Professor Tim Harcourt, Chief Economist at the UTS Institute for Public Policy and Governance, on the 10 things you need to know about the Budget 2024-5 at first glance.
The Treasurer Dr “Sunny Jim” Chalmers has brought down a cautious but optimistic budget, his third as Treasurer. This could well be an election budget of the Albanese Government decides to go early to the polls at the end of this year.
1. Fight inflation first but don’t sink the economy
The Government is worried about inflation, so they have brought in certain measures to provide relief to Australian households worried about their energy bills, housing costs and medicines in particular. The Treasurer hopes to put some downward pressure on consumer price index in the short term, the Reserve Bank of Australia doesn’t raise interest rates, or may even cut them. What happens to inflation and interest rates, post budget could make or break the government’s electoral fortunes going for a second term at the end of 2024 or first half of 2025.
2. Look another surplus
The good news, symbolically is that Chalmers is likely to deliver his second surplus in a row, something that eluded his old boss, former Labor Treasurer Wayne Swan) and his Liberal predecessor Josh Frydenberg despite the ‘Back in Black’ mugs hype). Even though a surplus is not the objective of the budget it does give political kudos to Chalmers, even though the budget will return to deficit in future years.
3. Relief Restraint and Reform
The government has described this budget as ‘relief restraint and reform’. It’s providing tax and cost of living relief to all, it’s restraining spending in key areas, and reforming the industrial structure of the economy to meet future global challenges.
4. Show me the money
The government has kept its promise on tax cuts, rejigging stage 3 tax cuts of the Morrison government, providing an average $1,900 tax cut to Australians on 1 July. The tax cuts (not a surprise but good that they are confirmed) are part of the ‘relief’ part of the budget.
5. Hang on help is on its way
Apart from tax relief, the Government is sensitive to the cost of living and the impact it may have on its electoral fortunes. Therefore it’s providing energy bill subsidies to all consumers, rent relief, medical supplies relief and changing indexation of HECS to help tertiary students.
6. The Great Transformation
This is the most exciting and ambitious part of the budget, but maybe the most risky. The government wants Australia to make ‘the great transformation’ from traditional industries of comparative advantage to new industries in the renewable space so we can get to ‘net zero’ carbon emissions by 2050. Under the Future Made in Australia programme the government is spending $22.7 billion on assistance to industries to transition to net zero. It’s not quite the Inflation Reduction Act of the Biden Administration but it is a realisation that some government investment is needed if Australia wants to be a clean energy superpower and part of the new green manufacturing supply chain.
7. The Hydrogen Revolution
Part of ‘the great transformation’ is the $6-7 billion investment in green hydrogen, which could really impact Australia’s future as an energy exporter as well as meeting our energy needs at home. On top of that there’s $7 billion for critical minerals plus support for green steel and other manufacturing sectors.
8. It’s all about National Security
The changes in geo-politics puts more emphasis on national security. As a result the defence expenditure has been boosted by $50.3 billion. This is not only significant in terms of the budget but in itself is a major part of the industry policy of the Albanese government. This will be a boom time for defence industries which in turn, feeds into the Future Made in Australia plans.
9. The Caring Economy
The Treasurer has put a lot of emphasis into what he dubs ‘the caring economy’ healthcare, aged care, childcare and education. In turn, the wages of aged care and childcare workers (and other caring professions) have received a funding boost. The Treasurer, however has also talked about restraint and reform and plans to improve compliance in areas like NDIS to rein in excessive spending.
10. The bottom line – economic cycle or political?
The Treasurer has been grilled in post budget interviews about this being more about the political cycle than the economic cycle. He has replied that it is about the economic cycle. And the Treasurer should know, as the subject of his PhD thesis, former Treasurer and Prime Minister Paul Keating always said that good economic policy (and economic management) is good politics.