| Treasurer Jim Chalmers handed down the second consecutive surplus budget in decades on Tuesday night, a claim the government will deploy repeatedly ahead of the next election to boost their economic management credentials. Speaking of the next election, when might that be? It was hard to find someone in Parliament House this week who didn’t think the budget handed down by the Albanese Government was a pre-cursor to an early election. We’ll look at that possibility and all the key takeaways from budget week 2024 in this week’s Parliament update. |
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| Energy bill relief centrepiece of cost of living budget For the second year in a row, the Albanese Government has centred its budget around cost of living relief for Australians, but last year’s ‘targeted’ relief went out the window this year in favour of across-the-board handouts. Every Australian household will receive a $300 credit on their power bills this year (bringing energy bill subsidies this year to a huge total of $1300 for Queenslanders, after Premier Miles’ cash splash last week). The opposition and crossbench immediately criticised the government’s decision to provide relief to all households, instead of means-testing the payment and exempting wealthy households, with key crossbenchers David Pocock and Jacqui Lambie particularly scathing of the ‘wasteful’ and ‘ridiculous’ handouts. The Treasurer argued current data sharing arrangements between the government and energy companies meant means-testing the payment would have been difficult, and limiting it to government payment recipients would leave middle Australia without any support again (for the second year running). The full package, which also includes a $325 payment for small businesses, will cost the budget $3.5 billion. The Coalition will support the legislation but labelled the government’s decision a ‘BandAid on a bullet wound’. Future Made in Australia A signature budget initiative that had already been announced in the lead up to the budget was the $22.7 billion Future Made in Australia Fund. As we’ve previously explained, the Albanese Government has established the fund to incentivise greater investment in new green energy and advanced manufacturing initiatives. Since announcing the fund last month, there has been a raft of criticism, including hundreds of millions of dollars for a US based company and accusations the fund is a disguise for protectionism. This week the Treasurer provided more details about the fund, specifically with regards to a greater focus on critical minerals. The government will spend approximately $1.5 billion per year on a new production tax incentive for 31 critical minerals mined in Australia. Within the broader fund, there will be a $1.7 billion Future Made in Australia innovation fund aimed at fostering innovation and development in key sectors, including renewable hydrogen, green metals, low carbon liquid fuels, and clean energy technology manufacturing. The fund is designed to support projects in their early stages and will help Australia’s transition to a low-carbon economy. The government is relying on these measures, along with the relaxation of foreign investment rules and billions of dollars in grants and loans, to turn Australia into a global superpower for renewable energy. As we highlighted when the fund was first announced, this initiative enables the government to invest in and announce significant projects in the lead up to the election. We don’t think it’s a coincidence that Queensland has a state election in October and two major Queensland projects have already been announced under the fund. Housing pitch to voters Housing supply and affordability will be one of the most important election issues, with both major parties shaping their pitch to voters and spruiking their approach to tackling the national housing crisis. This budget includes a $6.2 billion spend on housing, most of which was pre-announced in the weeks before budget. Investments include an additional $1 billion on top of the already committed $3.5 billion to help states and territories fast-track their housing pipelines and nearly $2 billion in loans to community housing providers to build 40,000 social and affordable homes. Under pressure to curb Australia’s record-high migration rates, the government announced caps on international student enrolments, tying student numbers to student accommodation. Universities who want to increase their international student numbers must prove to the government they’re investing in an appropriate amount of student accommodation. The Albanese Government, through this budget, is standing by its commitment to build 1.2 million new homes in the next five years, despite industry concerns about the capacity of the sector to deliver on that promise. The Treasurer also confirmed on Tuesday night that Commonwealth rent assistance payments would increase 10 per cent, at a cost of $1.9 billion over five years. Forecast deficits cast shadow on Chalmers’ second surplus The Albanese Government has just delivered the first back-to-back budget surpluses in nearly two decades, however the celebration will be short lived with significant budget deficits forecast for the next decade. Despite originally predicting a small budget deficit during the Mid-Year Economic and Fiscal Outlook in December, the Treasurer managed to announce a $9.3 billion surplus for 2023/24. This simply means that the government’s income, which