Budgets get a bad reputation.
Maybe it’s the name. A budget sounds like the life admin you’ve been avoiding; a dry exercise full of dollars and cents and stuff you can’t afford.
But budgets are about more than accounting. They shape almost everything the Government does, and they’re our best chance to assess how we’re being governed. Let’s explore the 2022 Federal Budget.
First thing’s first: What is the Budget?
If the Government plans to do anything that requires money, it must be included in a Budget.
That encompasses a range of things, from the obvious (health, defence) to the obscure (the eradication of Crazy Yellow Ants). Election promises – such as the proposed anti-corruption commission – are just words until they’re funded in a Budget.
This makes the Budget a reflection of the Government’s political priorities. A cynic might say it’s how the Government buys our votes. Someone less cynical might say it’s how the people we elect follow through on what we elected them for. The truth is probably somewhere in between.
The key word here is priorities. Governments have to prioritise because they face two constraints that stop them from doing everything they want.
First, there’s the financial constraint: every dollar the Government spends it must either collect from us (taxes) or borrow (debt). Second, there’s the political constraint: governments have to be careful not to stray from the public’s expectations if they want to survive.
Spending pressures on the Budget are growing
That’s not an easy balance, and Australia’s Budget situation reflects that difficulty. On the one hand, we’re expecting more and more from our Government. There is strong public support for spending on health care, aged care, disability care, education, and defence.
Some of these things are becoming more expensive, too. Take health and aged care: the better care we provide, the longer we live, which means we require even more care. Add worker shortages and concerns about quality into the mix and you end up with a large, ever-growing bill. When the Treasurer talks about “spending pressures”, this is what he means.
Raising more tax has been difficult
On the other hand, the politics of raising money are often fraught.
We saw an example of this earlier in the month when the Opposition accused the Government of a ‘broken promise’ after the Treasurer said he wanted to have a ‘conversation’ about tax.
The source of the controversy was the ‘Stage 3’ tax cuts, a Coalition policy that Labor initially criticised but ultimately promised to support. Once it takes effect in 2024, it will take more money out of the Budget each year than the Government spends on medicines.
But the tricky politics of tax has a long history – the last time a Government successfully implemented a major new tax was the Howard Government, when it introduced the GST in 2000. The years since have left us with a large gap between spending and tax.
To fill that gap, governments have taken on more debt – now almost a trillion dollars.
Debt is a normal part of life for governments, and it can be a useful tool if it’s used to make the country richer in the long term, or to guide it through difficult patches in the short term. And Australia’s debt levels are low by global standards, even if a trillion sounds like a lot.
Still, countries that rely on too much debt for too long can find themselves in precarious positions. If the gap between spending and tax keeps growing, it may force governments to make difficult decisions: either to raise more tax, or to make unpopular spending cuts.
So what should we expect from the 2022 Federal Budget?
This week, though, we’re not expecting any surprises. The new Government has hinted it will use its first Budget to enact its election policies, and that there won’t be much beyond this apart from the expanded paid parental leave announced last week.
Scrapping the Stage 3 tax cuts has been ruled out. So has lifting the JobSeeker unemployment payment, which the Government says it supports but “can’t afford”.
But it’s important to remember budgets aren’t black and white: in the end, it’s a question of priorities. When I head to Parliament House on Tuesday to hear what’s in the 2022 Federal Budget, it’s those priorities I’ll be listening out for.
