A sense of hope will pervade the federal budget after years of sticky inflation, but the government knows more must be done.
Labor is expected to lean into its core strengths by committing billions to health care, addressing cost-of-living pressures by boosting wages and growth, and shoring up Australia’s defences against economic uncertainty in its budget, to be delivered on Tuesday night.
“It’s really a work in progress where we’re chipping away, making investments, repairing the budget where we can, lowering debt, and making sure we can provide that cost-of-living relief to people while they’re doing it tough,” Finance Minister Katy Gallagher told ABC’s Afternoon Briefing on Tuesday.
“(But) there is a view that we’ve turned the corner and that should bring hope and optimism to households as well.”
The federal government will continue to keep the good times rolling by banning non-compete clauses for most workers in its budget.
Labor has long taken issue with the measures as they can prevent Australians from moving jobs or force them to take months off work, and addressing the clauses could alleviate cost pressures by allowing workers to boost their wages more easily.
Though this specific measure is new, the government says it’s part of a budget that builds on the efforts of its predecessors and provides cost-of-living relief without fuelling inflation.
“It’s been a great task trying to land a 747 on a helicopter pad,” Prime Minister Anthony Albanese told reporters in Canberra.
While the coalition wants a restoration of Australian prosperity, shadow treasurer Angus Taylor said the government had thrown out fiscal guardrails.
“We need to see a budget where the economy grows faster than spending – it’s simple,” he told reporters.
“When you do that, then you can bring down deficits, you can bring down debt, and you can get into the black.”
Australia is expected to hit a record level of debt in the economic papers but Treasurer Jim Chalmers has spruiked the government’s “responsible economic management” for limiting gross debt to $940 billion in 2024/25.
While that’s a record for the Commonwealth and up from the $906.9 billion figure in 2023/24, it’s $177 billion lower than it was projected to be in a fiscal update before the last election in 2022.
That means taxpayers will avoid having to fork out $60 billion in interest costs over the 11 years to 2032/33, despite borrowing costs rising since the last election.
The government points to $95 billion in savings across its four budgets as proof it is responsible for the turnaround in the bottom line.
But the budget “table of truth”, as dubbed by economist Chris Richardson, tells a different story.
This reconciliation table shows “parameter variations”, including factors outside the government’s control, such as commodity prices, have contributed to more than 100 per cent of budget upgrades.
In other words, the government’s decisions have stood in the way of an even bigger improvement in the budget bottom line.
Australia’s federal debt is still fairly low compared to the rest of the world, at just over one-third the size of the economy.
But Australia’s debt is expected to grow as public spending increases and a temporary boost to revenue fades, peaking at 37 per cent of GDP.
Increasing pressures on the budget, like defence, health, aged care, the NDIS and interest payments are leading to a widening structural deficit, Deloitte Access Economics partner Stephen Smith said.
He expects this year’s underlying deficit to be slightly better than predicted in the December update at $26.9 billion.
But Mr Richardson said the underlying deficit was becoming increasingly irrelevant because the government used an accounting sleight of hand to shovel more spending “off-budget”.
These measures are classed as investments which will supposedly make a return for the government, although in recent years have more often made a loss.
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