Jim Chalmers’ budget is a carefully calibrated exercise in expectation management, with just a tiny bit of fiscal policy thrown in.
Labor has clearly spent a lot of time workshopping the political consequences of various decisions. As economics editor of The Sydney Morning Herald Ross Gittins points out, there’s a little of something for nearly everyone in the document, for GPs and small businesses, struggling households and low-income earners, more money for AUKUS, and a surprisingly generous investment in culture.
The developing political angle on the budget seems to be: “Is it inflationary?” This is an arid debate, made worse by the economic innumeracy of most of the media pursuing it.
But the inflation narrative probably won’t hurt Labor in the short term. Yes, Chalmers could have been much stronger in tackling inflation. He could have raised taxes, especially on high-income earners and high-profit corporations, or cut spending. He did a little bit of both, but in the main, this budget is fiscally neutral. It probably won’t spur inflation, which is already trending down. If you think the economy is slowing quickly — which Treasury does, forecasting nominal GDP growth of just 1.25% next year — then perhaps steady-state fiscal settings are a good thing.
It probably won’t play out like this in the business media, of course, where neoclassical economists and business shills are lining up to attack Chalmers for not going harder on spending cuts. But ordinary voters hate spending cuts, and are unlikely to care enough about the nuances of fiscal policy for it to make a big difference electorally.
When it comes to the electoral calculations, Labor’s intentions are clear. The more vocal parts of the ALP base have been placated with surprise top-ups to Medicare and welfare, while big business has been handled with kid gloves (even the gas lobby is OK with the tiny tax increase in petroleum royalties).
Those troublesome stage three tax cuts weren’t even mentioned. Some have read the omission as a coded signal of Labor’s intentions to get rid of them, but a simpler explanation is that Chalmers wants some wriggle room to trim them at the top end in coming years. Adjusting the top bracket of the tax cuts next could deliver easy billions, which might just help Labor bring in another surplus.
Ah, the surplus. You knew we’d end up talking about it, didn’t you?
Chalmers worked with Wayne Swan in the dog days of the Gillard government, when Labor bravely kept promising surpluses and repeatedly failed to deliver. Surplus/deficit politics are among the dumbest of Canberra obsessions, but the sad reality is that many voters do equate surpluses with sound economic management. Last night’s surplus, a slim $4 billion, is tiny in the broader sweep of a $680 billion government budget. But it’s politically priceless for a Labor that has a bad case of PTSD on “debt and deficit disaster” beat-ups.
Reading through the budget papers carefully is an exercise in cognitive dissonance. On the one hand, full employment and high commodity prices are showering the Treasury with extra revenue, so much extra that Chalmers clearly decided to spend some extra dollars in the run-in to Tuesday night’s speech.
But look at the economic forecasts, and there are tough times ahead. Nominal GDP growth will be just 1.25%, unemployment will rise and household consumption will fall. Throw in Australia’s omnipresent housing crisis and all this may start to feel very much like a recession.
And that’s the real missed opportunity of this budget. It is cautious, steady and politically canny. In that respect, it’s quite conservative. But the challenges facing Australia’s society and economy are deep and complex. Australia’s economy has low growth, low productivity, high profits and falling real wages. Corporate power is so concentrated in key industries that it is distorting the broader economy. We also have a very dirty economy that needs to decarbonise quickly.
Chalmers’ budget dodges many of these questions. Housing is the paradigm example. We’re not building enough dwellings for our growing population. Worse, the budget papers forecast a collapse in housing investment. Labor’s plans for addressing crippling housing insecurity are modest: a top-up for Commonwealth rent assistance, $67 million to extend the housing and homelessness agreement for a single year, plus a thought bubble about “build to rent” developments. The cost of $2.7 billion for very marginal improvements to the rate of rent assistance simply shows the scale of the affordability crisis.
Similar criticisms could be made about Labor’s approach to inequality. As the housing market so graphically illustrates, Australia’s income and wealth inequality continues to widen. Even though real wages are forecast to grow again next year, the fall in living standards for poorer Australians has been precipitate. The stage three tax cuts will be a disaster for income inequality, and a few extra dollars a fortnight for jobseekers aren’t going to redress this.
