Labor’s first budget takes charge after floods and a pandemic

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The Albanese government has delivered its first budget against a backdrop of “growing challenges” that include high inflation, a global economic slowdown, and waves of devastating natural disasters.

Now the five-month audit slug of the Expenditure Review Committee is done, Jim Chalmers is all about keeping the government’s eyes forward, to stay “resolute and resilient” for the hardship on the horizon.

The treasurer used Tuesday night’s Budget speech to tell the nation the government was investing in a responsible, affordable and sustainable future — but did not mince his words about the difficult road ahead.

“Practical and pragmatic about the challenges we confront, optimistic and confident in a better future, and ready to work together to build it.

“Our best defence against uncertainty around the world is responsible economic management here at home,” Chalmers said.

The federal Budget predicts real wages in Australia will start to grow again in 2024, and the treasurer said that while income was growing faster than before the election, rising electricity prices and grocery bills were leaving households no better off.

This slower growth cycle would also affect employment, he added; however, job creation was likely to continue and unemployment was expected to remain low by Australia’s historical standards, at 4 ½% over the forward estimates.

But it is not all bad news, with the 2022-23 Budget deficit figures having improved from $41.1 billion to $36.9 billion.

“Our economy is expected to grow solidly this financial year by 3 ¼%, before slowing to 1 1/2% growth for 2023-24, a full percentage point lower than what was forecast in March,” Chalmers said.

“Inflation is expected to peak at 7 ¾% later this year, before moderating over time, to 3 1/2% through 2023-24, and returning to the Reserve Bank’s target range in 2024-25.”

Domestic challenges such as a widespread skills shortage, falling real wages and one trillion dollars worth of debt piled on top of persistent structural deficits could not be overlooked, the treasurer warned. Global growth forecasts that have been updated since March predict economies worldwide will slow this year and into 2024, with some of them already on a backwards trajectory.

“In this uncertain environment, we are pleased and proud that Australia has plenty going for us, including low unemployment and good prices for our exports,” Chalmers said.

“But while we intend to avoid the worst of the turbulence from overseas, we cannot escape it completely.”

In response, three priority areas have been identified by the now six-month-old Labor government with the budget aiming to ease the cost of living, build a stronger and more resilient economy, and make better spending decisions.

A responsible and targeted approach would be taken to grapple with national challenges that had been ignored by the Coalition for “too long”, with the treasurer saying deliberate steps to ease the cost of living would not contribute to inflation.

Federal government’s ‘solid, sensible’ approach to addressing cost of living

A $7.5 billion five-point plan to address the cost of living all had an economic dividend, Chalmers said.

“Governments can’t make inflation disappear overnight. Australians need policies that are affordable, fair and future-focused, delivering a long-term economic dividend,” he said.

This is a family friendly budget that delivers for working Australians. pic.twitter.com/SGn1wqYuXm

— Anthony Albanese (@AlboMP) October 25, 2022

By targeting childcare expenses, reforms to the now 26-week paid parental leave scheme, an accord to deliver 20,000 more affordable housing options (which will reach a target of one million dwellings from 2024), reducing the costs of GP co-payment for treatments on the Pharmaceutical Benefits Scheme (PBS) by $12.50 per script, and wage increases for lowest paid workers, the government hopes the flow-on effects of these measures will lead to a more prosperous nation overall.

“This package helps put some money back in people’s pockets, boosts productivity, and grows the economy — but it’s carefully targeted and carefully timed so that it avoids placing additional pressure on inflation,” Chalmers said.

“Cheaper childcare is a game-changing investment in families, our workforce, and our economy. It will increase the paid hours worked by women with young children by up to 1.4 million hours a week in the first year alone. That’s the equivalent of 37,000 extra full-time workers,” he said.

For the Indigenous Affairs portfolio, the government will also invest $1.2 billion towards Closing the Gap. This includes money to support preparations for the Voice to Parliament referendum.

Australian-made emphasis: Capability investments for people and the economy

A total of 12 measures have been promoted in the Budget to boost the capacity and capability of the Australian workforce with a view to delivering a stronger and more resilient economy.

The big-ticket items in dollar terms include $120 billion for transport infrastructure over the next decade, initiatives under the Powering Australia Plan for cheaper energy investment such as the ‘rewiring the nation’ policy’s $20 billion low-cost finance, and $15 billion to set up a new national reconstruction fund.

