Overview
Australian Treasurer Jim Chalmers unveiled federal budget 2024-2025, to an underwhelming reception from supporters, opponents and commentators.
The annual economic statement of the federal government – traditionally the platform for outlining the approach to management of government finances and unveiling specific spending policies – takes on additional importance toward the end of a government term.
With an election likely within 12 months, the Treasurer had to balance competing demands of helping Australians manage increasing costs of living pressures, while avoiding additional inflationary pressures with too much fiscal stimulus.
The Treasurer claimed his budget was “responsible and restrained” which “eases cost of living pressures and invests in a future made in Australia.”
As expected, Chalmers announced a tax cut for all taxpayers and help with paying increasing energy bills, rent and the cost of medicines. Chalmers promised the government’s relief measures would not increase inflation, and claimed Australia was among the “best placed economies to manage these uncertainties and maximize our opportunities.”
Following a surplus of AU$22.1 billion in the 2022–23 fiscal year, the budget is forecasting a surplus of AU$9.3 billion in 2023–24. Beyond that, softer revenue forecasts and continued high spending suggests deficits over the next three years beginning with a forecast AU$ 28.3 billion shortfall in 2024–25.
The budget forecasts gross debt to peak at AU$1.1 trillion, or 35 per cent of GDP, by 2027-28.
Key Budget Measures
Tax Cuts
The government has followed through with its promise to provide a tax cut to every taxpayer, averaging AU$36 a week, or AU$1888 when taxpayers lodge their annual tax returns.
Energy Bill Support
All Australian households will receive an AU$300 energy rebate in one of the few major measures not previously announced. The AU$3.5 billion scheme also includes an AU$325 rebate for about one million eligible small businesses.
Manufacturing Industry Support
The government has allocated billions of dollars into helping key industries boost local manufacturing and bolster investment under its “Future Made in Australia Plan”. The Government is investing in renewables, including AU$1 billion to bolster domestic solar capacity and a production credit of AU$2 a kilogram for green hydrogen, at a cost of AU$1.2 billion a year.
Low Income Rent Assistance
The government will invest AU$1.9 billion to boost the maximum rates of rent assistance by 10 per cent. Nearly one million Australians receive the maximum rate of rent assistance.
Caps on Prescription Medication
The cost of prescription medications listed on the Pharmaceutical Benefits Scheme (PBS) will be capped at AU$31.60 for the next year, with costs for prescriptions for pensioners and concession card holders frozen at AU$7.70 for the next five years.
Managing Disability Insurance Costs
Cuts to the burgeoning cost of the National Disability Insurance Scheme are forecast to save AU$14 billion over four years. The scheme grew by 21 per cent over the last year and is now forecast to grow by 9 per cent annually over the next decade.
Support for Women
There are several measures aimed at women including superannuation on paid parental leave, which will amount to AU$1.1 billion over the four-year forward estimates period.
The government will help women fleeing domestic violence by extending the Leaving Violence Program which provides eligible women with up to AU$5000 in financial support.
University Students and Graduates
Changes to the way higher education debt interest is indexed will wipe AU$3 billion in debt for about three million Australians.
The government has also committed to providing about 73,000 university and VET students with an AU$320 weekly placement payment.
Universities
Universities have been directed to slash the growth in overseas student numbers from about 15 per cent to approximately 5 per cent. They will be required to build more purpose-built student accommodation in order to take international students.
Migrants
The government aims to halve the net migration intake from 528,000 last year to 260,000 next year, a move it says will ease pressures on the housing market.
Farmers
The Government’s Future Drought Fund will get an AU$519.1 million boost to help farmers and regional communities prepare for droughts and improve climate resilience.
Tradies
The government will spend AU$90.6 million to increase the pipeline of skilled workers in the construction and housing industry.
Consultants and Contractors
Reduced use of consultants, contractors and labour hire will save AU$1 billion in the next 12 months, as the government is committed to rebuilding Australia’s public service.
Defence and Foreign Affairs
The government is investing an additional AU$50.3 billion over ten years to implement the 2024 National Defence Strategy to meet Australia’s strategic needs.
Over AU$100 million is allocated to create a skilled workforce for Australia’s AUKUS submarine plans.
Following the launch of Australia’s Southeast Asia Economic Strategy to 2040, the Government is committing AU$505 million to deepen ties with the region, with an additional AU$206 million for Australia’s neighbors in the Pacific, largely devoted to upgrading and expanding diplomatic posts and supporting telecommunications infrastructure.
Reaction
The Opposition, which will formally respond to the budget on Thursday evening, labelled Chalmers’ budget “a big-spending, big-taxing con job.” Shadow Treasurer Angus Taylor said the budget “added AU$315 billion of new spending, at a time when we need restraint.”
Independent Senators and the Greens said the budget failed most disadvantaged Australians and were particularly critical of the energy rebate going to all Australians rather than providing additional support to those most in need. Greens leader Adam Bandt said, “Labor’s bandaid budget is a betrayal of people who are doing it tough and a betrayal of renters, mortgage holders, women, students.”
The market reaction was more measured. Commonwealth Bank chief economist, Stephen Halmarick, said the budget “seeks to balance the risks to the economy from high inflation, the need for ‘cost of living’ relief and the requirement to move the medium-term budget outlook onto a more sustainable footing.”
The Business Council of Australia said the Budget took “some positive steps towards making Australia more globally competitive,” and called on the Government to focus on improving investment fundamentals to lift productivity.
Summary
With most of the major policy initiatives released prior to tonight’s speech to Parliament, public reaction is likely to be muted.
While some commentators were expecting a pre-election budget to more firmly back cost-of-living support, the government has taken care not to fuel further inflationary pressures and risk additional interest rate rises. Whether it has succeeded remains to be seen, but the relatively calm market reaction will lead Chalmers and Prime Minister Anthony Albanese to think they’ve got the balance right.
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