Election timing or economic necessity? Why another budget might be on the cards

Jim Chalmers’ March budget was aimed at relieving cost of living pressures.  Anyone might think an election was due soon. 

Some of the key measures such as increased Medicare funding and cheaper prescriptions had already been announced — but the budget announced them again. 

They were accompanied by tax cuts for all Australian taxpayers — one of the few surprises in a budget that had been comprehensively foreshadowed in advance.  They are being implemented by reducing the lowest tax threshold, which applies to incomes between $18,200 and $45,000. It will fall from the current 16% rate to 15% in 2026-27 and 14% in 2027-28, delivering cuts of $268 and $536 in those years. 

It is not a huge cut.  In essence all it does is return bracket creep (where taxes rise as people move from lower to higher thresholds) for a few years. The tax cuts were described by the Treasurer as “modest but meaningful”.  They are attracting considerable commentary largely because they are new, not because they will make a big difference in the long run.  

They are, however, expensive, at $17 billion over the forward estimates, because they apply to everyone. Even high-income earners pay tax at lower brackets as well — so the tax cuts are spread across a broad base.

The timing is deliberately slow. The cuts kick in after the energy rebate ceases, and are spread over two years, so as not to put pressure on inflation. The government clearly wants the Reserve Bank to keep reducing interest rates, and that will only happen if inflation is within its target band of between 2% and 3%.

The Australian Council of Social Service criticised the tax cuts because, by definition, they give money to all taxpayers including the rich, nothing to people earning less than $18,200 a year or unemployed and reliant on Jobseeker allowance. It reflects the sad and hard-nosed electoral mathematics — many more marginal voters pay tax than are on Jobseeker. 

It would have been better to reform the tax system.  The current and previous governments have had a blueprint for doing this —  the Henry tax review. That report has been sitting on the bookshelf largely unimplemented since 2010. Even doing half of what was recommended would set us up for a fairer and more sustainable budget.  

It is only the tip of a large iceberg of unfinished business that the government could attend to in future budgets and that the public service could advise on and implement. 

These include a crackdown on illicit tobacco. The public service has known for years that illegal tobacco was undercutting revenue collection from excise on legal tobacco. That was revealed starkly in the budget, and finally, media commentators are noticing. 

It is unfair to criticise this budget for what’s not in it. It is framed in the election context. It is restrained and unambitious. There are handouts, but not many by the standards of past pre-election budgets. There are few big reforms to frighten voters. 

That leaves much to be done in future budgets. This budget does mention some of the challenges facing the public service — cracking down on illegal tobacco, reform of higher education, finishing off the national broadband network — but fails to mention others. 

For example, both business and environment groups, for different reasons, are calling for updates to the 25-year-old environment protection and biodiversity conservation.  Reforms had been planned but were put on hold last year.   Although not implemented this budget, at some stage welfare reforms to address the inadequacy of Jobseeker will be needed — ideally not in isolation but as part of a broader consideration of the tax and welfare system; while the government has tried to address the cost blowouts in the national disability insurance scheme,  more work is needed to improve its integrity; as natural disasters hit Australia with increasing frequency and severity, there will be more pressure for meaningful action beyond the energy transition to deal with climate change; and there are many others.

There is thus no shortage of measures that could be implemented in a future budget.

Veteran journalist Michelle Grattan has suggested we will need another budget after the election. That would be an opportunity to consider some of these bigger-picture reforms. 

Whether we will need another budget depends on a range of factors.

Should there be a change of government, the new government will almost certainly want another budget that reflects its own priorities and scraps the programs of the previous government with which it disagrees.

In the event the Albanese government is returned, or we have a hung parliament, there would be less of a political imperative for a new budget but there might be an economic one, if the global economy takes a nosedive. That could happen if the Trump government’s tariffs spark a global trade war, if China’s efforts to stimulate its domestic economy fail, or if international conflicts cannot be resolved or escalate. These would mean a recasting of the budget economic forecasts and require new strategies to respond. 

All troubles come with opportunities. If global events force a new budget, the opportunity that would arise is for a newly elected or re-elected government to pursue fundamental reforms to improve productivity, living standards and social cohesion.