The Final Stretch to Labor’s First Budget

“It won’t be fancy, it won’t be flashy,” were the words Treasurer Dr Jim Chalmers used to describe Labor’s first Budget in 10 years, as he addressed the media in Washington DC this week.

Mr Chalmers meet with G20 counterparts and security partners to discuss the global economic outlook, the war in Ukraine and the geopolitical challenges.

As usual, Canberra is preparing for one of the busiest weeks of the political calendar.

What is unusual is for the second time this year, a Federal Government will be handing down its budgetary framework and forward estimates.

Media speculation is rife with typical banter, ‘winners and losers’ sentiments and a consistent narrative of ‘wellbeing’.

What Do We Know So Far?

This Federal Budget will focus on fulfilling election commitments, repealing elements of the Morrison Government’s mini-Budget delivered before the election and setting the foundations for the May 2023 Federal Budget.

Minister for Infrastructure, Transport, Regional Development and Local Government, the Hon Catherine King MP stated that many Morrison government discretionary grants may get axed in the Budget, with the Labor government aiming to prune “rorts and waste”.

One inclusion is, of course, a wellbeing element. During the Australia New Zealand Forum in July, Dr Chalmers stated, “We should judge our policies, including our economic policies, against agreed markers of progress. That begins with measuring what matters, not instead of traditional economic indicators but in addition to.” 

The wellbeing budget chapter may include measures for living standards, such as educational attainment and health outcomes, as well as some international comparisons.

It may also discuss how ‘wellbeing’ should be measured in future budgets before consultations with critical stakeholders in the new year.

The net impact of Labor’s election commitments over four years at election time, as assessed by the Parliamentary Budget Office, was a $6.9b deepening of the deficit.

Significant areas of spending include welfare payments, pensions (expected to grow in nominal terms to $72 billion in 2025–26), health (total expenditure on health in 2022–23 is estimated at $105.8 billion, representing 16.8% of the Australian Government’s total spending), aged care, defence, and the NDIS.

Election commitments made earlier this year amount to about $18.9 billion in spending, alongside $11.5b in cuts to government spending and new revenue measures to cover some of its plans.

Additionally, the federal Labor government further announced $9.6bn in infrastructure commitments on Sunday for next week’s Budget, formalising numerous election promises and pledging to reform how money is spent on large projects.

The team at Nexus APAC has compiled a list of essential things to expect regarding next week’s Budget.

Additions to the Budget

• Increased paid parental leave from 18 to 26 weeks – delivered by 2026.
• Cheaper child-care package will cost $5.1b over the forward estimates.
• Aged care reforms will cost $2.5b.
• Cutting the PBS General Co-Payment to $30 will cost $104.3m in 2022/23 or close to $770m over four years.
• The electric car discount will cost $54.3m in 2022/23.
• Rural health and medical training for Far North Queensland will cost $3.4m in 2022/23.
• The disaster-ready fund will cost $29.4m in 2022/23.
• Strengthening Medicare GP grants will cost $198m in 2022/23.
• $96.4m extra aid for the Pacific has been promised for 2022/23.
• $100m has been promised towards restoring funding for the homelands and Indigenous spending, plus $22.9m for Indigenous health in 2022/23.
• An extra $20.9m in 2022/23 has been flagged for the ABC.
• $144m has been promised for the schools’ upgrade fund in 2022/23.
• The fee-free TAFE policy will cost $112m in 2022/23.

Cuts or Reallocations

• $88.5m for 2022/23 to be returned from the Great Barrier Reef Foundation.
• Savings from reducing public service spending on contractors, consultants, and labour-hire companies would reduce payments by $3 billion over the forward estimates.
• Road and rail infrastructure will be reprioritised from the March budget delivered by the Morrison government.
• Regional development Minister Catherine King confirmed that discretionary grants and uncontracted funding had faced heavy pre-budget scrutiny.
• One of the largest “redirections” of funding is expected to be the Hunter Super Hydrogen Hub, $82 million drawn from existing allocated but not yet contracted to fund Clean Hydrogen Industrial Hubs.
• The Government is no longer spending $3 billion over six months on the petrol excise cut now that the entire tax has been reinstated.
• Reducing uncommitted funding in the Community Development Grants Program and abolishing the Regionalisation Fund is expected to save $750m over forward estimates.
• Abolition of the Australian Building and Construction Commission to save $140m over forward estimates.
• Savings from advertising, travel and legal expenses are expected to total $570m over the forward estimates.
• The Government has committed to curbing wasteful defence spending after finding many projects had blown their budgets and faced significant delays.

Changing Australian Demographics

Informing the Government’s Budget and economic forecasts are the changing demographics of Australian society.

