Michael Pascoe: Labor’s timid budget fiddle opts for rhetoric over substance

Treasurer Jim Chalmers is basically settling for the substandard status quo, Michael Pascoe writes.

Treasurer Jim Chalmers is basically settling for the substandard status quo, Michael Pascoe writes. Photos: Getty

For all the headlines proclaiming either deficit doom or cost-of-living largesse, as the budget dust settles we’re left with a timid effort fiddling around edges, much bigger on rhetoric than substance.

And the Coalition’s immediate response has been even emptier.

This rich nation with so much potential and so many challenges is basically settling for the substandard status quo – whatever happens, Jim, don’t scare the horses.

A stroll down the budget’s sideshow alley finds the headline acts less than the spruiker painted.

What’s on offer?

The $23 billion Future Made in Australia exhibit – “See the Mighty Green Energy Superpower! Build a Quantum Computer!” – turns out to be spread over a decade.

For all the hoopla, $2 billion out of a $700 billion annual budget isn’t going to change our world much for better or worse. It’s a little flutter on the side.

The Amazing House of Housing, once you’re inside the tent, is a tent. Another $6 billion for ropes and canvas doesn’t change our housing status quo. Jim Chalmers and Anthony Albanese must be the only people in Australia capable of talking about 1.2 million new homes in the next five years with a straight face.

The government’s own independent expert, the National Housing Supply and Affordability Council forecast two weeks ago that the National Housing Accord will deliver net new supply of 869,000 homes – nearly 2000 less than new demand over that period, making no dent on our existing shortfall.

The Commonwealth Rent Assistance whack-a-mole game as part of the Renty Horror Show offered a big-sounding prize – “Win $1.9 billion!” – but that is spread over five years, an average of an extra $380 million between a million renters while rents keep rising.

RBA target

The Incredible CPI-and-Thimble Man has a couple of neat tricks, but not enough to hold an audience that already knows how it’s done. The main interest here is what Jim Chalmers’ real target – the Reserve Bank board – will make of it.

For multi-decade budget watcher tragics like me, this particular act is a little daring though as it is the biggest split in the official forecasting community that I’ve seen.

Last week’s RBA quarterly Statement on Monetary Policy diverges more than usual from the Treasury story, and not just on the CPI.

In the RBA statement lockup a week before the budget, the econocrats happily admitted they were not including the potential impact of the 2023-24 energy rebates being renewed, which would knock 0.3 off their CPI forecasts.

Thimble Jim has indeed renewed the energy rebate and extended it to upper-class welfare, increasing the CPI impact. And it is a genuine reduction in inflation – energy bills will be lower.

But claiming that the extra Commonwealth Rent Assistance reduces inflation is fooling nobody. It reduces the cost of living for the 25 per cent of renters who will receive it, but their rents will still rise by as much and those rents will be paid. It’s a fiddle.

Brave call on CPI

Adding the energy rebate and CRA increase together to claim it will knock 0.5 off the CPI is a mixture of truth and fiddle, one that will reasonably show up in the 2024-25 CPI, but it is a very brave call by the Treasurer to promise it by Christmas.

Last week the RBA guessed CPI growth for this calendar year would finish at 3.8 per cent. Take off Thimble Jim’s 0.5 – even if it can be all delivered in six months – and you’re still left with 3.3 per cent when the Treasurer is promising something starting with a 2.

For the new financial year, the RBA forecast 3.2 per cent, so the Thimble could have that down around Treasury’s 2.75 per cent prediction.

What matters politically though is the idea of the CPI back in the RBA’s target band by Christmas.

The pet shop galahs remind us that the RBA focuses on core inflation, but their actual remit is to have the CPI between 2 and 3 per cent.

That’s what the Thimble, extending the energy rebate welfare to rich Australians, is about: Putting maximum pressure on the RBA for an interest rate cut before the May election.

Dwelling investment

The other big difference between the RBA and Treasury forecasts is dwelling investment. Both think new housing will be flat or as good-as-flat in 2024-25, but while the RBA thinks it might improve by 1.8 per cent the following year, Treasury is forecasting a very brave 6.25 per cent.

That looks more like complying with the Housing Accord hope than expectations. In any event, nobody will know until after the election – and what is an election about if not hope?

As a show, the budget suffers from everyone having seen most of it before it opened. The main act was rearranging the stage-three tax cuts.

And if the dive back into deficit concerns you, well, would not having the tax cuts concern you more?

Bleak outlook

It’s not as if our economy is strong. Parade it around centre ring and most onlookers would suggest it needs fattening. With the deficit injection, GDP is still only forecast to grow by 2 per cent and that’s mainly thanks to population growth while Treasury sees unemployment rising to 4.5 per cent. (The RBA thinks 4.3 per cent would be enough to tame inflation.)

The promised return of wages to real growth is a combination of the tax cuts and forecasting lower inflation. We’ll see.

What keeps being overlooked is that there are two ways to avoid a deficit – curtailing spending or increasing revenue.

And that’s the most disappointing aspect of the timid fiddle: The lack of ticker to do even the mildest of tweaks to slightly improve revenue.

Tweakest links

Exhibit #1: Running scared from the no-brainer of limiting negative gearing to new builds. It would only save a little cash but it might encourage a little more housing.

Exhibit #2: Our miserable excuse for a Petroleum Resource Rent Tax, also known as the “Are you sure this is OK with you, Mr Gas?” tax. It was a known rort but given the chance to lift it to something near reasonable, something near what other major gas exporters charge, Labor squibbed it, yet again acting as a servant of the fossil fuel industry. And it was a harbinger of the government’s long-term commitment to fossil fuel.

Exhibit #3: Gifting the resources industry $566 million by mapping Australia for it without a hint of user pays, the taxpayer (and deficit) footing the first half billion of miners’ exploration budget. Compare that with our other primary industry – agriculture. Wool growers, for example, vote to collect 1.5 per cent of their sales for spending on research and marketing. Collecting 1.5 per cent of mineral sales would pay for mapping Australia, free geology degrees, R&D for green metals and plenty else besides.

“User pays” somehow doesn’t apply to the government’s great mates in the resources industry.

I could go on, but won’t. A budget that is too timid to be serious about our future isn’t worth the effort.

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