Dr Jim Chalmers has observed the doctor’s sacred obligation under the Hippocratic oath – do no harm.
His mini-budget doesn’t aggravate any of the problems in the economy or the budget. But it doesn’t do much by way of healing, either.
He’s made a start on delivering some of Labor’s election promises, but also tacitly acknowledged the death of two of its biggest.
The global energy crisis, and the roaring inflation it’s feeding, has killed the government’s cheerful campaign promise to cut household power bills by $270 a year.
With the budget forecasting a whopping 20 per cent rise in gas and electricity prices over the next year, the treasurer was reduced to making dark threats against the gas and electricity industries of “a broader suite of regulatory interventions than might have been considered in years gone by”.
And Labor’s promise to increase real wages is another victim; the average wage rises will be incinerated instantly by inflation for the next two years, according to the budget forecasts. Real wages will be lower, not higher. Workers will be feeling worse off, not better.
No government could have avoided the energy and inflation crises, but rash responses could make them worse.
While “doing no harm” sounds trite, it’s the difference between life and death, economically and politically.
Don’t believe me? Allow me to introduce you to Liz Truss, former prime minister of Britain.
One major budget blunder was all it took. When she announced unaffordable home energy payments and irresponsible tax cuts, the financial markets instantly imposed what one analyst called a “moron risk premium” to all of Britain’s debt.
It roiled one of the world’s biggest economies. Truss became the shortest-lived prime minister in British history.
So Dr Chalmers wisely restrained himself from any moronic decisions. The most tempting for a new and impatient government would have been to spend a lot of money to implement a centre-left reform agenda.
The second most tempting would have been to announce big household handouts to help pay for electricity.
If he’d done either, he’d have injected more hot stimulus into the middle of a fireball of inflation, and turned it into a firestorm.
As the treasurer put it: “The worst thing we could do would be to contribute to making inflation even worse.”
Because the Reserve Bank would have been forced to raise interest rates correspondingly. “Restraint is the name of the game in this budget.”
The government is spending more money in this budget to deliver some promises, but it offsets most of this with cuts to other areas. The net effect? Real spending is projected to grow by a tiny 0.3 per cent annual average over the next four years.
The promises it’s delivering? It’s making a start on cheaper childcare, on better conditions in aged care, on allowing more paid parental leave, on trimming the cost of medicines under the Pharmaceutical Benefits Scheme. It’s adding more fee-free TAFE places and starting work on building social housing.
And it’s pressing ahead with some big off-budget investments, including $20 billion for its “Rewiring the Nation” scheme to fix the electricity grid, and $15 billion for its National Reconstruction Fund to create critical manufacturing capacity.
These investments are big, long-term and off-budget, which means they shouldn’t fuel short-run inflation or the federal deficit.
This is intelligent politics. The twin energy and inflation crises will be difficult enough for the government to manage.
If the Albanese government wants to win a second term, it needs to do two things. First, earn a reputation as a responsible economic manager. Second, build trust by delivering on as many promises as possible.
One of the proudest budget boasts by Chalmers and Finance Minister Katy Gallagher is that they’ve begun “budget repair” by cutting $22 billion from spending.
Some of this is merely delaying $6.5 billion in infrastructure spending – or “reprofiling” it, as they prefer to call it. Some is sensible trimming, such as the $3.6 billion they claim to be cutting from consultancy and ad spending. Some is welcome oblivion for Coalition slush funds, such as the $1.5 billion saved by dumping the schemes that funded “car pork” and “sports rorts”.
“Twenty two billion is $22 billion more than the other team was doing,” as Chalmers observed. True enough.
But it’s pretty almost trivial in the face of the debt blowout that the Morrison government bequeathed Labor. The Coalition needed to spend big to get Australia through the pandemic. But it spent wantonly, including the $20 billion it handed profitable businesses that merely used the money to increase profits. And it kept spending wantonly even after the pandemic ended.
Its legacy is that gross national debt is projected to go above $1 trillion next year, with interest payments on the debt soaring as global rates rise. Did the government just miss its best opportunity to make deeper cuts to spending?
“You’ve gotta start somewhere,” replies Chalmers. “This isn’t just the end of a wasted decade, it’s the beginning of something new.”
Just what the doctor ordered.
Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.
Most Viewed in Politics
From our partners
Source: Read Full Article