Australian Treasurer Jim Chalmers received little praise from political opponents this month for delivering the country’s first budget surplus in 15 years. A “cattledog” could have done just as good a job, given soaring commodity prices and a strong post-pandemic economic rebound, said Angus Taylor, the shadow treasurer.
Chalmers refuted the taunts, saying he had made “substantial progress in fixing the budget” since his Labor party returned to power after nine years. Australia was now in line with a surplus of 4.2 billion Australian dollars (2.8 billion US dollars) for the year, compared to previous estimates of a deficit of 32 billion Australian dollars, he said. declared.
Still, Chalmers conceded returning to even the books would be fleeting, as Australia faces a mounting bill for defence, wellbeing and an energy transition in what Work said will be “a defining decade” for the country.
Anthony Albanese, the Prime Minister, put Labor on a cautious path in his first term in government for a decade and was keen to dispel the idea that his party is not a good guardian of the budget.
On social policy, Labor delivered on election promises to increase spending on childcare, single parent families and social workers. On defence, Labor has maintained its commitment to the Aukus Agreement – a trilateral defense partnership with the US and UK built around delivering nuclear-powered submarines to Australia – and increased spending by strengthening regional security ties with allies including Japan.
Many observers say, however, that more should be done to reshape Australia’s economy at a time when high commodity prices are cushioning the cost of multiple international and domestic challenges, including the costs of an aging population and rising debt service payments.
“The terms of trade will be strong for several years. But when those conditions normalize, Australia is in a lot of trouble,” said Peter Costello, chairman of the country’s sovereign wealth fund, the Future Fund, and Australia’s longest-serving treasurer.
Australia has enjoyed a broad economic boom for three decades as its commodities – primarily iron ore, gas and coal – have supported China’s massive infrastructure rollout and Japan’s and the United States’ energy needs. South Korea. But China’s slowing growth raises questions about how long Australia can maintain its momentum.
Australia’s net debt position – which is expected to reach more than A$700 billion by 2027 according to budget estimates – was of particular concern, Costello said. He said it was unsustainable to have a structural deficit of 2-3% of GDP and called for more fiscal discipline to get the budget back in shape.
“Overall, it’s a good result, but I don’t think it solved our medium to long-term problems,” said Costello, who was a liberal politician.
Danielle Wood, chief executive of the Grattan Institute think tank, agreed that there was a “pretty stubborn gap” between revenue and spending forecasts in the upcoming budget projections, suggesting more action should be taken to address the structural deficit – the gap between planned revenue and expenditure when excluding the impact of high commodity prices.
Defense spending, for example, is expected to hit more than A$50 billion for the first time in the 2024 budget year, as the country prepares for the advent of nuclear-powered submarines and missiles. long range. Meanwhile, the cost of the country’s disability support program is set to rise from A$35 billion to A$56 billion in the 2027 budget year. Chalmers, however, detailed substantial cuts to some defense projects and the reach of the disability plan to keep costs from skyrocketing even further.
Wood said Labor had been politically cautious in the budget despite a sharp rise in the polls. This reflected the “incrementalist approach” of the party under Albanese and the need to counter accusations from the liberal party that Labor overspends when in power.
Wood said Australia’s long history of economic growth had made it more difficult to implement major reforms in areas such as income tax, where Labor refused to give up cuts promised to high earners under the old liberal regime.
“Australians aren’t used to tough decisions being made,” she said. “We were very lucky,” she added, with commodity prices having “softened the blow” from issues such as the global financial crisis, the spread of Covid-19 and inflation.
Labor’s reform agenda may also have been constrained by the backdrop of high inflation and a cost of living crisis. Chalmers said his spending measures had been “carefully calibrated” not to fuel a surge in consumer spending at a time when the Reserve Bank of Australia raised interest rates 11 times in the space of a year. .
Gareth Aird, head of the Australian economy at CBA Bank, said the impact of the rising cost of living was particularly felt among young people.
“The starting point for the economy is good: a very low unemployment rate. But for a lot of households, the economy isn’t quite working out for them,” he said, pointing to negative real wage growth coupled with rising mortgage rates or exorbitant rents.
“I think once inflation returns to more acceptable levels and RBA has started to cut rates, there will be a greater focus on medium-term reform – or at least there should be.
Chalmers’ fiscal message was that he had done a balancing act with a responsible plan while delivering on welfare campaign promises without raising inflation.
But Costello – who during his time as treasurer oversaw 12 budgets including 10 surpluses – suggested Chalmers may have already missed his moment for major budget reform, saying it was always easier over the course of the year. of the first year of government. “From there it gets more difficult,” he said.
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