This week’s federal budget will focus on cost-of-living measures – and a more uncertain global economy

Treasurer Jim Chalmers to Bring Down Federal Budget on Tuesday

No Rabbits Out of the Hat

Australian budgets today are well signposted in advance in speeches such as this. That is deliberate. It is seen as a mark of responsible fiscal management to have few surprises, either positive or negative. In past decades, treasurers were prone to announcing surprise spending measures. No longer. The rationale for rejecting the "rabbit out of a hat" approach was spelled out by former treasurer Wayne Swan in his 2008 budget lockup press conference: he said the budget had to be "responsible." Chalmers was Swan’s deputy chief of staff at the time.

Good Luck Rather than Good Management

Not that a balanced or surplus budget is a sign of good budgeting. The driver of recent budget surpluses under both Labor and Coalition governments has not been government policy but stronger than expected commodity prices and exports. They have been accidental, not deliberate.

What to Expect in the Budget

It’s likely most of the major spending initiatives have already been announced. An extra A$8.5 billion in spending on Medicare will aim to ensure nine out of ten GP visits will be bulk billed by 2030. Queensland’s Bruce Highway is to be upgraded with the Albanese Government providing $7.2 billion of the $9 billion cost.

Bracket Creep to Do Most of the Work

Bracket creep (increases in tax revenues as taxpayers move into higher tax brackets) will do most of the work in the very gradual windback of the budget deficit. In the mid-year budget update, it was projected to take a decade to return the budget to balance.

Off-Budget Items

This is because the budget covers only the "general government sector" – public service departments and agencies and the defence force. It is not the whole of the public sector, which includes commercial or financial entities like government business enterprises, the Reserve Bank of Australia, and various funds.

Cost-of-Living Relief

In a speech last week, Chalmers promised "meaningful and substantial" cost-of-living relief. He also stressed the global economy is more volatile and unpredictable. He said the budget bottom line would be little changed from the mid-year update released in December, when the deficit was forecast to be $26.9 billion this financial year.

Conclusion

The increasing risk of a global trade war will see some reduction in forecasts for global and Australian economic growth. The OECD has lowered its forecasts for global growth and emphasised the international outlook is highly uncertain. This means the Australian budget forecasts are more likely than usual to be wrong. We just don’t know in which direction they will be wrong – will they be too optimistic or pessimistic?

FAQs

• What will be the focus of the budget?
  • The budget will focus on cost-of-living relief and spending initiatives announced in advance.
• What is the outlook for interest rates?
  • The Reserve Bank board is unlikely to feel it has enough additional information to cut interest rates again at the April 1 meeting.
• What are the potential surprises in the budget?
  • There may be "decisions taken but not yet announced" that will be revealed during the election campaign.