You wouldn’t think a budget so well leaked beforehand could be a complete surprise on the night, but this one was.

It’s not just the $300 power bill relief for all, including billionaires like Gina Rinehart and Michael Cannon-Brookes, or the 10 per cent lift in rent assistance, both of which were genuine surprises.

It’s the big-picture numbers that confirm this government to be an amazingly and unexpectedly big-spending one.

Amazing and unexpected because Treasurer Jim Chalmers has repeatedly said this would be a responsible government with a responsible budget, providing relief, repair and reform. But another “R” word is more appropriate: Risky.

That picture emerges clearly when you look at the budget’s top line numbers.

Deficits in place

Policy decisions in this budget add up to $32.5 billion over five years, from the financial year we’re in now to 2027-28. That’s offset by $7.7 billion worth of decisions that increase receipts, so net effect on the bottom line: Minus $24.8 billion.

The deficits from 2024-25 to 2026-27 total $112.8 billion, and they don’t get much smaller as time goes on: The deficit in 2027 is $24.3 billion, only $4 billion less than one projected for next financial year.

(Not that forecasts that far out mean much: The 2019 budget forecast a deficit of $66.9 billion in 2023-24; it’s going to be a surplus of $9.3 billion.)

Treasurers often talk about how much they are “banking”, and not spending, of the windfall gains to the budget from the economy – what Treasury calls “parameter and other variations” – as a demonstration of how responsible they are. Jim Chalmers certainly does.

Windfall gains

Well, the windfall gains in this budget over those five years total $12.6 billion. So not only is he not banking any of it, at $24.8 billion the projected extra spending is nearly double that.

In fact if you add up all of the policy decisions in the three budgets brought down by this Treasurer since the government was elected in 2022 they add up to minus $63.2 billion ($84.2 billion in extra payments, minus $21 billion in extra receipts).

The windfall gains to the budget since 2022 total $127.2 billion, which means 49.7 per cent of that has been spent and 50.3 per cent “banked”. A week ago, before this budget, that was 75.4 per cent.

Here’s another way to look at what’s happened to the budget, as it will affect this year’s interest rates: In December’s Mid-Year Economic and Fiscal Outlook (MYEFO), the total spending in 2024-25 was going to be $709.5 billion. In this budget it’s now $726.7 billion, $17.7 billion more.

Wage growth gamble

Chris Richardson’s rule of thumb is that for every $7 billion in extra spending, one interest rate hike of 0.25 per cent is required to offset its impact on inflation.

So the budget brought down on Tuesday is worth two more rate hikes.

Maybe the government is hoping that the reduction in the inflation rate that it’s forecasting, to 2.75 per cent by June next year, will prompt the Reserve Bank to do the same with its own inflation forecast for June 2025, which currently stands at 3.2 per cent, and lead to a rate cut before the next election.

Unlikely. The RBA knows that the cut in the inflation forecast is manufactured by the power bill and rent subsidy, as well as the previously announced changes to child care and the Pharmaceutical Benefits Scheme, and that the money freed up is likely to be spent elsewhere and increase aggregate demand and the pressure on inflation, not reduce them.

The only thing that might save the government from a rate hike is if wage growth is lower because of the lower inflation, and because the labour market is weaker than the RBA expects.

The detailed forecasts in the budget show the wage index growing at a decade-high 4 per cent in the year to June 2024, and then growth falls to 3.25 per cent in the following two years.

The RBA is predicting higher wage growth – 3.8 per cent this year and then 3.6 per cent and 3.4 per cent next year and the year after.

Treasury is also predicting a higher unemployment rate – 4.5 per cent next year versus the RBA’s 4.3 per cent.

Forecast insights

These might not seem big differences, but it means the spreadsheets at Treasury and the Reserve Bank are now throwing out very different outcomes. In summary, Treasury is more optimistic than the RBA about inflation and more pessimistic about the economy.

Does it matter? Not much. These are just forecasts, and they’re always wrong. Two years ago Treasury was predicting that inflation would now be 2.75 per cent and the RBA thought it would be 2.9 per cent; it’s actually 3.6 per cent.

Anyway, the Reserve Bank sets interest rates, not Treasury, so its forecast is the only one that matters.

Housing challenge

One encouraging development, especially for your correspondent, in this budget is a new Statement No.4, on housing, headed: “Meeting Australia’s Housing Challenge”.

It starts well: “Australia has underinvested in housing for too long”, with detailed descriptions of the problem and in particular the need for planning and zoning reforms, but it ultimately disappoints, with more targets than actions and mainly a pull together of things that have already been announced.

That includes the National Planning Reform Blueprint that was announced in August. It began with a list of broad ideas for reform and nine months later, in this week’s budget, it remains a list of broad ideas, nothing concrete.

Planning reform and increasing the capacity of the construction industry is the key to improving housing affordability, but budget takes it no further than the announcement nine months ago, which is that the reforms will include:

• Streamlining development approvals
• Identifying well-located development-ready land
• Increasing housing density in target areas
• Identifying how housing can be built faster on sites with development approval but where development has not commenced (i.e. activating ‘zombie’ approvals)
• Ensuring that state, regional and local strategic plans reflect their share of the national 1.2 million new homes target.

How they’re going to streamline development approvals, increase density and do those other things is not discussed, but everyone knows the problem is local councils protecting the interests of existing residents.

Is there any discussion of removing their power to hold up housing? No, of course not.

Nor is there any discussion about the impact of immigration or tax incentives on demand. It’s true these things are controversial and difficult, but given the difficulty and cost of increasing supply, they can’t be ignored.

Alan Kohler writes weekly for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor