A big spending budget with the eye to the future
The 2024-25 Federal Budget handed down by Treasurer Jim Chalmers is a budget for the here and now. Led by substantial cost-of-living measures and a return to industry policy, and braced by immaculate inflation forecasts, the Budget has all the hallmarks of a pre-election economic narrative.
A surplus is forecast for 2023-24, before the budget balance returns to deficit in 2024-25 and beyond. Although a surplus of $9.3 billion is expected in this financial year – revised up from a -$1.1 billion deficit forecast just six months ago – the budget bottom line is forecast to be a cumulative -$13.9 billion worse off over the four years to 2026-27.
That provides an indication of the size of the spending decisions announced in the Budget. As Chart 1 shows, policy changes which increase expenditure loom large in the 2024-25 and 2025-26 financial years. Despite rhetoric, this is a relatively big spending budget, with that spending front-loaded in the near term. That presents clear risks to inflation and threatens to make the work of the Reserve Bank more difficult.
Chart 1: Contribution to change in underlying cash balance between 2023-24 MYEFO and 2024-25 Budget
Source: The Commonwealth of Australia, 2024-25 Budget
There are two clear centrepieces of the 2024-25 Budget: cost-of-living relief and investing in the Future Made in Australia policy.
Cost-of-living measures in addition to the redesigned (and already legislated) Stage 3 tax cuts include providing energy bill relief to every Australian household and one million small businesses, increasing rent support payments, reducing the cost of medicines, and committing to fund wage increases for workers across the care economy.
The Future Made in Australia policy will continue to be analysed for years to come. The Budget includes funding for significant production tax incentives to encourage investment in critical minerals and hydrogen, spending to scale up domestic solar panel and battery manufacturing, a plan to inject capital into a single quantum computing company, and a range of measures targeting clean energy and economic sovereignty outcomes.
Many of these initiatives are counter to several decades of economic orthodoxy and represent a gamble with taxpayer money. There are major risks in both design and implementation, and the outcomes – intended and unintended – are yet to fully reveal themselves. Watch this space.
Yet, there were also a number of missed opportunities. The Budget makes good strides in education and skills reform, funds long-overdue New Vehicle Efficiency standards and makes meaningful investments in mental health and suicide prevention.
But there was precious little in the way of major tax reform, some welcome but relatively modest moves on gender equality, and plenty of talk but not enough action on housing supply. The latter is evidenced by the forecast of zero growth in dwelling investment in the 2024-25 financial year in the Budget assumptions.
Overall, this Budget bakes in a lot of new spending. Not all of it represents good value of money
This is an extract from Deloitte Access Economics’ analysis of the 2024-25 Federal Budget. The full report, which discusses a range of policy areas, is available here.
This newsletter was distributed on 15th May 2024. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Cathryn Lee, Partner at Deloitte Access Economics
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