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What you need to know
The theme of the budget is less stimulus and less spending with the goal of slowing inflation and in turn providing cost of living relief. As such, there are few large spending announcements.
Wage growth is slower than expected, debt is growing, and government spending growth is exceeding economic growth. Leading to fears of a structural deficit.
Key winners from the budget are: the renewable sector, the environment, women, Pacific nations, and house hunters. (read why in our full report).
Key losers are: the construction industry (large delays and cuts to infrastructure projects), government contractors ($3.6 billion in cuts), and households (no specific cost of living relief).
The final budget outcome for 2021-22 was released on 28 September showing an underlying cash deficit of $32 billion, or 1.4 % of GDP, significantly better than the $80 billion deficit forecast in March. The better than expected result is largely due to high commodity prices, particularly iron ore.
The deficit is set to rise to $36.9 billion this financial year and over $50 billion for 2024-25.
National debt is now 45.1% of GDP.
Stage three tax cuts (simplifying the tax bracket from $45,000 to $200,000 at a flat rate of 30%) will remain despite speculation that Labor was preparing to abandon the reform.
A National Housing Accord between state and federal governments has been revealed, with Labor setting a target to build one million new homes by the end of the decade. This will start with $350 million to build 10,000 houses.
$9.6 billion of infrastructure spending, a stark fall from the Coalition’s $17.9 billion pledged in March.
Energy prices are expected to rise by 56% over the coming 18 months. There is no specific energy price relief in this budget, however Chalmers did claim in the budget lockup press conference that he is open to energy price intervention. He did not elaborate on what this would be.
A further $2.4 billion has been pledged to the NBN.
Paid parental leave has been expanded by six weeks.
It is worth noting that while there is a lot of bleak news in this budget, Shadow Treasurer Angus Taylor was reluctant to be too critical of Labor, given the challenging global economic conditions. Former Deputy Prime Minister John Anderson went as far as praising Labor for their apt fiscal restraint.
Cost of Living
“Responsible not reckless cost of living relief”.
The government is concerned that further economic stimulus will only worsen inflation, leading to even more of a cost of living squeeze. Stating that by not further stimulating the economy they are in a sense providing cost of living relief.
Billions of dollars of flood recovery funds have been included in the budget, as the Bureau of Meteorology warns flooding will last for months to come.
Stage three tax cuts will remain, simplifying the tax bracket for those earning between $45,000 - $200,000 to a flat rate of 30%.
The reforms come at a time when bracket creep becomes more of a concern, as inflation pushes more Australians into higher tax brackets.
Updated Treasury costings have shown the 10-year cost of the cuts has blown out from $243 billion to $254 billion.
Low to Middle Income Tax Offset (LMITO) has been abolished.
$15.8 million aimed at increasing female workforce participation.
Expansion of paid parental leave by six weeks to 26 weeks by July 2026.
$10.8 million towards a 12-month inquiry into childcare costs conducted by the ACCC.
A National Housing Accord between state and federal governments sets a target for 1 million new homes by the end of the decade. This will start with $350 million to build 10,000 houses.
Defence spending will rise to over 2% of GDP over the next four years
$1.4 billion to aid in the Pacific and South East Asia.
Strategic defence reviews are set to wind up in March 2023. Expect more bold defence announcements at the next budget.
$1.4 billion to the Covid-19 response, including PPE and PCR testing.
$200 million annually to reduce the cost of essential medications by dropping the maximum general co-payment for PBS scripts from $42.50 to $30.
$47.7 million to bulk-billed telehealth psychiatry consultations for rural and regional areas.
$33.6 million to research grants for heart disease and strokes.
$5.4 million for brain cancer research.
$700,000 to research endometriosis.
The National Disability Insurance Scheme (NDIS) is now expected to cost more than $50 billion by 2025-2026. A blowout of $8.8 billion.
$126 million has been set aside to create a fraud squad to prevent NDIS fraud.
Established the Western Australia Comprehensive Cancer Centre.
$9.6 billion total infrastructure investment across Australia.
$2.57 billion towards Victoria, including $2.2 billion towards the Melbourne Suburban Rail Loop.
$2.5 billion towards the Northern Territory, including $1.5 billion to the Middle Arm Sustainable Development Precinct, aimed at helping emerging clean energy industries.
$1.47 billion towards Queensland including a major upgrade to the Bruce Highway.
$1 billion towards New South Wales, including $300 million for Western Sydney roads.
$685 million towards Tasmania, mostly towards upgrading the Bass Highway, Tasman Highway, and the East and West Tamar Highways.
$670 million towards Western Australia, including an electric bus network for Perth.
$660 million towards South Australia, including upgrades to the Southern Expressway.
An increase in the permanent migration visa cap from 160,000 to 195,000.
$36 million to visa processing over the next nine months.
Post-study working rights for international students increased from two to four years for bachelor degrees, three to five for master’s degrees, and four to six years for PhDs.
