The thing with budget papers is that they’re chameleons capable of being two things at once — both economic road maps and political weapons.
In releasing the mid-year budget update, known by economic and political boffins as MYEFO, Treasurer Jim Chalmers is hoping that camouflage power turns short-term backlash into a long-term political win.
Chalmers, in the job for just 18 months, is no stranger to the Treasury portfolio. A former chief of staff to a former federal treasurer, he seems to have returned to the Labor playbook from 2007.
Speaking to reporters on Wednesday, Chalmers on six occasions insisted the government was a “cautious and conservative” economic manager, offering a throwback to then-opposition leader Kevin Rudd’s assurances he would be an economically conservative prime minister.
Rudd and his treasurer, Wayne Swan, hoped calling themselves economic conservatives would mute Coalition accusations they’d be reckless with money. It worked in 2007 and helped deliver Labor government.
Chalmers, at least for now, has resisted backbench calls for more cost-of-living support. He’s also refusing to say what looks to many as inevitable — that the government will deliver its second consecutive budget surplus. Come May, he’ll likely be singing from a different song sheet.
Whatever short-term pain Chalmers might cop from punters for not offering more cost-of-living support, he’s betting it will ultimately deliver longer-term political gains.
Billions in budget windfalls
Chalmers and Finance Minister Katy Gallagher have made a virtue of talking about the tough economic decisions they have made.
They point to cuts to unfunded Coalition programs as a way of launching a political attack that suggests the former government left behind a basket case of a budget.
That is part of the story but far from the full picture.
Low unemployment, big profits in the mining and banking sectors and higher-than-forecasted inflation are estimated to have brought with them an extra $64 billion in the next four years. That’s an improvement in just six months since the government released its May budget.
The budget forecasts iron ore at $US60 a tonne. It’s currently more than double that. The back-of-an-envelope estimate suggests that for every $10 a tonne above the forecast, the budget gets an extra half a billion dollars each year.
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With few in the sector tipping a slump in iron ore prices anytime soon, Chalmers can be confident that the billions will keep flowing to his bottom line.
Not that he’s willing to offer that prediction.
“The Treasury is deliberately cautious and conservative when it comes to forecasting revenue and there’s a good reason for that,” Chalmers said.
“That’s because our predecessors were frankly humiliated when they over-promised and underdelivered on the budget. They spent more time flogging merchandise like “back in black” mugs than delivering the responsible economic management that the country needed.
“So we are cautious and conservative. The Treasury is cautious and conservative when it comes to commodity prices.”
If you were taking a drink every time he said cautious and conservative, you’d be on the floor.
So why no surplus?
Labor has long been sensitive to Coalition criticism that it’s a reckless economic manager.
The opposition likes to dismiss Chalmers’s surplus from the last financial year as luck. So the treasurer could be forgiven for wanting to rub the prospect of a second surplus in the Coalition’s nose.
But now is not the time for that.
Wages are increasing in Australia but barely above inflation.
So while those higher wages mean the government is banking more from personal income tax takings, what Australians have left after the tax man has taken his share is getting ravaged by inflation.
Any prospect of Chalmers gloating about a budget in surplus would likely be met with anger in a constituency doing it tough.
“We are not yet forecasting a second surplus, but we are within striking distance,” he said.
“We have given ourselves a chance but we aren’t there yet, and we’ve been deliberately cautious and deliberately conservative.”
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May offering a different picture
But fast-forward six months to when Chalmers delivers what could be a pre-election budget in May, being able to offer more cost-of-living support and confirming another surplus could position Labor well to counter Coalition campaigns about economic management.
Chalmers will be hoping that the inflation forecasts prove correct and Australians start to feel the benefits of real wage growth (not to mention the prospect of the Reserve Bank cutting rates).
The treasurer says the lower-that-forecasted deficits in the years to come, along with putting all that revenue into paying off debt, will mean interest payments will be $31 billion lower over the next decade.
In not offering much in the way of new spending, Labor has been able to spend its days insisting it’s using its extra revenue, paying down what it likes to call Coalition debt (a large swathe of which came in the pandemic from government programs Labor was eager to support at the time).
The challenge ahead
Chalmers and Gallagher almost had a spring in their step when they walked into their press conference on Wednesday.
But their path ahead isn’t without challenges.
As recent weeks have shown, their backbench wants more government support to make life easier for the people they represent. The government is hoping a new deal with the states and territories will go some way towards curbing growth in the NDIS, the fed’s second-fastest-growing expense.
That’s without getting to the stage 3 tax cut question about whether or not Labor is willing to delay the contentious change coming in as legislated next July.
The respected independent economist Chris Richardson this week talked about the luck Labor was enjoying managing the economy.
“Luck is wonderful but it’s not permanent,” he told the ABC.
Chalmers doesn’t see his budget as luck but it’ll make his life easier if it continues.