As former treasurer Josh Frydenberg discovered, the “budget bounce” in electoral fortunes from a successful economic statement is mostly a myth. That’s not to say budgets don’t affect voting intentions. Budgets can be disastrous — Joe Hockey’s spectacular implosion in 2014 completely derailed the first-term Abbott government.
This budget is unlikely to do the same for Anthony Albanese. But it postpones, rather than prevents, political peril. A centrist document, it stores up trouble for Labor on both the left and right. Chalmers will find the highwire act more difficult in coming years.
And no connection with the absurdly high levels of migration that is driving the Treasury forecasts? Everything mentioned is a result of our economic policies being driven by a Ponzi scheme. If we wanted real wages to rise, we would have kept a tighter labour market. If we wanted investment in skills and training, we’d do so. With a tighter labour market, Australian’s might be able to fill those “skills shortages” and earn enough to afford to live.
Instead we’ve got students who can’t afford to live dropping out of the courses we need people to do, in order to fill the job gaps we have. So then we hear complaining from big business about “skills shortages” which is then used as a weapon to suppress wages, boost asset prices and worsen inequality.
What’s happening now is that people are starting to get angry. This has the potential to really blow up and it’s time to call this out. We need a sustainable population policy at the center of the budget.
No, we’re growing our population too fast and simple can’t build fast enough. Tackle demand and everything gets easier.
Higher immigration is known to impact aggregate demand, and yet somehow it is beyond the pale to discuss this issue as it relates to the impact on our current economic settings – i.e., an economy at near full capacity, with effectively immovable supply side constraints beyond our control, and subsequent high inflation. If anything, the ALP is being criticised for not being aggressive enough in increasing immigration.
Whereas any other modest contribution to aggregate demand (i.e., a nominal increase to JobSeeker, higher wages to aged care workers, and a recalibration of Medicare payments) is torn to shreds by the nutty bars over at the AFR as aggressively stimulatory, prolonging higher inflation and precipitating even higher interest rates.
Given the new paradigm of “skilled” immigration is ostensibly to ensure that wages are not depressed to the same extent as under the former Liberal Party’s “skilled” immigration regime (i.e; now more likely to be inflationary), this particular cognitive dissonance is one of those mysteries that cannot be fully understood or explained by human reason, and is best viewed through the prism of adherence to quasi-religious doctrine.
If you can suspend disbelief that higher immigration won’t add to inflationary pressures in our current environment (or at least only worsen it for a couple of years) then presented with multiple options by the Treasury secretary to either: target higher immigration and achieve higher GDP growth, or target lower immigration and achieve lower GDP growth, it is a perfectly rational decision for a new government terrified of relinquishing that role. Particularly when you can confidently proceed on the basis that any dissent will be casually dismissed as ill-informed racism by pretty much every media outlet in this country.
Not true, as the ‘big die off’ will commence in a few years and continue for the duration of the baby boomer bubble i.e. two decades.
Meanwhile media headlines of high immigration are tenuous, reflecting more high mobility of younger people eg. students when based on and misrepresents the ‘nebulous’ (according to Ian Dunt UK) NOM Net Overseas Migration; most will depart without accessing services etc. but contribute to budgets.
Behind the temporary headline noise in the permanent population are declining & below replacement fertility, fewer young people, working age of PAYE taxpayers passed the demographic sweet spot over decade ago (kept up with modest permanent migration inc. kids & higher temporary churnover), baby boomer ‘bomb’ is transitioning to retirement, ever increasing old age dependency ratios i.e. more retirees tugging on budgets & services vs. relatively fewer tax paying workers.
Can you show any credible analysis of a direct correlation between net migration and dwellings (recycled nativist headline); FIRE media and agitprop i.e. opinions, do not count.
That’s pretty clumsy obfuscation. If you can do basic math then it’s not hard to work out that the accelerating rate of growth in the increase in Australia’s population over the past 25 years (one of the highest in the developed world) has been due to higher immigration. The ins and outs and composition are neither here nor there. In aggregate, the country’s population is growing at eye watering rates owing to high immigration levels. And it’s not hard to work out who benefits most financially from this state of affairs.
