The best news about tonight’s budget may be the forecasts of the bottom line. There’s not a surplus in sight. That means the debt keeps rising — but it also means Australia might have finally abandoned its absurd obsession with generating surpluses at all costs.
In fact, the budget balance is forecast to deteriorate over the next four years, as the next chart shows. Debt will rise to more than a trillion dollars. That would have been a politically risky set of numbers to publish, not so long ago. That Treasurer Jim Chalmers feels confident in doing so might mark a seachange in Australian politics.
The surplus obsession stretches back to the era of Peter Costello. He presided over “rivers of gold” as unexpected revenue came in, and used it to keep the budget in the black and pay off debt. The longevity of the Howard government and the economic vitality of the 2000-07 era contributed to the sense that this was really the only way to run a country.
Wayne Swan inherited the job from Peter Costello, and on the day he moved into the treasurer’s suite in Parliament House, Chalmers was on his staff. In his 2016 book, Chalmers talks about seeing a scrawl on the whiteboard in that office, left by Costello’s staff: Kevin’07 = Recession’08. They dodged that by spending up big during the GFC, but then pivoted to running tight budgets. Chalmers writes at length about how proud he was of running a really tough, tight budget (even doing so as unemployment lifted and inflation dived).
The legacy of Costello flowed through Swan and appeared to live on in Chalmers, especially as he made pre-budget pronouncements about cuts and saving. I was worried he would be like a general fighting the last war. Insisting on surpluses — even when they are not needed — puts the economy at risk. Chalmers is already projecting the unemployment rate to rise, from 3.5% to 4.5%. If he pushed even harder on the budget bottom line, cutting more and taxing harder, the rise in unemployment would be even greater.
For these reasons, to discover the budget is devoid of projected surpluses is a relief. Conceding that economic reality trumps sheer bloody will is a vital step in the maturation of any treasurer.
The treasurer’s mantra: accept what you can’t control
In any given year, the change in the budget bottom line caused by the winds of change dwarfs that caused by policy decisions. A flood here, a war there, a massive global energy shortage that lifts coal prices to three times their forecast level, and suddenly you can find yourself hundreds of billions of dollars ahead of or behind where you expected.
These things you can’t control — known as “parameter variations” — improved revenues by a staggering $57 billion in 2022-23, compared to what was forecast pre-election. Policy changes added just $1.4 billion. You simply can’t compensate for that sort of change by tweaking pension indexation or cutting a few rural grant schemes. It means treasurers need to accept that much is beyond their control. Be zen-like. Don’t promise surpluses that fate will make impossible to deliver.
The budget has a couple of big moving parts. Revenue and spending are both forecast to rise as a per cent of GDP. The net result is a worsening bottom line (despite Chalmers insisting the big theme of the budget is “spending restraint”!).
This is not to deny that Chalmers is naturally frugal and wants to move toward a balanced budget. As debt rises and interest rates do too, the interest paid on debt gets bigger and bigger. Eventually, we want to reduce our debt in real terms. But doing so at the expense of the real economy, doing so on the back of families with unemployed parents, doing so because the editor of The Australian wants you to? That’s not good for the country.
Perhaps Chalmers learnt something from his old boss’ shame, continually announcing and projecting surpluses but never delivering them. Swan ended his stint as treasurer in the red, and red-faced. Chalmers might get the budget bottom line back in the black eventually, but if he does so it will be by playing the long game.
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