Treasurer Josh Frydenberg’s pre-election budget is an odd mix of good, bad and fuzzy.
The good thing is that the $8.6 billion in cash will be the focus of the big hard sell that will happen from now on.
Expect to be reminded daily that you’ll save $0.22 a liter on the gas tanker over the next six months due to a temporary reduction in excise duty – vacation time in car ?
Also expect to hear a lot about Australia’s extremely low unemployment rate and how that means your salary will rise – believe it when you see it – and the $250 one-time payment to be paid to six million retirees, caregivers, veterans and job seekers. , concession cardholders and some self-funded retirees.
Lamington with the lot
The much-legendary “lamington” – the Low and Middle Income Tax Compensation or LAMITO – which was due to expire was instead further enhanced to give singles up to $1,500 and couples up to $3,000 in their next return. income, as long as they earn less than $126,000 per year.
Then there is a massive and widespread spraying of money into a whole host of other areas – infrastructure, combating violence against women and children, defence, parental leave, education, skills, small businesses, health and pile of money in the bush for a wide range of projects.
These could be very useful for some people, but again, it will very much depend on your personal situation.
Debts and deficits as far as the eye can see
The bad is really what we already knew.
While Australia’s economy is recovering brilliantly from the COVID-19 pandemic, as shown by booming government revenues, this is only making a small dent in the mounting mountain of debt and deficits.
Simply put, our federal government’s debt has never been larger as a percentage of the economy and it shows no signs of diminishing anytime soon.
This budget forecasts a deficit of $78 billion, which is better than previously forecast, but still a huge shift when the budget is effectively in structural deficit from now on and all new spending promises are made with money. borrowed money.
How a ‘surplus’ turned into a $524 billion deficit
Given that Treasurer Frydenberg confidently projected a budget surplus for 2019-20 – which never happened thanks to a certain virus – he should now post a combined total of $ 524 billion in accumulated deficits by the middle. of 2026.
It’s the scale of emergency COVID-19 stimulus spending and the ongoing costs of compound debt – which are expected to rise now that interest rates are rising.
By 2025-26, interest alone on Australia’s gross debt will be $26.3 billion a year – the kind of money that could fund a big program such as family support.
The Treasury now admits that we have a long-term structural budget deficit of around 1% of GDP.
“This reflects the major investment in essential services that the government has undertaken in recent years in areas such as the NDIS and care for the elderly,” the department said in the budget.
“An increase in interest payments also contributes to a higher medium-term payment profile, reflecting the increased levels of debt accumulated as a result of the pandemic.”
Which side can be trusted to be the best economic manager?
Of course, all of this fuels the election discussion of which side is the better economic manager, with Treasurer Frydenberg already trumpeting his side as the only one to manage his way from now on and his opposition number Jim Chalmers promising spending and a smarter politics.
The reality for both sides is that the mountain of debt will take a long time, with gross public debt on track to cross the $1 trillion mark in 2023-24 and reach $1.2 trillion in mid-decade here.
How fuzzy are budget forecasts?
That’s the good and the bad, now what about fudge?
Well, virtually every number you read in the budget has an element of rubber in it, and this year’s is no different.
Just the heroic changes in the budget deficit in the coming year show how inexact “science” public finances can be.
Rapidly falling unemployment and rising mining revenues have successfully put the government in a position to “expand the economy to reduce debt and rebuild fiscal buffers,” but these factors can easily reverse without warning.
Trust will also play an important role with an unprecedented $250 billion in COVID savings in private bank accounts.
Whether households and businesses start spending that money or sitting on it will guide the next stage of the recovery and largely frame the task of writing the next budget – whoever takes on that task. .
The predictions were woefully inaccurate
Fiscal forecasts in recent years have consistently fallen way off target for reasons like this: How do you accurately predict a pandemic or what people will do with their bank savings?
You can’t, which is why budget forecasts can seem so silly just one-third of the year they’re written for.
The world situation adds to the vagueness.
What direction the United States, Ukraine?
What will happen to the war in Ukraine and, most importantly for us, what direction will the American economy, the world leader, take in the next few years, dragging the rest of the world in its wake for better or for the worst.
Life is inherently unpredictable and the economy even more so.
X-factors can intercept the best intentions at any time and make a mockery of our most scholarly extrapolations and predictions.
Then there is the will of the people which is just as fickle and which will remain fluid until the day the votes are finally cast.
Who can I trust?
Many of these voting intentions will be formed with economic benchmarks as a touchstone, which depend not only on a crude “what’s in it for me” judgment, but also on a more general feeling of ” who can I trust to do the best job”.
Treasurer Frydenberg hopes he can instill that confidence with his combination of the good, the bad, and the fuzzy — or at least get a vote of gratitude from the recipients of this splash of cash or others.
His Labor opponents hope they can be seen as superior economic managers.
The plain fact is that whoever wins the election will face some of the toughest and most challenging economic and fiscal times ever.
With the pandemic muted but still with us, tanks and fighter jets buzzing around Europe, China flexing its muscles in the Pacific and the US outlook highly uncertain, even the humble Australian voter faces a task. uncertain to choose the right political leadership.