Opinion piece: Bread-and-butter budget we just have to have

Australian Treasury

Between now and handing down the budget in less than five weeks, I’ll have the opportunity to confer with my international counterparts in Washington on the deteriorating conditions we all face.

The deeply concerning developments around the world, as well as new pressures on spending, provide the backdrop for the budget my colleagues and I are working on. These global challenges we confront are intensifying, not dissipating: inflation is rampant; central banks are responding with blunt and brutal rate rises; and growth is slowing.

The economies of the US and Britain are in reverse; China’s has slowed markedly; and the war in Ukraine sparked an energy crisis that shows no signs of abating. This is why the International Monetary Fund won’t rule out another global recession.

At the same time, the ongoing impacts of COVID‑19 have already forced us to fund billions of dollars in new spending for healthcare, aged care and emergency financial support – which the previous government had not budgeted for.

The final budget outcome for last year will show a substantially smaller deficit figure than what was first projected – not just because of a big temporary boost from commodity prices but also because billions of dollars that were promised weren’t invested, are now spilling into later years and still have to be paid for.

While those budget improvements are temporary, the spending pressures are constant and compounding. Welcome short‑term improvements in revenue raised from our resources in the near term go nowhere near to properly paying for the five fastest growing areas of spending in the budget: healthcare; the National Disability Insurance Scheme; aged care; defence; and the rising cost of interest we pay to service $1 trillion of debt.

Amid these challenges we have some things going for us, including relatively solid growth and historically low unemployment, and we expect to fare better than our peers. I’m optimistic and confident about the future but realistic. Like other countries we still face that now‑familiar and unwelcome combination of supply‑chain disruptions, high and rising inflation, and falling real wages.

Our challenges are primarily, though not exclusively, global, but a wasted decade of missed opportunities and warped priorities has made us more vulnerable to these shocks. This is the hefty price Australians are paying in the form of wage stagnation, flatlining living standards, weak business investment, poor productivity and now skills shortages too.

So our task is to make the budget, our economy, our people and communities more resilient.

That means focusing on areas where our policies and sensible investments can make a meaningful and realistic difference without making life harder for the independent Reserve Bank.

It means responsible cost‑of‑living relief; investing in our people, their skills and their future; and beginning the hard task of longer‑term budget repair.

It means trying to deal with the issues in our clogged supply chains that are forcing up inflation, and providing relief from rising prices that delivers for the economy and doesn’t force the RBA’s hand on further rate rises.

It means getting wages growing by training people for higher‑wage opportunities; childcare changes to make it easier to earn more; and supporting pay rises in the care economy.

We know it’s unusual to hand down a second budget this year, but this is a new government and these are unusual circumstances. It made no sense to us to wait 13 months between budgets when the tasks are so urgent, the challenges so confronting and the needs so substantial.

This will be a fairly standard bread‑and‑butter budget because, for the times we are in, that’s what it needs to be. It shouldn’t be viewed in isolation from the other two or three we hand down this parliamentary term. It’s the beginning, not the end, of a big national conversation about our economic challenges, the structural position of the budget going forward, and the kinds of choices we need to make as a country in the future about what our priorities are, what’s affordable and what’s fair.

Our efforts to measure what matters in a wellbeing budget, a new intergenerational report next year, the RBA review, work on climate financing, new analysis of tax expenditures, an investor roundtable focused on national priorities – all of this will be key to bringing people together around our challenges like the Jobs and Skills Summit did so successfully.

I’m more convinced than ever that Australians are up for real talk about the state of their economy and the budget, and that there’s a hunger to work together. Australians know there’s no switch we can flick to make our challenges disappear; their expectations are realistic and tempered; they’re aware of the tricky terrain we’re navigating. No one budget can deal with pressures that have been building for a decade, but the hard work has begun.

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