Budget debt reduction gets approval but some interest groups less positive

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Treasurer Josh Frydenberg says his Budget is a plan for a strong economy and stronger future.

ECONOMIST Saul Eslake says the 2022-23 Budget, was inevitably framed with an eye to the upcoming election and some measures fell well short of good policy while some were bad policy but it still contains a meaningful amount of debt reduction.

Mr Eslake said the unexpected boosts to commodity prices combined with stronger-than-previously-forecast growth in economic activity and employment had delivered substantial revenue gains (more than $150 billion over the five years of this Budget’s forward estimates period).

The “windfall” revenue gains allowed the federal government to offer assistance to pensioners and beneficiaries and low- to middle-income taxpayers adversely affected by increases in fuel and energy prices and to splurge on a range of (mostly dubious) infrastructure projects while still foreshadowing significant reductions in the prospective budget deficits and a lower debt trajectory.

He said some of the ‘cost of living’ assistance was appropriately ‘targeted’ (towards lower-income households) and temporary’ but some of it especially the six-month 50per cent cut in fuel excise, was not as it would benefit households who could cope perfectly well.

Yet more tax breaks for ‘small business’ and deposit guarantees for marginal first-time homebuyers he said were bad policy.

Westpac economic spokesman Bill Evans said the Treasurer had achieved a responsible balance between budget repair and spending.

“In this budget, which has been brought down just weeks from a federal election, spending across the full five years of projections represents 1.7 per cent of GDP – or three times the spending we saw announced in 2019,’’ he said.

“When compared to other pre-election budgets in the past when the government has been well behind on the opinion polls, this level of spending is a lot less aggressive, but certainly not the very cautious position we saw in 2019.

“This is a commendable decision, given the government is behind in the opinion polls.

“Of course, the government may also be holding back some capacity to spend during the election campaign given there was $16bn included in the budget update without a specified purpose.’’

The global economic outlook included in the Budget Overview says higher global oil, gas and food prices as a result of Russia’s invasion of Ukraine are adding to high inflationary pressures and risk dampening consumer spending and hampering investor and business sentiment globally.

“As a result of the invasion, forecasts for world GDP have been downgraded by ¾ of a percentage point and forecasts for global inflation have been revised up 1½ percentage points in 2022,’’ the overview says.

“These global inflation risks increase the possibility that inflation expectations become unanchored, and so increase the challenge central banks face in trying to contain inflation while avoiding a policy induced ‘hard landing’.

“Recent Covid‑19 outbreaks in China’s port cities and manufacturing regions have also demonstrated the continued risk to already strained supply chains from the pandemic.

“Nonetheless, the resilience of the Australian economy throughout the pandemic demonstrates that the economy is well placed to meet these challenges and absorb the effects of the conflict and associated disruptions.

“Output and employment in Australia have recovered from the pandemic by more than in any major advanced economy.

“Our labour market is dynamic with the unemployment rate falling to a near 50-year low.

“While inflation has reached multi-decade highs globally, inflation in Australia is less than half of that in the US, and well below that of the euro area, Canada and the United Kingdom.’’

Mr Evans said the government’s measured stimulus program was to be applauded, striking a responsible balance between fiscal repair and new policy initiatives, as they head to the polls.

“We do not believe that this stimulus program will sway the Reserve Bank away from its current plans to remain patient with respect to interest rates,’’ he said.

WA Council of Social Service chief executive officer Louise Giolitto said the short-term hand-outs would not take the edge off household budgets, with the biggest single gap being the failure to do anything about affordable housing for those on low, fixed and uncertain incomes – which was the biggest single driver of financial hardship.

“Meanwhile the really big long-term benefits are still legislated for the wealthy, when the tax cuts for the highest tax bracket hit in 2024 giving an annual increase of $9075 to those earning more than $200,000,’’ she said.

“The budget also ends the pandemic leave disaster payment in June, which will hurt low-paid workers without access to sick leave.

“While all workers, regardless of income, will get a tax deduction for their rapid antigen tests, the free rapid antigen tests for concession card holders will also end, despite them being in greatest need.’’

Australian Local Government Association (ALGA) said the Budget had delivered a $500 million extension of the local roads and community infrastructure program.

ALGA president Linda Scott said the extension would help councils deliver more libraries, sporting facilities, community centres, bike paths and playgrounds in their local communities, providing free and low-cost activities and delivering cost-of-living savings for all Australians.

Mission Australia chief executive officer Sharon Callister said the federal government’s lack of a national plan to end homelessness and inadequate additional investment in more social and affordable homes could push more people into homelessness.

“While the increased National Housing and Finance Investment Corporation (NHFIC) cap is welcome, addressing the magnitude of need for affordable housing and homelessness service delivery will take much greater investment from the federal government,’’ she said.

“The scale of the problem requires national leadership.

“Australia is grappling with a housing affordability crisis, social housing waiting lists of more than 200,000 people and a rate of Jobseeker and other income support payments that leave many in poverty and unable to pay their rent.

“We need urgent action from the federal government to provide long-term housing solutions that will address our social and affordable home shortfall.

“Plans to help first homeowners unfortunately will not help most of the 275,000 people experiencing homelessness each year.’’