Ross Stitt wonders if Australia's federal government has the political will to actually make the hard decisions talked about

You have to sympathise with Australia’s new Treasurer, Jim Chalmers. Last week, faced with a trillion-dollar government debt, a global economic downturn, and decades-high domestic inflation, he delivered his first budget.

Chalmers and his Prime Minister, Anthony Albanese, went out of their way beforehand to hose down public expectations of massive ‘cost of living’ support. The Treasurer insisted on numerous occasions that current fiscal conditions offered no scope for major spending increases. He promised a sensible ‘bread and butter’ budget.

And he was true to his word.

The budget Chalmers delivered had no surprises. It confirmed a range of Labor’s election commitments but there were no significant new spending initiatives and no major tax increases (or tax cuts). Most importantly, there were no cost of living handouts.

Hardly a shock given the economic circumstances, but Chalmers wanted to make sure everyone recognised the constraints he was operating under. In his parliamentary speech he described his budget as “right for the times” and “suited to the conditions”; a “fiscal strategy that puts a premium on restraint”.

Restraint was essential for two reasons – to prevent a further blow out in the budget’s structural deficit and to avoid feeding inflation at a time when the Reserve Bank of Australia is already rapidly raising interest rates.

The budget contained several measures aimed at growing the economy, including increased funding for training to upskill workers and more money for childcare to lift the participation rate. However, the dollars involved were not large.

Changes to the tax system were minimal – a limit to certain deductions for multinationals and more funding for Australian Taxation Office compliance operations.

One of the most substantive items in the budget was the announcement of the new ‘National Housing Accord’. This is an agreement signed between governments, investors, and industry “to build the affordable homes our country desperately needs, and to help tackle our housing crisis”. The ambition for the Accord is one million new homes over five years from 2024.

Perhaps Jim Chalmers should have checked with Jacinda Ardern before he set such a specific, and seemingly bold, target. Ardern knows the danger of setting targets for building new homes and then failing to deliver.

But Chalmers’ target is quite different to the one that has given Ardern so much trouble. He is not proposing that the government build the new homes. Rather “this supply needs to come from the market”. The government’s role will involve “coordinating and kick-starting the investment”.

To that end the budget only commits $350 million for 10,000 affordable homes. That sum will provide an “ongoing funding stream to help cover the gap between market rents and subsidised rents – making more projects commercially viable”. The federal government’s commitment for 10,000 homes will be matched by state and territory governments.

That’s just 20,000 of the one million-home target. The government expects the balance to come from the private sector. The Accord is designed to help facilitate some of that through a combination of local governments addressing “supply problems caused by land release and zoning policies” and institutional investors working with governments “to leverage more investment that delivers for their investors’ and members’ interests, and for the national interest”.

That sounds highly aspirational. However, the five-year budget target may not be as ambitious as it appears. According to CoreLogic, “recent completions match this anyway”. A total of   975,000 homes were constructed in Australia in the five years to June 2022, and an average of more than 1,000,000 homes “have been completed on a five-year basis since 2017”.

While the budget contained relatively little in the way of either new policies or reform to revenue and expenditure, it did provide an important update on the economy and the fiscal outlook. And much of that was bad news.

Treasury is predicting that GDP growth will fall to just 1.5% in 2023-24 before rising to 2.3% in 2023-24 and 2.5% in 2025-26. Inflation is forecast to peak at 7.75% in the December quarter and then decline to 3.5% in 2023-24 and 2.5% in 2024-25.

The most disturbing numbers in the budget are the projections for another decade of large budget deficits (on top of the last fifteen years of deficits). There has been a slight improvement on previous projections for this year and next, however, beyond that a structural deficit of 2% of GDP persists through to at least 2032-33.

According to the Treasurer, his budget “confronts the challenges that have been ignored for too long and seizes the opportunities that won't wait any longer” and “it begins the hard yards of Budget repair”. That’s a generous description.

True, the budget won’t contribute to the structural deficit blowing out further, and it does include some modest measures that will improve productivity. However, it doesn’t really address the fundamental ongoing mismatch between government revenue and government expenditure.

That’s not surprising. There are no easy solutions and plenty of emerging problems.

The National Disability Insurance Scheme will cost $36 billion this year and it’s projected to grow at an unsustainable 14% p.a. for the next decade. The cost of servicing the nation’s trillion-dollar debt is also rising rapidly as is the cost of fulfilling Australia’s ambitious strategy on national defence. Then there’s the growing cost of funding aged care and Medicare.

When you add in the costs of transitioning to a green economy and paying the bills for the increasing number of climate change-induced natural disasters, the fiscal dilemma becomes obvious.

Major reform on either tax or spending is inevitable. Probably both.

Based on his first budget speech, it’s clear that the Treasurer understands the task ahead of him. As he said in his conclusion, “Australians know there are hard days to come, and hard decisions to accompany them”.

The big question is whether the Labor government has the political will to make those decisions.

Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.