Treasurer Jim Chalmers told reporters on Tuesday that his first budget was “the start of something new and responsible.”
The October 2022-23 budget under Labor is certainly a different beast than the budget handed over by the coalition just before the federal election. Not only have the figures changed, the approach has also changed.
This budget rearranges fiscal strategy, emphasizes well-being and points to climate change.
A renewed tax strategy
Fiscal strategy is about the way the government deals with spending and taxes. All federal governments must outline their tax strategy according to the Charter of Budget Honesty.
The coalition government had long set itself the goal of keeping tax revenues below 23.9% of GDP. There was no science behind this song. It was just the affair during the Howard administration.
An important difference under the Albanian government is that there is now no arbitrary number. But it makes a commitment to direct the “majority” of revenue improvements toward budget repair.
Less than half of the revenue improvements in the last seven budget updates were aimed at improving the budget balance. This year it will be over 90%.
There is also a commitment to “limit” spending growth until gross debt as a share of GDP shows a downward trend. The debt-to-GDP ratio is expected to increase until at least 2032-2033. But this commitment will only last “as long as growth prospects are healthy and unemployment is low”. It therefore does not rule out fiscal stimulus in a crisis.
The strategy refers (repeatedly) to the budget that must be ‘sustainable’.
A focus on wellbeing
The main budget document now has a new chapter called “measuring what matters”.
It has long been recognized that GDP is not, and was never designed to be, a measure of ‘well-being’.
But until now, GDP has been largely considered by default as the measure of national success in budget documents.
This year’s budget also includes “indicators measuring broader quality of life factors” and compares Australia to its peers in the OECD.
The budget documents present the indicators as a green-coded dashboard for where Australia is performing better.
Areas where Australia outperforms the OECD average include income and wealth, employment, education and life expectancy. But in some areas (shown in red) we are underperforming the OECD and deteriorating, such as the number of endangered species and the level of household indebtedness.
No attempt has been made to weight the indicators to form a single overall index.
But with statements like “Australia is at or better than the OECD average on 21 of the 32 key indicators,” this represents a market gap from past budgets and a change in the way we look at what matters in policy making.
Climate change is mentioned on some 16 pages of the main budget document. This includes the “measuring what matters” chapter, recognizing that Australia has the highest per capita greenhouse gas emissions in the OECD.
There is also a new chapter on the “fiscal impacts of climate change”. This indicates how climate change negatively affects economic activity, by eroding the tax base. Climate change also leads to increased spending on things like disaster relief.
The section also notes how the divestment of fossil fuels will boost the tax collection of some industries. For example, the shift to electric cars will drive demand for the lithium used in their batteries.
Total climate-related spending is $25 billion over 2022-23 to 2029-30.
This will not be the last entry. A new climate statement will be submitted to parliament every year. The implications of climate change will also be analyzed in next year’s Intergenerational Report. To support the preparation, the Treasury’s climate modeling capacity will be rebuilt.
More to come
The 2022-23 budget gives us new and useful information and analysis about our economy and policy landscape. It also promises more to come.
There will be a new welfare statement in 2023, and unusually, the budget documents invite readers to express their views on the matter.)
A White Paper on employment will also be published in the second half of 2023. Civil servants and economists get very busy.
- John Hawkinssenior lecturer, Canberra School of Politics, Economics and Society, University of Canberra