Budget 2022: The good, the bad and the ugly
👍 The Good: A shift towards well-being
👎 The Bad: Cost of climate change and energy prices
😡 The Ugly: The inflation boogeyman
The first Labor budget in almost a decade is one that is “sensible and suited to difficult times” according to its chief architect, Treasurer Jim Chalmers.
It has found modest cost savings by clamping down on tax dodgers and delaying or scrapping discretionary grants and projects. But, despite the strong focus on budget repair, the new Government has outlined policies to make child care cheaper, give new parents more paid leave and unveiled a bold initiative to spur more affordable housing.
While laying the path for future reforms, the Albanese Government wants to take a more holistic approach to economic management – one that more deeply considers community well-being. In essence, getting the economy to work for Australians, rather than the other way around.
Resources to the rescue (again)
The flip side to your high energy bills, at least in part, is high commodity prices – which continue to be a boon for the nation’s coffers.
Treasury forecasters have revised expected tax receipts upwards by more than $100 billion over the next four years.
The Government is overwhelmingly banking these revenue upgrades, rather than spending them.
“Restraint is the name of the game in this Budget,” Chalmers told journalists during the Budget lockup. “That’s what differentiates us from our predecessors.”
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Budget 2022 - the $300k superannuation boost for these Aussies
Treasury’s modelling shows high commodity prices and the strong labour market are expected to keep the budget in a strong position for the next two years.
But higher spending in areas such as disability and higher borrowing costs are expected to offset this effect by 2024 onwards, requiring structural reforms.
A shift towards well-being
Australia is adopting a growing trend and following countries like Scotland and New Zealand in placing a greater emphasis on the well-being of the population - not just cold GDP numbers - when tinkering with the national accounts.
It was an approach openly derided by former treasurer Josh Frydenberg on the floor of parliament, but the Albanese Government has embraced the notion.
While a more nebulous metric, it means it will prioritise things like clean air, a healthy environment, gender equality, social mobility, and even housing affordability when looking at the overall economic output.
“Traditional macroeconomic indicators provide important insights, but not a complete or holistic view of the community’s well-being,” the Budget says.
“A broader range of social and environmental factors need to be considered to broaden the conversation about quality of life.”
The Government says it will continue to consult on developing an overarching framework for measuring the well-being of Australians. The result will be a stand-alone ‘Measuring What Matters Statement’ in 2023.
Australians going backwards for longer
While wages are starting to tick up, on aggregate, we are continuing to lose purchasing power.
At best, wages growth won’t overtake the rate of inflation until 2024 at the earliest, the Treasury Department estimates.
Government ‘worried’ about rising energy prices
Retail electricity prices are expected by rise by 50 per cent over the next two years, dealing households and businesses another cost-of-living blow.
Treasury has assumed in the federal budget that retail power prices will increase by an average of 20 per cent nationally in late 2022, and a further 30 per cent in 2023-24.
Speaking to reporters, Chalmers was candid about the problems that creates for households.
“When it comes to electricity prices, I’m not going to pretend that we are not worried about these forecasts,” he said.
A decade of structural deficits
A structural deficit is expected to remain over the next decade with costs of servicing government debt expected to grow 14 per cent annually while spending on health and the NDIS is also projected to blow out by about 6 per cent and 12 per cent respectively over the forward estimates.
National debt also continues to grow, standing at $892.3 billion as of October 14 and headed towards $1 trillion.
“There are hard days to come, and hard decisions to accompany them,” the Treasurer warned in his Budget speech.
The ongoing cost of climate change
For the first time since the Abbott government, Treasury has been asked to model the impact of climate change on the economy as part of the Budget.
Preliminary estimates indicate the October floods will lead to a detraction of around a quarter of a percentage point from GDP growth in the December quarter of this year, with $3 billion set aside to respond.
An additional $588 million has been allocated this year into next, to ensure Services Australia is better equipped to support Australians who have faced natural disasters and emergencies.
The Budget sets aside $200 million a year in disaster-prevention and resilience projects via the Disaster Ready Fund.
Health, social and community impacts of climate change also need to be taken into account, the Budget papers note, including the adverse impact natural disasters can have on mental health, education disruption and local ecosystems.
“After nearly 10 frustrating years, and more than 20 failed energy policies, Australia now has a government that understands the generational and economic imperative of acting on climate change,” Chalmers said.
By the Treasurer’s own admission, the inflation boogeyman “was the primary influence on this Budget”.
“We expect it to persist for higher and longer,” he said.
“Inflation determines our approach to really all of the key components to this Budget. It guides our response to cost-of-living pressures and it guides our approach to our fiscal strategy as well.”
Chalmers lamented that interest payments were “the fastest growing area of government spending”.
In the March pre-election Budget, inflation was expected to peak this year at 4 per cent. It's now tipped to rise to nearly double that (7.75 per cent) before moderating sometime next year.
The latest inflation figures for the September quarter come out tomorrow.
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