Peter Law: Jim Chalmers wants economic conversation but is short on answers

The Albanese Government’s first Budget served three functions: to deliver on election commitments, spell out the magnitude of the fiscal challenges it faces and start a national conversation about spending priorities.

The first of these tasks is partly complete, with funding shifted to Labor’s priority areas such as cheaper childcare and prescription medicines, expanded paid parental leave and more affordable housing.

But the big election promises that were always outside the direct control of government — cheaper energy prices and higher wages — already look like millstones around Jim Chalmers’ neck.

Inflation will outstrip wage rises for the next year, while a vow to cut (east coast) power bills by $275 appears dead in the water after electricity prices were forecast to rise 50 per cent across two years.

The usually unflappable Chalmers made his only gaffe of Budget week on Wednesday when he was asked by a journalist whether Australians should expect their power bills to fall by $275.

“Yes, it’s in the Budget,” Chalmers replied at the National Press Club event before having to sheepishly correct the record in Parliament soon after when pressed by the Opposition on this claim.

“I misheard the question,” he told Question Time in a rare misstep from the Queenslander.

The Federal Treasurer was most comfortable when spelling out the gravity of the fiscal situation he and Albanese now preside over.

He wants Australians to understand there are five unavoidable spending pressures — debt repayments, the National Disability Insurance Scheme, defence, aged care and health.

The fastest growing expense is interest payments on the circa $1 trillion in gross debt run up during the pandemic, which was expected to cost $18.9b this year and soar to $32.6b by 2025-26.

“This is why we can’t add unnecessarily to debt, because it costs a bomb to service,” Chalmers said, in what served as a warning about Australia’s capacity to respond to future economic shocks.

The NDIS, a legacy from Labor’s last term of government that supports half a million people, is the second fastest growing payment and the second most expensive social program after the aged pension.

The Budget forecast the cost of the NDIS to increase by an average 13.8 per cent a year, driven by a bigger than expected growth in participants and support costs.

About $35b in taxpayers’ money will go toward the disability scheme this year and that jumps to $51.8b by 2025-26. At that rate, the NDIS could cost more than $100 billion a year by the end of the decade.

Albanese revealed he’d already flagged with State premiers including Mark McGowan that the NDIS needed to be a “co-operative arrangement”, highlighting that “largely, all of the heavy lifting falls on the Commonwealth”

Defence funding ($49 billion) was in-line with what Labor inherited from the Coalition, rising to above 2 per cent of GDP across the forward estimates.

The Government is keeping its powder dry on announcing major new investments in defence until after it receives the findings of the defence strategic review from Stephen Smith and Angus Houston.

The review, due early next year, is expected to reshape the defence forces — and if WA gets its way that could mean more troops, fighter planes and missile defence systems in the west.

Chalmers pleased economists by resisting short-term sugar hits to address the rising cost-of-living, mounting an easy-to-understand argument that this risked “making inflation even worse”.

He was far less convincing when pressed on what “hard decisions” he would consider in the lead-up to the next Budget, less than seven months away, to address the structural deficit.

“We made a good start I think,” Chalmers said. “We made some savings, we showed spending restraint, we made targeted investments and we made some tax changes as well.”

Chalmers continues to tease about the prospect of tax reform but gives very little away about what’s actually on the table.

On Wednesday he ruled out an increase to the GST, stuck to the line that Labor’s commitment to the stage three tax cuts for higher income earners remains unchanged and expressed his support for a Treasury review of the Petroleum Resource Rent Tax.

If Chalmers truly wants Australians engaged in a “national conversation” he’s going to have to start providing detailed answers to the challenges his Budget this week outlined — and hopefully that’s sooner rather than later.