It’s even easier to observe the impact on housing prices when you have migration driven demand outstripping supply. To keep overseas migrants out of it, just look at the impact on housing markets in WA during resource booms. Plenty of studies out there showing this relationship between immigration and housing, here’s just two …
https://www.researchgate.net/publication/338118972_The_Impact_of_Immigration_on_Housing_Prices_in_Australia
https://www.emerald.com/insight/content/doi/10.1108/IJHMA-10-2020-0128/full/html?skipTracking=true
No serious person would try to deny the link between immigration and its impact on housing.
That’s pretty clumsy obfuscation. If you can do basic math then it’s not hard to work out that the accelerating rate of growth in the increase in Australia’s population over the past 25 years (one of the highest in the developed world) has been due to higher immigration. The ins and outs and composition are neither here nor there. In aggregate, the country’s population is growing at eye watering rates owing to high immigration levels. And it’s not hard to work out who benefits most financially from this state of affairs.
It’s even easier to observe the impact on housing prices when you have migration driven demand outstripping supply. To keep overseas migrants out of it, just look at the impact on housing markets in WA during resource booms. Plenty of studies out there showing this relationship between immigration and housing (Crikey won’t let me post them, but a few minutes googling will reveal plenty of research on this topic).
No serious person would try to deny the link between immigration and its impact on housing.
No, simply being dismissive is not analysis but a form of micro authoritarianism to stifle analysis. Opinions are not science and belong more to those claiming (climate/Covid) science are simply ‘belief systems’, and ‘population growth’ of temporary residents is responsible for environmental degradation and any other -ve issue in Oz (deflecting from power and those responsible for policy, while median house prices have stagnated since 2009).
Most other nations, outside Anglosphere, do not use the inflationary UNPD NOM Net Overseas Migration formula, so ‘comparing apples with oranges’, many cannot e.g. in EU Schengen Zone no borders. You bypass social science by segueing between definitions or migration types to confuse and do not cite any data sources e.g. comparisons exemplifying your claims?
Where are these (apocryphal) ‘Plenty of studies out there….’?
This much irony would probably kill a normal human.
It’s a loaded question since it’s clear you would not consider any analysis that showed such a conclusion “credible”.
Simple fact is there’s been approximately 350k more people in the country each year for the last 15-20 years – mostly from immigration – and that requires (/required) building nearly a Canberra’s worth of new housing and infrastructure, every year.
Indeed. It’s like Malcolm Roberts asking for proof that CO2 emissions are causing climate change. Nothing will satisfy.
No it’s not, and your comment is simply evidence of a need to muddy the water by making opinion based comments to show immigrants and immigration in a negative light.
No, unless you do not understand statistics 101, as a medic understandable, but making claims from headline data, thinking they are valid, is simply guesswork; wrong diagnosis, wrong prognosis and suboptimal outcomes.
Hope this is not how you practise ‘medical science’?
On the (ludicrous) assumption that there is some element of ethics or not wanting to break a political promise (!?!) on the Stage 3 tax cuts, why is the obvious answer not mentioned – EVERY parliamentarian is on well over $200K – ministers over $300K,LotO & PM yet more, plus perks & privileges.
Hands up those who think that this is not foremost in what passing for their minds?
And that negative gearing thangy – how many, from the PM down (sic!), have (often very) substantial property portfolios and all nicely geared to aid the onerous task of paying them off which the tenants are doing?
No self interest wotsoever!
It’s simple-minded to assume that politicians are motivated by personal gain alone, or even mainly. Just look at the millions Bloomberg spent trying to be president of the US, or closer to home, Turnbull donating his way in. When you’ve already got money, power is a much more potent motivation.
Sure, they get their rocks off on the power, but that doesn’t mean their decisions once they have the power are not influenced by self-interest, or in this case, at least a total cluelessness about how tough it is for the majority of Australians who have to live on a much lower income than what they’re wallowing around in. Remember the former child refugee senator who said that $200,000 was not a lot to live on in Australia? Their perspective changes very quickly.
