The Albanese government risks playing “footsies with the big social and fiscal challenges” if it pushes ahead with a “cautious” budget plan over a bolder route which would lift people out of poverty and increase productivity, a leading economist believes.
The Grattan Institute chief executive, Danielle Wood, in an address to the National Press Club said all indications pointed to the government taking the less ambitious route in addressing issues within the budget and wider economy, adopting only the lower-cost proposals put forward to ease cost-of-living pressures and poverty.
That would mean “tentative steps” on budget repair and “tweaks” to revenue streams, such as the petroleum resource rent tax, painting a picture of “incremental change”.
“It will make some things a bit better and not too much worse,” she said.
“But ultimately it will only play footsies with the big social and fiscal challenges.”
Wood said the alternative would be more politically challenging, but would also do more to address Australia’s growing inequality and economic challenges.
“Bold is what we need to meet our current economic and social challenges, and that is the benchmark by which I will judge the government’s efforts next Tuesday night,” she said.
Among those bold proposals Wood put forward was redesigning the stage-three tax cuts to keep the 37% tax bracket the Morrison government legislation abolished.
“Retaining the 37% tax bracket would reduce the size of tax cuts for high-income earners and save about $8bn a year,” Wood said.
“This alone would offset the fiscal and inflationary impact of a jobseeker rise.”
Wood also said reducing tax breaks and minimisation opportunities “by winding back superannuation tax concessions, reducing the capital gains tax discount, limiting negative gearing, and setting a minimum tax on trust distributions, could collectively raise more than $20bn a year”. She also recommended reducing fuel tax credits.
At the same time, the government could increase the low income payments including youth allowance and jobseeker, address low pay in the care sector and scrap the activity test for childcare, which it has pushed down the road despite multiple recommendations it would help improve women’s participation in the workforce.
Wood also said the government needed to address the housing crisis and could do so by offering “incentive payments to state governments to add new housing supply”, noting that the biggest barrier was often “overzealous planning restrictions that impede medium-density development in our inner and middle-ring suburbs”.
“State governments have the capacity to change this, but the nimby backlash often weakens resolve,” Wood said, adding that incentives for the states to address it “would be an investment in better long-term social and economic outcomes.”
However, Wood’s predictions of a cautious budget look likely to be made a reality.
After Tuesday’s surprise 11th interest rate hike in a row, the treasurer, Jim Chalmers, said the government would not recast its budget strategy because its “strategy is already defined by restraint”.
The comment, consistent with earlier warnings that the government “can’t fund every good idea” or implement every anti-poverty measure in “one budget”, appears to confirm a cautious approach.
Chalmers said inflation and the cost-of-living pressures faced by households are “the defining pressure on our economy at the moment”.
“My job is to provide that cost-of-living relief in a way that doesn’t add substantially to this inflation challenge that we’ve got in our economy,” he told ABC News Breakfast.
Chalmers said the government would aim to address inflation by investing “in some of the supply-side issues in our economy … in energy and some of the other drivers of growth”.
Chalmers promised a “substantial package of relief” on medicines, childcare and energy bills, but still refused to confirm or deny that the increase in jobseeker unemployment payments will be limited to those aged over 55.
“People have to wait and see on Tuesday night but clearly when we provide this cost of living relief, we need to do it anyway that doesn’t blow the budget,” he told Channel Seven. “The best place to start is the most vulnerable Australians.”
In response to questions at the Press Club, Wood said she understood “why the government is concerned by a big and broad increase in jobseeker” but warned “division of people on those payments” was a “slippery slope”.
“Equally, people under 55 are really struggling to get by and the sense that we are sort of creating these two classes of welfare recipients, one more worthy of an increase than others, I think that sets a dangerous precedent.
“But I would never begrudge anyone over 55 an increase.”
