Early budgets before an election are often troubling affairs. The government usually doesn’t want to give away its entire election strategy.
In the past such budgets have not gone well. The 2019 “back to black” budget was filled with absurd assumptions about how wonderful the economy would be. The 2022 March budget was one of the worst-delivered to date – both pointless and dumb – sugar hits designed to buy an election win and then … well, nothing.
And how does this budget look, given that Katy Gallagher on Monday said: “As finance minister, I probably get 100 good ideas for one that we can do.”
Well, forget 100, let’s see if there are any good ideas.
Tax cuts!
Forget not wanting to give away the election strategy! Angus Taylor for the past few weeks has been absolutely banging on about people paying an extra $3,500 on average in tax compared with June 2022 due to bracket creep. It was – and I’m being kind here – a truly stupid argument. People were paying more tax for two main reasons – they were earning more money because wage rises have improved over the past three years and because in 2022, in his last budget, Josh Frydenberg got rid of the $1,500 low-middle income tax offset.
The treasurer quietly let Taylor bang on and on about the inability to afford a tax cut, and then he slapped down two pretty decent tax cuts.
I haven’t seen a plan come together this well since Road Runner painted a tunnel on a cliff face.
These are pure Labor tax cuts – in the real sense of what the Labor party should be all about. Dropping only the bottom tax rate from 16% to 15% in 2026-27 and then 14% in 2027-28 delivers the biggest percentage cut to those on $45,000 – and everyone earning more than that gets $268, which is nice but not absurd.
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It delivers over the two years a 1.2% tax cut to those on $45,000, and means that including the stage-three tax changes and the loss of the low-middle income tax offset, the very vast majority of people are paying less tax.
Checkmate, Angus.
Budget deficits
The big shocker for me was not just the tax cuts but that the budget deficit is not all that changed. In December the Treasury estimated a budget deficit in 2025-26 of 1.6% of GDP; now it is 1.5% of GDP. The budget also forecasts a lower deficit in 2026-27 than in the December mid-year economic and fiscal outlook.
To be honest I really don’t care – as I have said repeatedly – about deficits, and these changes are minute. Will this one come true? We shall see:
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There will of course be much talk about “deficits as far as the eye can see”. But we really should start to realise that a budget surplus is neither something that represents success nor something that is usual.
The budget has been in deficit 33 of the past 50 years – or two-thirds of the time since Gough Whitlam lost office. And yet in that time our standard of living has greatly improved and we still exist as a sovereign nation.
The economy is not exactly humming.
No, not a recession, but nothing you would want to brag about.
There were warning signs that downgrades were coming last week when the OECD, reacting to Donald Trump’s diarrhoea sandwich of autocracy and idiocy, downgraded growth figures around the world, including Australia’s.
Largely these downgrades are not in place in this budget.
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Are these heroic assumptions? No, but they are not pessimistic. You can’t forecast for what Trump might do but these do smack a bit of “Please Donald, don’t screw things up”.
As it is, if these estimates come true it will still mean three years in a row of the economy growing slower than 2.5%. That is decidedly not an overheating economy.
Still lots of tax
I was pretty sure there would be a big downgrade in tax revenue – that seemed to be the line. But nope: as with the previous two years there is more revenue than was previously expected.
Employment growth is projected to be a bit better, wage growth is expected to be a bit better and unemployment is expected to be a bit better. To be honest, not by much – but it all adds up – to an extra $6.7bn in 2025-26.
The big changes come in payments from “other variations” which account for $6.2bn more tax in 2025-26, $5.073 more in 2026-27 and $8.1bn in 2028-29.
What are these? A bit of lower-than-expected NDIS payments, shifting around some infrastructure spending and some using of the contingency reserve. Is it a bit funny? Well, it’s not the most opaque thing I’ve seen and overall there are not a lot of “savings” to be found that are actual cuts.
The opposition will likely gnash teeth in faux outrage at the lack of a surplus and tell everyone it would have been able to deliver one. In reality, given the amount of tax revenue, no government this century has delivered a surplus – and definitely not John Howard and Peter Costello:
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One thing that we are not seeing is much tax from gas companies. Revenue from the petroleum resources rent tax is set to keep falling.
Two years ago the treasury estimated that over the four years of 2023-24 through to 2026-27 we would raise $10bn from the PRRT. Now we are down to $6.3bn. So, during a major gas boom, the government raised half the revenue from the PRRT than it did from excise on spirits – well done, gin and whisky drinkers, we salute you.
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Good thing the government asked the gas industry how to change the PRRT so it would raise more revenue. That worked a treat.
Big spending?
Perhaps the easiest line to take if you are looking to criticise an ALP budget and you reside in the opposition leader’s office, or the news.corp editorial office (apologies for the repetition) is to have a look at the spending and say: the budget is out of control, spending gone mad, absence of tough decisions.
Never mind that in March 2022, when Josh Frydenberg tried to buy his way to an election win, The Australian ran with “the cost of winning” and suggested that the “Treasurer gives Coalition a shot at poll ‘miracle’.”
We don’t need to be so biased, and this budget is not really sloshing money around.
The growth of public demand gives the best indicator of the impact the government spending will have both on the economy and inflation. In 2025-26 public demand growth is just 3% and then 2% the following year – pretty mild – especially given that the private sector is expected to grow pretty weakly:
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As for the overall spending, weirdly we have a range of commentators trying to compare the amount the government is now spending with how much it spent before the NDIS was introduced. Once we take that disability support, not only is this budget not a big-spending one, it is actually downright measly:
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Good ideas?
Downright measly is certainly how those on jobseeker will feel – still existing 38% below the poverty line. Yes, there is some good new spending on bulk billing and the PBS. The extension of the energy rebates was unsurprising (although it’s a bit odd it didn’t slowly wind it back) and it’s always good to find savings by cutting back on consultants. And yes, the tax cut is mostly for low-income earners.
But the budget still contains $10.8bn for fuel tax credits, most of which will go to mining companies. The budget does nothing to wind back the tax abuses of the superannuation system or the 50% capital gains tax discount that has distorted the housing market.
Still not much tax from gas
Clearly the government has many good ideas – maybe even 99 of them. But the government has decided that none of them was better than letting gas companies get away with paying bugger-all tax or the richest 10% getting about $40bn a year in tax breaks.
Yes, this is a good budget for low- and middle-income earners, but hopefully one day we will see a budget that also does the work undoing all the distortions and hurt that still remains in our economy.
Greg Jericho is a Guardian Australia columnist and policy director at the Centre for Future Work
