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Aussie Treasurer Jim Chalmers 'bitten by the giveaway bug' in a budget that contains good news for almost everyone, Stephen Bartos says

Public Policy / opinion
Aussie Treasurer Jim Chalmers 'bitten by the giveaway bug' in a budget that contains good news for almost everyone, Stephen Bartos says
Aussie

By Stephen Bartos*

Australian Treasurer Jim Chalmers has been bitten by the giveaway bug. This budget contains not only the well-foreshadowed tax cuts for all taxpayers, but a range of new spending measures in health, education, infrastructure, aged care and more. There are few savings measures.

There are no new taxes, only the promise of stronger tax compliance from the Australian tax office in receipts. On the spending side the largest saving comes from reduced spending on consultants and contractors to government.

This is bad news for any consultants who evade tax, but good news for almost everyone else.

Chalmers delivered a A$22 billion surplus in 2022-23. Barring some extraordinary disaster, he will deliver another, predicted at $9.3 billion, in the current year.

But it stops there. From the next financial year onwards, the budget year, and the three forward estimates years, it’s all deficits.



In isolation, whether a government has a surplus or deficit is not significant. It is largely a consequence of what are called “automatic stabilisers”. When the economy is doing well, unemployment and its associated benefit payments fall, income and company taxes rise. The reverse happens in a downturn.

For the past two years, the government has reaped the benefits of high employment and a booming iron ore price. To its credit, it has chosen to bank most of that windfall. It could keep doing that – but at a high political cost.

A key factor has been that notorious villain, bracket creep. As people’s incomes rise, they move into higher tax brackets and pay more income tax.

Eventually taxpayer patience is tested, and governments feel obliged to deliver back some or all the creep in the form of tax cuts. That inspired the previous government’s Stage 3 tax cuts, which have found their way, following much modification, into the latest budget.

This, together with Treasury’s forecast on iron ore prices, are the main reasons why there is less of a windfall for the treasurer to bank in 2024-25. He is faced with new spending programs to deal with cost of living, energy transition and housing pressures.

On top of that, the budget reveals traditional Labor priorities in terms of spending on health, infrastructure and education, and some bipartisan ones like defence. It is little wonder the deficit has grown to $28 billion in the budget year, $42.6 billion in 2025-26.

The budget laid bare

The story is laid bare by the wonderful reconciliation table in Budget Statement 3.

This table sets out what changes to the budget numbers come from government policy decisions, and what arises from factors outside the government’s control (for example, the outcomes of wage cases, changes in numbers of participants in the NDIS, or natural disasters).



In 2023-24 the factors outside government control added to the budget bottom line by far more than government spending decisions reduced it. In the budget year, 2024-25, this no longer happens.

The net impact of factors beyond the government’s control is only $51 million, hardly more than a rounding error in the budget totals. Government policy decisions reduce the budget balance – that is, they amount to net spending– by $9.5 billion. It is a similar pattern in each of the forward years. That is why we have deficits in those years.

Nevertheless, they are only modest deficits, 1% or less of Australia’s economic output (GDP) in all years but 2025-26 (still only 1.5% of GDP).



If, as the government predicts, inflation drops below 3% in each of the budget and forward years, there is little in the fiscal policy settings to prompt the Reserve Bank to raise interest rates. The far more important drivers of inflation are overseas and domestic business conditions.

Inherently a modest deficit like this is sustainable. If all the forecasts pan out, the government is on track to gradually reduce debt over time. This is important for intergenerational equity, not burdening future generations with the national credit card bill.

In fact, there is potential for unexpected surpluses in future years if the iron ore price defies Treasury predictions and remain high. For years now, Treasury has been predicting iron ore prices will return to trend levels. Eventually they must be right. In any one year though, it’s hard to pick.



What drives this is not Australian domestic demand but China’s.

That is very hard to predict. It does appear China’s economy has been slowing in recent years, due to changes in domestic priorities.

This could drive down Chinese demand for Australian iron ore and thus prices. But again, it might not. Forecasting China is notoriously difficult. Still, mostly our surprises on this front have been positive – and that might happen again.

The Conversation


*Stephen Bartos, Professor of Economics, University of Canberra.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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11 Comments

The Commonwealth is spending hundreds of billions in new housing initiatives, green energy, transport infrastructure and 20K fee-free places in vocational construction training programmes - basically future-proofing the economy and adding high-paying jobs across the board. Net migration to be halved to 1% of population growth, compared to ours running well-above 2% and no political intention of slowing it down.

There appears to be interest in Aussie to do more with net migration and taxpayer money than to simply prop up house prices as a driver of economic growth.

This will only widen the "______ gap" (fill in the blank with wage, infrastructure, career opportunities, quality of services) between Australia and NZ, sending more of our young and educated across the Tasman.

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12

Yep...that's why I keep saying people need to stop comparing us to Australia...they are on a different level to little wee NZ.

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8

Australia: What do we do?

Also Australia: Oh yeeeeeah how could I forget, we can just keep pulling money out of the ground and do stuff with it to fix it!

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The NZ lifestyle beats them any day.

Just been over there.

See know advantage to moving to Australia and the Domestic violence and crime is out of control along with P or Ice they call it over there.

Their house inflation reminds me of what we have seen here over the last 10 years out of control they seem about to years behind us on this disaster.

Stay where you are young Kiwi work and save a bit harder you will get your Kiwi dream a home to live in.

Theirgovernment seem to be doing a better job than ours I guess this shows in this budget.

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2

What a crock of shit, lmao. We moved to Australia within the last 12 months, and the lifestyle here is night and day. Incomes are higher, taxes are lower (and we're getting another big tax cut in July), housing costs are lower, food costs are lower, childcare costs are lower, and there is so much more to do.

Also wtf are you on about re: domestic violence, doesn't good old New Zealand have some of the highest rates of domestic violence and violence against children in the developed world?

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6

Shore Thing Aussie.

Hope you are enjoy your new mosh pit.

I have a cousin that been over there 14 years and now have Aussie passports on there way home sick of crime and to much traffic on the GC.

Would be a good place for you to stay Shore thing.

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NZ is perfect for people who spend their days dreaming about owning houses. For others out there who want more out of life and their careers than putting together a property portfolio (do believe me there are such unicorns walking amongst us even here in NZ) might find Aussie a better fit.

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7

They are called the Lucky Country for good reason - they are lucky to have huge spaces to develop their natural resources far away from the maddening crowd. In NZ the maddening crowd doesn't live in the rural areas, but they still want to control them none-the-less.

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4

It is not just the distance though. The urban greenies in Aussie silently acknowledge they wouldn't be able to afford a pot to p**s (probably made in China using iron ore from Aussie) in without digging dirt out of the ground.

NZ liberals on the other hand are clueless enough to chop off the hand that feeds them to earn some brownie points with the UN. Our left-leaning parties also want us to believe flying in a limitless number of people from distant parts of the world and making them drive around our countryside is somehow a better alternative.

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9

That latter comment applies to all recent governments here and overseas, including Australia, not just “left-leaning”…whatever that is.

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2

This is stimulatory asf. One year before an election. Reminds me of Robertson subsidising both petrol and EVs in 2022, adding to inflation.

NZ will definitely win the inflation race now, and get interest rates down more quickly.

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