Angela Jackson: walking the tightrope
Tonight, the treasurer has a difficult tightrope to walk in his first “proper” budget after coming to office (last October’s mini-budget didn’t really count). Notwithstanding whether this budget delivers a surprise surplus or not, it must balance the management of challenging economic times while laying the foundations of the government’s legacy.
There is no doubt that high inflation, rising interest rates and accelerating rents are placing more and more households under significant financial stress, and that people are hurting. Whether inflation is caused by supply chain issues, surging profits, a post-pandemic demand surge or higher wages, the economics stays the same – adding to demand now will make the Reserve Bank’s job of containing inflation harder and the risk of recession greater.
Any measures tonight that alleviate cost of living pressures will ultimately add to inflation, which is why they should be judged on their modesty and targeting, not on whether everyone is a winner. No one-off cheques, no indiscriminate largesse. Right now, support must go to those who need it most, and in the least inflationary way possible. In this group it is not possible to look past Australians trying to live on jobseeker, a payment that has, through decades of neglect, become impossible to live on with dignity and needs to be substantially increased.
The government has, through its Jobs Summit and various review processes, created expectations that it is ready to take Australia on a journey that will raise living standards. The promise is for higher wages, full employment and a re-invigorated social safety net that supports social and economic inclusion. To be judged a success in tonight’s budget the talk must be replaced with the hard task of reform that will lift our productive capacity, putting downward pressure on inflation while also lifting living standards into the future.
Women, as our country’s great untapped economic resource, are the obvious starting point in this reform agenda. Existing structural factors are holding women back from fully participating in our economy, undermining gender equity and everyone’s living standards. Full implementation of the women’s economic equality taskforce findings should be the minimum next step towards fully utilising women in our economy. This includes abolishing the activity test for access to childcare and lifting wages in our care sector.
Ultimately, to walk the tightrope on Tuesday night, the treasurer will have to forgo a focus on short-term gratification through widespread cost of living relief, and lift his sights to the medium- and long-term payoffs from fiscal restraint and economic reform.
• Dr Angela Jackson is lead economist at Impact Economics and Policy
John Quiggin: a simple solution but not an easy one
Labor is trapped between the unmet needs built up over a decade of LNP rule, and the election commitments the party made to ensure a win in 2022. The most important, in terms of revenue forgone, is the promise to implement the stage-three tax cuts, for which Labor voted in opposition. The difficulties are increased by the buildup of public debt during the Covid-19 pandemic. Much of this, like the earlier increase in debt after the GFC, was a necessary consequence of fiscal expansion, which prevented a deep recession. And, at around 40% of national income, government debt is low by world standards. But Labor’s strident rhetoric on the topic means that it has little room to move on a commitment to stabilise debt.
There is a simple solution to this problem but not an easy one. Jim Chalmers could announce that the tax cuts will be delivered on schedule for 2024-25, but cancelled (or modified) after the next election. There are plenty of precedents for this. John Howard, having promised that he would “never ever” introduce a GST, changed his mind, took the proposal to an election and won (albeit narrowly). And the current Labor government has implemented the sunset clause on the low and middle income earners tax offset, which was part of Scott Morrison’s plans, thereby increasing taxes on millions of Australians.
If the stage-three tax cuts were only temporary, their impact on public debt would be negligible, of the order of one percentage point, if they ran for a year. So the government would have no need to delay urgent measures such as increases in the jobseeker payment.
Any increase in taxes is politically risky. But with the opposition floundering, there will never be a better time to tackle this task. Labor can, if it chooses, keep its 2022 promises and still do what is needed to address Australia’s real problems. A “steady as she goes” budget will be an admission that the Morrison government’s tax and expenditure policies were essentially correct, and that Labor just needs to make some minor adjustments.
• John Quiggin is professor at the University of Queensland’s school of economics
