Australia gets first Budget surplus in 15 years

Australian Prime Minister Anthony Albanese's Labor Party has struggled with perceptions it can’t manage the economy and ironically started to reverse that perception in this budget with the first surplus since 2008. Photo / Samuel Rillstone

ANALYSIS:

Australian Treasurer Jim Chalmers is pumping close to A$15 billion into the economy to help alleviate the rising cost of living for households while delivering the first budget surplus in 15 years.

There’s A$9.5 billion in increases to unemployment benefits and other welfare payments, A$3.5 billion in incentives for doctors to provide more free consultations and A$3 billion in one-off energy bill discounts.

At the same time, Chalmers argues the extra money he allocated in Tuesday night’s Budget won’t add to inflationary pressures.

He says the budget has been “carefully calibrated and carefully designed” and will shave three-quarters of a percentage point off inflation in the coming financial year, by reducing the cost of power bills, for instance.

However, pumping large amounts of money into the economy and reducing inflation at the same time is magic trick that is probably beyond the talents of the Treasurer.

If more people have more money to spend at the end of the week, it’s hard to see how that won’t add to demand. If struggling families save on power bills, for instance, they’ll spend the money on other necessities and push prices of those products up.

The budget also included an A$11.3bn boost to the pay packets of aged care workers, cheaper childcare subsidies and more rent assistance.

There’s no doubt the extra payments to the most disadvantaged in Australia were sorely needed. Many recent budgets focussed on delivering “middle class welfare” – payments to and concessions for middle income earners – as political parties sought to capture votes in the middle ground, and largely ignored the worst off.

But without corresponding spending cuts or tax increases, the measures will add to inflationary pressure.

Small help for small business

There is little in the budget for business. Small businesses will receive an instant tax write-off for asset purchases of up to $20,000, much less generous than those made available during the pandemic.

There’s also A$2 billion to try to kick start Australia’s nascent hydrogen fuel industry. Producers will receive a tax credit on the price of production, as well as supporting development of shared industrial infrastructure in the most prospective locations.

We don’t’ know the size of the credit yet or if it will tempt hydrogen producers also entitled to the United States’ US$3 a kilogram tax rebate for hydrogen production under President Joe Biden’s Inflation Reduction Act.

Just as it looked as if the Reserve Bank of Australia was at or near the end of its string of interest rate rises, it will now be poised to raise rates again if the budget adds more fuel to the inflationary fire.

The blame for any further interest rises will be laid at the feet of the government, regardless of whether the budget caused them or not.

That would put another dent in Labor’s credentials as economic managers.

Canberra has delivered a budget the Federal Treasurer Jim Chalmers says will shave a few slices off inflation. Photo / Jason Bennee, Getty Images

Labor has struggled with perceptions that it can’t manage the economy as well as the Liberal party for 50 years and ironically started to reverse that perception in this budget with the first surplus since 2008.

The projected to be a surplus of $A4.2 billion for the year ending on June 30 is a remarkable economic turnaround.

The budget shows that just since October, the government has realised another A$146 billion in its coffers, comprising A$130 billion in revenue and A$15 billion less on interest payments on debt.

Ironically, the surplus has nothing to do with any decision made by this government or the last. Higher commodity prices due to the Russian invasion of the Ukraine, a higher company tax take and lower welfare payments thanks to Australia’s record low unemployment have boosted the budget bottom line.

The return to surplus will only be short-lived.

Starting with a deficit of A$13.9 billion for next year, the budget forecasts deficits until at least 2033-34.

Obesity, ageing will take toll

And the structural problems when usually drag the budget into deficit remain – increased health spending as Australians grow older and fatter, more spending on the National Disability Insurance Scheme and increased defence spending.

The government has made a few half-hearted attempts to address the long-term spending challenges, including an increase tobacco tax, more tax on investment earnings for Australians with large pension savings, higher tax for gas and oil producers and a minimum 15 per cent tax rate for multinationals.

These measures won’t upset many people and they probably won’t cost Labor any votes, nor will they do much to address the long-term challenges faced by the budget.

Ultimately, the government will have to increase tax for millions of Australians rather than just an unlucky few, through higher income tax, higher GST or both.

As he handed down his second budget, Treasurer Jim Chalmers warned there would be more “difficult decisions” in the future.

But if the Albanese government couldn’t make those difficult decisions at a time when it remained very popular early in its first term and still had the goodwill of many Australians, when will it make them?