If you’re talking about Lucy Gichui, I suspect she said that when in Kenya when embarrassed at locals’ amazement at her salary. And there’s no evidence she was ever a refugee – not all Africans are you know.
Technically correct, but she did grow up in relative poverty in Africa and progressed to believing that $200k pa was ‘not a lot of money’, when it’s roughly three times the median Australian income. She also wrongly billed the taxpayer $2,000 to fly some family members to Adelaide for her birthday, excusing the rort by calling it ‘an administrative error involving misunderstanding of travel rules’.
So the general point still stands – while power is their aphrodisiac, self-interest and cluelessness blossom fairly quickly once their snouts get close to the trough.
I hate this time of the year. The ignorant obsession of a phalanx of ‘experts’ with the budget and the imagined certainty of ‘forecasts’ (almost all always wrong) is unbearable. Along with the pontification of economic platitudes (almost all always wrong), the glib assumption that ordinary voters equate surplus with economic management expertise. What effing nonsense all this is. For example, if surplus is the determinant of expertise, why has there been less than a couple of dozen budget surpluses since federation. And that being the case, how come we are not broke?
Having said that, I join in the criticism of the deliberate policy timid of this Labor government, in my view a direct consequence of it being terrified of News Corpse. I challenge the justification for that terror. Few people now take any heed of the complete nonsense and divisive vitriol spewed for by that evil empire. Labor’s objective ought to be to gut the Murdoch empire and thereby demonstrate its increasing irrelevance so that it can get on with radical tax reform, radical environment tax policy, radical social and wealth equity policy and give the young some hope. Simply staying in government gives no-one any hope.
Murdoch notwithstanding, I seriously doubt that the modern Labor party is capable or willing to move away from the current trope of neoliberalism. They are not the party of Whitlam, and never will be again. If you want radical reforms and policies from Labor, you’re probably 45 years or so, too late.
I seriously doubt that the modern Labor party is capable or willing to move away from the current trope of neoliberalism. They are not the party of Whitlam, and never will be again. If you want radical reforms and policies from Labor that benefit the many, you’re probably 45 years or so, too late.
I agree with your prescription as to where Labor should be heading. But the likelihood of this government getting on with radical policies is pie in the sky. The government of “no one will be left behind” was not going to give JobSeekers a cent up until a week or so before Budget night.
It’s astounding that anyone can still imagine that Labor is not going to see through the Stage 3 tax cuts in full. Albanese was adamant as always about it on ABC RN Breakfast this morning. He repeated, over and over again, that the tax cuts are legislated, they are a done deal and they will not be looked at again — and that is the entire explanation for no mention of them in this budget. Ever since voting for the cuts while in opposition he has done everything he possibly can to ensure that any backtracking on implementation of the Stage 3 cuts will be a political catastrophe for him. Why are there Labor supporters who refuse to believe him? Do they really believe he is such a crazy fool that he would prepare the way to shifting ground on the tax cuts by doing everything he can to maximise the political damage his government will suffer in consequence?
Albanese is no visionary. He is as conservative as they come. For him, it is all about political calculus, not what Australia needs. That is the problem with career politicians who become landlords – power and feathering one’s nest become the top priority.
If Albanese really wanted to scrap them, and he went to some lengths as Leader of the “Opposition” to superglue the ALP to them, the time to do it was immediately after the last election. He could have intoned the mantra “Budget black hole” and got rid of them immediately. Now we’re stuck with them.
I suspect you are absolutely right. Very very disappointing from Albo and the party that is supposed to be for the battlers and a fair go. Mind you it was Hawke and Keating that bought “Neoliberalism to Australia with its intended ills, “low tax, small government and market will fix mantra. They of course seem absolutely committed to following this to our doom.
Climate change; education; R and D; science. ???? Did I wake up on the wrong planet?
Depends on where you were prior to falling asleep.
Unfortunately, it looks like the same one which it has always been – a perfect place to live if only the most numerous large mammal spread all over it could be fixed.