The 2022-23 federal budget will be revealed tomorrow night by Treasurer Josh Frydenberg in what the opinion polls say will be his last effort.
It is going to be an election budget – plenty of goodies – despite a big deficit – to try and hold onto office.
If the opinion polls are accurate – and they got the result of the South Australian election right (especially the big swing to the ALP) – the Morrison government is in real trouble.
So it hopes to exploit a $20 billion improvement in revenue to buy its way to retaining office. If the ALP wins the federal poll, it says it will have its own budget later in the year – around the old August timing.
The gain to the budget bottom line will underpin a Coalition budget that promises more spending on health, hospitals, aged care, mental health, schools, transport and infrastructure.
In his weekend note, the AMP’s chief economist, Shane Oliver described the budget as a “magic pudding” of more spending and lower deficits.
“The Federal 2022-23 Budget (Tuesday) is primarily expected to be about five things: the upcoming election; help for households dealing with “cost of living” pressures; increased defence spending; a shift in focus to “fiscal repair”- ie, stabilising and then reducing debt marked by spending restraint; and a budget windfall from faster growth and higher commodity prices allowing much lower budget deficit projections.
Because of the war in Ukraine our terms of trade will be higher, tax receipts will be higher than previously thought and the government will divert much of that away from reducing deficit and lowering the use of debt to trying to retain office via various ‘bribes’.
Dr Oliver sees the key elements of the budget are likely to include:
Economists think there will be an upgrade in GDP growth forecasts to 4.75% for the 2022-23 year with unemployment expected to fall to 3.5% by June next year. Headline inflation will be forecast at more than 4% before easing.
“Because it is a budget aimed for the election voters will have dangled before them financial relief to help households deal with “cost of living” pressures with a one-off payment to low- and middle-income households, a 6 month or so cut or freezing in fuel excise and a possible extension of the Low and Middle Income Tax Offset for another year,” Dr Oliver wrote.
Because the federal election will be held in early May, there will be little time to enact the relevant legislation – the Morrison government will try and force the bills through, the ALP will be hesitant seeing they think there is a chance of winning government.
Opposition leader Anthony Albanese makes his address in reply on Thursday night.
Dr Oliver says the budget will project lower budget deficits of around $80 billion this financial year and next (down from deficits of around $99 billion for both years in the December mid-year update) falling to around $40 billion by 2024-25 (down from $57.5 billion estimated last December.
“The Government’s shift towards fiscal repair over the medium term will take the form of medium-term spending restraint and a reliance on stronger growth rather than austerity.
“With tax receipts rising faster than expected there is a chance that more tax cuts will be necessary if the Government is to stick to its commitment to capping the tax to GDP ratio at 23.9%. Of course, this is just the return of bracket creep!” Dr Oliver pointed out.
Dr Oliver cautions that a key risk for the RBA “is that significant fiscal stimulus this financial year and next in the Budget will only add to its challenges in controlling inflation, resulting in the cash rate needing to increase faster than we are currently forecasting for later this year and into next year. (We currently forecast the cash rate rising to 0.75% by year end, rising to 1.5% next year.)”
