Australia Institute October 2022 Budget Wrap
Australia is one of the richest countries in the world and though we can afford to do almost anything we want; we can’t afford to do everything we want. While each of us get to decide for ourselves how to spend our own income, it’s our elected representatives that get to decide how we spend our national income. And that’s what budgets are all about.
In the first Budget of the newly elected Labor government, the Treasurer announced total Commonwealth spending of $650 billion this year and $2.7 trillion over the next four years. To put that into perspective, the world’s richest man is Elon Musk, with an estimated worth of just $370 billion in Australian dollars—Jim Chalmers spends more than that each year.
As expected, this Budget was focused on implementing the promises that Labor took to the last election and cutting wasteful programs and projects promised by the former government, including the $5 billion Hells Gate dam that we criticised in the lead up to the election for its complete lack of economic or environmental benefits.
But while the Government is to be applauded for implementing the promises it made, including cuts to the price of medicine and childcare, the major economic problems Australia is facing are problems that have emerged after most of those promises were made. Implementing promises is part of good government but confronting new problems that emerge and designing new policies to address them is central to both good government and good economic policy.
The elephants in the Budget room are the Stage 3 tax cuts and Australia’s lack of a windfall profits tax for its resources sector. Since Labor committed to keeping the stage 3 tax cuts and ruling out new taxes, a war has broken out in Europe, inflation has surged, real wages have fallen faster than ever before, and interest rates have risen faster than ever before. Economics textbooks often assume that ‘all else will remain equal’, but Treasurers never should.
Surging prices for gas and coal are not just driving higher prices for electricity and petrol, but profits as well. And it’s the inflation from those higher energy prices that has driven the big falls in real wages and, in turn, the cost-of-living pressures confronting so many Australians. Jim Chalmers has made clear that this week’s Budget was simply his government’s first step—and it was indeed a step in the right direction. But the real test will be not just the direction, but the size of the next step taken in the May 2023 Budget.
The stage 3 tax cuts will cost more than a quarter of a trillion dollars over 10 years. We currently spend more than $11 billion per year in subsidises for fossil fuels and a windfall profits tax on our resources sector could easily raise tens of billions of dollars per year in bumper years like the one we just saw.
While the analysis you will find here is based on what the government has done in this week’s Budget, it is important to stay focused on what could be done. There is no right answer for how much we should spend supporting the unemployed or people with disabilities and there is no right answer for how much we should spend on health, education, or avoiding climate change. Such choices, like the choice to spend $250 billion on income tax cuts, can only ever be made according to the best judgments of our elected representatives. This is why Budgets, and elections, are so important.
Executive Director, The Australia Institute