Federal Budget 2022-23: Banking the savings to restore the economy
25 October 2022
Delivering the first budget of the Albanese Labor Government this evening, Treasurer Jim Chalmers declared the updated 2022-23 Budget as “solid and sensible”. He stated that the Budget “repays” the public’s faith in a new government by delivering on election commitments, while avoiding inflation, and noted that it begins “the hard yards of Budget repair”.
In what the Treasurer attributed to “responsible decisions”, a deficit of $36.9 billion has been forecast for 2022-23, an improvement of $41.1 billion. However, Dr Chalmers conceded that economic growth will peak at 3.25 per cent this financial year before slowing to 1.5 per cent in 2023-24, one per cent lower than forecast in the former Government’s March budget. He acknowledged this will impact the national rate of unemployment, but stated it is expected to stay low “by historical standards” at 4.5 per cent in 2023-24 and 2024-25. Inflation is forecast to peak at 7.75 per cent later this year before lowering to 3.5 per cent through 2023-24.
As foreshadowed by the Treasurer and Prime Minister, the Labor Party’s pre-election commitments were a key focus of this Budget and will be funded by savings achieved through a number of spending reductions across multiple portfolios. Dr Chalmers noted that the Government’s spending audit identified $22 billion in savings over the next four years – $3.6 billion of which will be saved in a “staged approach” through the reduction of government spending on external labour, advertising, travel and legal expenses.
Further, speaking on the tax system, the Treasurer stated that certain measures, which he labelled “just the beginning” of the Government’s budget repair work, have saved $4.7 billion over four years. He listed key savings measures as increasing taxes for multinational companies, extending tax compliance programs, and increasing ATO resources for tax compliance. While the Budget leaves room for wider tax reform, Dr Chalmers said that tax reform was not the only way to deal with the structural challenges in the Budget. Earlier this week he also confirmed that no decision had yet been made to abandon or amend the proposed Stage 3 income tax cuts.
While the Treasurer did not specify all measures leading to the full $22 billion in savings, the Budget Papers reveal that over $9 billion has been saved through removing regional, environmental and infrastructure measures from the former Government’s March budget – including the cancellation and reallocation of projects under the Infrastructure Investment Program, Urban Congestion Fund, and Commuter Carpark Fund. Additionally, savings have been achieved from a reversal of uncommitted funding in the Modern Manufacturing Initiative and not proceeding with a third round of the Manufacturing Modernisation Fund.
A key feature of the Budget is a cost-of-living relief package that the Treasurer labelled “responsible, not reckless”. A $7.5 billion investment was announced for a “five-point plan” including subsidies for childcare and prescription medicines, expanded paid parental leave, affordable housing and “getting wages moving again”. The Treasurer elaborated on each of these commitments, noting that the package will be “carefully targeted” on areas which also increase productivity and “carefully timed” in order to avoid inflationary pressures.
As part of the “five-point plan” for cost-of-living relief, the Albanese Government’s first Budget allocates an initial $350 million for a new national Housing Accord to build one million new houses in collaboration with state and territory governments and private investors, including the superannuation sector. Dr Chalmers outlined that this collaboration will focus on driving changes in planning policies and promoting long-term private investment in property, in a bid to increase supply. The Treasurer stated that the Accord is “a serious start” in leading to increased housing supply.
Dr Chalmers outlined that there are multiple elements to the final element of the plan – “getting wages moving again”. He stated the Government will support a wage increase for the lowest paid Australians as well as improving workforce participation for parents through cheaper childcare, upskilling workers for higher paid work, and “fixing the broken bargaining system”. The Treasurer also acknowledged that whilst wages are moving in the right direction, they will not keep pace with inflation in the near term.
Making several comments regarding the Government’s care to avoid adding to inflation, Dr Chalmers refrained from discussing cost-of-living relief for increasing energy prices, instead focusing on the Government’s Powering Australia Plan. On this, $20 billion has been committed to an energy transmission fund, while $15 billion has been invested in a National Reconstruction Fund. Dr Chalmers also did not rule out regulatory intervention in the energy sector.
Reflecting on recent flooding disasters across Australia, the Treasurer noted that the Budget has invested up to $200 million a year in disaster prevention and resilience through the Disaster Ready Fund.
In the realm of education and training, a $1 billion commitment has been made for the provision of fee-free TAFE and vocational education places, while over $770 million has been allocated to schools. Further, the Government has allocated $76.4 million over four years to fund commitments made at September’s Jobs and Skills Summit, including $42.2 million over two years for increased visa processing capacity within the Department of Home Affairs and promotion of opportunities in Australia’s permanent Migration Program for highly-skilled migrants.
Significant funding has been allocated towards projects the Treasurer states will “build Australia’s future”. This includes $120 billion for a pipeline of transport infrastructure over the next decade, and funding to expand full fibre access for the NBN to 1.5 million additional homes and businesses. Dr Chalmers also noted an investment to “slash the visa backlog” to enable employers to fill labour shortages.
On the matter of health – listed by Dr Chalmers as one of Labor’s priority areas – $6.1 billion was highlighted for hospitals, Medicare, COVID‑19 support, and general healthcare access. Additionally, the aged care sector has received $2.5 billion in funding.
The Treasurer highlighted further key measures included in the Budget as part of Labor’s election commitments, including $1.7 billion over six years to prevent violence against women and children, and $1.2 billion in efforts to Close the Gap for First Nations peoples and communities and begin preparations for a referendum on a Voice to Parliament. He also noted that funding has been included for the establishment of a National Anti-Corruption Commission.
Dr Chalmers concluded that “there are hard days to come, and hard decisions to accompany them”, but affirmed that the Budget aims lead to an improved economy and future by ending challenges in energy, aged care and skills shortages.
For further information on key portfolio measures, please refer to GRACosway’s detailed briefings:
- Defence; Foreign Affairs & Trade; Home Affairs; Attorney-General
- Health and Aged Care; Social Services
- Infrastructure, Transport, Regional Development, Communications and the Arts
- Employment and Workplace Relations; Education
- Industry, Science and Resource
- Climate Change, Energy, the Environment and Water; Agriculture, Fisheries and Forestry
Key Parameters 2022-23:
- Underlying cash deficit of $36.9 billion
- $572.2 billion in net debt, equal to 23 per cent of GDP
- Real GDP forecast to fall by 1.75 per cent
- Inflation forecast to moderate to 3.5 per cent by June 2024, down from an anticipated peak of 7.75 per cent in December 2022