21 May 2024
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My view on Chalmer’s Budget

Peter Switzer
15 May 2024

Historically, I always give a Budget a name. My favourite call was Wayne Swan’s 2011-12 fiscal plan that I called the Seinfeld Budget — a budget about nothing!

While in the Treasurer’s statement last night there are many offerings that a lot of Australian households will like (tax cuts, help for power bills and rental payments that I list below), the big issue and the big credibility gamble of Jim Chalmers is his call that inflation will tumble into the Reserve Bank’s preferred 2-3% band by election time next year (i.e. May) is a huge promise!

That’s why I call this the “Trust Me” Budget, because if interest rate sufferers don’t get an interest rate cut by Cup Day (the first Tuesday in November), then the Treasurer could be tagged a rearranger of reality (to put it politely) or to be very Australian, an economic nincompoop.

Mind you, I think Chalmers has a chance to be right, but if he wasn’t so generous with the tax cuts, the help for power bill payers, tenants, students, sick people with big medical bills and businesses battling red tape or engaging in green or hi-tech activities, inflation would fall faster. And that would deliver lower inflation and rate cuts quicker.

However, there are Labor constituents to be cared for and votes to be collected before May next year, so the Treasurer is gambling on the triple play of being socially caring, economically delivering and politically cunning!

You could say Chalmers is putting this to us: “Trust me, I’m a Treasurer”. But we all know he’s also a politician. And as Mark Twain once famously said: “Politicians and diapers must be changed often and for the same reasons.”

 What households care about

This is how AMP’s Shane Oliver summed it up. Key measures, many of which were announced prior, include:

  1. $5.4 billion in a broader round of cost-of-living relief, including broadening energy bill relief for all households and extending rent assistance.
  2. A renewed focus on the benefits to all households from the Stage 3 tax cuts that were rejigged in January, worth an average of $36 a week.
  3. $3 billion for community pharmacies for cheaper medication and $6.2 billion on Medicare and expanding the Pharmaceutical Benefits Scheme.
  4. $9.6 billion on housing & crisis accommodation and extra on related infrastructure (although much is a continuation of existing programs) and $89 million to train home builders (although the planned 20,000 new tradies are only 1.7% of the existing construction workforce).
  5. The government will pay student teachers, nurses, mid-wives, and social workers$319.50 a week during their mandatory work placements.
  6. A change to student debt indexation, which cuts the value of debt with no near-term budget cost as it won’t involve a handout to students.
  7. A mix of subsidies, tax breaks, cheap loans, relaxed foreign investment rules and less red tape to boost investment in government chosen industries as part of the $22.7 billion Future Made in Australia
  8. Caps on international student arrivals by each university that can be raised if they build more student accommodation.
  9. Extra spending on aged care and childcare to cover wage rises.
  10. Freeze on deeming rates for low-income households.

The Budget Big Picture

The table below shows us what Treasury’s economic calculations have come up with and I’ll sum it up below, with my comments in red.

  1. By June 20 this year, our economy should’ve grown by 1.75%, which is slow and next financial year we pick up to 2%.
  2. Inflation by June 30 will be 3.5%, but by the same date next year, it will be 2.75%. That implies at least three rate cuts, as a minimum. Courageous call but possible.
  3. Wages will be 4% this financial year and will fall to 3.25% in 2024-25. That’s a guess.
  4. Unemployment should be 4% by June 30 this year and 4.5% next year.
  5. Net migration ends up being 395,000 this financial year but will be 260,000 next year. That will help lower inflation.

 

The Budget Bottom Lines

This financial year we have a $9.3 billion surplus going to a huge deficit of $28.3 billion! This blows out to $42.8 billion in 2025-26 and falls to around $25 billion in the next two years.

The debt on these deficits will be big as the AFR’s Ronald Mizen reported. He wrote that “…payments on Australian government debt will surge almost 60 per cent to $35 billion in the next four years as deeper deficits add to the borrowing task.”

Note: These deficits are guesses based on the price of iron ore, Australia’s economic growth, China’s growth, and that of the global economy, and other hard-to-see future developments. The only one I trust is the figure for this financial year, which ends on June 30 this year! That said, these future deficits are Treasury’s best guess.

Sideline ‘stuff’

Tom Burton in the AFR went Budget digging and found:

  1. For $100 extra, you’ll get a passport in 5 days.
  2. Income from World Cup Rugby here will be tax-free.
  3. A pilot programme of age test technology to stop kids accessing online porn.

4, Covid assessment reports will end.

  1. Program to reduce cows ‘farting’ CO2!
  2. The Census will use MyGov for data catching.
  3. A new medical school for Darwin.
  4. Money for premature baby research.
  5. $27.5 million for a ‘wage theft’ taskforce with the Fair Work Ombudsman.
  6. $20 million for a new, hotshot, melanoma scanner.
  7. A 1.5% tax levy on sweet potatoes to be reduce to 0.5%!
  8. Brisbane’s Covid quarantine centre to become a police training centre.
  9. $23 million for Uruguay for social security for workers who work in both countries!
  10. $3 million for political staffers insurance upgrades.

 

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