480,000 fee-free TAFE places, with priority given to Indigenous Australians, young people, job seekers, unpaid carers, and people with disabilities.
20,000 university places over the next two years with an emphasis on health, education, engineering, and technology courses.
10,000“energy apprenticeships” to fund electrician apprenticeships.
Climate and Energy
Energy prices are expected to increase by over 50% over the coming 2 years, there is no specific energy price relief in this budget, however Chalmers did claim in the budget lockup press conference that he is open to energy price intervention. Although he did not elaborate on what this might be.
$20 billion for the Rewiring the Nation program to upgrade the electricity grid so more renewable energy can enter the system.
$1.5 billion to Victorian Renewable Energy Zones and offshore wind power projects.
$600,000 to push coastal cafes and businesses to reduce their use of single use plastics.
$204 million to protect, manage, and restore the Great Barrier Relief.
$200 million to a Disaster-Ready Fund.
An increase in the childcare subsidy for indigenous children from 24 hours a fortnight to 35 hours.
$173.2 million to extend the National Partnership on Northern Territory Remote Aboriginal Investment.
$2.4 billion investment over four years to expand full-fibre access to 1.5 million premises by 2025.
A Future Made in Australia policy to encourage local manufacturing. This includes an emphasis on making Australia a renewable energy superpower and increasing the refining of raw materials as a value add before they are exported.
$15 billion to a National Reconstruction Fund, to help create well-paid jobs, drive regional development, and invest in national sovereign capability. This will also include funds towards hitting Australia’s net-zero by 2050 target.
$100 million towards the critical minerals sector, including lithium mining.
$28 billion in cuts and delayed spending, mostly to infrastructure projects and programs such as the Building Better Regions Fund.
Shadow Treasurer Angus Taylor has claimed the budget the Coalition left Labor was not in “structural deficit” as the rate of economic growth was exceeding spending growth. A principle Taylor claims was critical in every spending decision. Taylor is concerned that the same principle is not being applied to Labor’s budget.
Taylor has been critical of infrastructure projects like the Melbourne Suburban Rail Loop, claiming it is wholly “unnecessary”.
Opposition leader Peter Dutton will deliver his budget response speech on Thursday 27 October at 7:30pm (AEDT).
It is of note that former Deputy Prime Minister John Anderson praised Jim Chalmers for his restraint and fiscally responsible budget.
Much of the Greens criticism has surrounded Stage 3 Tax Cuts, which the Greens believe disproportionately benefit the wealthy.
Greens leader Adam Bandt has also claimed the 1 million house building pledge is simply a “house of cards” only building 10,000 houses and leaving the rest to the private sector.
Bandt has stated that Australians voted for change at the election but “after the budget they are still waiting”.
Senator David Pocock has claimed the government should look to Norway when taxing gas exports as a potential boost to government income.
The lower house teal independents are yet to make a statement on the budget at time of writing.
The Treasurer and Finance Minister
Hon Dr Jim Chalmers MP
Member of the House of Representatives; Treasurer
Party: Australian Labor Party Age: 02 Mar 1978 (44 years old)
Seat/Margin: Rankin / 9.10% (fairly safe)
Faction - Labor Right
About - First elected in 2013 to the Federal Parliament, 44 year old Jim Chalmers had a long career as a public policy and political staffer prior to his time entering Parliament. Chalmers grew up in southern Brisbane and Logan City, in his current electorate of Rankin. Chalmers was most notably former Treasurer Wayne Swan's Chief of Staff and principal adviser between 2007 and 2013. Chalmers is married to Laura Anderson, a former political staffer herself and has three children. Chalmers has a PhD in political science and international relations.
Senator the Hon Katy Gallagher
Senator for the ACT; Finance Minister; Minister for Women; Minister for the Public Service
Party: Australian Labor Party
Age: 18 Mar 1970 (52 years old)
Faction - Labor Left
About - 52 year old Canberrian Gallagher spent much of her early career as a union organiser with the Community and Public Sector Union (CPSU). Gallagher entered ACT state politics in 2001, rising to the role of Chief Minister in 2011. Gallagher resigned in 2014 to seek election in the Australian Senate. Gallagher holds a Bachelor of Arts in political science and sociology from the Australian National University. She is a classically trained cellist and is a vegetarian. In 1997, Gallagher’s fiance Brett Seaman was killed in a cycling accident near Merimbula, she was 13 weeks pregnant at the time. Gallagher lost both her parents to cancer. She has 3 children and is raising them with partner Dave Skinner.
It is worth noting that government debt is now 45.1% of GDP. As interest rates rise, the cost of servicing this debt increases significantly.
On the flip side, increasing inflation means the cost of repaying the principal is reduced in real terms.
In the United States, should interest rates exceed 8% (a potential scenario given inflationary pressures), the cost of servicing the $31 trillion national debt would exceed all federal tax income, meaning that to maintain a balanced budget all federal taxation would have to be cut — a frightening prospect.
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