The Federal Budget is on Tuesday. Brace yourself for dollar signs and the word ‘delivering’ on loop.
What is the Federal Budget?
The Government has two big decisions to make: what to spend money on, and where to get that money.
It can make these decisions at any time, but the annual Budget is when everything comes together in one place.
We get to see the big picture: how much is the Government spending and collecting overall? And we also get to see the small picture: what specific choices has the Government made, and what’s new?
The big picture
We care about how much the Government spends and taxes overall because it tells us about the Government’s broad strategy.
If the Government spends more than it taxes, the Budget is in deficit, and the Government pays for the extra spending by taking on debt.
If the Government taxes more than it spends, the Budget is in surplus, and the Government uses the extra taxes to reduce the debt.
What’s debt? It’s the Government taking out a loan. It does so by selling a bond, a promise to repay at an agreed time with some level of interest.
People are more likely to buy bonds if they think a government is reliable, so wealthy countries like Australia find it fairly easy to access ‘cheap’ debt.
Debt isn’t bad, even though it gets a bad name. It’s just a tool to allow governments to spend today but repay tomorrow. That can be useful during a crisis, when the government has reasons to spend but doesn’t want to make people pay more taxes.
In fact, that’s a pretty good rule of thumb for how to think about debt, deficits and surpluses: when the economy is struggling, governments tend to run Budget deficits and take on more debt. When the economy is surging, governments might run surpluses, especially if they are worried they have taken on too much debt.
Finding the ‘right’ balance to suit the conditions in the economy is a subject of heated debate, which is why we take an interest in the big picture.
The small picture
But Budgets aren’t just about abstract concepts like debt, deficit, and surplus. Underneath the total amounts of spending and tax, there are thousands of small decisions: to fund one program and cut another, to raise one tax and lower another.
These ‘small’ decisions are in fact the ones we often care about the most. It’s here where the Government might decide to raise your welfare payment or fund a life-saving medical treatment (or, alternatively, to take those things away).
Dollars and sense
Budgets can contain hundreds of new spending and tax decisions, so it can be difficult to keep track, especially because the dollar amounts (a million here, a billion there) all sound big.
So here’s another rule of thumb: b is for big, m is for minor. Billions of dollars of funding can be enough to reshape an entire area of government activity. Millions of dollars of funding is not insignificant, but it’s more likely to be something on a small level, like funding a trial or a new drug.
We’ll cover the big and the small picture on Tuesday night.
We’ll do that in a series of posts, bringing the big picture together in an overview post, and splitting the smaller picture up into topic areas (health, education, welfare, etc) to make it easier to digest.