comes from taxes and other revenues, is greater than its spending. However, some advocacy groups have criticised the government for delivering a surplus when there are so many Australians doing it tough in the economic climate. They argue the government should’ve used the savings to increase cost-of-living support for the most vulnerable. Given the budget will return to deficit next year, with a forecast deficit of $28.3 billion, it seems like a sensible approach to bank the surplus now. Furthermore, the deficit over the next four years is expected to total $112 billion and unless cuts are made or revenue unexpectedly increases, we will experience further deficits for the next decade. Australia’s net debt is forecast to peak at $981 billion in 2024/25 and then fall over the medium term. And while these numbers seem like a lot, and they are, it is also helpful to remember that Australia’s current debt levels remain well below that of many other developed countries. So what are the experts saying? While heading to Aussies for coffee early Wednesday morning, we bumped into a former colleague who also happens to be an economic genius. He told us, despite Treasurer’s claims to the contrary, there is no way this budget doesn’t cause inflation to increase. Most economists were sounding the alarm on Tuesday night and in the days after the budget that the government’s cost of living package would put pressure on the RBA to hike interest rates again, predicting that Australians would spend the $300 they were no longer having to use for their power bill. The government is banking on the fact the artificial reduction in power bills will be enough to temper inflation and draw the RBA into relaxing interest rates, giving Australians struggling with their mortgage repayments hope before the next election. And while the immediate reaction was fairly unanimous in expecting rates would head in the opposite direction, yesterday’s unemployment figures may have provided the Treasurer with another reason to think rates may just come down in time for voters to cast their verdict. A higher than expected jump in unemployment indicates the jobs market and economy may be softening, just what the RBA would want to see before they considered rate relief. Market expectations of a rate cut before the end of the year jumped significantly on release of the jobs data. Why early election speculation has ramped up The next federal election isn’t due until May 2025, but this budget had everyone in Parliament House talking about an early election. In fact, it was hard to find anyone, from political staffers to journalists or lobbyists, who didn’t think the government was positioning themselves to send voters to the polls before the end of the year. Many political commentators and reporters are calling Tuesday night’s budget an “election budget”. An “election budget” is one where the government of the day tries to appeal to as many voters as possible, often through a “cash splash”, in an attempt to win their vote. Respected political editor Phil Coorey summed it up best, “…the budget is front loaded with initiatives to woo voters”. The $300 electricity credit for all Australians is a perfect example of this. Every Australian is essentially receiving something in this year’s budget. Further adding to the speculation is the economic forecast over the next 12 months. Many leading economists expect the Australian economy to tighten, and this will result in higher unemployment and higher interest rates. To avoid being blamed or punished at the ballot box for the economic downturn, many political commentators believe that Prime Minister Albanese will call an election before the end of the year – possibly November. Migration the focus in Dutton’s budget reply In a direct challenge to the government, which has been slow to react to rising migration and its impact on housing affordability, Opposition Leader Peter Dutton used his budget-in-reply speech last night to announce a Coalition Government would cut migration to ease housing pressures. He proposed a 25 per cent cut for two years, from an annual intake of 185,000 to 140,000, before slowly increasing the permanent intake again from year three. The Coalition also committed to a two-year ban on foreign investors and temporary residents purchasing homes in Australia, saying the demand for homes had pushed house prices up so high it was now uncommon for young people to be able to enter the housing market without the support of their parents. It signalled the Coalition will place housing and homeownership as a key plank of their election platform. Dutton also elevated community safety, responding to recent violent attacks and social unrest, saying a future Coalition Government would tighten bail laws across the country, develop uniform knife laws and use ‘moral and political leadership’ to protect social cohesion and democratic values. He detailed the Coalition’s six-point economic plan to get the economy ‘back on track’, which foreshadowed changes to Labor’s new IR laws, spending cuts and more favourable policy settings for business. While committing to making Australia a nuclear-power nation, Dutton has copped backlash for failing to release the Coalition’s detailed plans for a nuclear transition, including potential sites for nuclear reactors. It was a predictable budget-in-reply that hit all the Coalition’s key electoral strengths but will draw criticism from the government over its lack of detail. |