The NBN Co will receive $2.4 billion to bring fibre access to an additional 1.5 million Australian households, and $1.2 billion for the Better Connectivity for Regional and Rural Australia Plan.

Three new policies will invest in the capacity to respond to climate change and natural disaster mitigation. The government has pledged $1.8 billion to “protect, restore and manage” the natural environment, access of up to $200 million through the Disaster Ready Fund for prevention and resilience projects including the deployment of 5,000 people to aid communities impacted by flood, and funding to keep pests and diseases such as food-and-mouth diseases at bay.

“[Natural disasters] are human tragedies first and foremost, that come with broader consequences — for the economy and for the Budget,” Chalmers said.

“The government has acted quickly to make disaster assistance payments available [and] $3 billion has been provisioned as a response to recent floods,” he said, referring to recent deluges affecting NSW, Victoria and Tasmania.

“As we were finalising this Budget, floods were once again tragically taking lives, wrecking homes, shutting businesses, disrupting livelihoods, and pushing up the cost of living.

“In times like this, our government will always stand with communities through the crisis, and through the recovery,” the Treasurer said.

On the skills and workforce front, steps have been taken to advance women’s workforce participation, and extra cash has been kicked into the Work Bonus income bank to support older Australians in re-entering the workforce and keeping their pensions.

In higher education, the government has offered up three key signature policies, with the creation of 20,000 extra university places for disadvantaged students and 480,000 fee-free TAFE spots. Modernising the TAFE system, with $50 million to set up a technology fund, was also announced in the budget.

A total of $474.5 million over two years will also be spent on improving classrooms and student wellbeing initiatives.

What does this Budget’s ‘repair job’ mission involve?

To demonstrate Labor’s commitment to getting serious about reviewing government spend “line by line”, minister for finance and the public service Senator Katy Gallagher said a five-month-long audit had identified $22 billion in savings.

From this savings bucket, a whopping $6.5 billion has come from re-profiling infrastructure projects to align with changed construction market conditions. And, crucially for the public sector, $3.6 billion has been extracted from external labour hire costs, as well as government spending on advertising, travel and legal expenses.

The reforms also include strengthening the fairness and integrity of Australia’s tax system by extending what the government has deemed “successful” tax compliance programs, giving the ATO more resources to crack down on tax dodging and making multinational corporations pay a fairer share of tax.

Today Labor is delivering our first Budget.

It's one that's good for families, good for women and responds to the economic conditions we're in right now.

Not long until @JEChalmers & I get to share it with you.#auspol #OctBudget2022 #ausecon pic.twitter.com/ds8GnbNxU0

— Katy Gallagher (@SenKatyG) October 25, 2022

In a statement, Gallagher said the previous Coalition government under Scott Morrison had doubled debt prior to the start of the COVID-19 pandemic.

The time for this wasteful excess was over, Gallagher added, noting her spending review would save the government a further $4.7 billion over the forward estimates.

“They used taxpayers’ money to cynically buy votes before elections by politicising grants funds and used the Budget to land political deals with the Nationals in the Coalition Party Room,” the minister said.

“[Our audit] identified spending reductions, waste and reprioritisations that repair the budget, improve the quality of spending and make room for new priorities.”

The $22 billion sack of cash Labor has clawed back to “redirect and reprioritise” government funds includes returning 99% of upgrades to tax receipts to the Budget and offsetting nearly all of the government’s policy announcements for 2022-23.

This will include returns in the Health portfolio of $235 million to commence the rollout of Urgent Care Clinics, and $750 million for the Strengthening Medicare Fund.

Aged care will also get a $3 billion injection from the efficiency work.

“We take the job of budget repair seriously and these budget improvements are a first step to repairing the budget following a decade of damage,” Gallagher said.

Savings will also flow to funding preparations for the referendum to enshrine a First Nations Voice to Parliament, restoring the National Disability and Insurance Scheme (NDIS), and boosting Defence spending to 2% of GDP over the forward estimates.

Another $1.7 billion over six years will be invested in women’s safety initiatives.

Other investments from this redistribution in government spend will go to DFAT to strengthen relationships with Australia’s Pacific family across the region, Home Affairs’ border protection work, and establishing what the treasurer described as the “long overdue” National Anti-Corruption Commission (NACC).