Treasurer Jim Chalmers says fiscal rule changes are reviewed before each budget

Announcements last week of $100bn in forecast government savings measures, including smaller growth in the National Disability Insurance Scheme and higher deeming rates on pensioners, gave the Albanese government cover from demands to impose stricter fiscal rules.

Those demands started in the lead-up to and during the economic roundtable as former Treasury secretary Ken Henry and former Reserve Bank governor Philip Lowe pushed for more fiscal discipline, saying there was too much government spending.

Treasury secretary Jenny Wilkinson led a session on budget sustainability while opposition Treasury spokesman Ted O’Brien and energy expert Kerry Schott also pushed for fiscal rules.

When asked on Monday in question time about the need for rules, Anthony Albanese told parliament he wouldn’t be going down “rabbit holes”.

Jim Chalmers was more receptive, knowing Bob Hawke and Paul Keating, as well as his old boss Wayne Swan, all had rules.

“We have fiscal rules in our budget. We consider our fiscal rules before every budget,” he said on Monday.

The rules the Treasurer stands by are “banking most of the upward revision to revenue” and “improving the budget position over time”. He says he is doing both, noting the government has banked 70 per cent of the windfalls and delivered two surpluses.

The opposition and economists say the government is failing at some or all of these rules.

AMP chief economist Shane Oliver says when it comes to banking most of the upward revision to revenue, the government passed the test in the past few years but is now failing.

“The windfall over the forwards (compared with mid-year forecast) was $36.4bn but the effect of policy decisions is $34.9bn. That means 96 per cent of the windfall is not being saved but spent,” Dr Oliver said.

“We are returning to chronic deficits so that’s a fail too.”

The underlying budget deficit has gone from a $15bn surplus to a $42bn deficit, one of the biggest deteriorations outside of Covid or the global financial crisis, and there is no surplus forecast.

“I agree with Henry and Lowe that we need hard and fast fiscal rules to have a sustainable budget,” Dr Oliver says.

Fiscal rules started with the Hawke-Keating Labor government’s so-called trilogy: no increase in the overall tax burden; no increase in the budget deficit as a proportion of GDP; and that real growth in spending be less than the growth in the economy.

In the 2010 budget, Mr Swan imposed his own strict rule: “The government will hold real growth in spending to 2 per cent per annum to expedite the return to surplus once economic growth returns to above-trend levels.”

Dr Chalmers says he takes the “feedback seriously” and “we have a look at those fiscal rules from time to time”.

So if the government were going to impose some fiscal rules what should they be?

Dr Oliver says there should be four. The first should be that governments should bank the bulk of windfalls. The second is that the budget be in balance across the forward estimates. The third is that tax revenue should be capped at 24 per cent.

And fourth, spending should be largely in line with taxation revenue at 25 per cent.

Dr Oliver says that slightly higher spending percentage allows for that fact there is about 1.8 per cent of revenue as a percentage of GDP coming from outside taxation.

Australian National University Crawford School of Public Policy professor Robert Breunig, who presented at the roundtable, has pushed hard for more changes to fiscal rules.

When he presented to a mini-roundtable led by Dr Henry and independent MP Allegra Spender in Parliament House earlier this month he pleaded that spending reforms were just as important as tax reforms.

“I’m not supposed to talk about expenditure restraint,” Professor Breunig said, “but I do want to say one thing, which is that in the last five or six years we really have had massive increases in expenditure in Australia.

“I just feel like we’re drifting towards a kind of continental European, big-style government with universal programs. And I’m not sure we’ve had a conversation about that, maybe that could be the next round table,” he said.

Well that roundtable has been and gone. Changes to fiscal rules have consensus and it’s time they are introduced.