Australian Treasurer Jim Chalmers’ first Labor Budget attempts to walk the tightrope between easing cost-of-living pressures and reining in inflation.
It was billed as a no-frills Budget and true to his word, Treasurer Jim Chalmers, handed down an economic plan in keeping with the times: ‘targeted’ relief aimed at helping lower-income earners, ‘family-friendly’ in its messaging, but little in the way of ambitious or radical social change.
There was none of the standard budget sweeteners Australians have to expect on Budget night, either: no pensioner discounts, relief at the bowser, or generous one-off hand-outs to help Australians struggling with rising interest rates.
The hugely popular (but expensive) low and middle-income tax off-set, which offers a tax break to millions of Australians on low and middle incomes, will be phased out, and the fuel excise cut introduced by the previous government will not be extended.
Prior to handing down the Budget, Jim Chalmers tweeted earlier today that it would be “solid, sensible and suited to the times” and would “make life easier for Australians, without adding to inflation”.
Whether the latter is true will become evident over the next few months: Chalmers will take the stage again next year to deliver the annual budget in May. For now, Australians have been promised more affordable housing, extended paid parental leave, and cheaper medicine. Nevertheless, Chalmers was circumspect in his commitments, noting that Australians face “the prospect of a third global downturn in a decade and a half”.
“This time is not a financial crisis or a pandemic, but a war driving high prices and higher interest rates here and around the world, and the risk of another global recession,” he said.
“This time demands a different response.”
Here’s what’s included in the Budget.
Social Security Payments and Housing Affordability
The Albanese Government has announced it will add almost $33 billion to social security payments, taking inflation, interest rates and stagnant wage growth into consideration.
It has also used tonight’s budget to shed light on how it plans to tackle Australia’s current housing affordability crisis.
Labor has already committed to building 30,000 social and affordable homes over the next five years through the $10 billion Housing Australia Future Fund and, during the Budget, Chalmers announced the National Housing Infrastructure Facility will support an additional 5500 new homes.
Chalmers also said announced the Help to Buy Scheme that will allow up to 40,000 eligible Australians to own their own home with a lower deposit and smaller mortgage, and the Regional First Home Buyer Guarantee, to support another 10,000 new homeowners each year.
New Housing Accord
Along with the funding commitments, Chalmers also announced a historical deal that will see one million new homes built.
“I am proud to announce that we have just struck a new national Housing Accord between governments, investors and industry to build the affordable homes our country desperately needs, and to help tackle our housing crisis,” he said.
“Most of this supply needs to come from the market, not the government.
“But there’s a role for government, and we intend to play a leading role–by coordinating and kick-starting the investment we know needs to happen.”
This budget has committed an initial $350 million in additional funding to get the Accord started, on top of its pre-existing commitments to affordable housing.
Some big-ticket reforms of interest to the Australian population were announced by Chalmers on the night of–and in the lead up to–the Budget. These include:
- Paid parental leave to increase–on a staggered basis–to 26 weeks.
- More affordable childcare, with an increase to the maximum subsidy rate to 90% for families up to $80,000.
- Aged care reforms that will see $2.5 billion put towards improving the sector, including ensuring aged care homes have a registered nurse on duty at all times.
- Cheaper medicine that will allow an adult to save up to $12.50 per script, helping about 3.6 million Australians every year.
- A $2.4 billion NBN investment over four years, making good on an election promise Albanese made earlier this year.
On March 29, 2022, the Morrison Government announced a 50% cut in the fuel excise for six months, which took place from March 30. This cut resulted in a fall in fuel prices in April, although prices rose once again in May and June.
“A family with two cars who fill up once a week could save around $30 a week or around $700 over the next six months,” then-Treasurer Josh Frydenberg announced during the March budget.
On September 29, the fuel excise was reintroduced. In this evening’s budget, Labor stood strong in its stance to not extend the tax cut—citing the approximate $3 billion in lost revenue.
Instead, the only incentive for motorists is a $54.3 million electric vehicle discount policy, and a tax cut on electric cars.
Despite nation-wide cybersecurity threats, including the recent Optus hack and Medibank data breach in which millions of Australians’ personal details were leaked, the October budget offered little in terms of cybersecurity policies or training.
