For every dollar of new taxes imposed in this budget, the government has decided to spend two. In this budget, it is spending twice as fast as it is taxing ­Australians.”

ACTU president Michele O’Neil endorsed the Medicare boost and focus on net-zero ­emissions but said “more urgent action is needed to lift wages in the care economy and the public sector and deliver stronger laws to combat wage theft and insecure work”.

Australian Industry Group chief executive Innes Willox said the budget “unfortunately lacks the urgency and imagination required to power the Australian economy through a period of anaemic growth”.

Mr Willox said it offered “little to kickstart the structural reforms needed to boost productivity, investment, innovation, job creation and sustainable real incomes growth”.

With net overseas migration expected to hit 400,000 by June 30 and 315,000 in 2023-24 – Treasury projects the numbers to flat line for three years at 260,000. The government on Tuesday lowered its migration cap from 195,000 to 190,000.