What is the federal budget and why is it important?

This week we are trying something different. We’re taking you behind the scenes of the most important week in the Parliamentary sitting calendar – the federal budget.

The federal budget impacts the day-to-day lives of all Australians, yet most people probably don’t understand what it is and how it impacts them. Having previously served as budget advisers in government, we’re bringing you a little insight into exactly what the budget is, how it is put together and why it is important.

You might have missed it, but the Albanese Government’s budget sell kicked off this week. Treasurer Jim Chalmers delivered a major speech to the Committee for Economic Development Australia (CEDA) in Sydney yesterday, and while he didn’t disclose any details, he did outline what Australians should expect from his third budget.

But before we get into it, let’s take a look at the headlines from this week:

1. CSIRO responds to Opposition Leader Peter Dutton’s attack on their nuclear energy research.
2. Government releases long-awaited report of it’s Aged Care Taskforce, confirming Australians won’t be slugged with new taxes to fix the sustainability of the system.
3. Fresh Newspoll suggests Queensland LNP Opposition on track for convincing win over Steven Miles’ Labor government in October.
4. Albanese aims to reset the government’s indigenous affairs narrative, announcing major housing, education commitments.
5. Cuts to US Navy budget stoke fears about delivery of the AUKUS agreement.
6. Treasurers go head-to-head over GST carve-up.
7. Albanese Government urged to consider Tik Tok ban after US House of Representatives passes bill to ban the app in the United States.

What is it?

The federal budget is essentially a financial document that outlines how the taxes collected from Australians and businesses are going to be spent in the year ahead and over the next four years (known as the forward estimates). It outlines the revenue collected by government and how that money is going to be spent.

It covers everything from healthcare and education to infrastructure projects, funding for social services and foreign aid. It also allocates the annual budgets and staffing levels for each government department and agency.

The government of the day uses the annual budget to deliver their priorities and fund the projects and policy initiatives in-line with their agenda. It also outlines how much debt the government has incurred, representing any shortfalls between the revenue they’ve collected and the spending they’ve allocated.

While governments try to focus on the spending measures, the budget also includes changes to revenue to pay for the spending. As such, it includes new taxes, charges and levies that Australians or businesses have to pay so the government can fund new spending.

When we worked in government there was a key budget rule – no offset, no new spend. Simply, you couldn’t put forward a new spending measure without first identifying an offset as to how you would pay for the new spending.

While that rule was set aside by the Morrison Government during the pandemic, the Albanese Government advised departments last year they were to find offsets for any new programs proposed.

When is it?

The budget is typically presented by the Treasurer to the Australian Parliament on the second Tuesday in May each year. However, in recent years there have been events which resulted in the budget being changed.

For example, the 2016/17 budget was brought forward to April 2019 because of the federal election that year. Then in 2020 the 2020/21 budget was delayed until October because of COVID-19.

This year, Treasurer Jim Chalmers will deliver the budget on Tuesday, 14 May.

How is it developed?

Now that you know what it is and when it’s released, it’s useful to understand how it’s developed – and trust us, it’s not an easy process.

The process of creating the budget is led by the Department of Treasury and involves extensive consultation and negotiation among various government departments.

Community groups, businesses and industry associations also have the opportunity to submit a pre-budget submission to highlight their priorities and ‘asks’ for the federal budget. These are collated by Treasury and discussed by department officials and ministers.

Each department will develop their respective budget proposals, called New Policy Proposals, based on the government’s priorities and input from industry, and these will then be submitted to the portfolio minister for approval. However, this doesn’t necessarily mean they are going to form part of the final budget.

Following the minister’s approval, the proposals are sent to Treasury and form part of the final considerations for the Expenditure Review Committee (ERC). ERC is a sub-committee of Cabinet that oversees and makes decisions about government spending and budget measures. The membership of the ERC can vary with each government, but in this government, it includes the Prime Minister (Chair), Treasurer (Deputy Chair) Finance Minister, Defence Minister, Foreign Minister, Health Minister, Communications Minister, Infrastructure Minister and the Assistant Treasurer.

ERC approves or denies the budget proposals and ultimately decides on the annual budget. It is then considered by full Cabinet for final approval.

This might sound straightforward, but in practice it can get very messy with a lot of trading going on. Ministers are passionate about their area and will work tirelessly to make sure their proposals end up in the final budget. ERC will meet multiple times a week in the lead up to May to make sure every proposal has been considered and that the budget reflects the government’s agenda.

Once presented to Parliament, the budget is debated by politicians, with those in Opposition using the opportunity to criticise the government’s agenda. The budget bills, otherwise called the ‘supply bills’, must pass both the House of Representatives and the Senate before the funding allocations can be enacted and the funds disbursed.

How does it affect you?

We’re assuming this still sounds like a foreign concept and not relevant to your everyday life. However, we assure you that the decisions made by government in the annual budget absolutely impact you.

There can be changes to the fuel excise tax meaning you could be paying more or less at the petrol pump. There can be changes to the instant asset tax write-off for small businesses meaning they have more or less to reinvest in their business. There can be changes to the cost of getting a passport, increased university fees, funding for road upgrades or changes to bulk billing.

The decisions taken by politicians in the budget will impact you. Therefore, it is worth paying attention to what is going on and how decisions are made.

What about the next budget?

Right now, ERC would be meeting multiple times a week to finalise the budget. They will likely have the majority sorted by the end of March to allow time to draft and print the budget papers.

This week, the Treasurer gave us some insight into what the next budget will look like.

Many Australians are doing it tough right now – cost of living is going up – so most political commentators expect this budget to be a bit of a ‘cash splash’. Furthermore, the Prime Minister has publicly stated that we are in an election year, so one would expect a budget that includes strategic funding announcements.

However, the Treasurer hosed down those expectations when he said, “There will not be big cash splashes in the budget, simple as that”. He couldn’t have been clearer.

We suspect the government will want to deliver another budget surplus – which means they must save more money than they spend – so this will impact the final makeup of the budget.

We will be in Canberra on Tuesday, 14 May and will bring you everything you need to know about the budget once it is handed down. We will break it down for you and highlight what it means for the everyday Australian.