The Census collected information on ten common long-term health conditions in Australia for the first time. Over eight million people reported they had been diagnosed with a long-term health condition in the 2021 Census.

• 4.8 million people reported having one of the selected long-term health conditions.
• 1.5 million had two of the specified long-term health conditions.
• 750,000 people said having been diagnosed with three or more of the selected long-term health conditions.
• A further 1 million reported having at least one other long-term health condition.
• More than 16 million people reported not having a long-term health condition.

Life Expectancy 

According to the 2021 figures released by the Australian Bureau of Statistics (ABS), life expectancy in Australia continues to rise.

• Baby boy expected to live to 81.2 years 
• Baby girl to 85.3 years
• Male life expectancy at birth reached 81.2 years in 2018-2020, increasing from 80.9 in 2017-2019.
• Female life expectancy also increased to 85.3 years from 85.0 in the previous year. ­

The interesting indicator will be if indigenous Australians’ life expectancy has also increased and which policies from numerous ‘Closing the Gap’ reports can the Government use to minimise the life expectancy gap.

Education 

• 484,185 people were attending preschool.
• 2,075,224 people were attending primary school.
• 1,629,624 people were attending secondary school.
• 1,185,450 people were attending university or other higher education.
• 601,901 people attended vocational education (including TAFE and private training providers).
• Over 11 million (11,511,655) people in Australia reported having a non-school (vocational or tertiary) qualification, a 19.8 per cent increase since 2016.
• 5.5 million people (5,464,631) reported having a bachelor’s degree or higher, a 30.7 per cent increase since 2016.
• 4 million people (3,962,732) reported having certificate I to IV, a 10.6 per cent increase since 2016.
• The most common field of study for non-school qualifications was Business and Management (1,144,084 people), followed by Teacher Education (836,410) and Nursing (608,276).
• The fastest growing qualifications were Security Science, now 5,805 people qualified (up 460 per cent since 2016), followed by Artificial Intelligence, now 630 people (up 204 per cent), and Southern Asian Languages, now 670 people (up 123 per cent).

Treasury and Dr Chalmers will likely highlight deficiencies in Australian schooling compared to other OECD countries of a similar size. It will be interesting to see any policy announcements post-budget by Federal or State and Territory Ministers on education.

Inequality 

A report launched today by UNSW Sydney and the Australian Council of Social Services (ACOSS) Poverty and Inequality Partnership confirms that even though Australians are now, on average, the fourth most affluent people in the world, the distribution of our wealth remains unequal. The study found that household wealth in Australia is very unequally divided.

• The highest 10 per cent of households by wealth has an average of $6.1 million or 46 per cent of all wealth.
• The following 30 per cent has an average of $1.7 million or 38 per cent.
• The majority – the lower 60 per cent – has an average of $376,000 or just 17 per cent of all wealth.
• Over 130 billionaires in Australia each hold an average of $3600 million in wealth.
• The average incomes of the highest 20% of people ranked by household income after tax, we find a vast gulf between the $4,166 per week ($297,000 per year before tax) received by the highest 20% and the $753pw ($41,000 before tax) acquired by the lowest 20%

Budget Strategy

Regarding crucial election commitments and big-ticket policies, the Government wasted no time announcing measures to fulfil its primary goals. We can anticipate further announcements next week regarding Housing affordability, an increase to minimum wages and efforts to close the gender wage gap, and investments into renewable energy. However, we seem to have heard about the big-ticket announcements for the most part.

Probably the biggest question is if Treasurer Chalmers will announce anything regarding Australia’s economic outlook. The Treasurer has already publicly warned the nation on the “increasingly perilous path” of the global economy with lower growth expected amid key trading partners; next week may bring last-minute downgrades to Australia’s economic figures. Treasurer Chalmers said, “The budget will confirm the stark deterioration in the outlook for global growth and several major economies, with some at risk of falling into recession,“.

Why Are Budget Announcements Made Before the Night?

Budget strategy is a vital component of any government, maintaining the support of the voter base and setting a straightforward narrative to frame the Budget. You will remember terms like “bringing home the bacon” from Labor’s long-time Treasurer and Prime Minister Paul Keating, “back in the black” From the Liberal’s Josh Frydenberg, and a memorable line from Liberal Treasurer Peter Costello, “You should have one for the father, one for the mother and one for the country.” when outlining the then Howard Governments Baby Bonus Scheme in 2004.

After making significant commitments during the election, the Labor Government has committed well to policy promises by immediately proposing large and topical bills to Parliament.

By opening the opportunity for criticism by the opposition on those big-ticket items on the Parliament floor, the Government has minimised the possibility of harmful or fresh scrutiny on budget night.

Albanese’s Government has displayed itself as a round-table, open-discussion, and values-based Government thus far. Let’s see what happens at the dispatch box.

Tweet of the week: