IMAGINE A BOLD ten-year plan to buy back all the nation’s electricity generation and delivery infrastructure sold to foreign regimes by previous incompetent state Liberal governments. If Canberra collaborated with the states to achieve this, vast sums of money now sent to China and Singapore from all Australian businesses and every household, including the poorest, would return — forever!
Or imagine if Australia shifted from being one of the largest exporters of lithium, zirconium, hafnium, yttrium and other rare earth oxides to becoming the leading global manufacturer of the batteries, magnets, turbines and other finished goods that require these minerals.
What about establishing an international market for gourmet kangaroo products to rival French exports of canard and foie gras or New Zealand’s global lamb trade? (Exclusive restaurants in France and Italy often advertise ‘filet de kangourou‘ on their pavement chalkboards. They don’t buy it from Australia.)
Treasurer Jim Chalmers and his colleagues have the chance to make a lasting impression in the Federal Budget to be delivered on 9 May.
Much as we would love another nation-building initiative like Ben Chifley’s Snowy Mountains scheme, or Gough Whitlam’s Medibank, now Medicare, or Paul Keating’s universal superannuation, or Julia Gillard’s national disability insurance scheme, we will probably receive an economic blueprint of calm proficiency instead.
The stated priorities
Chalmers is facing significant challenges as he prepares his second budget since gaining office nearly a year ago. They include persistent inflation, the housing shortage, the low share of national income going to workers, stalled productivity and rampant corporate tax evasion. All these were badly mismanaged by the previous conservative administration.
The Treasurer has itemised three priorities for this budget: cost‑of‑living relief, laying foundations for future economic growth and building resilience against global economic shocks.
He intends to cut living costs by reducing medicine prices, enabling prescriptions for long-term medication with fewer GP visits, lowering energy prices through the recent gas price cap and direct assistance to pensioners with energy bills.
Going for a budget surplus?
Shadow Treasurer Angus Taylor has called on the Government to generate a surplus in this budget, thus putting the issue on the table.
Chalmers, predictably, took the opportunity to whack back:
Well, the Shadow Treasurer was a cabinet minister in a government which had almost nothing to show for a trillion dollars in debt. And so I don't think people take Angus Taylor very seriously when it comes to the Budget. He is in many ways the poster child for the waste and rorts which define the wasted decade...
...we see a substantial part of our job in this Budget, and otherwise, is to clean up the mess that we were left.
Left jab, followed by a right hook. On the substantive question, however, Chalmers made no commitment other than:
“...the budget will improve substantially this year and next year as a consequence of low unemployment and good prices for our exports.”
Fiscal policy progress so far
In fact, the Government could generate a surplus next year if it wanted to. It will come perilously close this year.
The current budget, which Chalmers set out last October, forecast a deficit at the end of June 2023 of $36.9 billion, with the progressive deficit at the end of March at $34.5 billion.
In fact, the actual March deficit was just $11.2 billion, due to higher revenue and lower spending than expected.
Government gross debt recorded last Friday was $894.6 billion, revealing the Albanese Government has added just $6.1 billion in its first 11 months. That compares with an average of $71.5 billion added each year by the previous Coalition Government over its term.
While the Treasurer probably could balance the budget, there is significant risk in forecasting a surplus and then encountering changed circumstances that make delivery impossible. Just ask Josh Frydenberg. The previous Treasurer’s budget speech in 2019 forecast surpluses of $7.1 billion in 2019-20 and an impressive $11.1 billion in 2020-21.
Then came the COVID pandemic plus a fair amount of economic incompetence and grift. Outcomes in those years were deficits of $85.3 billion and $134.2 billion. Ouch!
So even if Labor sees a surplus looming, it may prefer it arrives as a pleasant surprise.
Productivity fallen off a cliff
Arguably, the greatest challenge Chalmers has inherited from his hapless predecessors is getting productivity back on track. Productivity growth in the past decade has been the slowest in 60 years, averaging just 1.1 per cent a year, barely half the rate through the 1990s.
After satisfactory rises to 2016, we see a plateau until mid-2020, then a COVID-induced jump in June 2020, then another plateau before a dramatic collapse in 2022.
Having recognised this early on, Chalmers was keen to see the Productivity Commission’s detailed five-year report. The Treasurer released this on 17 March, two months earlier than required, to encourage colleagues, academics and interested persons in the corporate and government sectors to process its contents.
The report identified five key trends and transitions:
- the large and growing services sector;
- the costs of climate change;
- the need for a more skilled and adaptable workforce;
- use of data and digital technology; and
- economic dynamism in a world beset with geopolitical tensions.
Let’s hope next week’s budget succeeds in dealing with these. We shall see. If it does, it could be foundational for something more spectacularly visionary in the future.
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