During Chalmers’ speech, cybersecurity was not mentioned.
Yet through the budget papers, it’s clear that the Labor government has committed $12.6 million to combat scams and online fraud, with $9.9 million going towards a new National Anti-Scam Centre to be established by the ACCC.
Budget Forecasts: Smaller Deficit, Higher Inflation
The better-than-expected deficit for 2022-23 was released on Budget morning, coming in at $36.9 billion compared to the $78 billion that was forecast by the former Morrison Government in March. This was due to higher tax receipts from low unemployment and strong commodity prices.
However, Chalmers had also released forecasts showing GDP growth in 2023-24 at 1.5%— one percentage point less than what was expected in the March budget. The growth rate has also been downgraded by a quarter percentage to a predicted 3.25% this financial year reflecting the weakening of the global environment over the past six months.
Inflation, meanwhile, is expected to hit 7.75% by the end of the year, prompting fears Australia may enter a recession. In another blow to households, Treasury estimates that electricity prices will rise by an average of 20% this year, before rising by a further 30% in 2023-24—a total of 50%.
Much of the Budget spending items were leaked well in advance of the Budget, including the $9.6 billion infrastructure commitment, changes to the childcare subsidy and the gradual introduction of 26 weeks’ parental leave for eligible families.
Labor will fund its promises by scrapping some of the previous Morrison Government’s spending on consultants, labour hire firms, travel and legal fees. The Government claims to have found an extra $10 billion through going, line by line, through the previous government’s accounts, in an action it has described as a “rorts and waste” audit.
The Albanese Government has also committed to ripping up the controversial commuter car parks scheme that attracted widespread criticism that it amounted to mere pork-barrelling.
For the first time, Australia’s budget includes a wellbeing chapter, signifying the Government is relying on more than just GDP to measure Australians’ quality of life and prosperity.
New Zealand includes a similar chapter, which measures five ‘wellbeing objectives’ such as reducing child poverty and improving mental health across the country.
While tonight’s Budget did not feature any explicit wellbeing goals set by the Albanese Government, Chalmers says they are planning to introduce the targets next May.
It is also the first Budget that has outlined the risks that climate change poses on the economy.
The Global Picture
As expected, the Albanese Government’s first Budget was defined by the cost-of-living crisis—not just here, but globally.
While Australia has been sheltered somewhat from the worst of the global downturn— owing to demand for our experts—we are not immune from the economic headwinds. Furthermore, we are facing heightened inflationary pressures over coming months, owing to the end of the fuel excise subsidy, floods across Victoria that will push up grocery prices, and the cumulative impact of rate rises.
In the lead up to the budget, Treasurer Jim Chalmers flew to Washington where he was forced to reassess the fiscal health of Australia’s trading partners.
“The global economy is treading an increasingly perilous path and downside risks loom large—this was a clear message from meetings with my counterparts in Washington DC,” he said at the time.
The Budget forecasts that the UK economy will contract next year by 0.25%, while the US will manage a tepid 1% in growth in 2023. China will grow by an estimated 4.5% in 2023.
Chalmers was also no doubt concerned about causing a UK-style meltdown of markets in the same vein as (former) Prime Minister Liz Truss and (former) Chancellor of the Exchequer Kwasi Kwarteng’s mini-budget.
Nevertheless, the government stuck firmly to its stage-three tax cuts, which will involve scrapping the 37% marginal tax bracket and lowering the 32.5% marginal tax rate to 30%, which will benefit those on higher incomes. They’re not due to come in until 2024: a fact the Government is at great pains to stress.
It’s worth noting too that while the Government has been able to find savings from scrapping previous programs, the cost of servicing national debt will grow by 14% annually.
Shadow Treasurer Angus Taylor says it will be a “test for Labor” as to whether it can stick with a clear and comprehensive plan to deal with the pressures Australians are facing “without harming the economy”.
What date is the Budget?
The Federal Budget was handed down by Treasurer Jim Chalmers on October 25, 2022 at 7.30pm AEST. It was the second Budget for 2022: the first was handed down by the previous Morrison Government in March.