It was a very tough Budget for Treasurer Jim Chalmers to frame – arguably the toughest for several decades.
When preparing his maiden Budget, Chalmers received an economic and fiscal briefing from Treasury that was disconcerting, even for the outrageously enthusiastic new Treasurer.
Chalmers has been instrumental - through his work as shadow treasurer during the recent election campaign, and in the five months since then as Treasurer - in moving the Labor Party ahead of the Coalition in the status of ‘better economic manager’ in the eyes of voters.
This politically potent standing will only be reinforced when the Budget measures work their way through society and the economy more broadly, and will no doubt be decisive in the 2025 election.
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Treasury noted that, based on the policy settings left by the Coalition to Labor, the Budget was forecast to be in deficit for every year until at least the 2050s and, as a result, government debt would continue to rise.
Treasury also briefed Chalmers that the current cycle of rising interest rates meant that an unexpected amount - in the billions of dollars - would be required to pay the interest on maturing government debt that had to be rolled over and, of course, on new government debt required to fund the ongoing budget deficits.
Net government debt was projected to hit $1 trillion.
At the same time, Labor had to start implementing its agenda taken to the 2022 election, which required some additional spending.
The Budget delivered.
Shorter term, the Treasury briefing highlighted a problematic near-term inflation outlook that the Reserve Bank of Australia (RBA) was fighting hard to contain, while the global economy was weakening at a troubling pace, with a global recession likely in the months ahead.
The local labour market is at over full employment and many businesses cannot find appropriately skilled workers.
At a big-picture level, there is an urgency to implement reforms to boost Australia’s productivity which, for the past decade, has been pathetically weak.
There are many areas of huge and growing inequality that have arguably been made worse over the past decade of policy ineptitude.
Chalmers has delivered an 8 out of 10 Budget as he tackles the impossible to balance objectives of spending reform, tax tweaks, fairness and budget repair.
The positive points of the Budget were that it was framed to help contain inflation - cost-of-living pressures, in other words - as the net effect of decisions taken, as extra spending was broadly offset by other spending cuts and tax-tightening tweaks.
This helps in what will be a massive task in repairing the budget mess left to Labor by the Morrison government.
With growth slowing and the unemployment rate forecast to rise by a full percentage point - to 4.5 per cent - a more extreme tightening in Budget policies would have risked overkill and added to the probability of a hard landing – recession, in other words – in 2023 or 2024.
High immigration will fix many of the skills shortages but will have the effect of underpinning hot demand for housing and will dampen any pick-up in wages growth.
The Budget also adds dashes of fairness to government payments and tax systems.
For the RBA, which meets next week, the Budget is a relief.
Unlike the pre-election Budget in March - delivered by then-treasurer Josh Frydenberg, and which sprayed cash around the economy when it was experiencing troubling inflation pressures - the Chalmers Budget is sober and something the RBA will welcome.
The Budget was framed on an assumption of 75 basis points more of rate hikes – a cash rate peak of 3.35 per cent.
This is less than the market pricing of a 4.25 per cent peak and seems to be a cautious take on inflation risks.
It looks too high. With the RBA set to hike 25 basis points next week - taking the cash rate to 2.85 per cent - there is a growing risk that hiking much beyond that into a global recession would drag the Australian economy down unnecessarily.
That is a question for another day.
But, for now, the Budget delivered some important steps in reforms, budget repair and some important, productivity-enhancing policy changes.
Much more needs to be done to fully address many budget problems, which is why the policy agenda will rapidly move to the next Budget, in May 2023.